UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission File No. 0-25148
GLOBAL PAYMENT TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-2974651
- --------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
425B OSER AVENUE, HAUPPAUGE, NEW YORK 11788
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(631) 231-1177
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
--- --
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES NO X
--
Shares of Common Stock outstanding on August 5, 2004 5,601,766
---------
GLOBAL PAYMENT TECHNOLOGIES, INC.
INDEX
PART I. FINANCIAL INFORMATION
- ------- ---------------------
PAGE NUMBER
Item 1. Financial Statements -----------
Condensed Consolidated Balance Sheets - June 30, 2004 (unaudited)
and September 30, 2003 3
Condensed Consolidated Statements of Operations - Nine Months ended
June 30, 2004 and 2003 (unaudited) 4
Condensed Consolidated Statements of Operations - Three Months ended
June 30, 2004 and 2003 (unaudited) 5
Condensed Consolidated Statements of Cash Flows - Nine Months ended
June 30, 2004 and 2003 (unaudited) 6
Notes to Condensed Consolidated Financial Statements (unaudited) 7 - 12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13 - 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Item 4. Controls and Procedures 19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 20
2
GLOBAL PAYMENT TECHNOLOGIES, INC.
---------------------------------
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
June 30, September 30,
2004 2003
-------- -------------
(Unaudited)
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 1,853 $ 1,220
Accounts receivable, less allowance for doubtful accounts
of $259 and $234, respectively 2,196 2,175
Accounts receivable from affiliates 3,192 4,108
Inventory 3,147 3,499
Prepaid expenses and other current assets 315 64
Income taxes receivable 100 211
-------- --------
Total current assets 10,803 11,277
Property and equipment, net 2,289 2,617
Investments in unconsolidated affiliates 1,697 1,722
Capitalized software costs, net 1,758 2,159
-------- --------
Total assets $ 16,547 $ 17,775
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current portion of long-term debt, net of discount $ 197 --
Bank debt -- $ 1,793
Accounts payable 2,559 2,424
Accrued expenses and other current liabilities 1,299 1,881
-------- --------
Total current liabilities 4,055 6,098
Long-term debt, net of discount 1,375 --
-------- --------
Total
Liabilities 5,430 6,098
Shareholders' equity:
Common Stock, par value $0.01; authorized 20,000,000 shares;
issued and outstanding 5,880,750 and 5,829,500, respectively 59 58
Additional paid-in capital 10,800 9,843
Retained earnings 1,166 2,973
Accumulated other comprehensive income 591 302
-------- --------
12,616 13,176
Less: Treasury stock, at cost, 278,984 shares (1,499) (1,499)
-------- --------
Total shareholders' equity 11,117 11,677
-------- --------
Total liabilities and shareholders' equity $ 16,547 $ 17,775
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
GLOBAL PAYMENT TECHNOLOGIES, INC.
---------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(UNAUDITED)
NINE MONTHS ENDED JUNE 30,
--------------------------------
2004 2003
---------- ---------
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
Net sales
Affiliates $ 5,430 $ 10,609
Non-affiliates 11,691 9,771
----------- -----------
17,121 20,380
Cost of sales 13,611 16,678
----------- -----------
Gross profit 3,510 3,702
Operating expenses 5,258 6,843
----------- -----------
Loss from operations (1,748) (3,141)
Other (expense) income:
Equity in income of unconsolidated affiliates 98 387
Gain on sale of investment in unconsolidated affiliate 78 --
Interest expense, net (224) (212)
----------- -----------
Total other (expense) income, net (48) 175
----------- -----------
Loss before provision for (benefit from) income taxes (1,796) (2,966)
Provision for (benefit from) income taxes 11 (1,141)
Net loss ($1,807) ($1,825)
=========== ===========
Net loss per share:
Basic ($.33) ($.33)
=========== ===========
Diluted ($.33) ($.33)
=========== ===========
Common shares used in computing net loss per share amounts:
Basic 5,569,876 5,543,161
=========== ===========
Diluted 5,569,876 5,543,161
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
GLOBAL PAYMENT TECHNOLOGIES, INC.
-----------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
2004 2003
----------- ----------
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
Net sales
Affiliates $ 2,971 $ 3,565
Non-affiliates 4,105 3,783
----------- ----------
7,076 7,348
Cost of sales 5,406 6,159
----------- ----------
Gross profit 1,670 1,189
Operating expenses 1,601 2,166
----------- ----------
Income (loss) from operations 69 (977)
Other (expense) income:
Equity in (loss) income of unconsolidated affiliates (30) 45
Gain on sale of investment in unconsolidated affiliate -- --
Interest expense, net (147) (57)
----------- ----------
Total other (expense) income, net (177) (12)
----------- ----------
Loss before benefit from income taxes (108) (989)
Benefit from income taxes -- (362)
----------- ----------
Net loss ($108) ($627)
=========== ==========
Net loss per share:
Basic ($.02) ($.11)
=========== ==========
Diluted ($.02) ($.11)
=========== ==========
Common shares used in computing net loss per share amounts:
Basic 5,598,747 5,549,491
=========== ==========
Diluted 5,598,747 5,549,491
=========== ==========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
GLOBAL PAYMENT TECHNOLOGIES, INC.
