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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, 2002
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 Securities 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 |_|
Shares of Common Stock outstanding on August 8, 2002 5,530,366
---------
1
Global Payment Technologies, Inc.
Index
PART I. FINANCIAL INFORMATION
Page Number
-----------
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 2002 and September 30, 2001 3
Consolidated Statements of Income - Nine Months ended June 30, 2002 and 2001 4
Consolidated Statements of Income - Three Months ended June 30, 2002
and 2001 5
Consolidated Statements of Cash Flows - Nine Months ended June 30, 2002
and 2001 6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11-15
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See Item 2 Above
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
2
GLOBAL PAYMENT TECHNOLOGIES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
2002 2001
-------- -------------
(Dollar amounts in thousands,
except share data)
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,036 $ 1,069
Accounts receivable from affiliates 5,891 7,891
Accounts receivable, less allowance for doubtful accounts
of $112 and $169, respectively 2,434 3,747
Inventory, less allowance for obsolescence of $944 and
$980, respectively 10,492 9,783
Prepaid expenses and other current assets 466 468
Deferred income tax benefit 680 795
-------- --------
Total current assets 20,999 23,753
Property and equipment, net 1,314 1,331
Investments in unconsolidated affiliates 2,394 1,247
Other assets 223 135
-------- --------
Total assets $ 24,930 $ 26,466
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,833 $ 3,482
Accrued expenses and other current liabilities 1,132 1,426
Current portion of long-term debt 1,972 867
Income taxes payable 228 341
-------- --------
Total current liabilities 6,165 6,116
Long-term debt 800 2,800
-------- --------
Total liabilities 6,965 8,916
-------- --------
Shareholders' equity:
Common Stock, 20,000,000 shares authorized; $.01 par value,
5,809,350 and 5,806,250 shares issued, respectively 58 58
Additional paid-in capital 9,720 9,708
Retained earnings 9,686 9,283
-------- --------
19,464 19,049
Less: Treasury stock, at cost, 278,984 shares (1,499) (1,499)
-------- --------
Total shareholders' equity 17,965 17,550
-------- --------
Total liabilities and shareholders' equity $ 24,930 $ 26,466
======== ========
The accompanying notes are an integral part of these financial statements.
3
GLOBAL PAYMENT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months ended June 30,
--------------------------
2002 2001
----------- -----------
(Dollar amounts in thousands,
except share and per share data)
Net sales
Affiliates $ 10,436 $ 13,148
Non-affiliates 12,765 10,402
----------- -----------
23,201 23,550
Cost of sales 16,812 16,217
----------- -----------
Gross profit 6,389 7,333
Operating expenses 6,492 6,484
----------- -----------
(Loss) income from operations (103) 849
Other income (expense):
Equity in income of unconsolidated affiliates 631 242
Gain on sale of investment in unconsolidated affiliate 108 --
Interest expense, net (207) (150)
----------- -----------
Total other income 532 92
----------- -----------
Income before provision for income taxes 429 941
Provision for income taxes 26 265
----------- -----------
Net Income $ 403 $ 676
=========== ===========
Net Income per share:
Basic $ .07 $ .12
=========== ===========
Diluted $ .07 $ .12
=========== ===========
Common shares used in computing net income per share amounts:
Basic 5,528,516 5,553,910
=========== ===========
Diluted 5,748,503 5,656,807
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
GLOBAL PAYMENT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months ended June 30,
--------------------------
2002 2001
----------- -----------
(Dollar amounts in thousands,
except share and per share data)
Net sales
Affiliates $ 3,131 $ 4,458
Non-affiliates 3,372 4,115
----------- -----------
6,503 8,573
Cost of sales 4,608 6,158
----------- -----------
Gross profit 1,895 2,415
Operating expenses 2,175 2,254
----------- -----------
(Loss) income from operations (280) 161
Other income (expense):
Equity in income of unconsolidated affiliates 395 38
Gain on sale of investment in unconsolidated affiliate 108 --
Interest expense, net (64) (8)
----------- -----------
Total other income, net 439 30
----------- -----------
Income before provision for income taxes 159 191
Provision for income taxes -- 10
----------- -----------
Net Income $ 159 $ 181
=========== ===========
Net Income per share:
Basic $ .03 $ .03
=========== ===========
Diluted $ .03 $ .03
=========== ===========
Common shares used in computing net income per share amounts:
Basic 5,529,794 5,529,075
=========== ===========
Diluted 5,885,855 5,534,186
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
GLOBAL PAYMENT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended June 30,
--------------------------
2002 2001
------- -------
(Dollar amounts in thousands)
OPERATING ACTIVITIES:
Net Income $ 403 $ 676
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Gain on sale of unconsolidated affiliate (108) --
Equity in income of unconsolidated affiliates (631) (242)
Depreciation and amortization 432 470
Provision for losses on accounts receivable 39 59
Provision for inventory obsolescence 64 150
Deferred income taxes 115 42
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 3,624 (493)
Increase in inventory (773) (1,309)
Decrease in income taxes receivable -- 674
Increase in prepaid expenses and other assets (86) (49)
