UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Mark One
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended September 30, 2007
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 Number 0-25148
GLOBAL PAYMENT TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2974651
--------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
|
170 Wilbur Place, Bohemia, New York 11716
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 631-563-2500
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
1
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
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 of
1934 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
One): Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer
[X]
Indicate by check mark whether the registrant is shell company (as defined
in rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the Common Stock of the registrant held by
non-affiliates of the registrant, based on the average bid and asked prices on
March 31, 2007, was approximately $6,450,225.
As of December 31, 2007, the registrant had a total of 6,497,185 shares of
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portion of the Company's Proxy Statement for its 2008 Annual Meeting are
incorporated by reference into Part III of this Report
2
PART I
Item 1. Business
General
Global Payment Technologies, Inc. (the "Company") is a Delaware corporation
established in 1988. We design and manufacture currency validation systems,
including paper currency validators and related paper currency stackers, and
sell our products in the United States and numerous international markets.
Validators receive and authenticate paper currencies in a variety of automated
machines, including gaming and gaming related equipment, beverage and vending
machines and retail equipment that dispense products, services, coinage and
other currencies. Note stackers are sold with most validators and are designed
to store validated paper currency and, in some cases, record and store
information on contents, usually in secure removable cassettes. Although we know
of no commercially available validator that is counterfeit-currency-proof, our
validators and stackers offer significant protection against tampering and
counterfeit currencies and provide tamper-evident storage of validated currency.
Our validators are adaptable to a wide variety of original equipment
manufacturer ("OEM") applications and have been engineered into the design of
most major gaming and numerous beverage and vending machines sold worldwide. Our
products offer a highly competitive level of performance and are designed to
provide ease of maintenance and repair.
Fiscal 2007 has been a turbulent year for us as we continued to struggle with
operating losses and cash flow deficiencies. Our senior loan with Laurus Master
Funds, which originally came due in March 2007 was extended until June 2007, and
extended again until November 2007. In exchange for the extensions, we paid
$25,000 in cash and issued 275,000 shares of fully paid and nonassessable
restricted common stock along with warrants immediately exercisable to purchase
75,000 shares of common stock at $0.01 per share. The extensions did not provide
us with any additional liquidity. On June 1, Stephen Nevitt resigned as
President and CEO and William McMahon was named interim President and CEO along
with his duties as Chief Financial Officer. In July 2007 we relocated to a
smaller manufacturing facility which is more appropriate to the size of our
business. While we continued the development of our new products, our cash
constraints slowed the process and we were not able to launch as originally
planned. In addition, we had delays in receiving raw materials from our vendors
which delayed our ability to ship product on a timely basis. Throughout this
time period, we continued to negotiate for additional funding.
On January 15, 2008, the Company entered into a series of transactions with
entities affiliated with Andre Soussa, Chief Executive of Global Payment
Technologies Australia ("GPTA"), the Company's largest customer. GPTA has
advanced $440,000 pursuant to a Secured Term Note ("Secured Note") which matures
on January 15, 2009. Interest only is payable monthly at prime plus 3%, subject
to a minimum of 9% per annum. The loan is secured by substantially all the
assets of the Company. Under the terms of the Secured Note, the Company is
required to notify GPTA in writing of any outstanding expense or payment to be
paid by the Company in excess of $1,000 and the Company is prohibited from
making any such payment or payments in the aggregate of more than $5,000 without
GPTA's prior written approval.
3
In addition, an affiliate controlled by Andre Soussa will make an additional
$400,000 investment after the filing by the Company of its Annual Report on Form
10-K. At the close of the transactions, Mr. Soussa and his affiliates will be
the largest shareholders of the Company. Mr. Soussa will become Chairman of the
Board and Chief Executive Officer as part of an overall restructuring of the
Company. In addition, four of the five members of the existing Board of
Directors will be replaced. Mr. Richard Gerzof will remain as a director but
will relinquish his role as Chairman. Mr. William McMahon, previously interim
President and CEO, and CFO will remain with the Company as President and Chief
Financial Officer. For additional information about these transactions, see
"Business Item 1. Recent Developments".
Until the fourth quarter of fiscal 2006 we had a 50% non-controlling interest in
GPTA. This entity is responsible for sales and service of the Company's products
in Australia and New Zealand on an exclusive basis. On September 2, 2006, we
sold our entire interest for a total of approximately $1,791,000, of which
$1,511,000 was received in cash at closing and $280,000 was placed in escrow
which was released on the one year anniversary of the transaction. The purchaser
was ACN 121 187 068 Pty Limited ("ACN"), a corporation organized under the laws
of New South Wales, Australia and is related to Exfair Pty Limited, the
registered holder of the remaining 50% of the issued and outstanding shares of
GPTA. In addition we entered into a 5 year exclusive distributor agreement with
GPTA. The distributor agreement provides GPTA the exclusive distribution rights
in Australia, Asia, New Zealand, and the Pacific Rim as well as exclusive rights
to distribute Aristocrat worldwide. GPTA will be responsible for providing
sales, technical support, installation, service and repair functions as well as
maintaining sufficient inventory stock to provide for the territories.
In June 2002, the Company and two other shareholders formed eCash Holdings Pty.
Ltd. ("eCash"), an Australian based company. This entity was formed to market,
distribute, service and support Automated Teller Machines across Australia and
New Zealand. We owned 1,050 shares which represented a 35% interest in this
entity. On August 25, 2006, we sold four hundred and fifty (450) shares to ACN
for a total purchase price of $123,138 and six hundred (600) shares to ACN 121
187 157 Pty Limited, a corporation organized under the laws of New South Wales,
Australia, for a total purchase price of $162,723. The purchase price for each
sale was based on our equity in the respective business units as of April 30,
2006.
We own 100% of Global Payment Technologies (Europe) Limited ("GPT-Europe"). This
entity is based in the United Kingdom and is responsible for sales and service
of the Company's products in Europe and the Middle East.
In April 1999, we acquired a 25% equity interest in Abacus Financial Management
Systems, Ltd. ("Abacus-UK"), a UK-based software company. Abacus-UK has
developed a cash management system, of which our validators are a key component,
primarily intended to serve the retail market. In February 2005, we exchanged
our 25% equity interest for a 12.5% ownership interest in Evolve Corporation PLC
("Evolve-UK"). The exchange of ownership did not require us to make an
additional investment. Evolve-UK owns 100% of Abacus-UK and Evolve 100, which
provides integrated and stand-alone cash management systems to the retail
industry for coin currency handling. In addition, the Company and a principal of
Evolve-UK had formed Abacus Financial Management, Inc. USA ("Abacus-USA"), which
is 80% owned by us and has non-exclusive rights to distribute Evolve-UK's
product in the USA. To date, Abacus-USA has not had material operations.
4
In fiscal 2004, we registered a branch in Moscow, Russia ("GPT-Russia") to
provide local service for our products.
Background and History
In the 1980s, a general trend developed with respect to an increase in the
incorporation of paper currency validators in a large number of beverage, food
and novelty vending machines that offered primarily low-priced items. During the
1990s, subsequent technological improvements in the sensory capabilities of
validators created the ability to process high volumes of larger denomination
notes, which led to the extensive use of validators in many new applications
including casino gaming machines, lottery ticket dispensing devices and postage,
transportation, parking and high-value vending machines. This trend accelerated
during the 1990s as a result of the realization that currency validators
positively impacted sales revenues and the overall growth in the worldwide
gaming and beverage and vending industries.
Our net sales grew from approximately $35,000 in fiscal 1989 (our first year of
operations) to our high of $43.9 million in fiscal 1999. In fiscal 2000, sales
declined to $22.5 million as a result of a slowdown in the worldwide gaming
market and delays in key projects, which resulted in increased inventory at our
affiliates. During fiscal 2000 we significantly reduced inventory at our
affiliates, matching demand in those regions, which resulted in the resumption
of production and shipments in August 2000.
In fiscal 2001, sales increased 43% to $32.2 million primarily as a result of
increased demand for our products in both Australia and Russia, as well as the
addition of several new customers during the year.
In fiscal 2002, sales decreased 14% to $27.7 million as a result of customers
lowering their inventory and taking advantage of our shorter lead-times on our
Argus gaming validator, certain product issues which have since been resolved,
as well as softer worldwide economic conditions.
In fiscal 2003, sales decreased 5.9% to $26.1 million as a result of reduced
sales in Eastern Europe which were hindered by initial product issues, which
have since been resolved, offset in part by sales of our new vending product
which commenced in January 2003. With the launching of our new beverage and
vending product in fiscal 2003, we achieved an increase in our beverage and
vending sales to $5.7 million as compared to $2.2 million in fiscal 2002.
Beverage and vending products represented 21.7% of our sales in fiscal 2003 as
compared with 8% in fiscal 2002.
5
In fiscal 2004, sales decreased 6.5% to $24.4 million primarily due to $4.3
million in lower sales of our gaming products to our Australian affiliate
offset, in part, by a $1.7 million increase in sales of our Aurora product to
both the vending and gaming markets and a $637,000 increase in sales to the
South African gaming market. Gaming sales for fiscal 2004 were $19.304 million,
or 79.2% of sales, as compared with $20.417 million, or 78.3% of sales, in
fiscal 2003. Beverage and vending sales for fiscal 2004 were $5.077 million, or
20.8% of sales, as compared with $5.659 million, or 21.7% of sales in fiscal
2003.
Net sales for fiscal 2005 increased by 6.2% to $25.886 million. This increase
was due to increased sales of $3.821 million to the gaming market, primarily the
result of increased demand from our Australian affiliate and in Russia, offset
by decreased sales of $2.316 million to the beverage and vending market, as a
result of significant cigarette tax increases in Germany.
Gaming sales for fiscal 2005 were $23.150 million, or 89.4% of sales, as
compared with $19.304 million, or 79.2% of sales, in fiscal 2004. Beverage and
vending sales for fiscal 2005 were $2.736 million, or 10.6% of sales, as
compared with $5.077 million, or 20.8% of sales, in fiscal 2004.
Net sales for fiscal 2006 decreased 45% to $14.3 million. The decrease in sales
was mainly due to the restrictions put on gaming in Russia and a slow down in
the market in Australia. Gaming sales were $11.3 million in fiscal 2006, or 79%
of sales, as compared to $23.150 million or 89.4% in fiscal 2005. Beverage and
vending sales were $3.0 million, or 21% of sales, in fiscal 2006 as compared to
$2.736 million or 10.6% of total sales in fiscal 2005.
Net sales for fiscal 2007 decreased 18% to $11.6 million. The largest decrease
in sales was in the Russian market which continues to be adversely affected by
the restrictions put on gaming by the Russian government. Gaming sales were
$10.0 million in fiscal 2007 or, 86% of sales, as compared to $11.3 million, or
79% of sales, in fiscal 2006. Beverage and vending sales were $1.6 million, or
14% of sales, in fiscal 2007 as compared to $3.0 million, or 21% of sales, in
fiscal 2006.
Our international sales amounted to 91%, 90% and 93%, of net sales in fiscal
2007, 2006 and 2005, respectively.
Marketing Strategy
We have continued to focus our marketing efforts on those segments of the
marketplace which require a relatively high degree of security and substantial
custom design work that is not adequately served by larger competitors which
have tended to focus primarily on the broader, higher-volume market using
standardized product configurations. GPT's approach in the worldwide gaming
market was initially a "niche" strategy that allowed us to develop a strong
international customer base that originally started with manufacturers too small
to attract the larger competitors. With development completed and the
commencement of sales of our Argus(TM) and Aurora products in January 2001 and
January 2003, respectively, and the launch of our new "SA-4" product in fiscal
2005, this strategy has continued with particular attention paid to markets
which have the largest opportunity for growth. We have both gained new customers
and retained existing customers based on our strength internationally and our
reputation for working closely to adapt to customers' needs. We will continue to
attempt to strengthen and grow our relationships with the OEMs through joint
marketing and advertising efforts and by creating country-specific currency
databases and customization, which will allow OEMs an opportunity to seek new
potential markets worldwide. Today we have 96 country-specific databases and 15
multi-country databases, which we believe is one of the largest database
libraries in the industry. Further, we plan to continue to build a large library
of databases for our newest products, as well as adding to existing Argus and
Aurora databases.
6
After the launch of our Aurora product in fiscal 2003, we experienced an
increase in Aurora revenue from $5.3 million in fiscal 2003, to $7.0 million in
fiscal 2004, to $8.1 million in fiscal 2005. In fiscal 2003 we signed a four
year supply contract, valued in excess of $10,000,000, with Tobaccoland
Automaten GmbH & Co, a German based cigarette-vending operator with over 200,000
machines or approximately 25% of the German market share. However, since the
last quarter of fiscal 2004 the overall German tobacco vending industry has
faced significant volume shortfalls due to government increases in cigarette
taxes. In fiscal 2005, we successfully penetrated sales into the Russian gaming
market with our Aurora product, originally dubbed the "beverage and vending"
product. However, in fiscal 2006, as a result of restrictions placed on new
casinos in the Russian market, sales of the Aurora product declined to $3.4
million. In fiscal 2007 Aurora sales continued to decline to $1.8 million. In
2007 we introduced a faster version of the Aurora called the Falcon, which uses
a Digital Signal Processor (DSP) chip. This product is targeted to low end
casinos, kiosks, payment systems and amusement games. We will continue to search
for new growth opportunities both domestically and internationally for all our
products. Further, we launched SA-4 in fiscal 2005 and believe it will provide
an opportunity for penetration in the domestic gaming market as well as other
international markets. The SA-4 model is targeted to the global casino market
and incorporates the features of Argus with a faster Digital Signal Processing
(DSP) chip which allows for currency validating in less than one second. In
fiscal 2006, we had sales of $4.3 million for our SA-4 validator.
In the gaming venue, we market our products principally to the OEMs as well as
the end-users (i.e., casino operators) who purchase slot machines from the OEMs
to help ensure that our validator products will be specified as the product of
choice in new orders. We have also provided direct operator technical training
and participation in seminars with our OEM customers. By marketing directly to
the end-users in conjunction with the OEMs, we expect our products will gain
acceptance as our customers' gaming machines gain entry into major casinos or
regions previously dominated by currency validators of our competition. Since
1999, we have offered programs and plans designed to elevate the level of our
customers' product knowledge. Such programs and plans included the development
of formally documented maintenance schedules and similar programs, which are
proposed to customers. These maintenance programs are being offered in
coordination with our OEM customers, and are intended to broaden awareness of
the Company and our products within the gaming industry and as a result increase
sales. Additionally, we are focusing our marketing efforts on explaining the
technical features and customer support programs of current and future products
in order to further differentiate ourselves from the competition. This overall
strategy allows our products to continue to demonstrate the high level of
performance and quality achieved in many markets throughout the world.
7
Our marketing strategy for the significantly larger worldwide beverage and
vending industry is very similar to that of our gaming strategy. During fiscal
2002, we initiated sales of the Aurora product. During fiscal 2003, with sales
of our new Aurora product commencing in January 2003, we achieved a significant
$3.5 million increase in beverage and vending sales to $5.7 million. Throughout
fiscal 2004, 2005, 2006 and 2007, we marketed our Aurora product through our
already existing distribution channels, as well as through the creation of
additional alliances and sales channels to further penetrate this market. The
beverage and vending industry's requirement for currency validation equipment is
more than $375 million per annum, or three times that of the gaming market. In
addition, further penetration into the beverage and vending market, as well as
the gaming market, will allow us to achieve further diversification and, if
successful, could reduce our reliance on any one market as well as expand our
customer base.
Our overall sales and marketing strategy in the worldwide gaming and beverage
and vending industries is to deliver a high quality product supported by local
sales and service in order to make our products the market standard for currency
validation products. We successfully pursued this strategy in Australia, South
Africa, Latin America and Russia where our products are accepted in the gaming
market. In order to provide service and support, we have sales and service
offices in London and Moscow as well as distributors in Australia, Russia,
Italy, Southeast Asia, Latin America, the Middle East and South Africa.
To date, our continuing sales have been dependent upon the use of paper or
simulated paper currency in automated payment systems for gaming and vending
applications. A substantial diminution of the use of paper currency as a means
of payment through a return to extensive use of high-value, metal-based coinage
or the widespread adoption of electronic funds transfer systems based on credit,
debit or "smart-cards" could materially and adversely affect our future growth
until and unless we develop other products that are not solely dependent on the
use of paper or simulated paper currency. We are currently investigating, and
will continue to investigate, such opportunities and endeavor to develop new
product applications where markets for such products may exist. However, no
assurance can be given that we will be able to successfully develop and market
such new products and systems.
Products
Since inception, we have endeavored, through research and development and
manufacturing efforts, to provide products that meet the specific performance
requirements of our customers. These requirements are continually evolving as
the markets for currency validators continue to grow and as technological
advances are incorporated into the products' design. We spent approximately
$713,000, $333,000 and $55,000 during fiscal 2007, 2006 and 2005, respectively,
on research and development. Our research and development consists primarily of
efforts to develop new currency validators, expand our product lines into new
applications, as well as to achieve improvements in technology.
8
Our product development efforts have been focused on the design of our latest
generation of validator products, the first of which was Argus(TM), our gaming
validator. We began selling Argus(TM) in January 2001. Sales of this product
represented 19%, 63%, 54%, 51% and 50% of unit validator sales in fiscal 2001,
2002, 2003, 2004 and 2005, respectively. We launched the SA-4 in late fiscal
2005. The SA-4, an improved Argus validator with a faster processor chip,
achieved unit sales representing 36% and 56% of unit validator sales in fiscal
2006 and 2007, respectively.