-----------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED)
-----------
NINE MONTHS ENDED JUNE 30,
--------------------------
2004 2003
----------- ----------
(DOLLAR AMOUNTS IN THOUSANDS)
OPERATING ACTIVITIES:
Net loss ($1,807) ($1,825)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Equity in income of unconsolidated affiliates (98) (387)
Gain on sale of investment in unconsolidated affiliate (78) --
Depreciation and amortization 1,177 1,083
Provision for losses on accounts receivable 51 63
Provision for inventory obsolescence 135 180
Deferred income taxes -- (883)
Changes in operating assets and liabilities:
Increase in accounts receivable (72) (406)
Decrease (increase) in accounts receivable from affiliates 972 (363)
Decrease in inventory 217 1,113
(Increase) decrease in prepaid expenses and other assets (276) 31
Decrease in income taxes receivable 111 710
Increase in accounts payable 260 851
Decrease in accrued expenses and other current liabilities (582) (15)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10 152
------- -------
INVESTING ACTIVITIES:
Purchases of property and equipment (291) (361)
Proceeds from sale of investment in unconsolidated affiliate 154 1,877
Distributions from unconsolidated affiliates 206 21
Investments in unconsolidated affiliates (51) (323)
------- -------
NET CASH PROVIDED BY INVESTING ACTIVITIES 18 1,214
------- -------
FINANCING ACTIVITIES:
Net repayments of note payable from bank (1,793) (1,418)
Proceeds from issuance of convertible debt 2,250 --
Proceeds from the exercise of stock options 148 60
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 605 (1,358)
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 633 8
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,220 1,604
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,853 $ 1,612
======= =======
CASH PAID DURING THE PERIOD FOR:
Interest $ 92 $ 212
======= =======
Income taxes $ 0 $ --
======= =======
NON-CASH FINANCING ACTIVITIES
Tax benefit from exercise of stock options $ -- $ 22
======= =======
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
Global Payment Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2004
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial statements
of Global Payment Technologies, Inc. (the "Company"), including the September
30, 2003 consolidated balance sheet which has been derived from audited
financial statements, have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The operating results for
the nine-month period ended June 30, 2004 are not necessarily indicative of the
results that may be expected for the fiscal year ending September 30, 2004. We
recommend that you refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
September 30, 2003.
NOTE B - EMPLOYEE STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," allows the fair value of stock-based compensation to
be included in expense over the period earned; alternatively, if the fair value
of stock-based compensation awards is not included in expense, SFAS 123 requires
disclosure of net income (loss), on a pro forma basis, as if expense treatment
had been applied. As permitted by SFAS 123, the Company continues to account for
such compensation under Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations, pursuant to which
no compensation cost has been recognized in connection with the issuance of
stock options, as all options granted under the Company's stock option plans had
an exercise price equal to or greater than the market value of the underlying
common stock on the date of the grant. Had the Company elected to recognize
compensation expense for the stock option plan, consistent with the method
prescribed by SFAS 123, the Company's net loss for the periods presented would
have increased to the pro forma amounts as follows:
Three Months Ended Nine Months Ended
JUNE 30 JUNE 30
------- -------
2004 2003 2004 2003
--------- --------- -------- -------
(Unaudited)
(In thousands, except per share data)
Net (loss), as reported ($ 108) ($ 627) ($1,807) ($1,825)
Deduct: Total stock-based employee compensation expense
determined under fair value method for all awards,
net of related tax effects (120) (2) (377) (292)
Pro forma net (loss) ($ 228) (629) ($2,184) ($2,117)
(Loss) per common share:
Basic and Diluted- as reported ($ .02) ($ .11) ($ .33) ($ .33)
Basic and Diluted - pro forma ($ .04) ($ .11) ($ .39) ($ .38)
NOTE C - FINANCING AND LIQUIDITY
On March 16, 2004, the Company received aggregate proceeds of $1,500,000 from
the sale to Laurus Master Fund Ltd. ("Laurus") of a $1,500,000 principal amount
secured convertible term note due in March 2007 (the "CTN"),
7
Global Payment Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2004
pursuant to a Securities Purchase Agreement. The CTN is convertible into common
stock of the Company at any time at the rate of $4.26 of principal for one share
of common stock and is collateralized by substantially all assets of the
Company. The note provides for monthly principal payments of $25,000 from July
2004 to March 2005, $45,000 from April 2005 to September 2005 and $55,833 from
October 2005 to March 2007. Interest is payable monthly at the prime rate plus
1.5%, with a minimum rate of 6%. In addition, Laurus received 7 year warrants to
purchase an aggregate of 200,000 shares of the Company's common stock at prices
of $4.87, $5.28 and $5.68 for 100,000, 60,000 and 40,000 warrants, respectively.
The Company utilized approximately $1,200,000 of the proceeds to repay amounts
outstanding under a previous credit agreement.
The value allocated to the warrants resulted in a debt discount of $506,000 that
is being recognized as interest expense over the term of the note. Additionally,
by allocating value to the warrants, Laurus received a beneficial conversion
feature in the amount of $304,000 that resulted in additional debt discount that
is being recognized as interest expense over the term of the note. Interest
expense is computed utilizing the interest method, which results in an effective
yield over the term of the note. For the three months and nine months ended June
30, 2004, amortization expense was $113,000 and $132,000, respectively. As of
June 30, 2004, the unamortized debt discount amounted to approximately $678,000.
Amortization of debt discount for the next four fiscal quarters will approximate
$110,000, $105,000, $100,000 and 90,000, which will be charged to operations. In
the event that the CTN, or any portion of the CTN, is converted prior to
maturity, the unamortized discount related to the amount converted will be
immediately recognized as interest expense and charged to operations.
On March 16, 2004, the Company also entered into a Security Agreement with
Laurus which provides for a credit facility of $2,500,000 consisting of a
secured revolving note of $1,750,000 (the "RN") and a secured convertible
minimum borrowing note of $750,000 (the "MBN"), both due in March 2007 (both
notes collectively referred to as the "LOC"). At closing, the Company borrowed
$750,000 under the MBN. Funds available under the LOC are determined by a
borrowing base equal to 85% and 70% of eligible domestic and foreign accounts
receivable, respectively, and 50% of eligible inventory. Outstanding amounts
under the RN and MBN are convertible into common stock of the Company at any
time at the rate of $4.26 of principal for one share of common stock and are
collateralized by substantially all assets of the Company. Interest is payable
monthly at the prime rate plus 1.5%, with a minimum rate of 6%. At June 30,
2004, the Company has $1,750,000 available under the RN.