(Decrease) increase in accounts payable (659) 1,904
(Decrease) increase in accrued expenses and other current liabilities (294) 95
(Decrease) increase in income taxes payable (113) 368
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,013 2,345
------- -------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net of proceeds from disposals (415) (478)
Investments in unconsolidated affiliates (866) (167)
Sale of investment in unconsolidated affiliate 118 --
------- -------
NET CASH USED IN INVESTING ACTIVITIES (1,163) (645)
------- -------
FINANCING ACTIVITIES:
Net (repayments) from note payable to bank (895) (1,949)
Purchase of treasury stock -- (205)
Issuance of stock upon exercise of stock options 12 153
------- -------
NET CASH USED IN FINANCING ACTIVITIES (883) (2,001)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (33) (301)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,069 1,179
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,036 $ 878
======= =======
CASH PAID DURING THE PERIOD FOR:
Interest $ 222 $ 237
======= =======
Income taxes $ -- $ 250
======= =======
The accompanying notes are an integral part of these financial statements.
6
Global Payment Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Global Payment
Technologies, Inc. (the "Company"), including the September 30, 2001
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 three and
nine-month periods ended June 30, 2002 are not necessarily indicative of the
results that may be expected for the fiscal year ending September 30, 2002. 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, 2001.
NOTE B - RECLASSIFICATION
Certain prior-year financial statement amounts have been reclassified to conform
to the current year's presentation.
NOTE C - COMPREHENSIVE INCOME
The Company observes the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which requires
companies to report all changes in equity during a period, except those
resulting from investments by owners and distributions to owners, for the period
in which they are recognized. 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,
foreign currency translation adjustments and minimum pension liability
adjustments. Comprehensive and other comprehensive income must be reported on
the face of annual financial statements or in the case of interim reporting, the
footnote approach may be utilized. For the three and nine months ended June 30,
2002 and 2001, the Company's operations did not give rise to material items
includable in comprehensive income which were not already included in net
income. Accordingly, the Company's comprehensive income is the same as its net
income for all periods presented.
NOTE D - NET INCOME PER COMMON SHARE
The Company accounts for earnings per share pursuant to SFAS No. 128, "Earnings
Per Share". In accordance with SFAS No. 128, net income (loss) per common share
amounts ("basic EPS") was 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"), was computed by
reflecting the potential dilution from the exercise of stock options and stock
warrants. SFAS No. 128 requires the presentation of both basic EPS and diluted
EPS on the face of the income statement.
7
Global Payment Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
June 30, 2002
NOTE D - NET INCOME PER COMMON SHARE (continued)
A reconciliation between the numerators and denominators of the basic and
diluted EPS computations for net income appears below:
Nine Months Ended Nine Months Ended
June 30, 2002 June 30, 2001
(In thousands, except per share data) (In thousands, except per share data)
-------------------------------------------- ------------------------------------------
Net Income Shares Per Share Net Income Shares Per Share
(Numerator) (Denominator) Amounts (Numerator) (Denominator) Amounts
----------- ------------- --------- ----------- ------------- ---------
Net income (loss) $ 403 $ 676
------- ------
Basic EPS
Net income attributable to Common Stock 403 5,528.5 $ .07 676 5,553.9 $ .12
Effect of dilutive securities
Stock options and warrants -- 220.0 -- -- 102.9 --
------- ------- ------ ------ ------- ------
Diluted EPS
Net income (loss) attributable to Common
Stock and assumed option and warrant
exercises $ 403 5,748.5 $ .07 $ 676 5,656.8 $ .12
======= ======= ====== ====== ======= ======
Three Months Ended Three Months Ended
June 30, 2002 June 30, 2001
(In thousands, except per share data) (In thousands, except per share data)
-------------------------------------------- ------------------------------------------
Net Income Shares Per Share Net Income Shares Per Share
(Numerator) (Denominator) Amounts (Numerator) (Denominator) Amounts
----------- ------------- --------- ----------- ------------- ---------
Net income (loss) $ 159 $ 181
------- ------
Basic EPS
Net income attributable to Common Stock 159 5,529.8 $ .03 181 5,529.1 $ .03
Effect of dilutive securities
Stock options and warrants -- 356.1 -- -- 5.1 --
------- ------- ------ ------ ------- ------
Diluted EPS
Net income (loss) attributable to Common
Stock and assumed option and warrant
exercises $ 159 5,885.9 $ .03 181 5,534.2 $ .03
======= ======= ====== ====== ======= ======
Options to purchase 221,050 shares of Common Stock in the nine months and three
months ended June 30, 2002, and options to purchase 514,400 and 941,850 shares
of Common Stock in the nine months and three months ended June 30, 2001
respectively, were not included in the computation of diluted EPS because the
exercise prices exceeded the average market price of the common shares for these
periods. These options were still outstanding at the end of the related periods.