In the summer of 2002, the Company completed the development of its new product
designed specifically to address the requirements of the vending industry.
Following successful field trials during the summer and fall of 2002, we
commenced a sales and marketing campaign which led to sales commencing in
January 2003 on our new product called "Aurora". Sales of this product
represented 43%, 48%, 47% and 33% of unit validator sales in fiscal 2004, 2005
2006 and 2007, respectively. For Argus(TM) and Aurora products, we have, since
achieving technological feasibility through a detailed program design,
capitalized the cost of software coding and development, and reflect the
amortization of these costs in cost of sales.
Our principal products in fiscal 2007 included the SA-4, Argus(TM) and Aurora
and a wide range of comprehensive currency databases and note stacker
configurations. In fiscal 1997, we planned for a shift in demand toward our
Generation II product line and such sales amounted to 58% of unit sales. During
fiscal 2000, 2001 and 2002, this shift continued and Generation II and Argus(TM)
product line sales accounted for 76%, 89% and 92% of unit sales, respectively.
The Argus product had been designed to be a drop-in replacement for Generation
II products and this focused toward bringing new technological features to the
marketplace. During fiscal 2002 and fiscal 2003, sales substantially shifted
from our Generation II product line to our Argus(TM) product line, which
represented 63% and 80% of gaming validator sales. This shift increased further
in the fourth quarter of fiscal 2003 and represented 96% of gaming sales which
coupled with our increased marketing efforts on Argus, rather than our
Generation II product line, resulted in an increased inventory reserve in the
fourth quarter of 2003. During fiscal 2004, we commenced a phase out program on
this product, however; we will maintain field service and support for warranty
repairs for several more years. We believe we have adequately reserved for
inventory obsolescence for the shift in demand from our Generation I products
and Generation II products to our Generation III products.
Argus(TM) is a worldwide gaming note validator, which can process multi-country
databases, with a substantially greater number of notes (between 2.44 inches to
3.35 inches in width), in all 4 directions. Argus is designed to be a one size
fits all validator that uses essentially the same hardware for every currency
throughout the world. Argus is equipped with a standard bar code reader, which
has the added capability of reading coupons and currency at the same time. The
Argus sensor system has our patented Red, Green, Blue and Infrared (RGBI)
optical array, which generates 56 channels of high-resolution data. It is
arranged in a unique layout that allows for the analysis of a note's signature
(fingerprint) without any gaps between optical sensors. The optical information
provided by Argus is reflective (off the note), transmissive (through the note)
and a combined RGBI pattern of reflective data to create a color signature of
the note being evaluated. The Argus validator also has a high-sensitivity
magnetic sensor and high-resolution Side-Looking Sensors(TM). The Generation III
product line offers a "soft drop analyzer" ("SDA") option. This patented SDA
feature allows the note stacker cassette to maintain and track specific
information such as currency or coupons in the cassette by quantity and
denomination; the specific machine or game that the cassette was removed from;
the acceptance rate of the validator; and time-in/time-out of the cassette from
the gaming machine. This information can be easily downloaded, via a docking
station provided by us, to a personal computer allowing instant
feedback/tracking for the machine operator.
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Aurora is our first validator specifically designed for the worldwide beverage
and vending industries. Aurora is an injection-molded modular design that can be
used in the up-stack or down-stack orientation and uses state of the art optics
in its internal sensor system with our patented RGBI optical array. With field
trials completed in the fall of 2002 and sales commencing in January 2003, this
product quickly replaced most sales of our M-125 and M-150 products. This
product originally targeted for the beverage and vending industry has also been
aggressively marketed in the un-regulated gaming market in 2004 and 2005 with
substantial penetration. We continued marketing efforts in both venues during
fiscal 2006. As with Argus, Aurora is designed to be a one size fits all
validator that essentially uses the same hardware for every currency in the
world.
In fiscal 2005 we launched the SA-4. SA-4 is a worldwide note validator that can
handle bills up to 3.35 inches in width while holding a database of up to 128
different bank notes in four directions, which enables SA-4 to securely validate
multiple currencies without the need to re-program. The DSP chip enables the use
of advanced algorithms, which significantly improve security and performance.
The SA-4 sensor system has our patented Red, Green, Blue and Infrared (RGBI)
optical array and an industry standard bar-code reader that is compatible with
the various Ticket-In Ticket-Out (TITO) systems currently found on many casino
floors worldwide. Many countries use magnetic ink to increase the security of
their currency. The SA-4 currency validator contains a new high-sensitivity
magnetic circuit that doubles the sensitivity to detect these inks. SA-4
contains front and rear sensors, which guarantee the detection of critical bill
position information. SA-4 supports the various industry-standard communication
protocols commonly used for vending, gaming, and video lottery machines.
In fiscal 2007, we launched our Falcon currency validator which uses Digital
Signal Processor (DSP) technology to achieve fast reliable note recognition.
With our proven patented RGBI Optical Technology, Falcon can validate currency
for most countries. Falcon was designed as a faster version of the Aurora
validator and is targeted for low end casinos, kiosks, payment systems and
amusement games.
Product Performance and Warranties
10
Our validator and note stacker products are generally covered by a one-year
warranty against defects in materials or workmanship. This warranty has
essentially doubled with our Generation III validators (Argus, Aurora, Advantage
and SA-4). The Company or our authorized service agents will repair or replace
any units that require warranty service. We do not warrant that our validators
will reject all counterfeit currencies and believe that there is no commercially
available validator that is counterfeit-currency-proof or warranted as such. To
support our increasing international market presence, we have expanded our
warranty and non-warranty support coverage to provide in-country capability in
key worldwide markets (e.g. Australia, Russia, Latin America, South Africa,
Europe and Southeast Asia). In these markets, the local sales and service joint
venture partners and distributors provide warranty labor while our primary
product support in these markets is in the form of warranty parts. Over the last
three years, our cost of warranting our products has varied primarily as a
direct result of the increase or decrease in the unit sales, as well as product
performance. Warranty liability as of September 30, 2007 and 2006 was $108,000
and $309,000, respectively, which represents actual costs incurred and an
estimate of future costs to be incurred.
Marketing and Sales
An "in-house" sales force consisting of sales representatives, sales/product
technicians and customer service support personnel, as well as strategic joint
ventures and distributors, conducts our primary sales and marketing efforts in
both the domestic and international markets. We have company-owned sales and
service offices in London, Moscow and Lima, Peru and exclusive distributors for
the key markets of Australia, New Zealand and the Pacific Rim. In addition, we
have distributors in Russia, Italy, Southeast Asia, Latin America, the Middle
East and South Africa. The overall sales and service network provides effective
international coverage for our products and customers and reflects our
commitment to providing superior service worldwide.
Customer Concentration
During fiscal 2007, our largest customer, GPTA, accounted for approximately 41%
of net sales. A significant portion of GPTA's sales is to Aristocrat
Technologies Australia Pty Ltd. Net sales to the gaming industry accounted for
approximately 86% of our revenues, with the remaining 14% primarily from product
applications in the beverage and vending industry. We sell to a small group of
OEMs in the gaming and beverage and vending industries. The Company must achieve
significantly less dependence on several important customers by expanding into
new countries, expanding our customer base and developing new products to
increase the market size we can market to, such as domestic gaming and the mass
market vending applications. Until such initiatives are achieved, we are at risk
that lower demand for any one product or market, or a loss of a significant
customer, can substantially impact our revenues and net income.
11
Manufacturing
From 1995 through June 30, 2007, our operations had been conducted from a 44,000
square foot leased facility, which housed the manufacturing and administrative
functions in Hauppauge, New York. As of July 2, 2007 our operations have been
conducted from a leased facility, currently 25,550 square feet, which housed the
manufacturing and administrative functions in Bohemia, New York. Annual savings
as a result of the move is estimated to be $250,000.
Our manufacturing operations consist primarily of mechanical and electro-optical
assembly and the provision of wiring harnesses between components and between
the validator and the OEM machine in which the finished product is to be used.
We routinely test all components and have extensive "burn-in" procedures for the
final assembled product. Direct control over fabrication, via our key suppliers,
and testing permits us to shorten our production cycle and protect patented and
proprietary technology. During fiscal 2000, we transitioned a portion of our
manufacturing to demand flow technology. In addition, we have evaluated and will
continue to evaluate our suppliers in an effort to reduce our total cost of
manufacturing, a process that may include vendor consolidation and outsourcing.
As we began our transition to the Argus product line in fiscal 2001, we incurred
increased costs related to lower volumes on the two product lines. As this
transition was substantially completed during fiscal 2002, Argus was expected to
be produced in a more efficient manner at a lower cost, and at the same time
allowing increased flexibility to meet customers' demand. In the fourth quarter
of 2002 these improvements were more than offset by the significant reduction in
sales and production. During fiscal 2003, our introduction of our new Aurora
product with higher initial purchase costs and increased initial manufacturing
costs, coupled with overall lower sales volume than fiscal 2002, resulted in
lower net margins for the year. We did, however, take action to significantly
reduce our purchased component costs on Aurora and Argus by the end of fiscal
2003 by manufacturing and selling off, on a first-in first-out basis, our higher
priced purchased components. In fiscal 2004, we continued our efforts to further
reduce costs and to improve the margin on our Aurora product, and while
improvements in purchasing costs and manufacturing efficiencies had been
achieved by the end of fiscal 2004, the benefits were substantially realized
during fiscal 2005. During fiscal 2006 and 2007, we continued our efforts to
reduce product costs, including potential outsourcing, but the most significant
factor affecting our gross profit percentage was the unit sales levels achieved
and their relationship to manufacturing costs, as well as any impact from sales
and marketing efforts to achieve additional market share and/or reduce our
current inventory levels.
We depend on a limited number of suppliers for various stamped or formed
housings, gears, cogs and wheels and electronic assemblies or components,
including certain microprocessor chips. We believe that concentrating our
purchases from our existing suppliers provides, in certain cases, better prices,
better quality and consistency and more reliable deliveries. We maintain
on-going communications with our suppliers to prevent interruptions in supply
and, to date, generally have been able to obtain adequate supplies in a timely
manner. Many of the electronic components we use, including our microprocessors,
are widely used in many applications and are available from a number of sources.
However, the short wave length light source that forms a critical part of our
optical scanning device is now commercially available from only a very limited
number of suppliers. We believe that if such supply were to become unavailable,
our units could be redesigned to use other light sources and still remain
competitive in the marketplace. However, any interruption in the supply of key
components that cannot be quickly remedied could have a materially adverse
effect on our results of operations.
12
Competition
The market for our products is very competitive and the number of competitors
and their product offerings has increased due to the growing worldwide
marketplace. A number of competitors have significantly greater financial,
technical, sales and marketing resources than the Company. Additionally, certain
of these companies have acquired competitors with synergistic product lines in
an effort to offer a more complete product line. In 1998, Coin Controls Limited
("Coin Controls") acquired Ardac, Inc. ("Ardac"), a domestic currency validator
manufacturer. Coin Controls had primarily focused on the validation of coins
worldwide for the gaming and amusement industries. With the acquisition of
Ardac, Coin Controls changed its name to Money Controls PLC ("MCP") and the two
companies together had the ability to package its coin mechanism with a currency
validator for both the gaming and beverage and vending industries. In November
1999 MCP announced, and subsequently completed, its agreement to be acquired by
Coin Acceptors, Inc. ("Coinco"), a St. Louis-based supplier of primarily vending
products. This resulted in Coinco being a competitor that has an integrated
gaming and beverage and vending product line, as well as relationships in both
industries. Similar competitors are Japan Cash Machines Co., Ltd. ("JCM") and
Mars Electronics International ("MEI"), entities that have products able to
serve both the gaming and the beverage and vending marketplaces.
In the domestic market, certain competitors are divisions or affiliates of
manufacturers of vending machines. For example, Royal Vendors, Inc. is an
affiliate of Coinco. Such validator manufacturers enjoy a competitive advantage
in providing for the significant validator requirements of their affiliates. For
validators sold for use in the beverage, food, snack and lower-priced goods or
amusement markets, Coinco dominates the domestic market. MEI, JCM, Ardac,
International Currency Technologies, Sanyo, Conlux, Coegis and Cashcode Company,
Inc. ("Cashcode") compete with us in the international beverage and vending
market.
The largest supplier of validators used in the domestic gaming and lottery
markets is JCM. Internationally, we compete for gaming machine business with
JCM, MEI, Ardac and Cashcode. In the secondary low-value gaming markets,
Innovative Technology, Ltd. maintains a significant market share due to this
market's price sensitivity and its low-cost approach to this market. We have
focused our marketing efforts on the higher-priced domestic and international
gaming validator business and compete on the basis of service, quality,
durability and performance while maintaining a high level of protection against
tampering and counterfeit currencies.
13
Historically we have been more willing to address smaller markets than our
larger competitors and expect to encounter increased competition as the markets
addressed by our products continue to grow. Also, we have been willing to adapt
our products to a variety of OEMs, which has allowed us to be flexible to expand
when new markets open up to sales. We believe that performance, quality and
protection against tampering and counterfeit currency are as important as price
as competitive factors in the worldwide gaming marketplace.
Intellectual Property
We rely on certain proprietary know-how and trade secrets to protect our
technology. Important components of this proprietary information are our library
of distinguishing characteristics of the currencies, which our validators scan
and validate, and our proprietary algorithms. We have entered into
non-disclosure and secrecy agreements with all of our employees having access to
this technology.
We hold ten U.S. patents as follows: design for "Escrow Box for Coin Operated
Machines," U.S. Patent No. D283,518 issued April 22, 1986; "Paper Currency
Acceptor and Method of Handling Paper Currency for Vending Machines and the
Like," U.S. Patent No. 4,884,671 issued December 5, 1989; "Anti-fraud Currency
Acceptor," U.S. Patent No. 5,259,490 issued November 9, 1993; "Bill Accumulating
and Stacking Device," U.S. Patent No. 5,322,275 issued June 21, 1994; "Soft
Count Tracking System," U.S. Patent No. 5,630,755 issued May 20, 1997; "Paper
Currency Validator (Side-Looking Sensors)," U.S. Patent No. 5,806,649 issued
September 15, 1998; "Electrical Switch Connectors," U.S. Patent No. 5,842,879
issued December 1, 1998; "Stacker Mechanism for Stacking Bank Notes" U.S. Patent
No. 5,899,452 issued May 4, 1999; "Apparatus and Method for Detecting a Security
Feature in a Currency Note," U.S. Patent No. 6,104,036 issued August 15, 2000;
and "Bank Note Validator (RGBI)" U.S. Patent No. 6,223,876 issued May 1, 2001.
Certain patents cover technology used in our first, second and third generation
validator product lines and the remaining patents cover technology used in
certain special models. In addition, on September 30, 1999 we filed a reissue
application with the U.S. Patent and Trademark Office to amend and broaden the
claims of U.S. Patent No. 5,630,755.
In addition to our U.S. patents and pending application, we have also applied
for patent protection in a large number of international markets. If
corresponding foreign patents are obtained, we believe that these patents could
provide important protection for certain technological advantages our validators
possess in international markets. However, we do not believe that we will be
materially adversely affected if these patents are not issued. No assurances can
be given that any patent applications will result in the issuance of additional
patents. We have obtained patents in Australia, New Zealand and South Africa
under the Eurasian Patent Convention corresponding to U.S. Patent No. 6,223,876
covering the use of short wave length light in a validator to discern the color
and other characteristics of bills being scanned. In addition we have obtained a
patent in New Zealand corresponding to U.S. Patent No. 5,630,755 covering a
system for monitoring and tracking money collected from a gaming machine and the
like.
14
In September 2006, we announced that we had filed for patents on revolutionary
new optical technology expected to be unveiled in a new product launch during
fiscal 2008.
We have licensed certain patented proprietary technology covered by U.S. Patent
No. 5,630,755 to Ardac, Inc. in 1999. Such license settled a patent infringement
suit initiated by the Company and provides for the payment of license fees based
on unit sales of certain of Ardac's products.
In March 2004, we entered into a Cross-License Agreement with JCM whereby we
granted JCM a non-exclusive, royalty-free license for U.S. Patent No. 5,630,755
and JCM granted us a non-exclusive, royalty-free license to use and install the
ID-003 software in bill validators manufactured by or on behalf of the Company
and sold by us.
Although we have not received any bona fide claims asserting infringement of the
proprietary rights of third parties, there can be no assurances that third
parties will not assert such claims against us in the future or that any such
assertion may not require us to enter into royalty arrangements or result in
protracted or costly litigation.
Government Regulation
As a supplier of paper currency validators to customers subject to gaming
regulations and postal regulations, we are indirectly subject to such
regulations that are reflected in customer purchase orders or customer
specifications. We believe that we are in full compliance with such regulations.
Any failure to comply with such regulations, however, could have a materially
adverse effect on our results of operations.
Employees
On December 31, 2007 in our Bohemia, NY location, we had 71 employees,
consisting of 2 executives; 4 sales and customer service representatives; 19
engineers and software developers, and technical support representatives; 6
materials, quality control and quality assurance personnel; 6 administrative and
clerical personnel; and 34 assembly/manufacturing personnel. In addition we have
6 employees in the UK and 2 technicians in Moscow. We believe our relationship
with our employees is good.