Summary of outstanding debt to Laurus as of June 30, 2004 is as follows:
(In thousands)
Total debt: $2,250
Less debt discount (678)
------
Net 1,572
Less current portion (197)
------
Long term debt $1,375
------
The Company's capital requirements consist primarily of those necessary to
continue to expand and improve product development and manufacturing
capabilities, sales and marketing operations and interest and principal payments
on the Company's indebtedness. A significant portion of the Company's cash
balance in the amount of $746,000 and $774,000, as of June 30, 2004 and
September 30, 2003, respectively consists of currency used to test the Company's
products and, although it could be available, it is not anticipated to be
utilized for working capital purposes in the normal course of business. The
Company has initiated outsourcing some of its manufactured product in an effort
to improve gross margin percentages as well as its cash flow. In addition the
Company expects to realize cost savings from its cost reduction initiatives
completed in December 2003. As a result of these savings and the funds available
under the credit facility with Laurus, the Company believes that
8
Global Payment Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2004
its available resources should be sufficient to meet its obligations as they
become due and permit continuation of its planned product development and
operations for the next 12 months.
NOTE D - INVENTORY
The following is a summary of the composition of inventory:
June September
30, 2004 30, 2003
---------- ----------
Raw Materials $1,447 $1,725
Work-in-process 842 787
Finished goods 858 987
------ ------
$3,147 $3,499
------ ------
NOTE E - SUPPLEMENTAL CASH FLOW INFORMATION
A significant portion of the Company's cash balance in the amount of $746,000
and $774,000, as of June 30, 2004 and September 30, 2003, respectively consists
of currency used to test the Company's products, and although it could be
available, it is not anticipated to be utilized for working capital purposes in
the normal course of business. Translation gains or losses on foreign currency
amounts used for test purposes are included in operating loss.
NOTE F - MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities, at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Among the more significant estimates included in
the consolidated financial statements are the allowance for doubtful accounts,
recoverability of inventory, deferred income taxes, capitalized software and
provisions for warranties. Actual results could differ from those estimates.
NOTE G - COMPREHENSIVE INCOME
Comprehensive income is the total of net income and all other non-owner changes
in equity (or other comprehensive income) such as unrealized gains/losses on
securities classified as available-for-sale, currency translation adjustments
and minimum pension liability adjustments. For the three and nine months ended
June 30, 2004 and 2003, the Company's comprehensive losses were as follows:
THREE MONTHS ENDED 6/30/04 NINE MONTHS ENDED 6/30/04
2004 2003 2004 2003
(in thousands) ------- ------ ------- --------
Net (loss) $(108) $(627) ($1,807) ($1,825)
Other comprehensive
(loss) income (a) (89) 177 289 191
----- ----- ------- --------
Comprehensive (loss) $(197) $(450) $(1,518) $(1,634)
===== ===== ======= ========
(a) Consisting of cumulative translation adjustments related to the Company's
investments in affiliates.
9
Global Payment Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2004
NOTE H - NET LOSS PER COMMON SHARE
Earnings (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding for the period. Net income
(loss) per common share amounts assuming dilution ("diluted EPS") is computed by
reflecting the potential dilution from the exercise of stock options, stock
warrants and convertible debt.
A reconciliation between the numerators and denominators of the basic and
diluted EPS computations for net (loss) appears below:
NINE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, 2004 JUNE 30, 2003
(IN THOUSANDS, EXCEPT PER SHARE DATA) (IN THOUSANDS, EXCEPT PER SHARE DATA)
---------------------------------------- -----------------------------------------
NET (LOSS) SHARES PER SHARE NET (LOSS) SHARES PER SHARE
NUMBERATOR DENOMINATOR AMOUNTS (NUMERATOR) (DENOMINATOR) AMOUNTS
------------ ------------ ----------- ----------- ------------ -------------
Net (loss) ($1,807) ($1,825)
BASIC EPS
- ---------
Net (loss) attributable to (1,807) 5,569.9 ($ .33) (1,825) 5,543.2 ($ .33)
Common stock
EFFECT OF DILUTIVE SECURITIES
- -----------------------------
Stock options, warrants and
convertible debt -- -- -- -- -- --
------- -------- -------- ------- ------- --------
DILUTED EPS
- -----------
Net (loss) attributable to Common
Stock and assumed option and warrant
exercises ($1,807) 5,569.9 ($ .33) ($1,825) 5,543.2 ($ .33)
======== ======== ======= ======= ======= =======
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 2004 JUNE 30, 2003
(IN THOUSANDS, EXCEPT PER SHARE DATA) (IN THOUSANDS, EXCEPT PER SHARE DATA)
---------------------------------------- -----------------------------------------
NET (LOSS) SHARES PER SHARE NET (LOSS) SHARES PER SHARE
NUMBERATOR DENOMINATOR AMOUNTS (NUMERATOR) (DENOMINATOR) AMOUNTS
------------ ------------ ----------- ----------- ------------ -------------
Net (loss) ($108) ($627)
BASIC EPS
- ---------
Net (loss) attributable to (108) 5,598.7 ($ .02) (627)
5,549.5 ($ .11)
Common stock
EFFECT OF DILUTIVE SECURITIES
- -----------------------------
Stock options, warrants and
convertible debt -- -- -- -- -- --
------- -------- -------- ------- ------- --------
DILUTED EPS
- -----------
Net (loss) attributable to Common
Stock and assumed option and warrant
exercises ($108) 5,598.7 ($ .02) ($ 627) 5,549.5 ($ .11)
======== ======== ======= ======= ======= =======
Securities that could potentially dilute basic earnings per share in the future
that were not included in the computation of diluted loss per share because to
do so would have been antidilutive consist of 1,415,000 shares of common stock
issuable pursuant to outstanding options, warrants and convertible debt for the
three and nine-month periods ended June 30, 2004 and 299,800 shares of common
stock issuable pursuant to outstanding options for the three and nine-month
periods ended June 30, 2003.