8
Global Payment Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
June 30, 2002
NOTE E - ACQUISITION OF THE REMAINING 30% OF LONDON OFFICE
Effective October 1, 2001 the Company purchased the remaining 30% of its London
sales and service office, Global Payment Technologies (Europe) Limited
("GPTEL"), from the minority shareholder and then Operations Manager for a
nominal amount. An immaterial amount of Goodwill resulted from this transaction.
The Company is now the sole shareholder of GPTEL.
NOTE F - EXERCISED OPTION TO ACQUIRE ADDITIONAL 19% OF SOUTH AFRICAN GAMING
AFFILIATE
In March 2002 the Company exercised its option to acquire 19% of its gaming
affiliate in South Africa, Global Payment Technologies Holdings (PTY) LTD.
("GPTHL"). Under the terms of the agreement, GPT acquired the shares from an
existing shareholder, Hosken Consolidated Investment Ltd. ("HCI"), for $979,000.
HCI remains the majority shareholder in GPTHL, while GPT increased its ownership
to 24.2%. GPTHL also owns the exclusive rights to distribute both GPT and Online
Gaming products in South Africa. In addition, GPTHL's Vukani division is a South
African based company that was established in 1996 to operate slot machines in
South Africa's non-casino environment (known as the route market). This market
includes site operations outside of the existing casino market including
liquor-licensed establishments such as bars, taverns, restaurants and sport
clubs. This investment will be accounted for under the equity method.
NOTE G - SOLD INTEREST IN CHINA AFFILIATE
During this quarter the Company sold its 50% interest in CBV China Limited. CBV
China Limited owns 100% of Hangzhou CBV Plastics Corp. Ltd ("CBV"). The proceeds
from the sale returned the Company's initial investment plus a gain of $108,000.
The Company made the decision to sell its stake in CBV because it believes the
new Argus generation of products requires a level of sophistication not
attainable in this factory.
NOTE H - RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board issued SFAS No.141,
"Business Combinations" and SFAS No. 142, "Goodwill and other Intangible
Assets". SFAS No. 141 requires all business combinations initiated after June
30, 2001 to be accounted for using the purchase method. Under SFAS No. 142,
goodwill and intangible assets with indefinite lives are no longer amortized but
are reviewed annually (or more frequently, if impairment indicators arise) for
impairment. Separable intangible assets that are not deemed to have indefinite
lives will continue to be amortized over their useful lives (but with no maximum
life).
The Company has adopted this standard effective October 1, 2001 and accordingly,
goodwill (including the goodwill related to the minority interest acquisition
discussed in Note E) will no longer be amortized. Pursuant to SFAS No.142, the
Company has evaluated its intangible assets to identify goodwill separately from
other identifiable intangibles. The intangible asset is classified as goodwill
with an indefinite life; no other separately identifiable intangible assets
exist. The adoption of this new standard resulted in the exclusion of
approximately $4,500 in amortization expense for the first three quarters of
fiscal year 2002. In accordance with SFAS No. 142, intangible assets, including
purchase goodwill, will be evaluated periodically for impairment. Based upon the
results of its transitional impairment testing, there was no material impact on
the consolidated financial results related to its goodwill valuation.
9
Global Payment Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
June 30, 2002
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". This statement
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. SFAS No. 144 will be effective for financial statements for
fiscal years beginning after December 15, 2001. The Company expects to adopt
this statement for the fiscal year ending September 30, 2003, and does not
anticipate that it will have a material impact on the Company's consolidated
financial results.