Recent Developments
On January 15, 2008, Global Payment Technologies, Inc. (the "Company") entered
into a Securities Purchase Agreement (the "Purchase Agreement") with Exfair Pty
Ltd, an Australian company ("Exfair") and GPTA. The transactions contemplated
thereunder are expected to be consummated at two closings (as discussed below).
First Closing
15
At the first closing on January 15, 2008 (the "First Closing"), the Company
issued to GPTA a one-year secured term note in the principal amount of $440,000
(the "Secured Note") that bears interest at a rate equal to the prime rate plus
3.0% (provided, that the interest rate shall not be less than 9.0%) and is
secured by all the assets of the Company pursuant to a Security Agreement (the
"Security Agreement"). Additionally, the Company entered into a Voting Agreement
with Exfair and certain director-stockholders of the Company, wherein such
stockholders agreed to vote in favor of (i) the election of certain persons to
the Board of Directors of the Company and (ii) an amendment to Company's
Certificate of Incorporation establishing a class of Preferred Stock (as
discussed below). Additionally, the Company entered into a Technology License
Agreement with GPTA, pursuant to which the Company has agreed to grant a license
to GP Australia to utilize certain databases and proprietary operating systems
if the Company is unable or willing to continue to provide support for such
databases and operating systems of the Company, and the parties thereto further
agreed that if the Company commences bankruptcy proceedings, then the Company
would permit GPTA to duplicate any of the Company's intellectual property as of
the commencement of such bankruptcy proceedings. GPTA and the Company also
agreed to make certain technical amendments to the Distribution Agreement dated
September 1, 2006.
Second Closing
At the second closing, which will only occur upon the Company filing its Annual
Report on Form 10-K with the Securities and Exchange Commission (the "SEC") by
the date set forth in the Purchase Agreement (the "Second Closing"), the Company
will issue (i) a Convertible Note (the "Convertible Note") in the principal
amount of $400,000 to Exfair, which note may be converted into two million
shares of Series A Convertible Preferred Stock, par value US$0.01 per share, of
the Company (the "Preferred Stock") and (ii) a four-year Common Stock Purchase
Warrant (the "Warrant") to purchase 5,784,849 shares of Common Stock of the
Company at an exercise price of $0.28 per share. The Convertible Note matures in
June 2009.
The Company's failure to file its Annual Report on Form 10-K with the SEC by the
date set forth in the Secured Note constitutes an event of default thereunder
which would allow GPTA to accelerate the Secured Note and declare all
indebtedness, including principal, accrued interest and all other payments under
the Secured Note to be immediately due and payable.
Effective as of the consummation of the Second Closing, all current Company
directors except Richard Gerzof will resign and new directors appointed. In
addition, the Company will enter into an Employment Agreement with Mr. Soussa,
pursuant to which he will be employed as the Company's Chief Executive Officer
for a two-year term commencing on the date of the Second Closing at an annual
base salary of $300,000. Mr. Soussa will also be awarded options to purchase
500,000 shares of the Company's Common Stock in accordance with the Company's
stock option plan. In connection with the transactions contemplated by the
Purchase Agreement, effective as of the Second Closing, William McMahon will
resign as a director of the Company and as its Chief Executive Officer. William
McMahon will remain at the Company as its President and Chief Financial Officer
and enter into a new Employment Agreement with the Company for a two-year term
with an annual base salary of $200,000. Mr. McMahon will also be awarded options
to purchase 250,000 shares of the Company's Common Stock in accordance with the
Company's stock option plan.
16
The Company has agreed to seek the approval of the stockholders of the Company
to amend the Certificate of Incorporation to authorize a class of Preferred
Stock. Upon the approval of such amendment and the filing thereof with the
Secretary of State of the State of Delaware, the Convertible Note will
automatically be converted into 2,000,000 shares of Series A Convertible
Preferred Stock, par value US$0.01 per share, with such rights and preferences,
including, but not limited to:
(a) Voting Rights. During the first 18 months after the designation of the
Series A Preferred Stock, each holder of shares of the Series A Preferred Stock
shall be entitled to five (5) times the number of votes equal to the number of
shares of Common Stock into which such Holder's shares of Series A Preferred
Stock could be converted and after such first 18 month period, each holder of
shares of the Series A Preferred Stock shall be entitled to the number of votes
equal to the number of shares of Common Stock into which such Holder's shares of
Series A Preferred Stock could be converted. During the first 18 months after
the designation of the Series A Preferred Stock, so long as any shares of Series
A Preferred Stock are outstanding, the holders of Series A Preferred Stock shall
be entitled to designate three (3) members of the Board of Directors. During the
first 18 months after the Series A Preferred Stock has been designated, if the
number of members of the Board of Directors is increased to more than five (5),
the number of directors designated by the holders of Series A Preferred Stock
shall increase such that the Series A Preferred Stock shall designate a majority
of the number of authorized Board of Director members.
(b) Dividends. The Series A Preferred Stock will, with respect to payment of
dividends and rights upon liquidation, dissolution or winding-up of the affairs
of the Company, rank senior and prior to the Common Stock of the Company, and
any additional series of preferred stock which may in the future be issued by
the Company and are designated in the amendment to the Certificate of
Incorporation or the certificate of designation establishing such additional
preferred stock as ranking junior to the Series A Preferred Stock. The holders
of the Series A Preferred Stock will be entitled to receive dividends if, when
and as declared by the Board of Directors from time to time, and in amounts
determined by the Board of Directors; provided, however, no dividends shall be
paid on any share of Common Stock unless a dividend is paid with respect to all
outstanding shares of Series A Preferred Stock in an amount for each such share
of Series A Preferred Stock equal to or greater than the aggregate amount of
such dividends for all shares of Common Stock into which each such share of
Series A Preferred Stock could then be converted.
(c) Liquidation Value. The liquidation value per share of Series A Preferred
Stock, in case of the voluntary or involuntary liquidation, dissolution or
winding-up of the affairs of the Company, will be an amount equal to $0.20,
subject to adjustment in the event of a stock split, stock dividend or similar
event applicable to the Series A Preferred Stock.
17
(d) Additional Issuances of Securities. Except for certain issuances by the
Company, If, at any time while the Series A Preferred Stock is outstanding, the
Company sells or grants any option to purchase or sells or grants any right to
reprice its securities, or otherwise disposes of or issues (or announces any
sale, grant or any option to purchase or other disposition) any Common Stock or
Common Stock equivalents entitling any person to acquire shares of Common Stock
at an effective price per share that is lower than the then applicable
conversion price, then the conversion price shall be reduced to such lower
price.
(e) Modification of Series A Preferred Stock. So long as any shares of Series A
Preferred Stock remain outstanding, the Company, shall not, without the vote or
written consent by the holders of more than fifty percent (50.0%) of the
outstanding Series A Preferred Stock, voting together as a single class, and
unless approved by the Board of Directors: (i) redeem, purchase or otherwise
acquire for value (or pay into or set aside for a sinking or other analogous
fund for such purpose) any share or shares of its Capital Stock, except for
conversion into or exchange for stock junior to the Series A Preferred Stock;
(ii) alter, modify or amend the terms of the Series A Preferred Stock in any
way; or (iii) create or issue any Capital Stock of the Company ranking pari
passu with or senior to the Series A Preferred Stock either as to the payment of
dividends or rights in liquidation, dissolution or winding-up of the affairs of
the Company; increase the authorized number of shares of the Series A Preferred
Stock; re-issue any Series A Preferred Stock which have been converted or
otherwise acquired by the Company in accordance with the terms hereof.
The Board of Directors awarded Richard Gerzof, Chairman of the Board of the
Company, immediately exercisable options to purchase 250,000 shares of Common
Stock of the Company at an exercise price of $0.20 per share, the fair market
value as of the date of grant. The Board of Directors also awarded Elliott
Goldberg, Matthew Dollinger and William Wood, directors, immediately exercisable
options to purchase 100,000, 18,500 and 3,500 shares of Common Stock,
respectively, at the exercise price of $0.20 per share, the fair market value as
of the date of grant.
The Board of Directors also amended the Company's 2006 Stock Option Plan to
eliminate the requirement that options must be exercised, to the extent they
were exercisable, within a three month period following the date of termination
of employment or directorship, even if by disability or death.
Special Note Regarding Forward-Looking Statements
A number of statements contained in this report 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 a limited base of customers for a significant portion of sales;
the Company's dependence on the paper currency validator market and its
potential vulnerability to technological obsolescence; the possible impact of
competitive products and pricing; 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; uncertainties with respect to the Company's business
strategy; general economic conditions in the domestic and international market
in which the Company operates; potential shortages of key parts and/or raw
materials; potential difficulties in managing growth; dependence on key
personnel; the relative strength of the United States currency; and other risks
described in the Company's Securities and Exchange Commission filings.
18
Item 1A. Risk Factors
We have not been profitable for the past few years.
We have had a large decline in sales this year and we have not been profitable
for the past few years. Our new product initiatives may not be enough to allow
us to regain profitability.
We are dependent on the paper currency validator and gaming market.
In fiscal 2007, 86% of our sales were to the gaming market. Any significant
technological advances to increased use of smart cards could cause a reduction
in our revenues. Any changes in government regulations, as we experienced in
Russia, could have an adverse effect on our revenue.
We are dependent on a small number of customers.
In fiscal 2007, one customer accounted for 41% of our sales. The loss of this
customer could have a significant adverse effect on our revenue.
Some product components have a long lead time.
Some of our product components may take in excess of 12 weeks to obtain and a
shortage of those parts may have a negative effect on our revenue.
Some components are single sourced.
Some of our products can only be produced by one vendor. The loss of this vendor
could have a negative effect on our revenue.
Some of our inventory may become obsolete.
We hold inventory for warranty and repairs and replacements. We also anticipate
sales volumes from our customers due to lead times required to build inventory.
There is a risk that orders may be less than anticipated for certain product
models and that we may have excess inventory or inventory which becomes
obsolete.
19
We may have difficulty competing with larger companies that offer similar
products which may result in decreased revenue
We believe that we have a very competitive product; however, many of our
competitors have greater resources than we have and can invest more in product
development and marketing or develop pricing strategies which may adversely
affect our revenues.
We are dependent on management and our engineers and a loss of key employees
could disrupt our business and our financial performance could suffer.
Our business is largely dependent upon our senior executive officer, William
McMahon, our interim President, chief executive officer and chief financial
officer. Our business may be adversely affected if any key management personnel
or other key employees left our employ.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
On July 2, 2007, the Company moved to a new leased facility located in Bohemia,
New York. The facility has 25,550 square feet and houses the manufacturing and
administrative functions. Future minimum rentals, which aggregate $1,754,499,
are as follows: During the first lease year, the annual rent will be $214,620,
second lease year $221,059, third lease year $227,690, fourth lease year
$234,521, fifth lease year $241,557, sixth lease year $248,803, seventh lease
year $256,268, eighth lease year (five months) $109,981.
Item 3. Legal Proceedings
The company is a defendant in matters which arose in the ordinary course of
business. In the opinion of management, the ultimate resolution of this matter
would not have a material adverse effect on the Company's consolidated financial
position, results of operations or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
20
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
a) Market Information
The Company's Common Stock is listed and trades on the Over the Counter Bulletin
Board under the symbol GPTX.OB. The following table sets forth, on a per share
basis, the high and low sale prices for the Company's Common Stock for each
quarter of fiscal 2006 and 2007. During such period the Common Stock was traded
on the NASDAQ National Market System.
21
Quarter Ended High Low
----------------------------------- ---------------
December 31, 2005 3.58 2.09
March 31, 2006 2.80 2.03
June 30, 2006 2.49 1.10
September 30, 2006 1.99 1.25
December 31, 2006 2.20 .94
March 31, 2007 1.72 .83
June 30, 2007 1.32 .34
September 30, 2007 .71 .21
|
b) Holders
The approximate number of beneficial holders and holders of record of the
Company's Common Stock as of March 31, 2007 were 1,246 and 34, respectively.
c) Dividends
The holders of Common Stock are entitled to receive such dividends as may be
declared by the Company's Board of Directors. The Company has not declared or
paid any cash dividends and does not expect to declare or pay any cash dividends
in the foreseeable future.
d) Securities Authorized for Issuance Under Equity Compensation Plans
The table below sets forth certain information as of the Company's fiscal year
ended September 30, 2007 regarding the shares of the Company's common stock
available for grant or granted under stock option plans that (i) were adopted by
the Company's stockholders and (ii) were not adopted by the Company's
stockholders.
Number of securities
remaining available
Weighted-average for future issuance
Number of securities exercise price under equity
to be issued upon of outstanding compensation plans
exercise of options, (excluding securities
outstanding options, warrants and in the first column
warrants and rights rights of this table)
------------------- ------ --------------
Equity 711,360 $3.18 1,448,485
compensation
plans approved by
security holders
|
Equity Not Applicable Not Applicable Not Applicable
compensation
plans not
approved by
security holders
22
Item 6. Selected Financial Data
FINANCIAL HIGHLIGHTS
(In thousands, except earnings per share)
Year Ended September 30 2003 2004 2005 2006 2007
-------------------------- ------------ ------------- ------------- ------------ -----------
Net Sales $ 26,076 $ 24,381 $ 25,886 $ 14,303 $ 11,602
Net loss (5,677) (1) (1,690) (2) (573) (4,143) (4) (5,591)
Diluted loss per share (3) (1.02) (0.30) (0.10) (0.67) (0.89)
Total assets 17,775 16,267 16,714 11,765 6,802
Long-term debt obligations 0 1,354 79 40 0
Stockholders' equity 11,677 11,107 13,371 8,837 3,470
|
(1) Based on the Company's continued losses, and related uncertainty as to the
Company's ability to generate sufficient taxable income to realize the full
value of its deferred income tax asset, the Company recorded a full
valuation allowance and related income tax expense in the fourth quarter of
fiscal 2003.
(2) Includes a gain of $78,000 from the sale of the remaining portion of the
Company's unconsolidated South African affiliate.
(3) The weighted average shares outstanding used in the calculation of diluted
loss per share did not include potential shares outstanding because they
were anti-dilutive.
(4) Includes gain on sale of investments in unconsolidated affiliates of
$307,000.
23
QUARTERLY INFORMATION
(In thousands, except earnings per share)
Quarter Ended Dec. 31 Mar. 31 June 30 Sept. 30 Year
----------- ------------ ------------ ------------ -------------
(restated)
Fiscal 2007
----------------------------------
Net sales $ 3,964 $ 2,802 $ 3,103 $ 1,733 $ 11,602
Gross profit (loss) 712 627 285 (234) 1,390
Net loss (1,249) (1,330) (1,606) (1,406) (5,591)
Basic loss per share (0.20) (0.21) (0.26) (0.21) (0.88)
Diluted loss per share (1) (0.20) (0.21) (0.26) (0.21) (0.88)
Fiscal 2006
----------------------------------
Net sales $ 3,905 $ 4,027 $ 3,165 $ 3,206 $ 14,303
Gross profit (loss) 685 628 (18) 480 1,775
Net loss (790) (543) (1,889) (921) (4,143)
Basic loss per share (0.13) (0.09) (0.30) (0.15) (0.67)
Diluted loss per share (1) (0.13) (0.09) (0.30) (0.15) (0.67)
|
(1) The weighted average shares outstanding used in the calculation of diluted
loss per share, for periods in which the Company had a net loss, did not
include potential shares outstanding because they were anti-dilutive.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Fiscal year ended September 30, 2007 compared with September 30, 2006
Sales Net sales for fiscal 2007 decreased by 18.9% to $11,602 million as
compared with $14,303 million in fiscal 2006. The largest decrease in sales was
in the Russian market which continues to be adversely affected by the
restrictions put on gaming by the Russian government. Last year's sales included
special incentives to customers in order to reduce inventory levels in the
Company's Aurora product. Gaming sales were $10.0 million in fiscal 2007 or 86%
of sales, as compared to $11.3 million, or 79% of sales, in fiscal 2006.
Beverage and vending sales were $1.6 million, or 14% of sales, in fiscal 2007 as
compared to $3.0 million, or 21% of sales, in fiscal 2006. Net sales to
international customers accounted for 91 % and 90% of net sales in fiscal 2007
and 2006, respectively.
24
Gross Profit
Gross profit decreased to $1,390 million, or 11% of sales, as compared with
$1,775 million, or 12% of sales, in the prior-year period. The decrease in gross
profit was affected by a 18.9% sales decline from fiscal 2006 while
manufacturing expenses were virtually unchanged. This resulted in significant
under absorption of overhead. The most significant factor affecting the
Company's gross profit percentage will be the unit sales levels achieved and
their relationship to manufacturing costs, as well as any impact from sales and
marketing efforts to achieve additional market share and/or reduce inventory
levels.
Operating Expenses
Operating expenses decreased to $6,975 million, or 60% of sales, in fiscal 2007
from $7,429 million, or 51% of sales, in fiscal 2006. This decrease of $454,000
is primarily the result of lower payroll and travel-partially offset by
increased expenses resulting from the development and testing of the Company's
new products-Falcon and Eagle-and an increase due to moving costs.
Other (Expense) Income
During fiscal 2006, the Company sold its interests in its affiliated customers.