10
Global Payment Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2004
NOTE I - ACCOUNTS RECEIVABLE AND SALES DATA FOR UNCONSOLIDATED AFFILIATES
Net sales to unconsolidated affiliates and accounts receivable
from unconsolidated affiliates for the respective periods are as
follows:
NET SALES TO AFFILIATES
-------------------------
THREE MONTHS ENDED
-------------------------
6/30/04 6/30/03
---------- ---------
Australia $ 2,971 $ 3,502
Abacus-UK -- --
South Africa -- 63
------------ ---------
Total $ 2,971 $ 3,565
============ =========
NET SALES TO AFFILIATES
-------------------------
NINE MONTHS ENDED
-------------------------
6/30/04 6/30/03
------------ ---------
Australia $ 5,112 $ 10,139
Abacus-UK -- --
South Africa 318 470
------------ ---------
Total $ 5,430 $ 10,609
============ ==========
ACCOUNTS RECEIVABLE FROM AFFILIATES AS OF
---------------------------------------------------------------------
June 30, 2004 Sept. 30, 2003
------------------------------------------- ----------------------
Australia $3,192 $3,872
Abacus-UK -- 148
South Africa -- 88
---------------------- --------------------- ----------------------
Total $3,192 $4,108
====================== ===================== ======================
Effective January 15, 2004, the Company's remaining interest in its South Africa
affiliate was sold and as such is no longer an affiliate. Sales through January
14, 2004 are included in the affiliate sales data. Accounts receivable from
affiliates at June 30, 2004 exclude amounts from such affiliate.
NOTE J - SUMMARY FINANCIAL INFORMATION FOR UNCONSOLIDATED INVESTEES
Summarized financial information for GPT Australia and eCash, in which the
Company owns a 50% and 35% non controlling interest, respectively, is as
follows:
All figures are in U.S. dollars (in thousands).
NINE MONTHS ENDED
MARCH 31, 2004
----------------
Net sales $10,765
Operating income 358
Net income 308
11
Global Payment Technologies, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2004
AS OF MARCH 31, 2004
---------------------
Current assets $7,180
Non-current assets 163
Current liabilities 3,479
Non-current liabilities --
Net assets 3,864
NOTE K - RECENTLY ISSUED ACCOUNTING STANDARDS
In August 2003, the Emerging Issues Task Force (EITF) reached a consensus on
Issue No. 03-05 "Applicability of AICPA Statement of Position (SOP) 97-2 to
Non-Software Deliverables in an Arrangement Containing More-Than-Incidental
Software", that in an arrangement that includes software that is more than
incidental to the products or services as a whole, software and software-related
elements are included within the scope of SOP 97-2. Software-related elements
include software products and services as well as any non-software
deliverable(s) (including hardware) for which software deliverable is essential
to its functionality. The Company adopted the provisions of this statement
effective October 1, 2003, and the adoption did not have any effect on the
Company's consolidated financial statements.
Financial Accounting Standards Board (FASB) Interpretation No. 46 (revised
December 2003), "Consolidation of Variable Interest Entities" addresses how a
business should evaluate whether it has a controlling financial interest in an
entity. The Company does not believe that it has any involvement with variable
interest entities that require it to consolidate under FASB Interpretation No.
46.
In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity". SFAS 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. The provisions of SFAS 150 are effective
for (1) instruments entered into or modified after May 31, 2003, and (2)
pre-existing instruments as of July 1, 2003. In November 2003, through the
issuance of FSP 150-3, the FASB indefinitely deferred the effective date of
certain provisions of SFAS 150, including mandatorily redeemable instruments as
they relate to minority interests in consolidated finite-lived entities. The
adoption of SFAS 150, as modified by FSP 150-3, did not have a material effect
on the Company's consolidated financial statements.
NOTE L - WARRANTY OBLIGATIONS
The Company recognizes the estimated cost associated with its standard warranty
on products at the time of sale. The estimate is based on historical failure
rates and current claim cost experience. The following is a summary of the
changes in the Company's accrued warranty obligation (which is included in
accrued expenses) for the period October 1, 2003 through June 30, 2004:
Beginning Balance as of October 1, 2003 $ 347,000
Deduct: Payments (201,000)
Add: Provision 113,000
---------
Ending Balance as of June 30, 2004 $ 259,000
=========
12
Global Payment Technologies, Inc.
June 30, 2004
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 2004 COMPARED WITH NINE MONTHS ENDED JUNE 30, 2003
SALES
Net sales decreased by 16.0%, or $3,259,000, to $17,121,000 in the nine months
ended June 30, 2004 as compared with $20,380,000 in the comparative prior-year
period. This decrease was primarily due to $5.0 million in lower sales of the
Company's gaming products to its Australian affiliate, offset in part by a $1.0
million increase in sales of the Company's Aurora product to both the vending
and gaming markets, and a $600,000 increase in sales to the South African gaming
market. Gaming sales for the nine months ended June 30, 2004 were $12,835,000,
or 75.0% of sales, as compared with $16,282,000, or 79.9% of sales, in the prior
year period. Beverage and vending sales for the nine months ended June 30, 2004
were $4,286,000, or 25.0% of sales, as compared with $4,098,000, or 20.1 % of
sales, in the prior year period.