10
Global Payment Technologies, Inc.
June 30, 2002
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Nine months ended June 30, 2002 compared with nine months ended June 30, 2001
Sales
Net sales decreased by 1.5%, or $349,000, to $23,201,000 in the nine months
ended June 30, 2002 as compared with $23,550,000 in the comparative prior-year
period. This decrease is the result of customers lowering their inventory and
taking advantage of the Company's shorter lead-times on its new Argus gaming
validator. This was partially offset by greater demand for the Company's product
in existing and new customers in Eastern Europe, Europe and Latin America.
Gross Profit
Gross profit decreased to $6,389,000, or 27.5% of net sales, in the nine months
ended June 30, 2002 from $7,333,000, or 31.1% of net sales, in the comparative
prior-year period. The decrease in gross profit was primarily the result of
substantial startup costs relating to new products, including higher initial
purchasing costs and less efficient manufacturing operations in the startup
phase. In this nine-month period the Company's new Argus product accounted for
approximately 64% of all validator sales as compared to 11% in the same prior
year-period. The Company's gross profit percentage increased in 2002 from 25.6%
in its first quarter to 28.2% in its second fiscal quarter and to 29.1% in its
third quarter. While improvement from lower purchasing prices is expected in
future periods, margins will be affected by the mix of products as well as sales
volumes.
Operating Expenses
Operating expenses were $6,492,000, or 28.0% of net sales, in the nine months
ended June 30, 2002 as compared with $6,484,000, or 27.5% of net sales, in the
comparative prior-year period. The largest components of operating expenses are
salaries and related employee costs associated with engineering, selling and
administrative employees, rent for manufacturing, warehousing, shipping and
office space and expenses associated with the Company's manufacturing facility.
Net Income
Net income for the nine months ended June 30, 2002 was $403,000, or $0.07 per
share, as compared with $676,000, or $0.12 per share, in the comparative
prior-year period. In addition to its operations, the Company owns interests in
various unconsolidated affiliates in key regions of the world. These are
accounted for using the equity method. Included in the results of operations for
the nine months ended June 30, 2002 and 2001 are the Company's share of the net
profits of these affiliates of $631,000 and $242,000, respectively. In the nine
months ended June 30, 2002 and 2001, equity in income of unconsolidated
affiliates includes an increase of approximately $350,000 and $175,000,
respectively, which represents the recognition of the Company's share of the
previously deferred gross profit on intercompany sales to its affiliates that
have been recognized by these affiliates. Excluding the intercompany gross
profit adjustment, the Company's share of net income of these unconsolidated
affiliates was $281,000 and $67,000 for the nine months ended June 30, 2002 and
2001, respectively. In addition, the Company owns 100% of Global Payment
Technologies (Europe) Limited and holds a majority interest in Abacus Financial
Management Systems, Ltd., USA, whose results are consolidated in the Company's
financial statements. With respect to the provision for income taxes at June 30,
2002, the effective tax rate was 6.1% as compared to 28.1% in the prior-year
period. This decrease in the effective tax rate is the result of the Company's
change in mix of earnings from its own operations and earnings derived from its
foreign affiliates. During the nine months ended June 30, 2002, the Company
recognized an after-tax gain of $82,000, or $.01 per share, which resulted from
the sale of the Company's China affiliate (see Note G). Excluding the effect of
this one-time gain, the net income was $321,000, or $.06 per share.
11
Global Payment Technologies, Inc.
June 30, 2002
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations (continued)
Three months ended June 30, 2002 compared with three months ended June 30, 2001
Sales
Net sales decreased by 24.1%, or $2,070,000, to $6,503,000 in the three months
ended June 30, 2002 as compared with $8,573,000 in the comparative prior-year
period. This decrease is the result of customers lowering their inventory and
taking advantage of the Company's shorter lead-times on its new Argus gaming
validator. In addition, sales in the beverage and vending industry where
approximately $300,000 lower than the same year ago period. The Company has
recently initiated field trials with its new vending validator "Aurora" and
anticipates to benefit in future periods as that product gains commercial
acceptance.
Gross Profit
Gross profit decreased to $1,895,000, or 29.1% of net sales, in the three months
ended June 30, 2002 from $2,415,000, or 28.2% of net sales, in the comparative
prior-year period. The increase in gross profit as a percentage of sales was
primarily due to more efficient operations resulting from shorter assembly times
and favorable material purchases offset, in part, by higher overhead costs per
unit resulting from lower production volumes.