Prior to such dispositions, the Company recognized revenue upon shipment and
passage of title to its affiliated customers, but deferred its proportionate
share of the related gross profit on product sales until sales were made by the
affiliated customers to third-party end users (customers). Included in the
results of operations for fiscal 2006 were the Company's net share of profits
through August 31, 2006, the effective date of sale, of $648,000.
Interest Expense
Interest expense increased to $61,000 for fiscal 2007 as compared to $8,000 in
fiscal 2006. The increase was as a result of the costs of borrowing under the
Line of Credit.
Income Taxes
With respect to the provision for income taxes, the effective rate was a benefit
of .6% in fiscal 2007 as compared to a tax benefit of 0.0% in fiscal 2006. This
change in the effective tax rate is primarily the result of fiscal 2007
operating losses for which no benefit has been recognized. The Company 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
September 30, 2007. 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
25
The net loss for fiscal 2007 was ($5,591,000), or ($0.89) per share, as compared
with ($4,143,000), or ($0.67) per share, in fiscal 2006.
Fiscal year ended September 30, 2006 compared with September 30, 2005
Sales
Net sales for fiscal 2006 decreased by 44.7% to $14.303 million as compared with
$25.886 million in fiscal 2005. This decrease was due to lower sales to the
gaming market, in which sales declined 51% from $23.1 million in fiscal 2005 to
$11.3 million in fiscal 2006. Gaming sales to the Australian market declined 50%
as the Company's distributor reduced its short term inventory requirements to
better manage current market conditions in its territory. Sales into the Russian
market declined by over 30% as a result of government regulations which
temporarily prohibit the placement of new gaming devices. These declines were
partially offset by increased sales into the Asian and South African markets,
which reflected some growth in the Macau gaming area of China as well as
increased sales efforts by the Company's distributor in South Africa. Beverage
and vending sales for fiscal 2006 were $3.0 million, or 21% of sales, as
compared to $2.7 million or 10.6% of sales, an increase of 10%, primarily in the
beverage sector. Net sales to international customers accounted for 90.6% and
92.7% of net sales in fiscal 2006 and 2005, respectively.
Gross Profit
Gross profit decreased to $1.775 million, or 12.4% of net sales, as compared
with $6.867 million or 26.5% of net sales in the prior-year period. The decrease
in gross profit was primarily the result of sales incentives to reduce Aurora
inventory levels as well as attempting to increase the Company's market share
with the Aurora product, and the effect of a 45% sales decline from fiscal 2005
while manufacturing expenses were virtually unchanged. This resulted in
significant under absorption of overhead. In addition, the Company increased the
inventory reserve by $432,000 in fiscal 2006 to provide for obsolescence in its
Advantage product line.
26
Operating Expenses
Operating expenses increased to $7.429 million or 51.9% of net sales in fiscal
2006 from $7.051 million or 27.2% of net sales in fiscal 2005, an increase of
$378 thousand or 5.4%. This increase was due, in part, to a severance payment
made to a former officer of $150,000, research and development cost increases
related to the new products planned to be introduced in fiscal 2008 and an
increase in rent expense related to a short term extension of the lease until
June 2007.
Equity in income of unconsolidated affiliates and Gain on sale of investments in
unconsolidated affiliates
During fiscal 2006, the Company sold its interests in its affiliated customers.
Prior to such dispositions, the Company accounted for its results of operations
using the equity method. Included in the Company's results of operations are the
Company's net share of profits through August 31, 2006, the effective date of
sale, of $648,000. For fiscal 2006, the Company increased its equity in income
of unconsolidated subsidiaries by $535,000 as compared to a reduction in fiscal
2005 of $33,000, which amounts represent the effect of the Company's share of
the gross profit on sales of the Company's products to these affiliates, which
were unsold by the affiliates as of the Company's fiscal year end.
The accompanying consolidated results of operations include a gain of
approximately $307,000 relating to the sale of the Company's interests in its
unconsolidated affiliates in fiscal 2006.
Interest Expense
Included in interest expense for fiscal 2005 was $568,000 as a result of the
amortization of debt discount. During fiscal 2005 the term loan was fully repaid
and the debt discount was fully amortized.
Income Taxes
With respect to the provision for income taxes, the effective rate was 0.0% in
fiscal 2006 as compared to a tax benefit of 3.5% in fiscal 2005. This change in
the effective tax rate is primarily the result of fiscal 2006 operating losses
for which no benefit has been recognized. The Company 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 September 30, 2006.
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
The net loss for fiscal 2006 was ($4,143,000), or ($0.67) per share, as compared
with ($573,000), or ($0.10) per share, in fiscal 2005. Liquidity and Capital
Resources
27
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, fund inventory purchase
commitments, and service principal and interest payments on the Company's
indebtedness. At September 30, 2007, the Company's cash and cash equivalents
were $879,000 as compared with $2,352,000 at September 30, 2006. A significant
portion of the Company's cash balance in the amount of $498,000 and $741,000, as
of September 30, 2007 and 2006, respectively, consists of currency used to test
the Company's products. The Company had $280,000 of cash held in escrow as a
result of its sale on September 2, 2006 of the Company's 50% interest in GPTA.
The escrow was released on the one year anniversary of the transaction.
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 was 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 was collateralized by substantially all assets of the Company.
Interest was 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. At September 30, 2004, $1,425,000 was outstanding
under the CTN. During the year ended September 30, 2005, the Company repaid
$50,000 and Laurus converted the remaining $1,375,000 of the CTN into 323,000
shares of common stock, resulting in the full repayment of the CTN.
The value allocated to the warrants resulted in a debt discount of $506,000
which was being recognized as interest expense over the term of the CTN.
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 was being recognized as interest expense over the term of the CTN.
Interest expense was computed utilizing the interest method, which resulted in
an effective yield over the term of the CTN. Amortization for the year ended
September 30, 2005 was $568,000. During fiscal 2005, the entire amount of debt
discount had been 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 (the RN
and the MBN 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%. During the year
ended September 30, 2005, Laurus converted $750,000 of the MBN into 176,000
shares of common stock. At September 30, 2007, $353,000 was outstanding under
the MBN or the RN.
28
The agreements provided that Laurus would not convert debt or exercise warrants
to the extent that such conversion or exercise would result in Laurus, together
with its affiliates, beneficially owning more than 4.99% of the outstanding
shares, including warrants, of the Company's common stock at the time of
conversion or exercise.
The Company's credit facility with Laurus was paid in full on the maturity date
of November 15, 2007. The Company is in discussion to provide alternative
financing. The Company believes, but has no assurance, that it will replace the
line.
Net cash used in operating activities was $1,853,000 in fiscal 2007. This amount
was due to a net loss for the period, adjusted for non-cash items, of
$1,363,,000, decreased accounts receivable of $1,026,000, decreased prepaid
expenses and other current assets of $103,000, decreased accrued expenses and
other liabilities of $310,000, decreased inventory of $1,172,000, and increased
accounts payable of $420,000.
Net cash used in operating activities was $2,330,000 in fiscal 2006. This amount
was due to a net loss for the period, adjusted for non-cash items, of
$1,054,000, decreased accounts receivable of $1,676,000, decreased income taxes
receivable of $25,000, increased accrued expenses and other liabilities of
$115,000 reduced by increased inventory of $530,000, and decreased accounts
payable of $513,000.
Net cash used in operating activities was $434,000 in fiscal 2005. This amount
was due to a net loss for the period, adjusted for non-cash items, of
$1,767,000, decreased prepaid expenses and other assets of $42,000, decreased
accounts receivable of $824,000, and decreased income taxes receivable of
$90,000, reduced by increased inventory of $2,830,000, primarily the result of
an increase in the Company's Aurora product due to lower Russian orders and the
slowdown in the German cigarette vending market, due to significant German tax
increases, coupled with the Company's commitment to receive inventory from its
vendors, decreased accounts payable of $181,000 and decreased accrued expense
and other current liabilities of $146,000.
The Company sells its products primarily to international markets on terms
generally greater than 30 days. The Company granted 90 day payment terms to its
Australian distributor. Based upon history, and the Company's current review of
its accounts receivable, it believes it is adequately reserved for potentially
uncollectible accounts. However, given the Company's sales and accounts
receivable are concentrated to a small group of customers and in certain
markets, any changes in conditions could cause a material impact to its net
income (loss) and cash flow. Additionally, the timing and size of the Company's
future Aurora sales orders, coupled with the continued commitments to receive
certain component parts, as well as the potential impact of current and future
sales programs, could have an impact on cash from operations and on gross profit
percentages.
29
Net cash provided by investing activities amounted to $112,000 in fiscal 2007 as
compared with net cash provided by investing activities of $1,622,000 in fiscal
2006 and net cash used in investing activities of $340,000 in fiscal 2005. In
fiscal 2006 the Company received $1,798,000 from the sale of its interests in
Global Payment Technologies Australia Pty Ltd and eCash Pty Ltd. Further, the
Company received $574,000 in dividend distributions, primarily from its
Australian affiliate, during fiscal 2006. There were no dividend distributions
in fiscal 2005 or 2007. The remaining investing activities of $168,000 in fiscal
2007, $176,000 in fiscal 2006, and $340,000 in fiscal 2005 were for the purchase
of property and equipment primarily for the Company's manufacturing operations.
Net cash used in financing activities consisted of net repayments of bank
borrowings of $60,000 in fiscal 2007 as compared with $(48,000) in fiscal 2006
and $63,000 in fiscal 2005. The Company had net borrowings on its Line of Credit
of $353,000 in fiscal 2007. The remaining cash provided by financing activities
of $492,000 in fiscal 2005 was from the issuance of stock upon the exercise of
common stock options and warrants.
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business. The
Company has suffered recurring losses and deficiencies in cash flows from
operations. Accordingly, the Company will be required to identify additional
revenue resources, raise additional capital and/or significantly reduce its
expenses in order to pay its obligations as they become due. As discussed in
Note 12 to the Company's consolidated financial statements, the Company entered
into a debt financing agreement and is undertaking a corporate restructuring to
attempt to improve operating results and develop new products, however, there
can be no assurance that such plans will be successful. These uncertainties
raise substantial doubt about the Company's ability to continue as a going
concern. The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability of the carrying amount of assets or
the amount of liabilities that might result from the outcome of these
uncertainties.
Commitments:
At September 30, 2007, future minimum payments under non-cancelable leases and
principal payments to be made for long-term debt maturing over the next five
years and thereafter are as follows in ($000):
30
Operating Lease Debt Repayments
Fiscal year ended September 30,
2008 $ 321 $ 393
2009 242
2010 249
2011 255
2012 263
Thereafter 591
--------------- ------------------
Total $ 1,921 $ 393
--------------- ------------------
|
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 September 30, 2007, purchase order commitments approximated
$4.0 million and will be used for production requirements during fiscal 2008 and
beyond.
31
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:
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 carrying amount 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.
Capitalized Software 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.
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. Prior to the sale of the Company's interest in Australian
unconsolidated affiliates, the Company deferred its pro rata share of gross
profit on sales for the inventory of the affiliates until such time as its
affiliates sold to a third party customer.
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 in the case of its Argus, Aurora, SA-4, and Advantage
products, from the date of initial purchase. The warranty does not cover any
losses or damages 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.
32
Reserve for Uncollectible Accounts Receivable:
At September 30, 2007, our accounts receivable balance was $1 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 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 or our
customers experience financial difficulty our reserve may need to increase.
Investments in Unconsolidated Affiliates:
During fiscal 2006, the Company sold its interest in its affiliated entities.
Prior to such disposition, the Company applied the equity method of accounting
to its investments (including advances) in entities where the Company had
non-controlling ownership interests of 50% or less and exercised a significant
influence on that entity. The Company's share of these affiliates' earnings or
losses is included in the consolidated statements of operations through the date
of sale. Prior to the sale of its affiliates, the Company eliminated its pro
rata share of gross profit on sales to such affiliates for inventory on hand at
the affiliates. Effective February, 2005, when the Company exchanged its 25%
interest in Abacus-UK for a 12.5% interest in Evolve-UK, it accounted for this
investment on a cost basis. 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 in accordance with the provisions of
Statement of 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. As a result of its
review, the Company does not believe that any impairment exists in the
recoverability of its long-lived assets as of September 30, 2007.
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 the impact of the fiscal
2007, 2006 and 2005 losses and uncertainty as to the ability to generate future
taxable income to sufficiently realize those assets. 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.
33
Debt Discounts:
Pursuant to the Securities Purchase Agreement with Laurus the Company received
proceeds of $1,500,000 from the issuance of the CTN 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 was being recognized as interest expense over the term of the CTN.
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 was being recognized as interest expense over the term of the CTN.
Interest expense was computed utilizing the interest method, which results in an
effective yield over the term of the CTN. During the year ended September 30,
2005, the Company repaid $50,000 and Laurus converted $1,375,000 of the CTN into
323,000 shares of common stock, resulting in the full repayment of the CTN. As a
result of the conversion of the balance of the CTN, the entire amount of debt
discount has been recognized as interest expense and charged to operations.
Share-Based Compensation:
Effective October 1, 2005, the Company adopted SFAS No. 123 (Revised 2004),
Share Based Payment ("SFAS No. 123R"), which requires a public entity to measure
the cost of employee, officer and director services received in exchange for an
award of equity instruments based on the grant date fair value of the award.
SFAS No. 123R supersedes the Company's previous accounting under SFAS No. 123,
Accounting for Stock-Based Compensation ("SFAS No. 123"), which permitted the
Company to account for such compensation under Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB No. 25").
Pursuant to APB No. 25, and related interpretations, no compensation cost had
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.
In advance of implementing the requirements of SFAS No. 123R, the Company, in
September 2005, accelerated the vesting of all unvested stock options previously
awarded to employees, officers and directors in order to avoid the recognition
of compensation expense under SFAS No.123R, with respect to these options. Any
option grants since then have resulted in compensation expense.
The Company adopted SFAS No. 123R using the modified prospective transition
method, which requires that compensation cost be recorded as earned for all
unvested stock options outstanding at the beginning of the first fiscal year of
adoption of SFAS No. 123R based upon the grant date fair value estimated in
accordance with the original provisions of SFAS No. 123 and for all share-based
payments granted subsequent to the adoption, based on the grant date fair value
estimated in accordance with the provisions of SFAS No. 123R. In accordance with
the modified prospective transition method, the Company's consolidated financial
statements for prior periods have not been restated to reflect, and do not
include, the impact of SFAS No. 123R.
34
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Fiscal 2007 saw continued moderation in the level of inflation. In order to
offset the resultant rise in the costs of operations, the Company has assessed,
and will continue to assess, ways to gain efficiencies and reduce operating and
manufacturing costs, thereby increasing profit margins and improving its
operations.
While the Company operates in many international markets, it does so principally
through the sale of its products with invoices denominated in the United States
currency. Additionally, the Company operates without the use of derivative or
hedging instruments. The Company is subject to the effects caused by the
strengthening or weakening of the United States currency, and as such may
consider the use of currency instruments in the future.
During fiscal 2006, the Company sold its interests in its privately held
unconsolidated foreign companies which it used for the purposes of conducting
its business overseas and attaining its strategic objectives. For investments in
which no public market exists, our policy is to regularly review the operating
performance, recent financing transactions and forecasts for such companies in
assessing the net realizable values of the investments in these companies.
Impairment losses on equity investments are recorded when events and
circumstances indicate that such assets are impaired and the decline in value is
other than temporary.
Item 8. Financial Statements and Supplementary Data
The financial statements of the Company required by this item are set forth
beginning on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
35
Item 9A. Controls and Procedures
Disclosure Controls
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 annual report and believe
that the system is operating effectively to ensure appropriate disclosure.
Changes in Internal Control Over Financial Reporting
The Chief Executive Officer and the Chief Financial Officer conducted an
evaluation of our internal control over financial reporting (as defined in
Securities Exchange Act Rule 13a-15 (f)) ("Internal Control") to determine
whether any changes in Internal Control occurred during the fiscal year ended
September 30, 2007, that have materially affected or which are reasonably likely
to materially affect Internal Control. Based on that evaluation, no such
occurred during such period.
The Company is not an "accelerated filer" (i.e. the Company's public float is
less than $75 million) for the fiscal year 2007; hence, the internal controls
certification and attestation requirements of Section 404 of the Sarbanes-Oxley
act will not be applicable to the Company until the fiscal year ending September
30, 2008. Notwithstanding the fact that these internal control requirements are
not applicable to the Company at this time, the Company has been reviewing its
internal control procedures.
Based upon the evaluation conducted by management in connection with the audit
of the Company's financial statements for the year ended September 30, 2007, the
Company identified material weaknesses in our internal control over financial
reporting. A material weakness is "a significant deficiency, or a combination of
significant deficiencies, that results in more than a remote likelihood that a
material misstatement of the annual or interim financial statements will not be
prevented or detected by the Company in a timely manner." Management is
currently taking steps to correct these material weaknesses through changes in
procedures and evaluation of personnel.
Item 9B. Other Information
None.
36
Rider 34
PART III
The information called for by Part III (Items 10, 11, 12, 13 and 14) of Form
10-K will be included in the Company's Proxy Statement for the Company's 2008
Annual Meeting of Shareholders, which is hereby incorporated by reference to
such Proxy Statement, except that the information as to the Company's equity
compensation plans contained in the last paragraph of Item 5 in this Report are
incorporated by reference into Items 10 and 12, respectively, of this Report.