GROSS PROFIT
Gross profit decreased to $3,510,000, or 20.5% of net sales, in the nine months
ended June 30, 2004 as compared with $3,702,000, or 18.2% of net sales, in the
comparative prior-year period. For the nine months ended June 30, 2004, indirect
costs were reduced by approximately $285,000 due to cost reduction initiatives
completed in December 2003, however as a percentage of sales it had no impact
due to the sales decrease of 16.0% noted above and the related reduction in
production. The increase in gross profit, as a percentage of sales, was
primarily the result of improvements in margins on the Company's Aurora product,
which in the nine months ended June 30, 2003 had significant startup costs,
including higher purchase costs as well as less efficient manufacturing. The
Company is continuing its efforts to further reduce costs and to improve the
margin on its Aurora product. However, until such time as these benefits are
substantially realized, the margins in the future will continue to be affected
by the mix of products as well as sales volumes.
OPERATING EXPENSES
Operating expenses decreased to $5,258,000, or 30.7% of sales, in the nine
months ended June 30, 2004 as compared with $6,843,000, or 33.6% of sales, in
the comparative prior-year period. This decrease of $1,585,000 is primarily the
result of the Company's completion of its cost reduction initiatives completed
in December 2003 which consisted primarily of employee and employee related
expenses.
INCOME TAXES
With respect to the provision (benefit) for income taxes, the effective rate was
a provision of .6% as compared to a benefit of 38.5% in the prior-year period.
The change in the effective rate is primarily due to operating losses in the
nine months ended June 30, 2004 for which no benefit has been recognized. The
Company has provided a full valuation allowance against its deferred income tax
assets in the fourth quarter of fiscal 2003, and continues to provide a full
valuation allowance at June 30, 2004, due to the Company's continued losses and
the uncertainty as to the Company's ability to generate sufficient taxable
income to realize the full value of those net assets. The valuation allowance is
subject to adjustment based upon the Company's ongoing assessment of its future
taxable income and may be wholly or partially reversed in the future.
NET LOSS
Net loss for the nine months ended June 30, 2004 was ($1,807,000), or ($0.33)
per share, as compared with ($1,825,000), or ($0.33) per share, in the
comparative prior-year period. In addition to its operations, the Company owns
interests in unconsolidated affiliates in Australia, South Africa and the United
Kingdom, all of which are accounted for using the equity method, except for
South Africa which effective April 2003 was accounted for on a cost basis. On
January 15, 2004 the Company sold its remaining 5% ownership interest in South
Africa. Included in the results of operations for the nine months ended June 30,
2004 and 2003 are the Company's share of net
13
Global Payment Technologies, Inc.
June 30, 2004
profits of these affiliates of $98,000 and $387,000, respectively, which
includes $55,000 and $185,000, respectively, of the Company's proportionate
share of the related gross profit on product sales to its affiliates which have
been sold by the affiliates to third party end users. Excluding this
intercompany gross profit adjustment, the Company's share of net income of these
unconsolidated affiliates was $43,000 and $202,000 for the nine months ended
June 30, 2004 and 2003, respectively. Such decrease was primarily due to lower
profits at the Company's Australian affiliates. In addition, on January 15,
2004, the Company sold its remaining 5% ownership interest in its investment in
its South African affiliate and recognized a gain on the sale of $78,000.
Included in interest expense is a non-cash charge of $132,000 related to the
amortization of debt discount on the Company's $1.5 million secured convertible
term note which arose from allocating value to the 200,000 warrants issued
pursuant to the Securities Purchase Agreement and the resulting beneficial
conversion feature. This amount represents amortization expense for the period
March 16, 2004 through June 30, 2004 (see Note C to the Condensed Consolidated
Financial Statements).
THREE MONTHS ENDED JUNE 30, 2004 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2003
SALES
Net sales decreased by 3.7%, or $272,000, to $7,076,000 in the three months
ended June 30, 2004 as compared with $7,348,000 in the comparative prior-year
period. This sales decrease was due to $220,000 less sales to the gaming market
and $52,000 less sales to the beverage and vending market. Gaming sales for the
three months ended June 30, 2004 was $5,070,000, or 71.7% of sales, as compared
with $5,290,000, or 72.0% of sales, in the prior year period. Beverage and
vending sales for the three months ended June 30, 2004 were $2,006,000, or 28.3%
of sales, as compared with $2,058,000, or 28.0 % of sales, in the prior year
period.
GROSS PROFIT
Gross profit increased to $1,670,000, or 23.6% of net sales, in the three months
ended June 30, 2004 as compared with $1,189,000, or 16.2% of net sales, in the
comparative prior-year period. For the three months ended June 30, 2004,
indirect costs were reduced by approximately $160,000 due to cost reduction
initiatives completed in December 2003. The increase in gross profit, as a
percentage of sales, was primarily the result of improvements in margins on the
Company's Aurora product, which in the quarter ended June 30, 2003 had
significant startup costs, including higher purchase costs as well as less
efficient manufacturing. Historically, the Company's gross profit as a
percentage of sales for the quarters ended June 2003, September 2003, December
2003, March 2004 and June 2004, were 16.2%, 7.5% (which included an increased
inventory writedown based upon management's decisions to discontinue and
transition from earlier generation products), 18.8%, 17.9% and 23.6%,
respectively. While the Company has executed product cost reductions, and
continues to further reduce costs to improve the margin on its Aurora product,
as well as other products, until such time as these benefits are substantially
realized the margins in the future will continue to be affected by the mix of
products as well as sales volumes.
OPERATING EXPENSES
Operating expenses decreased to $1,601,000, or 22.6% of sales, in the three
months ended June 30, 2004 as compared with $2,166,000, or 29.5% of sales, in
the comparative prior-year period. This decrease of $565,000 is primarily the
result of the Company's completion of its cost reduction initiatives in December
2003 which consisted primarily of employee and employee related expenses.
INCOME TAXES
With respect to the provision (benefit) for income taxes, the effective rate was
0% as compared to a benefit of 36.6% in the prior-year period. This change in
the effective rate is primarily due to operating losses in the three months
ended June 30, 2004 for which no benefit has been recognized. The Company has
provided a full valuation allowance against its deferred income tax assets in
the fourth quarter of fiscal 2003, and continues to provide a full valuation
allowance at June 30, 2004, due to the Company's continued losses and the
uncertainty as to the Company's ability to generate sufficient taxable income to
realize the full value of those assets.