Operating Expenses
Operating expenses decreased in absolute dollars terms by $79,000 to $2,175,000
in the three months ended June 30, 2002 as compared with $2,254,000 in the
comparative prior-year period. On a percentage of sales basis, operating
expenses increased to 33.5% from 26.3% due to the lower sales levels that
materialized this quarter. The Company will continue to monitor its overhead
structure to properly service its customers in the most efficient manner and at
the same time tightly control expenses.
Net Income
Net income for the quarter was $159,000, or $.03 per share, as compared with
$181,000, or $.03 per share, in the comparative prior-year period. In addition
to its operations, the Company owns interests in various unconsolidated
affiliates in key regions of the world, all of which are accounted for using the
equity method. Included in the results of operations for the three months ended
June 30, 2002 and 2001 are the Company's share of net income of these affiliates
of $395,000 and $38,000, respectively. In the three months ended June 30, 2002,
equity in income of unconsolidated affiliates includes an increase of
approximately $250,000, which represents the recognition of the Company's share
of the previously deferred gross profit on inter-company sales to its affiliates
that have been recognized by these affiliates. Excluding the inter-company gross
profit adjustment, the Company's share of net profits of these unconsolidated
affiliates was $145,000 and $38,000 for the three months ended June 30, 2002 and
2001, respectively. In addition, the Company owns 100% of Global Payment
Technologies (Europe) Limited and holds a majority interest in Abacus Financial
Management Systems, Ltd., USA, whose results are consolidated in the Company's
financial statements. With respect to the provision for income taxes, the
Company's June 30, 2002 effective tax rate was 0% as compared to 5.0% in the
prior-year period. This decrease in the effective tax rate is the result of the
Company's change in mix of earnings from operations and its earnings from its
foreign affiliates. During the quarter ended June 30, 2002, the Company
recognized an after-tax gain of $82,000, or $.01 per share, which resulted from
the sale of the Company's China affiliate (see Note G). Excluding the effect of
this one-time gain, the net income was $77,000, or $.01 per share.
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, investments in affiliates, and
interest payments on the Company's indebtedness. The Company believes that its
available resources, including its credit facilities, should be sufficient to
meet its obligations as they become due and permit continuation of its planned
expansion throughout fiscal 2002 and beyond.
12
Global Payment Technologies, Inc.
June 30, 2002
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources (continued)
At June 30, 2002, the Company's cash and cash equivalents were $1,036,000 as
compared with $1,069,000 at September 30, 2001. On July 15, 1999, the Company
entered into a $10 million long-term credit agreement with The Chase Manhattan
Bank which is comprised of a $4,000,000 five-year term loan, payable in equal
monthly installments with a fixed interest rate of 7.66% per annum and a
$6,000,000 unsecured revolving line of credit ("RLC"). The term of the RLC is
three years, and expires on September 27, 2002, as amended. The outstanding
borrowings bear interest at the bank's prime rate plus a range of 0 to 75 basis
points, or at the Company's option, for borrowings greater than $500,000, LIBOR
plus a range of 125 to 250 basis points. The precise borrowing rate is
determined by the Company's financial performance under certain covenants. The
Company has received a waiver of its bank covenants at June 30, 2002 and has
also received a commitment letter from the bank for a new secured long-term RLC
and an additional term loan. This new credit facility is expected to be
finalized by September 16, 2002. At June 30, 2002 the Company has $1.1 million
outstanding on its RLC which is classified as part of current liabilities. Upon
the execution of the related loan documents the Company expects to classify the
RLC and a portion of the additional term loan as part of long term liabilities.
As of June 30, 2002, outstanding borrowings under the five-year term loan and
the RLC were $1,600,000 and $1,100,000, respectively.
Net cash provided by operating activities was $2,013,000 in the nine months
ended June 30, 2002. This amount is due to net income for the period, adjusted
for non-cash items, of $314,000 and decreased accounts receivable of $3,624,000,
offset, in part by increased inventory of $773,000, increased prepaid expenses
and other assets of $86,000, decreased accounts payable of $659,000, decreased
accrued expenses of $294,000 and decreased income taxes payable of $113,000. Net
cash provided by operating activities was $2,345,000 in the nine months ended
June 30, 2001. This amount is due to net income for the period, adjusted for
non-cash items, of $1,155,000 increased accrued expenses of $95,000, increased
income taxes payable $368,000, increased accounts payable of $1,904,000 and a
decrease in income taxes receivable of $674,000, offset, in part, by increased
accounts receivable of $493,000, increased prepaid expenses and other assets of
$49,000, and increased inventory of $1,309,000. As the Company sells its product
primarily to international markets, it sells its products on terms generally
greater than 45 days. Further the Company has agreements with its affiliates,
which extend terms in excess of 90 days. Based upon history, and the Company's
current review of its accounts receivable, it believes it is adequately reserved
for potentially uncollected accounts.