37
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this report:
1. Global Payment Technologies, Inc. Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm (page 45)
Consolidated Balance Sheets as of September 30, 2007 and 2006
(page F-2)
Consolidated Statements of Operations for each of the years in the
three-year period ended September 30, 2007 (page F-3)
Consolidated Statements of Shareholders' Equity and Comprehensive
Loss for each of the years in the three-year period ended September
30, 2007 (page F-4)
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended September 30, 2007 (page F-5)
Notes to Consolidated Financial Statements (pages 46 - 68)
2. Global Payment Technologies Australia Pty Limited Financial
Statements:
Report of Independent Registered Public Accounting Firms (page 69)
Balance Sheets as of August 31, 2006 and June 30, 2006 (page 70)
Statement of Operations for the period ended August 31, 2006 and
year ended June 30, 2006 (page 71)
Statements of Stockholders' Equity for period ended August 31, 2006
and year ended June 30, 2006 (page 72)
Statements of Cash Flows for period ended August 31, 2006 and year
ended June 30, 2006 (page 73)
Notes to Financial Statements (pages 74-82)
Report of Independent Registered Public Accounting Firms (page 83)
38
Balance Sheets as of June 30, 2006 and 2005 (page 84)
Statements of Operations for each of the years in the three-year
period ended June 30, 2006 (page 85)
Statements of Stockholders' Equity for each of the years in the
three-year period ended June 30, 2006 (page 86)
Statements of Cash Flows for each of the years in the three-year
period ended June 30, 2006 (page 87)
Notes to Financial Statements (pages 88-96)
3. Global Payment Technologies eCash Holdings Pty Limited Financial
Statements:
Report of Independent Registered Public Accounting Firms (page 97)
Consolidated Balance Sheets as of June 30, 2006 and 2005 (page 98)
Consolidated Statements of Operations for each of the years in the
three-year period ended June 30, 2006 (page 99)
Consolidated Statements of Stockholder's Equity for each of the
years in the three-year period ended June 30, 2006 (page 100)
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended June 30, 2006 (page 101)
Notes to Consolidated Financial Statements (pages 102-109)
Report of Independent Registered Public Accounting Firms (page 110)
Consolidated Balance Sheets as of August 31, 2006 and June 30, 2006
(page 111)
Consolidated Statements of Operations for the period ended August
31, 2006 and June 30, 2006 (page 112)
Consolidated Statements of Stockholder's Equity for the period ended
August 31, 2006 and June 30, 2006 (page 113)
Consolidated Statements of Cash Flows for the period ended August
31, 2006 and June 30, 2006 (page 114)
Notes to Consolidated Financial Statements (pages 115-122)
39
4. Financial statement schedules required to be filed by Item 8 of this
Form: Schedule II - Valuation and Qualifying Accounts (page 125)
5. Exhibits:
Exhibit No.
3.1 Certificate of Incorporation (2)
3.2 Certificate of Merger (2)
3.3 By-Laws
4.1 Securities Purchase Agreement dated March 16, 2004 by and between the
registrant and Laurus (4)
4.2 Common Stock Purchase Warrant dated March 16, 2004 issued to Laurus (4)
4.3 Registration Rights Agreement dated March 16, 2004 by and between the
registrant and Laurus (4)
4.4 Registration Rights Agreement dated March 16, 2004 by and between the
registrant and Laurus (4)
4.5 Amendment No. 1, dated April 29, 2004, to Securities Purchase Agreement (5)
4.6 Amendment No. 1, dated April 29, 2004, to Common Stock Purchase Warrant (5)
10.1 1994 Stock Option Plan (1)*
10.2 1996 Stock Option Plan (1)*
10.3 2000 Stock Option Plan (3)*
10.4 Employment Agreement dated April 17, 2006 between the Company and William
McMahon (7)*
|
40
10.5 Lease dated June 1, 2007 between Global Payment Technologies, Inc and Rechler
Equity LLC (8)
10.6 Securities Purchase Agreement, dated January 15, 2008, by and among Global
Payment Technologies, Inc., Exfair Pty Ltd, and Global Payment Technologies
Australia Pty. Ltd. (9)
10.7 Secured Term Note, dated January 15, 2008, issued by Global Payment
Technologies, Inc. in favor of Global Payment Technologies Australia Pty. Ltd.
(9)
10.8 Security Agreement, dated January 15, 2008, by and between Global Payment
Technologies, Inc. and Global Payment Technologies Australia Pty. Ltd. (9)
10.9 Voting Agreement, dated January 15, 2008, by and among Global Payment
Technologies, Inc., Exfair Pty Ltd, and certain stockholders listed therein (9)
10.10 Technology License Agreement, dated January 15, 2008, by and between Global
Payment Technologies, Inc. and Global Payment Technologies Australia Pty. Ltd.
(9)
10.11 Amendment No. 1 to Distribution Agreement, dated January 15, 2008, by and
between Global Payment Technologies, Inc. and Global Payment Technologies
Australia Pty. Ltd. (9)
10.12 Form of Convertible Note to be issued by Global Payment Technologies, Inc. in
favor of Exfair Pty Ltd. (9)
10.13 Form of Warrant to be issued by Global Payment Technologies, Inc. (9)
10.14 Form of Certificate of Designation establishing Series A Convertible Preferred
Stock (9)
10.15 Form of Registration Rights Agreement by and between Global Payment
Technologies, Inc. and Exfair Pty Ltd. (9)
10.16 Form of Employment Agreement by and between Global Payment Technologies, Inc.
and Andre Soussa. (9)
10.17 Form of Employment Agreement by and between Global Payment Technologies, Inc.
and William McMahon (9)
14 Code of Ethics (6)
21 List of Subsidiaries (8)
23.1 Consent of Eisner LLP, Independent Registered Public Accounting Firm(8)
23.2 Consent of Pitcher Partners, Independent Registered Public Accounting Firm (8)
31.1 Rule13a-14a Certification (Chief Executive Officer) (8)
32 Section 1350 Certification (8)
99.1 Press Release of Global Payment Technologies, Inc., dated January 17, 2008,
reporting the transactions contemplated by the Purchaser Agreement, dated
January 15, 2008, by and among Global Payment Technologies, Inc., Exfair Pty
Ltd, and Global Payment Technologies Australia Pty. Ltd.
|
(1) Filed as an exhibit to the Company's Registration Statement on Form
S-8 (File #333-30829).
(2) Filed as an exhibit to the Company's Annual Report on Form 10-KSB
for the fiscal year ended September 30, 1997.
(3) Filed as an exhibit to the Company's Proxy Statement for the fiscal
year ended September 30, 1999.
(4) Filed as an exhibit to the Company's Current Report on Form 8-K
dated March 16, 2004, filed with the SEC on March 18, 2004.
(5) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 2004.
(6) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 2004.
(7) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 2006.
(8) Filed herewith.
(9) Filed as an exhibit to the Company's Current Report on Form 8-K
dated January 22, 2008, filed with the SEC on January 22, 2008.
* Management contract or compensatory plan or arrangement
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/William McMahon
-----------------
William McMahon
President, Chief Executive Officer and Chief Financial Officer
Date: January 22, 2008
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
-------------------- ----------------------------------------- -----------------
s/William McMahon President, Chief Executive Officer January 22, 2008
--------------------
William McMahon Chief Financial Officer and
Principal Accounting Officer and Director
s/Richard Gerzof Director, Chairman of the Board January 22, 2008
Richard Gerzof
s/William H. Wood Director January 22, 2008
William H. Wood
s/Elliot Goldberg Director January 22, 2008
Elliot Goldberg
s/Matthew Dollinger Director January 22, 2008
Matthew Dollinger
|
42
GLOBAL PAYMENT TECHNOLOGIES, INC.
Index to Consolidated Financial Statements
Page
Consolidated Financial Statements of Global Payment Technologies, Inc.:
Report of Independent Registered Public Accounting Firm 45
Consolidated Balance Sheets as of September 30, 2007 and 2006 F-2
Consolidated Statements of Operations for each of the years in the three-year period ended
September 30, 2007 F-3
Consolidated Statements of Shareholders' Equity and Comprehensive Loss for each of the
years in the three-year period ended September 30, 2007 F-4
Consolidated Statements of Cash Flows for each of the years in the three-year period ended
September 30, 2007 F-5
Notes to Consolidated Financial Statements 46-68
Financial Statements of Global Payment Technologies Australia Pty Limited:1
Report of Independent Registered Public Accounting Firms 69
Balance Sheets as of August 31, 2006 and June 30, 2006 70
Statement of Operations for the period ended August 31, 2006 and year ended
June 30, 2006 71
Statements of Stockholders\' Equity for period ended August 31, 2006 and year
ended June 30, 2006 72
Statements of Cash Flows for period ended August 31, 2006 and year ended
June 30, 2006 73
Notes to Financial Statements 74-82
Report of Independent Registered Public Accounting Firms 83
Balance Sheets as of June 30, 2006 and 2005 84
Statements of Operations for each of the years in the three-year period ended
June 30, 2006 85
Statements of Stockholders' Equity for each of the years in the three-year period
ended June 30, 2006 86
Statements of Cash Flows for each of the years in the three-year period ended
June 30, 2006 87
43
|
Notes to Financial Statements 88-96
Financial Statements of Global Payment Technologies eCash Holdings Pty Limited::1
Report of Independent Registered Public Accounting Firms 97
Consolidated Balance Sheets as of June 30, 2006 and 2005 98
Consolidated Statements of Operations for each of the years in the three-year period ended June
30, 2006 99
Consolidated Statements of Stockholder's Equity for each of the years in the three-year period
ended June 30, 2006 100
Consolidated Statements of Cash Flows for each of the years in the three-year period ended June
30, 2006 101
Notes to Consolidated Financial Statements 102-109
Report of Independent Registered Public Accounting Firms 1 110
Consolidated Balance Sheets as of August 31, 2006 and June 30, 2006 111
Consolidated Statements of Operations for the period ended August 31, 2006
and June 30, 2006 112
Consolidated Statements of Stockholder's Equity for the period ended
August 31, 2006 and June 30, 2006 113
Consolidated Statements of Cash Flows for the period ended
August 31, 2006 and June 30, 2006 114
Notes to Consolidated Financial Statements 115-122
Additional Financial Information Pursuant to the Requirements of Form 10-K:
Schedule II - Valuation and Qualifying Accounts and Reserves 125
Schedules not listed above have been omitted because they are either not applicable or the required
information has been
provided elsewhere in the consolidated financial statements or notes thereto.
1 Included pursuant to Reg. S-X, Rule 3-09
|
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Global Payment Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Global Payment
Technologies, Inc. and subsidiaries as of September 30, 2007 and 2006, and the
related consolidated statements of operations, shareholders' equity and
comprehensive loss and cash flows for each of the three years in the period
ended September 30, 2007. Our audits also included financial statement Schedule
II, listed in the index at Item 15(a). These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits. We did not audit the financial statements of
Global Payment Technologies Australia Pty Limited (GPTA) and eCash Holdings Pty
Limited (eCash), 50% and 35%, respectively, owned investee companies which the
Company sold effective August 31, 2006. The Company's equity in earnings (loss)
of GPTA and eCash was $593,000 and $590,000, respectively, for the year ended
September 30, 2006 and $253,000 and ($50,000), respectively, for the year ended
September 30, 2005. The financial statements of GPTA and eCash were audited by
other auditors whose reports have been furnished to us, and our opinion, insofar
as it relates to the amounts included for GPTA and eCash, is based solely on the
reports of the other auditors.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Global Payment Technologies, Inc. and
subsidiaries as of September 30, 2007 and 2006, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended September 30, 2007, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement Schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses and
deficiencies in cash flows from operations. These factors raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
As discussed in Note 2(o) to the consolidated financial statements, effective
October 1, 2005, the Company changed its method of accounting for share-based
compensation.
/s/ Eisner LLP
New York, New York
January 22, 2008
|
45
GLOBAL PAYMENT TECHNOLOGIES, INC.
Consolidated Balance Sheets
September 30, 2007 and 2006
(Dollar amounts in thousands, except per share data)
Assets 2007 2006
------------ -----------
Current assets:
Cash and cash equivalents $ 879 $ 2,352
Cash held in escrow - 280
Accounts receivable, less allowance for doubtful accounts
of $86 and $159, respectively 1,030 2,065
Inventory, net 3,768 5,040
Prepaid expenses and other current assets 178 218
------------ -----------
Total current assets 5,855 9,955
Property and equipment, net 822 1,249
Capitalized software costs, net 89 561
Other assets 36 -
------------ -----------
Total assets $ 6,802 $ 11,765
============ ===========
Liabilities and Shareholders' Equity
Current liabilities:
Borrowing under debt facility $ 353 $ -
Current portion of long-term debt 40 60
Accounts payable 2,003 1,579
Accrued expenses and other current liabilities 936 1,249
------------ -----------
Total current liabilities 3,332 2,888
Long-term debt - 40
------------ -----------
Total Liabilities 3,332 2,928
------------ -----------
Commitments and Contingency (note 11)
Shareholders' equity:
Common stock, par value $0.01; Authorized 20,000,000 shares;
issued 6,772,185 and 6,497,185 shares, respectively 68 65
Additional paid-in capital 13,912 13,609
Accumulated deficit (9,024) (3,433)
Accumulated other comprehensive income 13 95
------------ -----------
4,969 10,336
Less treasury stock, at cost, 278,984 shares (1,499) (1,499)
------------ -----------
Total shareholders' equity 3,470 8,837
------------ -----------
Total liabilities and shareholders' equity $ 6,802 $ 11,765
============ ===========
See accompanying notes to consolidated financial statements.
|
F-2
GLOBAL PAYMENT TECHNOLOGIES, INC.
Consolidated Statements of Operations
Years ended September 30, 2007, 2006, and 2005
(Dollar amounts in thousands, except per share data)
2007 2006 2005
------------ ------------ ------------
Net sales:
Non-affiliates $ 11,602 $ 10,751 $ 15,547
Affiliates - 3,552 10,339
------------ ------------ ------------
11,602 14,303 25,886
Cost of sales 10,212 12,528 19,019
------------ ------------ ------------
Gross profit 1,390 1,775 6,867
Operating expenses 6,975 7,429 7,051
------------ ------------ ------------
Loss from operations (5,585) (5,654) (184)
------------ ------------ ------------
Other income (expense):
Equity in income of unconsolidated
affiliates, net 1,183 203
Gain on sale of investments in
unconsolidated affiliates 307 -
Interest income (expense), net (38) 23 (613)
------------ ------------ ------------
Other (expense) income (38) 1,513 (410)
------------ ------------ ------------
Loss before provision
(benefit) for income taxes (5,623) (4,141) (594)
Provision (benefit) for income taxes (32) 2 (21)
------------ ------------ ------------
Net loss $ (5,591)$ (4,143) $ (573)
============ ============ ============
Net loss per share:
Basic $ (0.89)$ (0.67) $ (0.10)
Diluted (0.89) (0.67) (0.10)
Common shares used in computing
net loss per share amounts:
Basic 6,296,557 6,218,201 5,976,467
Diluted 6,296,557 6,218,201 5,976,467
|
See accompanying notes to consolidated financial statements.
F-3
GLOBAL PAYMENT TECHNOLOGIES, INC.
Consolidated Statements of Shareholders' Equity and Comprehensive Loss
Years ended September 30, 2007, 2006, and 2005
(Dollar amounts in thousands, except share data)
------------------- Accumulated -----------------
Comprehensive Common stock Additional Other Treasury stock
------------------- paid-in Accumulated Comprehensive -----------------
loss Shares Amount capital deficit Income Shares Amount Total
--------- --------- --------- --------- --------- --------- -------- -------- ------
Balance at September 30, 2004 5,880,750 59 10,800 1,283 464 (278,984) (1,499) 11,107
Net loss (573) - - - (573) - - - (573)
Cumulative translation adjustment
of foreign investments-gain 185 - - - - 185 - - 185
---------
Comprehensive loss (388) - - - - - - - -
=========
Fair value of stock options issued - - 36 - - - - 36
Conversion of convertible notes 498,826 5 2,120 - - - - 2,125
Exercise of common stock options,
including income tax benefits of $0 117,609 1 490 - - - - 491
-------- -- ---- -- -- -- -- ---
Balance at September 30, 2005 6,497,185 65 13,446 710 649 (278,984) (1,499) 13,371
Net loss (4,143) - - - (4,143) - - - (4,143)
Reclassification to operations in
connection with sales of
foreign affiliates (506) (506) (506)
Cumulative translation adjustment
of foreign investments-loss (48) - - - - (48) - - (48)
---------
Comprehensive loss (4,697) - - - - - - - -
=========
Fair value of stock options issued - - 163 - - - - 163
-------- --------- --------- --------- --------- --------- --------- ------------
Balance at September 30, 2006 6,497,185 65 13,609 (3,433) 95 (278,984) (1,499) 8,837
Net loss $ (5,591) (5,591) (5,591)
Cumulative translation adjustment
of foreign investments-loss (82) (82) (82)
---------
Comprehensive loss $ (5,673)
=========
Common stock issued in connection -
with the extension of debt facility 275,000 3 159 162
Fair value of warrants issued with -
the extension of debt facility 44 44
Fair value of stock options issued 100 100
--------- --------- --------- --------- --------- --------- --------- ---------
Balance at September 30, 2007 6,772,185 68 13,912 (9,024) 13 (278,984) (1,499) 3,470
========= ========= ========= ========= ========= ========= ========= =========
|
See accompanying notes to consolidated financial statements.