14
Global Payment Technologies, Inc.
June 30, 2004
The valuation allowance is subject to adjustment based upon the Company's
ongoing assessment of its future taxable income and may be wholly or partially
reversed in the future.
NET LOSS
Net loss for the quarter was ($108,000), or ($0.02) per share, as compared with
($627,000), or ($0.11) per share, in the comparative prior-year period. In
addition to its operations, the Company owns interests in unconsolidated
affiliates in Australia, South Africa and the United Kingdom, all of which are
accounted for using the equity method, except for South Africa which effective
April 2003 was accounted for on a cost basis. On January 15, 2004 the Company
sold its remaining 5% ownership interest in South Africa. Included in the
results of operations for the three months ended June 30, 2004 and 2003 are the
Company's share of net profits (losses) of these affiliates of ($30,000) and
$45,000, respectively, which includes ($50,000) and $20,000, respectively, of
the Company's proportionate share of the related gross profit on product sales
to its affiliates, which have (have not) been sold by the affiliates to third
party end users. Excluding this intercompany gross profit adjustment, the
Company's share of net income of these unconsolidated affiliates was $20,000 and
$25,000 for the three months ended June 30, 2004 and 2003, respectively.
Included in interest expense for the three months ended June 30, 2004 is a
non-cash charge of $113,000 related to the amortization of debt discount on the
Company's $1.5 million secured convertible term note which arose from allocating
value to the 200,000 warrants issued pursuant to the Securities Purchase
Agreement and the resulting beneficial conversion feature (see Note C of the
Condensed Consolidated Financial Statements).
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements consist primarily of those necessary to
continue to expand and improve product development and manufacturing
capabilities, sales and marketing operations and service principal and interest
payments on the Company's indebtedness. At June 30, 2004, the Company's cash and
cash equivalents were $1,853,000 as compared with $1,220,000 at September 30,
2003. A significant portion of the Company's cash balance in the amount of
$746,000 and $774,000, as of June 30, 2004 and September 30, 2003, respectively
consists of currency used to test the Company's products and, although it could
be available, it is not anticipated to be utilized for working capital purposes
in the normal course of business. The Company has initiated outsourcing some of
its manufactured product in an effort to improve gross margin percentages as
well as its cash flow. In addition the Company has realized significant savings
from its cost reduction initiatives completed in December 2003. As a result of
these savings and the funds available under the credit facility with Laurus
discussed below, the Company believes that its available resources should be
sufficient to meet its obligations as they become due and permit continuation of
its planned product development and operations for the next 12 months.
On March 16, 2004, the Company received aggregate proceeds of $1,500,000 from
the sale to Laurus Master Fund Ltd. ("Laurus") of a $1,500,000 principal amount
secured convertible term note due in March 2007 (the "CTN"), pursuant to a
Securities Purchase Agreement. The CTN is convertible into common stock of the
Company at any time at the rate of $4.26 of principal for one share of common
stock and is collateralized by substantially all assets of the Company. The note
provides for monthly principal payments of $25,000 from July 2004 to March 2005,
$45,000 from April 2005 to September 2005 and $55,833 from October 2005 to March
2007. Interest is payable monthly at the prime rate plus 1.5%, with a minimum
rate of 6%. In addition, Laurus received 7 year warrants to purchase an
aggregate of 200,000 shares of the Company's common stock at prices of $4.87,
$5.28 and $5.68 for 100,000, 60,000 and 40,000 warrants, respectively. The
Company utilized approximately $1,200,000 of the proceeds to repay amounts
outstanding under a previous credit agreement.
The value allocated to the warrants resulted in a debt discount of $506,000 that
is being recognized as interest expense over the term of the note. Additionally,
by allocating value to the warrants, Laurus received a beneficial conversion
feature in the amount of $304,000 that resulted in additional debt discount that
is being recognized as interest expense over the term of the note. Interest
expense is computed utilizing the interest method, which results
15
Global Payment Technologies, Inc.
June 30, 2004
in an effective yield over the term of the note. The amortization amounted to
$113,000 and $132,000 for the three months ended June 30, 2004 and the nine
months ended June 30, 2004, respectively. As of June 30, 2004, the unamortized
debt discount amounted to approximately $678,000. Amortization of debt discount
for the next four fiscal quarters will approximate $110,000, $105,000, $100,000
and 90,000, which will be charged to operations. In the event that the CTN, or
any portion of the CTN, is converted prior to maturity, the unamortized discount
related to the amount converted will be immediately recognized as interest
expense and charged to operations.
On March 16, 2004, the Company also entered into a Security Agreement with
Laurus which provides for a credit facility of $2,500,000 consisting of a
secured revolving note of $1,750,000 (the "RN") and a secured convertible
minimum borrowing note of $750,000 (the "MBN"), both due in March 2007 (both
notes collectively referred to as the "LOC"). At closing, the Company borrowed
$750,000 under the MBN. Funds available under the LOC are determined by a
borrowing base equal to 85% and 70% of eligible domestic and foreign accounts
receivable, respectively, and 50% of eligible inventory. Outstanding amounts
under the RN and MBN are convertible into common stock of the Company at any
time at the rate of $4.26 of principal for one share of common stock and are
collateralized by substantially all assets of the Company. Interest is payable
monthly at the prime rate plus 1.5%, with a minimum rate of 6%. At June 30,
2004, the Company has $1,750,000 available under the RN.