Cash used in investing activities for the nine months ended June 30, 2002
amounted to $1,163,000 as compared with $645,000 in the prior-year period.
Investments in property and equipment in the nine months ended June 30, 2002
amounted to $415,000 as compared with $478,000 in 2001. In addition, the Company
invested in its joint ventures approximately $866,000 (net of repayments) in the
nine months ended June 30, 2002, as compared with $167,000 in the prior year
period, which has been added to the investment in unconsolidated affiliates
based on the terms of the related agreements. See Note F for a summary of the
Company's $979,000 investment in its South African Affiliate in fiscal 2002. The
outflow of cash from investing activities was offset by $118,000 of cash
received from the sale of our investment in an unconsolidated affiliate. See
Note G for details.
Cash used in financing activities in the nine months ended June 30, 2002
consisted of net repayments of bank borrowings of $895,000, offset in part by
$12,000 received from the exercise of stock options. Cash used in financing
activities in the nine months ended June 30, 2001 consisted of net repayments of
bank borrowings of $1,949,000 and the purchase of the Company's Common Stock for
$205,000, offset in part by $153,000 received from the exercise of stock
options.
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Global Payment Technologies, Inc.
June 30, 2002
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources (continued)
At March 31, 2002, future minimum payments under noncancellable operating leases
and payments to be made for long-term bank debt maturing over the next five
years are as follows:
Fiscal Operating Debt
Year Leases Repayments
---- ------ ----------
2002 $108,000 $200,000
2003 425,000 800,000
2004 379,000 600,000
2005 369,000 -
2006 285,000 -
In addition to the chart above, and in the normal course of business, purchase
orders are generated which obligate the Company for future inventory
requirements. As of June 30, 2002, purchase order commitments approximated $3.6
million and will be used for production requirements up to, and in excess of,
six months.
Anticipated cash flows from operations and affiliates, together with existing
lines of credit, should be adequate to meet the Company's working capital
requirements and service the long term debt as it matures.
Critical Accounting Policies
This management 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
The Company takes a physical inventory in each of our significant locations at
the end of each fiscal year. 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.
Revenue Recognition
The Company recognizes revenue upon shipment of products and passage of title
and risks of ownership to its customers, including shipments to its
unconsolidated affiliates, or at the time services are completed with respect to
repairs not covered by warranty agreements.
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Global Payment Technologies, Inc.
June 30, 2002
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Critical Accounting Policies (continued)
Accounts Receivable
At June 30, 2002, our accounts receivable balance from affiliates and
non-affiliates was $8.3 million. Our 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, credit reports, and our past experiences. This policy is based on
our past collection experience. During the nine months ended June 30, 2002, in
accordance with this policy, we wrote off $97, 000 of receivables and
replenished the reserve by $39,000.
Investments in Unconsolidated Affiliates
The Company applies the equity method of accounting to its investments in
entities where the Company has non-controlling ownership interests of less than
50% and sufficient influence for equity method treatment. The Company's share of
these affiliates' earnings or losses is included in the consolidated statements
of income. 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 the year or
reporting period. For a description of the Company's unconsolidated affiliates
and the related transactions between the Companies please refer to the Form 10-K
(Note 10) for the year ended September 30, 2001.
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
determined by the income mix derived from the core business and from foreign
affiliates that may have different tax rates. Deferred tax balances are recorded
based upon management's best estimate of the future effective rate to be in
effect until such deferred balances are fully realized.
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, 2001.
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; the
Company's dependence on a limited base of customers for a significant portion of
sales; 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
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; and other risks
described in the Company's Securities and Exchange Commission filings.
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Global Payment Technologies, Inc.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit - 99.1 Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
b) Reports on Form 8-K
Current Report on Form 8-K, filed on July 26, 2002, under Item 4 of
such report. No financial statements were included in such report.
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Global Payment Technologies, Inc.
Signatures
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has 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 14, 2002
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