F-4
GLOBAL PAYMENT TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
Years ended September 30, 2007, 2006, and 2005
(Dollar amounts in thousands)
2007 2006 2005
-------- -------- --------
Operating activities:
Net loss $(5,591) $(4,143) $ (573)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Equity in income of unconsolidated affiliates (1,183) (203)
Gain on sale of investments in unconsolidated affiliates (307) -
Dividend distributions from unconsolidated affiliates 574 -
Depreciation and amortization 1,067 1,118 1,592
Debt costs amortization 168
Provision for losses on accounts receivable (32) 61 47
Provision for inventory obsolescence 60 567 300
Share based compensation expense 100 163 36
Amortization of debt discount - 61 568
Changes in operating assets and liabilities:
Decrease(increase) in accounts receivable 1,026 (740) (1,042)
Decrease in accounts receivable from affiliates - 2,416 1,866
Decrease (increase) in inventory 1,172 (530) (2,830)
Decrease (increase) in prepaid expenses and other current assets
103 (14) 42
Increase in other assets (36) - -
Decrease in income tax receivable - 25 90
Increase (decrease) increase in accounts payable 420 (513) (181)
(Decrease) increase in accrued expenses and other liabilities
(310) 115 (146)
------- ------- -------
Net cash (used in) by operating activities (1,853) (2,330) (434)
------- ------- -------
Investing activities:
Purchases of property and equipment (168) (176) (340)
Proceeds from sale of investments in unconsolidated affiliates - 1,798 -
Proceeds from escrow account 280 - -
------- ------- -------
Net cash provided by (used in) investing activities 112 1,622 (340)
------- ------- -------
Financing activities:
Repayments of notes payable to bank (60) (48) (63)
Net borrowing from debt facility 353 - -
Debt costs (25) - 492
------- ------- -------
Net cash provided by (used in) by financing activities 268 (48) 429
------- ------- -------
Net decrease in cash and cash equivalents
(1,473) (756) (345)
Cash and cash equivalents at beginning of year 2,352 3,108 3,453
------- ------- -------
Cash and cash equivalents at end of year $ 879 $ 2,352 $ 3,108
======= ======= =======
Cash paid during the year for:
Interest $ 61 $ 8 $ 59
Income taxes - 7
Non cash financing activities:
Discount on convertible note and increase in additional paid-in capital resulting from
beneficial conversion feature $ - $ - $ -
Reduction of convertible notes and increase in common stock and additional paid-in capital
due to conversion of notes $ - $ - $ 2,125
Increase in debt costs and additional paid in capital from issuance of 275,000 shares of
common stock and 75,000 warrants to lender in connection with extension of debt facility
$ 206 - -
Non cash investing activities:
Machinery acquired through capital lease $ - $ 31 $ 130
Proceeds from sale of investments in unconsolidated affiliates held in escrow $ - $ 280 $ -
|
See accompanying notes to consolidated financial statements.
F-5
(1) Organization, Nature of Business and Basis of Presentation
(a) Description of Business
Global Payment Technologies, Inc. (the Company) designs, manufactures, and
markets paper currency validating equipment used in gaming and vending
machines in the United States and other countries.
Substantially all of the Company's revenues are derived from the sale of
paper currency validators and related bill stackers, specifically the
Company's SA-4, Argus, Aurora and Falcon validator models. A few key
customers account for a large portion of the Company's revenues.
Additionally, the Company depends on a single or limited number of
suppliers, some of which are foreign, for certain housings, parts and
components, including certain microprocessor chips and short wave length
light sources. In addition, certain of such suppliers hold inventory on
behalf of the Company.
(b) Organization and Development of Business
The Company has a wholly owned subsidiary, Global Payment Technologies
(Europe) Limited (GPT-Europe), which is based in the United Kingdom and is
responsible for sales and service of the Company's products in Europe.
See note 2(d) and note 3 for a description of the Company's investments in
unconsolidated affiliates, which it sold in fiscal 2006.
(c) Significant Customers
The Company's largest customers for 2007, 2006, and 2005 represent the
following percentages of net sales and accounts receivable, respectively:
2007 2006 2005
--------- ---------- -----------
Net sales:
Customer A 41% 28% 40%
Customer B N/A N/A 16%
Accounts receivable:
Customer A 71% 80% 58%
|
There were no other customers that represented 10% or more of net sales or
accounts receivable, respectively, in any of the fiscal years presented.
Customer A was the Company's unconsolidated affiliate in Australia, which
interest was sold in the fourth quarter of fiscal 2006 (see note 3).
46
(d) Geographic Areas
The Company generated revenues both domestically and internationally. The
following summarizes the geographic dispersion of the Company's revenues by
destination:
Year ended September 30
---------------------------------------------------
2007 2006 2005
---------------- ---------------- -----------------
(In thousands)
Domestic revenues (United States) $ 1,061 $ 1,340 $ 1,881
---------------- ---------------- -----------------
International revenues:
Australia 4,770 3,292 9,509
Europe 3,297 5,225 11,207
All others 2,474 4,446 3,289
---------------- ---------------- -----------------
10,541 12,963 24,005
---------------- ---------------- -----------------
Total revenues $ 11,602 $ 14,303 $ 25,886
================ ================ =================
|
All of the Company's long-lived assets are domiciled in the United States,
except for an immaterial amount at its subsidiary in the United Kingdom.
(e) Basis of Presentation
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, which
contemplates the realization of assets and satisfaction of liabilities in
the normal course of business. The Company has suffered recurring losses
and deficiencies in cash flows from operations. Accordingly, the Company
will be required to identify additional revenue resources, raise additional
capital and/or significantly reduce its expenses in order to pay its
obligations as they become due. As discussed in Note 12, the Company
entered into a debt financing agreement and is undertaking a corporate
restructuring to attempt to improve operating results and develop new
products, however, there can be no assurance that such plans will be
successful. These uncertainties raise substantial doubt about the Company's
ability to continue as a going concern. The accompanying consolidated
financial statements do not include any adjustments relating to the
recoverability of the carrying amount of assets or the amount of
liabilities that might result from the outcome of these uncertainties.
(2) Summary of Significant Accounting and Reporting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Global
Payment Technologies, Inc., and its wholly owned subsidiary GPT-Europe. All
intercompany balances and transactions have been eliminated in
consolidation.
(b) Revenue Recognition
Non-affiliates
47
The Company recognizes revenue upon shipment of products and passage of
title to its non-affiliated customers, or at the time services are
completed with respect to repairs not covered by warranty agreements.
Affiliates
During fiscal 2006, the Company sold its interests in its affiliated
customers. Prior to such dispositions, the Company recognized revenue upon
shipment and passage of title, to its affiliated customers, but deferred
its proportionate share of the related gross profit on product sales until
sales were made by the affiliated customers to their third-party end users
(customers), in accordance with Accounting Principles Board ("APB") Opinion
No. 18, The Equity Method of Accounting for Investments in Common Stock
("APB No. 18") (see (d)).
(c) Shipping and Handling Costs
The Company records shipping and handling costs billed to customers in
net sales and classifies the shipping and handling costs associated with
outbound freight in cost of sales.
(d) Investments in Unconsolidated Affiliates
The Company applies the equity method of accounting to its investments in
entities where the Company has non-controlling, but influential, ownership
interests. 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 as of September 30. Entities in
which the Company's respective ownership interest is less than 20%, and in
which there is a resulting inability to exercise significant influence, are
accounted for using the cost method of accounting. A description of the
Company's unconsolidated affiliates and the related transactions between
the Company and these affiliates is discussed in note 3.
(e) Foreign Currency Translation
The financial position and results of operations of GPT-Europe and
unconsolidated affiliates are measured using local currency as the
functional currency. Assets and liabilities of such entities are translated
into US dollars at exchange rates in effect at year-end, while revenues and
expenses are translated at average exchange rates prevailing during the
year. The resulting translation gains and losses are recorded directly to
accumulated other comprehensive income (loss), a separate component of
shareholders' equity, and are not included in net income (loss) until
realized through sale or liquidation of the investment. Exchange gains and
losses incurred on foreign currency transactions including foreign currency
used for test purposes referred to in (f), which were not material during
fiscal 2007, 2006, and 2005, are included in net loss.
(f) Cash and Cash Equivalent
Cash equivalents are stated at cost, which approximates market value.
Highly liquid investments with maturities of three months or less at the
purchase date are considered cash equivalents for purposes of the
consolidated balance sheets and consolidated statements of cash flows. A
significant portion of the Company's cash balance in the amount of $498,000
and $741,000, as of September 30, 2007 and 2006, respectively consists of
currency used to test the Company's products.
48
(g) 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 carrying amount
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 could result in future inventory
obsolescence.
(h) Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the
assets (note 6) or, in the case of leasehold improvements, the life of the
related lease, whichever is shorter. Maintenance and repair costs are
charged to expense as incurred. Expenditures, which significantly increase
value or extend useful asset lives, are capitalized and depreciated.
(i) Capitalized Software Costs
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
86, Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed ("SFAS No. 86"), internally-generated software
development costs associated with new products and significant software
enhancements to existing products are expensed as incurred until
technological feasibility has been established. Pursuant to SFAS No. 86,
the Company deems technological feasibility as having been met upon
completion of a detail program design. No internally- generated software
development costs were capitalized during fiscal years 2007, 2006, and
2005. The Company recorded amortization in accordance with SFAS No. 86 of
$472,000, $472,000, and $579,000 for the fiscal years ended September 30,
2007, 2006 and 2005, respectively, which is included in cost of sales in
the accompanying Consolidated Statements of Operations. Unamortized
internally-generated software development costs included in the
accompanying consolidated balance sheets as of September 30, 2007 and 2006
were $89,000 and $561,000, respectively.
(j) Long-Lived Assets
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets ("SFAS No. 144"). 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 undiscounted 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.
(k) Research and Development
Research and development costs incurred by the Company are included in
operating expenses in the year incurred. Such costs amounted to $713,000,
$333,000, and $55,000 in fiscal 2007, 2006 and 2005, respectively.
49
(l) Warranty Policy
The Company warrants that its products are free from defects in material
and workmanship for a period of one or two years, depending on the
particular product, from the date of initial purchase. The warranty does
not cover any losses or damages 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 (see (b)).
The Company recognizes, and historically has recognized, 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. A summary of the changes in the Company's accrued warranty
obligation (which is included in accrued expenses) is included in the
Company's Schedule of Valuation and Qualifying Accounts.
(m) 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 net operating loss carryforwards and for temporary
differences between the carrying values of assets and liabilities for
financial reporting purposes and their tax bases at the enacted rates at
which these differences are expected to reverse. See note 10.
(n) Per Share Data
Net income (loss) per common share amounts (basic EPS) are computed by
dividing net earnings (loss) by the weighted average number of common
shares outstanding, excluding any potential dilution. Net income (loss) per
common share amounts assuming dilution (diluted EPS) are computed by
reflecting potential dilution from the exercise of stock options and
warrants, and the conversion into common stock of convertible loans.
Diluted EPS for fiscal years 2007, 2006 and 2005 are the same as basic EPS,
as the inclusion of the impact of any common stock equivalents outstanding
during those periods would be anti-dilutive.
Common stock equivalents not included in EPS are as follows:[GRAPHIC
Year ended September 30
--------------------------------------------------
2007 2006 2005
--------------- ---------------- -----------------
Stock options 711,360 1,290,550 859,999
Stock warrants 275,000 200,000 200,000
Convertible Debt 0 0 197,740
--------------- ---------------- -----------------
Total 986,360 1,490,550 1,257,739
=============== ================ =================
|
50
A reconciliation between the numerators and denominators of the basic and
diluted EPS computations is as follows:
Year ended September 30
---------------------------------------------------
2007 2006 2005
---------------- ---------------- -----------------
(In thousands, except share and per share data)
Numerator:
Net loss attributable to
common stockholders $ (5,591) $ (4,143) $ (573)
---------------- ---------------- -----------------
Denominator:
Weighted average common shares
outstanding - basic 6,296,557 6,218,201 5,976,467
Effect of dilutive securities:
Stock options and warrants -- -- --
Convertible loan -- -- --
---------------- ---------------- -----------------
Weighted average common shares
outstanding - diluted 6,296,557 6,218,201 5,976,467
================ ================ =================
Basic EPS $ (0.89) $ (0.67) $ (0.10)
Diluted EPS (0.89) (0.67) (0.10)
|
(o) Stock-Based Compensation
Effective October 1, 2005, the Company adopted Statement of Financial
Accounting Standards No. 123 (Revised 2004), Share Based Payment ("SFAS No.
123R"), which requires a public entity to measure the cost of employee,
officer and director services received in exchange for an award of equity
instruments based on the grant date fair value of the award. SFAS No. 123R
supersedes the Company's previous accounting under SFAS No. 123, Accounting
for Stock-Based Compensation ("SFAS No. 123"), which permitted the Company
to account for such compensation under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees ("APB No. 25"). Pursuant
to APB No. 25, and related interpretations, no compensation cost had 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.
In advance of implementing the requirements of SFAS No. 123R, the Company,
in September 2005, accelerated the vesting of all unvested stock options
previously awarded to employees, officers and directors in order to avoid
the recognition of compensation expense under SFAS No.123R, with respect to
these options as the market price of the Company's common stock on the date
the vesting was accelerated was less than the exercise price of the
modified stock option, no compensation expense was recognized under APB
No.25 as a result of the modification of the vesting terms of the options.
The Company adopted SFAS No. 123R using the modified prospective transition
method, which requires that compensation cost be recorded as earned for all
unvested stock options outstanding at the beginning of the first fiscal
year of adoption of SFAS No. 123R based upon the grant date fair value
estimated in accordance with the original provisions of SFAS No. 123 and
for all share-based payments granted subsequent to the adoption, based on
the grant date fair value. In accordance with the modified prospective
transition method, the Company's consolidated financial statements for
prior periods have not been restated to reflect, and do not include, the
impact of SFAS No. 123R. In the fiscal years ended September 30, 2007 and
2006, respectively as a result of adoption of SFAS No.123R, the Company
recorded share-based compensation for options attributable to employees,
officers and directors of $100,000 and $163,000, respectively.
51
The following table illustrates the effect on net loss and loss per common
share as if the fair value method ("FMV") had been applied to all
outstanding awards in 2005.
2005
-----------------
(In thousands, except per share data)
Net loss:
As reported $ (573)
Deduct: Compensation expense
determined under FMV (1,156) (a)
-----------------
Pro forma (1,729)
Net loss per common
share - basic and diluted:
As reported $ (0.10)
Pro forma (0.29)
|
(a) Includes $652,000 from acceleration of vesting of outstanding options.
(p) Comprehensive Income (Loss)
SFAS No. 130, Reporting Comprehensive Income 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 (loss) is the total of net income
(loss) and all other nonowner changes in equity (or other comprehensive
income (loss)) such as unrealized gains/losses on securities classified as
available-for-sale, foreign currency translation adjustments and minimum
pension liability adjustments. As of September 30, 2007 and 2006, due to
currency fluctuations, the cumulative currency translation adjustment
related to the Company's investments in foreign affiliates was $13,000 and
$95,000, respectively, which is reflected in shareholders' equity in the
accompanying consolidated balance sheets. In 2006, cumulative translation
gains of $506,000 were transferred from accumulated other comprehensive
income to operations in connection with the sale of the foreign affiliates.
(q) Fair Value of Financial Instruments
The carrying value of all monetary assets and liabilities reflected in the
accompanying consolidated balance sheets approximated fair value as a
result of the short-term nature of such assets and liabilities or with
respect to long-term debt as a result of variable interest rates, subject
to a minimum rate based on the Company's credit rating.
(r) Segment Reporting
The Company follows the provisions of SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. Pursuant to this
pronouncement, the reportable operating segments are determined based on
the Company's management approach. The management approach, as defined by
SFAS No. 131, is based on the way that the chief operating decision-maker
organizes the segments within an enterprise for making operating decisions
and assessing performance. The Company's results of operations are reviewed
by the chief operating decision-maker on a consolidated basis and the
Company operates in only one segment. Geographical sales segment data is
presented in note 1 (d).
52
(s) Use of 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.
(t) Recently Issued Accounting Pronouncements
In July 2006, the FASB issued Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes," which clarifies the accounting for
uncertainty in income taxes recognized in the financial statements in
accordance with FASB Statement SFAS No. 109, Accounting for Income Taxes.
FIN 48 provides guidance on the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax
return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosures and
transition. FIN 48 is effective for fiscal years beginning after December
15, 2006. The Company is currently evaluating the impact of this standard
on the Consolidated Financial Statements.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements."
SFAS No. 157 defines fair value, establishes a framework for measuring fair
value in U.S. generally accepted accounting principles and expands
disclosures about fair value measurements. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007 and interim periods within
those fiscal years. The Company is currently evaluating the effect that the
adoption of SFAS No. 157 will have on its consolidated financial position
and results of operations.