Net cash provided by operating activities was $10,000 in the nine months ended
June 30, 2004. This amount is due to decreased accounts receivable of $900,000,
primarily due to lower sales this period and continued steady collections of
prior accounts receivable, increased accounts payable of $260,000, decreased
inventory of $217,000 and decreased income taxes receivable of $111,000, offset,
in part by, a net loss for the period, adjusted for non-cash items of
($620,000), decreased accrued expenses and other current liabilities of
$582,000, and increased prepaid expenses and other assets of $276,000 (primarily
the result of $226,000 of bank closing fees paid and being amortized over the
life of the loan). Net cash provided by operating activities was $152,000 in the
nine months ended June 30, 2003. This amount is due to the net loss for the
period, adjusted for non-cash items, of ($1,769,000), increased accounts
receivable of $769,000 and decreased accrued expenses and other current
liabilities of $15,000, reduced by decreased inventory of $1,113,000, decreased
prepaid expenses and other assets of $31,000, increased accounts payable of
$851,000 and decreased income taxes receivable 710,000.
Cash provided by investing activities for the nine months ended June 30, 2004
amounted to $18,000 as compared with $1,214,000 in the prior-year period.
Investments in property and equipment in the nine months ended June 30, 2004
amounted to $291,000 as compared with $361,000 in 2003. In addition, for the
nine months ended June 30, 2004 the Company invested $51,000 in its South
African affiliate for working capital purposes as compared with $323,000 in
2003. For the period ended June 30, 2003, the Company received $1,877,000 from
the sale of a significant portion of its South African affiliate investment. On
January 15, 2004, the Company sold its remaining 5% interest in its South
African affiliate and received proceeds of $154,000 and recognized a gain on the
sale of $78,000. The Company also received a dividend distribution of $206,000
from its Australian affiliate in the nine months ended June 30, 2004 and $21,000
from its South African affiliate in the nine months ending June 30, 2003.
Cash provided by (used in) financing activities in the nine months ended June
30, 2004 and 2003 includes net loan borrowings (repayments) of $457,000 and
($1,418,000), respectively. As discussed above, on March 16, 2004, the Company
received proceeds of $1,500,000 from the sale of convertible debt and warrants
and also entered into a $2,500,000 credit facility, of which $1,750,000 was
available at June 30, 2004. In the six months ended June 30, 2004 and 2003, the
Company received $148,000 and $60,000, respectively, from the exercise of stock
options.
16
Global Payment Technologies, Inc.
June 30, 2004
At June 30, 2004, future minimum payments under noncancellable operating leases
and payments to be made for long-term debt maturing over the next five years are
as follows in ($000):
FISCAL YEAR OPERATING LEASE DEBT REPAYMENTS
----------- --------------- ---------------
2004 $154 $75
2005 415 420
2006 285 670
2007 -- 1,085
Thereafter -- --
Total $854 $2,250
In addition to the amounts above, and in the normal course of business, purchase
orders are issued which obligate the Company for future inventory purchases. As
of June 30, 2004, purchase order commitments approximated $7.2 million and will
be used for production requirements up to, and in excess of, six months.
CRITICAL ACCOUNTING POLICIES
Management's discussion and analysis is based on our consolidated financial
statements which are prepared using certain critical accounting policies that
require management to make judgments and estimates that are subject to varying
degrees of uncertainty. While we believe that these accounting policies and
management's judgments and estimates are reasonable, actual future events can
and often do result in outcomes that can be materially different from
management's current judgments and estimates. We believe that the accounting
policies and related matters described in the paragraphs below are those that
depend most heavily on management's judgments and estimates.
INVENTORY:
Inventory is stated at the lower of cost (first-in, first-out method) or net
realizable value. The Company analyzes the net realizable value of its inventory
on an ongoing basis. In determining whether the net realizable value of its
inventory is impaired, the Company considers historical sales performance and
expected future product sales, market conditions in which the Company
distributes its products, changes in product strategy and the potential for the
introduction of new technology or products by the Company and its competitors.
These items, as well as the introduction of new technology on products, could
result in future inventory obsolescence.
SOFTWARE CAPITALIZATION COSTS:
Based upon achieving technological feasibility through a detailed program design
for Argus(TM) and Aurora products, the Company has capitalized the cost of
software coding and development of these products, and reflects the amortization
of these costs in cost of sales. The annual amortization is calculated using the
greater of (a) the ratio that current gross revenues for a product bear to the
total of current and anticipated future gross revenues for that product or (b)
the straight-line method over the remaining estimated economic life of the
product including the period being reported on. The estimation of both future
sales of products as well as the life of the product are critical estimates that
are affected by both internal and external factors that might affect the
Company's estimates. If the useful life is reduced, or sales projections fall
short of the estimation, amortization expense will increase or accelerate.
REVENUE RECOGNITION:
The Company recognizes revenue upon shipment of products to its customers and
the passage of title, including shipments to its unconsolidated affiliates, or
at the time services are completed with respect to repairs not covered by
warranty agreements. With respect to sales to its unconsolidated affiliates, the
Company defers its pro rata share of gross profit on those sales until such time
as its affiliates sell to a third party customer. The timing of sales to
affiliates can have an effect on the Company's recognized profitability.
17
Global Payment Technologies, Inc.
June 30, 2004
WARRANTY POLICY:
The Company provides for the estimated cost of product warranty at the time
related sales revenue is recognized. Furthermore, the Company warrants that its
products are free from defects in material and workmanship for a period of one
year, or almost two years relating to its Argus and Aurora products, from the
date of initial purchase.
The warranty does not cover any losses or damage that occur as a result of
improper installation, misuse or neglect and repair or modification by anyone
other than the Company and its appointed service centers. Repair costs beyond
the warranty period are charged to the Company's customers.
RESERVE FOR UNCOLLECTIBLE ACCOUNTS RECEIVABLE:
At June 30, 2004, the Company's accounts receivable balance was approximately
$5.4 million. The Company's accounting policy is to reserve for the accounts
receivable of specific customers based on our assessment of certain customers'
financial condition. We make these assessments using our knowledge of the
industry coupled with current circumstances or known events and our past
experiences. This policy is based on our past collection experience. To the
extent that our experience changes, global economic conditions deteriorate or
our customers experience financial difficulty, our reserve may need to increase.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES:
The Company applies the equity method of accounting to its investments
(including advances) in entities where the Company has non-controlling ownership
interests of 50% or less and exercises a significant influence on that entity.
The Company's share of these affiliates' earnings or losses is included in the
consolidated statements of operations. The Company eliminates its pro rata share
of gross profit on sales to its affiliates for inventory on hand at the
affiliates at the end of each reporting period. For investments in which no
public market exists, the Company reviews the operating performance, financing
and forecasts for such entities in assessing the net realizable values of these
investments.
LONG-LIVED ASSETS:
The Company accounts for long-lived assets pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". This Statement requires that long-lived assets
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the asset. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell,
and are no longer depreciated. The Company reviews its long-lived assets, at
least annually, for indicators of impairment or upon actual impairment events or
indicators.
INCOME TAXES:
The Company accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes". SFAS No. 109 requires an asset and liability approach for financial
reporting for income taxes. Under SFAS No. 109, deferred taxes are provided for
temporary differences between the carrying values of assets and liabilities for
financial reporting and tax purposes at the enacted rates at which these
differences are expected to reverse. The effective tax rate for the Company is
affected by the income mix derived from the core business and from its share of
income from foreign affiliates that may have different tax rates. Realization of
deferred tax assets is primarily dependent upon the Company's future
profitability, and the Company has, consequently, provided a full valuation
allowance against its deferred income tax assets due to recurring losses and
uncertainty as to the ability to generate future taxable income to sufficiently
realize those assets. The amounts of the valuation allowances for deferred tax
assets at September 30, 2003 and June 30, 2004 were $2,569,000 and $3,224,000,
respectively. To the extent the Company's profitability improves, the valuation
allowance may be wholly or partially reversed. At such time that the Company
believes that it will realize sufficient taxable income the valuation allowance
will be reassessed.
18
Global Payment Technologies, Inc.
June 30, 2004
DEBT DISCOUNTS:
Pursuant to the Securities Purchase Agreement in which the Company received
proceeds of $1,500,000 from the issuance of a convertible note in the principal
amount of $1,500,000 and 7 year warrants to purchase 200,000 shares of the
Company's common stock, the value allocated to the warrants resulted in a debt
discount of $506,000 that is being recognized as interest expense over the term
of the note. Additionally, by allocating value to the warrants, the purchaser
received a beneficial conversion feature in the amount of $ 304,000 that
resulted in additional debt discount that is being recognized as interest
expense over the term of the note. Interest expense is computed utilizing the
interest method, which results in an effective yield over the term of the note.
In the event that the CTN, or any portion of the CTN, is converted prior to
maturity, the unamortized discount related to the amount converted will be
immediately recognized as interest expense and charged to operations. As of June
30, 2004, the unamortized debt discount amounted to approximately $678,000.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS: A number of statements
contained in this discussion and analysis are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 that involve
risks and uncertainties that could cause actual results to differ materially
from those expressed or implied in the applicable statements. These risks and
uncertainties include but are not limited to: the Company's dependence on the
paper currency validator market and its potential vulnerability to technological
obsolescence; the risks that its current and future products may contain errors
or defects that would be difficult and costly to detect and correct; potential
manufacturing difficulties; possible risks of product inventory obsolescence;
potential shortages of key parts and/or raw materials; potential difficulties in
managing growth; dependence on key personnel; the Company's dependence on a
limited base of customers for a significant portion of sales; the possible
impact of competitive products and pricing; uncertainties with respect to the
Company's business strategy; general economic conditions in the domestic and
international markets in which the Company operates; the relative strength of
the United States currency; and other risks described in the Company's
Securities and Exchange Commission filings.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the Company's quantitative and
qualitative disclosures about market risk since the filing of the Company's
Annual Report on Form 10-K for the year ended September 30, 2003.
Item 4. Controls and Procedures
The Company maintains a system of disclosure controls and procedures that is
designed to provide reasonable assurance that information, which is required to
be disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934, as amended, is accumulated and communicated to
management in a timely manner. The Company's Chief Executive Officer and Chief
Financial Officer have evaluated this system of disclosure controls and
procedures as of the end of the period covered by this quarterly report and
believe that the system is operating effectively to ensure appropriate
disclosure. There have been no changes in the Company's internal control over
financial reporting during the most recent fiscal year that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
19
Global Payment Technologies, Inc.
June 30, 2004
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit - 4.1(f) Amendment No.2, dated August 9, 2004 to
Secured Convertible Term Note(1)
Exhibit - 4.1(g) Amendment No.2, dated August 9, 2004 to
Secured Convertible Minimum Borrowing Note(1)
Exhibit - 4.1(h) Amendment No.2, dated August 9, 2004 to
Secured Revolving Note (1)
Exhibit - 31.1 Certification required by Rule 13a-14(a) (1)
Exhibit - 31.2 Certification required by Rule 13a-14(a) (1)
Exhibit - 32.1 Certification required by Section 1350
of the Sarbanes-Oxley Act of 2002 (1)
(1) filed herewith
b) REPORTS ON FORM 8-K
On May 13, 2004 the Company furnished a Current Report on Form 8-K
dated May 13, 2004 under Item 12 announcing the Company's financial
results for the quarter ended March 31, 2004.
On August 12, 2004 the Company furnished a Current Report on Form 8-K
dated August 12, 2004 under Item 12 announcing the Company's financial
results for the quarter ended June 30, 2004.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GLOBAL PAYMENT TECHNOLOGIES, INC.
By: /s/ THOMAS MCNEILL
-----------------------------------
Vice President,
Chief Financial Officer and
Principal Accounting Officer
Dated: August 12, 2004
20