In February 2007, the FASB issued FAS No. 159, "The Fair Value for
Financial Assets and Financial Liabilities" ("FAS No. 159"). FAS No. 159
permits entities to choose to measure financial assets and liabilities,
with certain exceptions, at fair value at specified election dates. The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex
hedge accounting provisions. A business entity shall report unrealized
gains and losses on items for which the fair value option has been elected
in earnings at each subsequent reporting date. FAS No. 159 is effective for
the Company in fiscal years beginning October 1, 2008. The Company is
currently evaluating the impact of FAS No. 159 on its consolidated
financial position and results of operations.
In December 2007, the FASB issued FAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements-an amendment of ARB No. 51" ("FAS No.
160"). FAS No. 160 establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is
an ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. FAS No. 160 is effective
for the Company in fiscal years beginning October 1, 2009. The Company is
currently evaluating the impact of FAS No. 160 on its consolidated
financial position and results of operations.
53
In December 2007, the FASB issued FAS No. 141 R "Business Combinations"
("FAS No. 141R"). FAS No. 141R establishes principles and requirements for
how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and
any noncontrolling interest in the acquiree. FAS No. 141R also provides
guidance for recognizing and measuring the goodwill acquired in the
business combination and determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial
effects of the business combination. FAS No. 141R is effective for the
Company in fiscal year beginning October 1, 2009. While the Company has not
yet evaluated this statement for the impact, if any, that FAS No. 141R will
have on its consolidated financial position and results of operations, the
Company will be required to expense costs related to any acquisitions after
September 30, 2009.
(u) Reclassification
Certain reclassifications have been made to prior period financial
information to conform to current period presentation.
(3) Unconsolidated Affiliates
Net sales to unconsolidated Australia affiliates for fiscal year 2006 and
2005 amounted to $3,552,000 and $10,339,000, respectively.
(a) Australia
In fiscal 1997, the Company acquired a 50% non-controlling interest in an
Australian affiliate, Global Payment Technologies Australia Pty Ltd (GPTA).
On September 2, 2006, the Company sold its 50% non controlling interest for
a total of approximately $1,791,000 of which $1,511,000 was received in
cash at closing and $280,000 was placed in escrow and was released on the
one year anniversary of the transaction. The purchaser is related to the
registered holder of the remaining 50% of the issued and outstanding shares
of GPTA. The Company also entered into a 5 year exclusive distributor
agreement with GPTA which is responsible for sales and service of the
Company's products in Australia, New Zealand and the Pacific Rim.
In June 2002, the Company and two other shareholders formed eCash Holdings
Pty. Ltd (eCash), an Australian based company to market, distribute,
service and support automated teller machines across Australia and New
Zealand. The Company owned a 35% interest in this entity. On August 25,
2006, the Company sold its total interest for a cash consideration of
$286,908.
The accompanying consolidated results of operations include a gain of
approximately $307,000 in 2006 relating to the sale of the Company's
interests in GPTA and eCash.
The accompanying consolidated results of operations include the Company's
equity in the results of operations of these affiliates in the amounts of
$648,000 and $236,000 in fiscal 2006 and 2005, respectively. The 2006
amount includes $625,000, representing the Company's share of a gain
recognized by eCash on the sale of its automatic teller machine rental
business. For fiscal 2006 and 2005 the Company increased (reduced) its
equity in income of unconsolidated affiliates by $535,000 and $(33,000),
respectively, which amounts represent the effect of the Company's share of
the gross profit on sales of the Company's products to these affiliates,
which were unsold by the affiliate as of the Company's fiscal year-end. The
Company also received cash dividends of $574,000 and $0 from these
affiliates for fiscal 2006 and 2005, respectively. Subsequent to the sale
of its interests in GPTA and eCash, the Company no longer defers gross
profit on sales to such affiliates.
54
(b) Evolve - UK
In fiscal 1999, the Company acquired a non-controlling 25% interest in
Abacus-UK. Abacus-UK is a software company based in the United Kingdom that
has developed a cash management system, of which the Company's validators
are a key component, which offers the retail market a mechanism for
counting, storing and transporting its cash receipts. In fiscal 2007 and
2006, the Company did not make any additional investment.
In fiscal 2002, the Company recorded a non-cash charge to operations
related to the impairment of its equity-method investment in Abacus-UK,
pursuant to APB No. 18, The Equity Method of Accounting for Investments in
Common Stock. The impairment charge reduced the investment to zero. This
impairment loss, which was considered other than temporary, was due to the
deterioration of the financial condition of this entity. The Company's
consolidated results of operations for the years ended September 30, 2007
and 2006 do not include the Company's equity in the loss of this affiliate
as the equity investment was previously reduced to zero.
In February 2005, the Company exchanged its 25% ownership interest in
Abacus-UK for a 12.5% ownership interest in Evolve-UK. The exchange of
ownership did not require the Company to make an additional investment.
Evolve-UK owns 100% of Abacus-UK and Evolve 100, which provides integrated
and stand-alone cash management systems to the retail industry for coin
currency handling.
At the time of the exchange, Evolve-UK had incurred recurring losses, had
an accumulated deficit and required additional funding to further its
research and development. Therefore, the Company believes that its
investment in Evolve-UK has nominal value. Accordingly, no gain was
recorded by the Company on the exchange and, as the Company does not have
the ability to exercise significant influence over Evolve-UK's operating
and financial policies, its investment in Evolve-UK has been accounted for
at cost with a carrying value of zero.
55
(4) Summary Financial Information
Financial information with respect to the Company's Australian affiliates
is included in the accompanying financial statements based on the
affiliates' fiscal year ended June 30, except for fiscal 2006. Due to the
sale of the Company's interests in GPTA and eCash, operating results are
included through August 31, 2006, the effective date of the sale of the
entities. The following summary financial information reflects the combined
operating results for their fiscal years ended June 30, 2006 and 2005, and
for the two months ended August 31, 2006.
(in thousands)
Two Months ended Year ended Year ended
Aug 31, 2006 June 30, 2006 June 30, 2005
----------------------- ------------------ ---------------
Net sales $ 1,963 $ 11,635 $ 14,245
Operating Income(Loss) 39 (747) (340)
Net income 61 1,746 429
|
(5) Inventory
The following is a summary of the composition of inventory:
September 30
-------------------------------------
2007 2006
---------------- ------------------
(In thousands)
Raw materials $ 2,457 $ 4,104
Work-in-progress 544 358
Finished goods 767 578
---------------- ------------------
$ 3,768 $ 5,040
================ ==================
|
56
(6) Property and Equipment, Net
Major classifications of property and equipment are as follows:
Useful lives 2007 2006
------------------- ------------- ------------
Leasehold improvements Shorter of the
life of the lease
or useful life of
asset $ 94 $ 266
Furniture and fixtures 3-7 years 410 410
Machinery and equipment 3-10 years 3,468 3,409
Tooling and molds 7 years 1,839 1,839
Computer software 5 years 1,037 1,016
Computer hardware 3 years 1,077 1,071
------------- ------------
7,925 8,011
------------
Less accumulated
depreciation/amoritization (7,103) (6,762)
------------- ------------
Property and Equipment, net $ 822 1,249
============= ============
|
Depreciation and amortization expense was $595,000, $646,000, and $916,000 for
the fiscal years ended September 30, 2007, 2006 and 2005, respectively.
(7) Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
2007 2006
----------- --------------
Accrued legal and accounting $ 177 $ 132
Warranty costs 108 309
Accrued commissions - 4
Customer Deposits 184 110
Administrative and other 467 $ 694
----------- --------------
Total $ 936 $ 1,249
=========== ==============
|
57
(8) Debt
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 was 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 was collateralized by substantially all assets of the Company.
Interest was 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 per share prices of $4.87, $5.28
and $5.68 for 100,000, 60,000 and 40,000 warrants, respectively. Under the
agreement, the Company was restricted from paying dividends or purchasing
treasury stock. The Company utilized approximately $1,200,000 of the proceeds to
repay amounts outstanding under a previous credit agreement. At September 30,
2004, $1,425,000 was outstanding under the CTN. During the year ended September
30, 2005, the Company repaid $50,000 and Laurus converted the remaining
$1,375,000 of the CTN into 323,000 shares of common stock, resulting in the full
repayment of the CTN. As a result of the CTN being fully repaid, $29,000 of
unamortized closing costs related to the CTN were charged to operations in the
year ended September 30, 2005.
The value allocated to the warrants resulted in a debt discount of $506,000 that
was being recognized as interest expense over the term of the CTN. 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
was being recognized as interest expense over the term of the CTN. Interest
expense was computed utilizing the interest method, which results in an
effective yield over the term of the CTN. As the CTN was converted, the
unamortized discount related to the amount converted was immediately recognized
as interest expense and charged to operations. Amortization for the year ended
September 30, 2005 was $568,000.
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 of which were originally
due in March 2007 and which were extended through November 15, 2007 (the RN and
the MBN 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%. During the year
ended September 30, 2005, Laurus converted $750,000 of the MBN into 176,000
shares of common stock. At September 30, 2007 and 2006, $353,000 and 0 were
outstanding under the LOC.
The agreements, as amended on June 18, 2007, provide that Laurus would not
convert debt or exercise warrants to the extent that such conversion or exercise
would result in Laurus, together with its affiliates, beneficially owning more
than 9.99% of the number of outstanding shares, including warrants, of the
Company's common stock at the time of conversion or exercise.
The June 18, 2007 amendment provides Laurus with 275,000 shares of fully paid
and nonassessable restricted shares of the common stock of the Company and a
Common Stock Purchase Warrant immediately exercisable for 75,000 shares of
Common Stock of the Company at $0.01 per share which does not have an expiration
date. The Company valued the shares and warrant at $206,000 ($.59 per share),
the market value of the Company's common stock at the date of the amendment.
Such amount has been recorded as deferred debt costs with a corresponding credit
to additional paid-in capital and is being amortized through November 15, 2007,
the maturity date. Amortization for 2007 amounted to $143,000. The Company also
paid Laurus $25,000 in connection with a prior amendment that had extended the
due date to May 16, 2007, which was charged to operations in 2007.
58
The Company's credit facility with Laurus was paid in full on the maturity date
of November 15, 2007. The facility was terminated.
Registration rights agreements were entered into with Laurus which require the
Company to file registration statements for the resale of the common stock
issuable upon conversion of the notes and upon the exercise of the warrants and
to use commercially reasonable efforts to have the registration statements
declared effective by the end of a specified grace period. In addition, the
Company is required to use commercially reasonable efforts to maintain the
effectiveness of the registration statements until all such common stock has
been sold or may be sold without volume restrictions pursuant to Rule 144(k) of
the Securities Act. If the Company fails to have the registration statements
declared effective within the grace period or if effectiveness is not
maintained, the agreements require cash payments of liquidated damages by the
Company to Laurus at 1.0% per month, with respect to the CTN or the warrants,
and 2.0% per month, with respect to the MBN, of the respective original
principal amounts until the failure is cured. The registration statement was
filed and declared effective within the specified grace period.
The Company accounts for the registration rights agreements as separate
free-standing financial instruments and accounts for the liquidated damages
provisions therein as a derivative liability subject to the provisions of SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS No.
133"). Accordingly, the liability is recorded at estimated fair value based on
an estimate of the probability and costs of potential cash penalties and is
revalued at each balance sheet date with changes in value recorded in other
income. As of September 30, 2007 no liability was recorded as the Company deemed
the fair value of any potential cash settlement relating to maintaining
effectiveness of the registration statements to be nominal.
In May, 2005, the Company entered into a capital lease agreement for machinery
in the amount of $130,000. The note is to be repaid in monthly installments of
$4,040 over a three year period. Interest is being charged at a rate of 7.44%
per annum. The balance at September 30, 2007 and 2006 was $31,000 and $76,000,
respectively.
In March, 2006, the Company entered into a capital lease agreement for machinery
in the amount of $31,000. The note is to be repaid in monthly installments of
$1,381 over a two year period. Interest is being charged at a rate of 7.25% per
annum. The balance at September 30, 2007 and 2006 was $9, 000 and $24,000
respectively.
Outstanding debt with respect to the capital lease as of September 30, 2007 and
2006 is as follows:
(In thousands)
2007 2006
------------- ------------
Total debt $ 41 $ 106
Less amount representing interest (1) (6)
------------- ------------
Net 40 100
Less current portion (40) (60)
------------- ------------
Long term debt $ - $ 40
============= ============
|
59
(9) Share-Based Payments
Options
The Company has several stock option plans in effect covering in the aggregate
2,300,000 of the Company's common shares pursuant to which officers, directors
and key employees of the Company and consultants to the Company are eligible to
receive incentive and/or nonqualified stock options. The 1994 and 1996 stock
option plans expired on October 17, 2004 and March 18, 2006, respectively, and
the 2000 and 2006 stock option plans expire on January 25, 2010 and March 7,
2016, respectively, after which no more option grants may be issued under such
plans. The stock option plans are all administered by the Compensation Committee
of the Board of Directors. The selection of participants, grant of options,
determination of price and other conditions relating to the exercise of options
are determined by the Compensation Committee of the Board of Directors and
administered in accordance with the stock option plans as approved by the
shareholders.
Incentive stock options granted under these various plans are exercisable for a
period of up to 10 years from the date of grant at an exercise price which is
not less than the fair market value of the common shares on the date of the
grant, except that the term of an incentive stock option granted under each of
the plans to a shareholder owning more than 10% of the outstanding common shares
may not exceed five years and its exercise price may not be less than 110% of
the fair market value of the common shares on the date of the grant. Options
granted under these various plans generally vest over three or four years and
expire seven or ten years from the date of grant, while certain options vest
over one and one-half years and expire seven years from the date of grant. The
Company expects to issue new shares upon stock option exercises, but has
treasury shares that could be used for this purpose.
During fiscal 2005, a total of 32,500 incentive stock options and 127,000
nonqualified options were granted. All options granted in 2005 were to become
exercisable over varying terms up to four years.
On September 8, 2005, prior to the adoption of SFAS 123R, the Company
accelerated the vesting of unvested stock options previously awarded to
employees, officers and directors of the Company (see note 2(o).
During fiscal 2006, a total of 830,000 nonqualified options were granted. All
options granted in 2006 were to become exercisable over varying terms up to four
years.
There were no options granted in fiscal 2007.
60
A summary of the Company's stock option plans activity as of September 30, 2007,
and changes during the twelve months then ended is as follows:
Weighted
Weighted average Aggregate
average remaining intrinsic
exercise contractual value
Shares price term (years) (in thousands)
------------ ----------- ------------ -----------------
Outstanding, October 1, 2006 1,290,550 $ 3.12
Granted - -
Exercised - -
Forfeited (550,540) 2.77
Expired (28,650) 8.45
------------ -----------
Outstanding, September 30, 2007 711,360 $ 3.18 3.9 $ -
============ =========== ============ =================
Vested or expected to vest, September 30, 2007 711,360 $ 3.18 3.9 $ -
============ =========== ============ =================
Exercisable, September 30, 2007 501,360 $ 3.72 3.1 $ -
============ =========== ============ =================
|
In connection with the adoption of SFAS No. 123R, the Company reassessed its
valuation technique and related assumptions. The Company estimates the fair
value of stock options using a Black-Scholes valuation model. Key input
assumptions used to estimate the fair value of stock options include the
expected term until exercise of the option, expected volatility of the Company's
stock, the risk free interest rate, option forfeiture rates, and dividends, if
any. The expected term of the options is calculated using the midpoint of the
vesting date and the expected life of the grant consistent with the provisions
of Securities and Exchange Commission Staff Accounting Bulletin No. 107. The
expected volatility is derived from the historical volatility of the Company's
stock for a period that matches the expected life of the option. The risk-free
interest rate is the yield from a treasury bond or note that is comparable in
term to the expected life of the option.
Option forfeiture rates are based on the Company's historical forfeiture rates.
Expected dividends are based on the Company's history and the likelihood of
future dividends.
Compensation costs for stock options with graded vesting are recognized ratably
over the vesting period. As of September 30, 2007 and 2006, there was $109,000
and $504,000, respectively of total unrecognized compensation costs related to
stock options. These costs are expected to be recognized over a weighted average
period of 1.7 years and 2.2 years, respectively.
The weighted-average grant-date fair value of options granted for the twelve
months ended September 30, 2006 and 2005 was $0.81 and $3.16, respectively. The
total intrinsic value of stock options exercised during the twelve months ended
September 30, 2005 was $238,000.
61
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
2006 2005
----------------- -----------------
Expected volatility 39% - 50% 43% - 62%
Weighted-average volatility 40.3% 49.0%
Expected dividends 0.0% 0.0%
Expected term (in years) 3.6 4.1
Risk-free interest rates 4.82% 4.18%
|
Warrants
As of September 30, 2007, there are 275,000 fully vested warrants outstanding to
purchase the Company's common stock as follows: 100,000, 60,000 and 40,000
warrants with exercise prices of $4.87, $5.28 and $5.68, respectively, which
expire in March 2011 and 75,000 warrants exercisable at $.01 with no expiration
date (See Note 8).
(10) Income Taxes
For financial reporting purposes, (loss)/income before income taxes
includes the following components:
Fiscal years ended September 30
--------------------------------------------------
2007 2006 2005
--------------- --------------- ----------------
(In thousands)
Pretax (loss)/income:
United
States $ (5,100) $ (4,344) $ (541)
Foreign (523) 203 (53)
--------------- --------------- ----------------
$ (5,623) $ (4,141) $ (594)
=============== =============== ================
|
The provision for (benefit from) income taxes consists of the following:
62
Fiscal years ended September 30
--------------------------------------------------
2007 2006 2005
--------------- --------------- ----------------
(In thousands)
Current:
Federal $ (32) $ -- $ --
State and local 2 (21)
--------------- --------------- ----------------
(32) 2 (21)
--------------- --------------- ----------------
Deferred:
Federal -- -- --
State and local -- -- --
--------------- --------------- ----------------
-- -- --
--------------- --------------- ----------------
Total $ (32) $ 2 $ (21)
=============== =============== ================
|
63
Significant components of deferred tax assets and liabilities are as follows:
September 30
--------------------------------
2007 2006
--------------- ---------------
(In thousands)
Deferred tax assets:
Accounts receivable $ 20 $ 41
Inventory 436 609
Accrued expenses and other, net 44 127
GPT-Europe losses and cumulative
translations adjustments 512 271
Stock option expenses 93 --
Tax NOL carryforwards 5,212 3,425
--------------- ---------------
Deferred tax asset 6,317 4,473
Less: Valuation allowance (a) (6,225) (4,202)
--------------- ---------------
92 271
Deferred tax liability:
Property, plant and equipment (92) (271)
--------------- ---------------
Net deferred taxes $ -- $ --
=============== ===============
|
(a) The Company has incurred significant operating losses in the fiscal years
2007, 2006, and 2005. Due to the recurring losses and because of the
uncertainty as to the Company's ability to generate sufficient taxable
income to realize the value of its deferred tax asset the Company provided
a full valuation allowance to offset its deferred tax asset. This valuation
allowance will be periodically assessed and may be partially or wholly
reversed in the future.
As of September 30, 2007, the Company has a net operating loss carryforward
of $14,278,557 which expires between 2023 through 2027.
Reconciliation of the statutory Federal income tax rate to the Company's
effective tax rate is as follows:
Fiscal years ended September 30
---------------------------------------------------------
2007 2006 2005
------------------ ------------------ -------------------
U.S. Federal statutory rate (34.0)% (34.0)% (34.0)%
State income taxes, net of federal
effect (2.5)% (2.5)% (2.5)%
All other,
net 5.1
Change in valuation allowance 36.5 36.5 27.9
------------------ ------------------ -------------------
Effective income tax rate 0.0% 0.0% (3.5)%
================== ================== ===================
|
64
(11) Commitments and Contingency
(a) Minimum Lease Commitments
The operations of the Company are conducted in leased premises. At September 30,
2007, the approximate minimum annual rentals under these leases, which expire
through fiscal year 2014, were as follows:
Fiscal Year
----------------
2008 $ 321
2009 242
2010 249
2011 255
2012 263
Thereafter 591
---------------
Total $ 1,921
---------------
|
Total rent expense for all operating leases was $473,000, $516,000, and
$460,000 in fiscal 2007, 2006, and 2005, respectively.
(b) Purchase Commitment
At September 30, 2007 the Company had entered into purchase order
commitments of approximately $4.0 million which will be used for production
requirements during fiscal 2008 and beyond.
(c) Litigation
The Company is a defendant in matters which arose in the ordinary course of
business. In the opinion of management, the ultimate resolution of this
matter would not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity. The
Company believes that an adequate provision has been made in the
consolidated financial statements.
(12) Subsequent Events
On January 15, 2008, Global Payment Technologies, Inc. (the "Company")
entered into a Securities Purchase Agreement (the "Purchase Agreement")
with Exfair Pty Ltd, an Australian company ("Exfair") and GPTA. The
transactions contemplated thereunder are expected to be consummated at two
closings (as discussed below).
First Closing
65
At the first closing on January 15, 2008 (the "First Closing"), the Company
issued to GPTA a one-year secured term note in the principal amount of $440,000
(the "Secured Note") that bears interest at a rate equal to the prime rate plus
3.0% (provided, that the interest rate shall not be less than 9.0%) and is
secured by all the assets of the Company pursuant to a Security Agreement (the
"Security Agreement"). Additionally, the Company entered into a Voting Agreement
with Exfair and certain director-stockholders of the Company, wherein such
stockholders agreed to vote in favor of (i) the election of certain persons to
the Board of Directors of the Company and (ii) an amendment to Company's
Certificate of Incorporation establishing a class of Preferred Stock (as
discussed below). Additionally, the Company entered into a Technology License
Agreement with GP Australia, pursuant to which the Company has agreed to grant a
license to GP Australia to utilize certain databases and proprietary operating
systems if the Company is unable or willing to continue to provide support for
such databases and operating systems of the Company, and the parties thereto
further agreed that if the Company commences bankruptcy proceedings, then the
Company would permit GPTA to duplicate any of the Company's intellectual
property as of the commencement of such bankruptcy proceedings. GPTA and the
Company also agreed to make certain technical amendments to the Distribution
Agreement dated September 1, 2006.
Second Closing
At the second closing, which will only occur upon the Company filing its Annual
Report on Form 10-K with the Securities and Exchange Commission (the "SEC") by
the date set forth in the Purchase Agreement (the "Second Closing"), the Company
will issue (i) a Convertible Note (the "Convertible Note") in the principal
amount of $400,000 to Exfair, which note may be converted into two million
shares of Series A Convertible Preferred Stock, par value US$0.01 per share, of
the Company (the "Preferred Stock") and (ii) a four-year Common Stock Purchase
Warrant (the "Warrant") to purchase 5,784,849 shares of Common Stock of the
Company at an exercise price of $0.28 per share. The Convertible Note matures in
June 2009.
The Company's failure to file its Annual Report on Form 10-K with the SEC by the
date set forth in the Secured Note constitutes an event of default thereunder
which would allow GPTA to accelerate the Secured Note and declare all
indebtedness, including principal, accrued interest and all other payments under
the Secured Note to be immediately due and payable.
Effective as of the consummation of the Second Closing, all current Company
directors except Richard Gerzof will resign and new directors appointed. In
addition, the Company will enter into an Employment Agreement with Mr. Soussa,
pursuant to which he will be employed as the Company's Chief Executive Officer
for a two-year term commencing on the date of the Second Closing at an annual
base salary of $300,000. Mr. Soussa will also be awarded options to purchase
500,000 shares of the Company's Common Stock in accordance with the Company's
stock option plan. In connection with the transactions contemplated by the
Purchase Agreement, effective as of the Second Closing, William McMahon will
resign as a director of the Company and as its Chief Executive Officer. William
McMahon will remain at the Company as its President and Chief Financial Officer
and enter into a new Employment Agreement with the Company for a two-year term
with an annual base salary of $200,000. Mr. McMahon will also be awarded options
to purchase 250,000 shares of the Company's Common Stock in accordance with the
Company's stock option plan.
66
The Company has agreed to seek the approval of the stockholders of the Company
to amend the Certificate of Incorporation to authorize a class of Preferred
Stock. Upon the approval of such amendment and the filing thereof with the
Secretary of State of the State of Delaware, the Convertible Note will
automatically be converted into 2,000,000 shares of Series A Convertible
Preferred Stock, par value US$0.01 per share, with such rights and preferences,
including, but not limited to:
(a) Voting Rights. During the first 18 months after the designation of the
Series A Preferred Stock, each holder of shares of the Series A Preferred Stock
shall be entitled to five (5) times the number of votes equal to the number of
shares of Common Stock into which such Holder's shares of Series A Preferred
Stock could be converted and after such first 18 month period, each holder of
shares of the Series A Preferred Stock shall be entitled to the number of votes
equal to the number of shares of Common Stock into which such Holder's shares of
Series A Preferred Stock could be converted. During the first 18 months after
the designation of the Series A Preferred Stock, so long as any shares of Series
A Preferred Stock are outstanding, the holders of Series A Preferred Stock shall
be entitled to designate three (3) members of the Board of Directors. During the
first 18 months after the Series A Preferred Stock has been designated, if the
number of members of the Board of Directors is increased to more than five (5),
the number of directors designated by the holders of Series A Preferred Stock
shall increase such that the Series A Preferred Stock shall designate a majority
of the number of authorized Board of Director members.
(b) Dividends. The Series A Preferred Stock will, with respect to payment of
dividends and rights upon liquidation, dissolution or winding-up of the affairs
of the Company, rank senior and prior to the Common Stock of the Company, and
any additional series of preferred stock which may in the future be issued by
the Company and are designated in the amendment to the Certificate of
Incorporation or the certificate of designation establishing such additional
preferred stock as ranking junior to the Series A Preferred Stock. The holders
of the Series A Preferred Stock will be entitled to receive dividends if, when
and as declared by the Board of Directors from time to time, and in amounts
determined by the Board of Directors; provided, however, no dividends shall be
paid on any share of Common Stock unless a dividend is paid with respect to all
outstanding shares of Series A Preferred Stock in an amount for each such share
of Series A Preferred Stock equal to or greater than the aggregate amount of
such dividends for all shares of Common Stock into which each such share of
Series A Preferred Stock could then be converted.
(c) Liquidation Value. The liquidation value per share of Series A Preferred
Stock, in case of the voluntary or involuntary liquidation, dissolution or
winding-up of the affairs of the Company, will be an amount equal to $0.20,
subject to adjustment in the event of a stock split, stock dividend or similar
event applicable to the Series A Preferred Stock.
(d) Additional Issuances of Securities. Except for certain issuances by the
Company, If, at any time while the Series A Preferred Stock is outstanding, the
Company sells or grants any option to purchase or sells or grants any right to
reprice its securities, or otherwise disposes of or issues (or announces any
sale, grant or any option to purchase or other disposition) any Common Stock or
Common Stock equivalents entitling any person to acquire shares of Common Stock
at an effective price per share that is lower than the then applicable
conversion price, then the conversion price shall be reduced to such lower
price.
67
(e) Modification of Series A Preferred Stock. So long as any shares of Series A
Preferred Stock remain outstanding, the Company, shall not, without the vote or
written consent by the holders of more than fifty percent (50.0%) of the
outstanding Series A Preferred Stock, voting together as a single class, and
unless approved by the Board of Directors: (i) redeem, purchase or otherwise
acquire for value (or pay into or set aside for a sinking or other analogous
fund for such purpose) any share or shares of its Capital Stock, except for
conversion into or exchange for stock junior to the Series A Preferred Stock;
(ii) alter, modify or amend the terms of the Series A Preferred Stock in any
way; or (iii) create or issue any Capital Stock of the Company ranking pari
passu with or senior to the Series A Preferred Stock either as to the payment of
dividends or rights in liquidation, dissolution or winding-up of the affairs of
the Company; increase the authorized number of shares of the Series A Preferred
Stock; re-issue any Series A Preferred Stock which have been converted or
otherwise acquired by the Company in accordance with the terms hereof.
The Board of Directors awarded Richard Gerzof, Chairman of the Board of the
Company, immediately exercisable options to purchase 250,000 shares of Common
Stock of the Company at an exercise price of $0.20 per share, the fair market
value as of the date of grant. The Board of Directors also awarded Elliott
Goldberg, Matthew Dollinger and William Wood, directors, immediately exercisable
options to purchase 100,000, 18,500 and 3,500 shares of Common Stock,
respectively, at the exercise price of $0.20 per share, the fair market value as
of the date of grant.
The Board of Directors also amended the Company's 2006 Stock Option Plan to
eliminate the requirement that options must be exercised, to the extent they
were exercisable, within a three month period following the date of termination
of employment or directorship, even if by disability or death.
68
Report of Independent Registered Public Accounting Firm
The Board of Directors
Global Payment Technologies, Inc
We have audited the accompanying balance sheets of Global Payment Technologies
Australia Pty Ltd as of August 31, 2006 and June 30, 2006 and the related
statement of operations, stockholders' equity, and cash flows for the period
ended August 31, 2006 and year ended June 30, 2006. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Global Payment Technologies
Australia Pty Ltd as of August 31, 2006 and June 30, 2006, and the results of
its operations and its cash flows for the period ended August 31, 2006 and year
ended June 30, 2006 in conformity with US generally accepted accounting
principles.
/s/ Pitcher Partners,
Sydney, Australia
|
11th January 2007
69
GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD
Balance Sheets
August 31, 2006 and June 30, 2006
Assets August 2006 June 2006
----------------- --------------
Current assets:
Cash and equivalents A$ 3,024,562 2,405,739
Trade accounts receivable, less allowances for
doubtful accounts of A$10,000 in August 2006 and
A$10,000 in June 2006 1,347,105 1,006,953
Inventories 2,707,513 3,513,694
Income taxes receivable 20,263 -
Receivable from affiliate 82,908 67,139
Other current assets 74,212 74,466
----------------- --------------
Total current assets 7,256,563 7,067,991
----------------- --------------
Non current assets:
Deferred income taxes 213,541 213,541
Property, plant and equipment
Machinery and equipment 392,312 381,802
Less accumulated depreciation and
amortization (256,184) (249,184)
----------------- --------------
Net property, plant and equipment 136,128 132,618
----------------- --------------
Total non current assets 349,669 346,159
================= ==============
Total assets A$ 7,606,232 7,414,150
================= ==============
Liabilities and Stockholders' Equity
Current Liabilities:
Trade accounts payable A$ 1,786,612 1,643,659
Income taxes payable - 4,357
Accrued liabilities 788,147 768,472
----------------- --------------
Total current liabilities 2,574,759 2,416,488
----------------- --------------
Total liabilities 2,574,759 2,416,488
----------------- --------------
Commitments and contingencies (Note 1)
Stockholders' equity: Common stock
Issued and outstanding 20,000 shares in 2006 and
20,000 shares in 2005 20,000 20,000
Retained earnings 5,011,473 4,977,662
----------------- --------------
Total stockholders' equity 5,031,473 4,997,662
----------------- --------------
Total liabilities and stockholders' A$
equity 7,606,232 7,414,150
================= ==============
|
See accompanying notes to financial statements.
70
GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD
Statements of Operations
Period ended August 31, 2006 and year ended June 30, 2006
T
August 2006 June 2006
---------------- -----------------
Servicing income 18,728 191,184
Net sales A$ 1,821,998 10,963,570
---------------- -----------------
Total sales 1,840,726 11,154,754
Cost of goods sold
- GPT Inc (1,543,403) (9,070,800)
- Other (11,652) (193,266)
---------------- -----------------
Gross profit 285,671 1,890,688
Selling, general and administrative
expenses (263,056) (1,834,094)
---------------- -----------------
Operating income 22,615 56,594
Other income (expense):
Interest income 19,868 114,593
Other sundry income 5,817 12,000
---------------- -----------------
Income before
income taxes 48,300 183,187
Income taxes (14,489) (61,603)
---------------- -----------------
Net income 33,811 121,584
================ =================
|
See accompanying notes to financial statements
71
GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD
Statements of Stockholders' Equity
Period ended August 31, 2006 and year ended June 30, 2006
Common Retained Total
Stock Earnings Stockholders'
Equity
---------------- ----------- ----------------
Balances at June 30, 2006 A$ 20,000 4,977,662 4,997,662
Net income - 33,811 33,811
---------------- ----------- ----------------
Balances at August 31, 2006 20,000 5,011,473 5,031,473
================ =========== ================
|
See accompanying notes to financial statements
72
GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD
Statements of Cash Flows
Period ended August 31, 2006 and year ended June 30, 2006
August 2006 June 2006
--------------- ------------
Net income A$ 33,811 121,584
Adjusted to reconcile net income to net cash
provided by operating activities:
Depreciation and amortisation of property,
plant and equipment 7,000 35,226
Write off of obsolete stock - 17,024
(Increase) / decrease in trade accounts
receivable (340,152) 1,998,068
(Increase) / decrease in inventories 806,181 2,966,636
(Increase) / decrease in other assets 254 (18,685)
(Increase) / decrease in intercompany
receivables (15,769) 942,037
Increase / (decrease) in trade accounts
payable 142,954 (4,190,257)
Increase / (decrease) in accrued liabilities 19,674 7,276
(Increase) / decrease in deferred income taxes - (18,732)
Increase / (decrease) in income tax provision (24,620) (2,955)
(Increase) / decrease in income tax receivable - -
--------------- ------------
Net cash provided by/ (used in)
operating activities 629,333 1,857,222
--------------- ------------
Cash flows from investing activities:
Capital expenditures, including interest
capitalized (10,510) (9,910)
--------------- ------------
Net cash used in investing
activities (10,510) (9,910)
--------------- ------------
Cash flows from financing activities:
Dividends paid - (800,000)
--------------- ------------
Net cash used in financing
activities - (800,000)
--------------- ------------
Net decrease in cash and cash
equivalents 618,823 1,047,312
Cash and cash equivalents at beginning of year 2,405,739 1,358,427
--------------- ------------
Cash and cash equivalents at end of year A$ 3,024,562 2,405,739
=============== ============
|
See accompanying notes to financial statements
73
GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD
Notes to Financial Statements
August 31, 2006 and June 30, 2006
1. Summary of Significant Accounting Policies and Practices
a) Description of Business
Global Payment Technologies Australia Pty Limited (the "Company") distributes
and services paper currency validating equipment used in gaming and vending
machines in Australia and other countries. There were no significant
changes in the nature of the Company's principal activity during the fiscal
period.
b) Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear
interest. The allowance for doubtful accounts is the Company's best
estimate of the amount of probable credit losses in the Company's existing
accounts receivable. The Company determines the allowance based on
historical write-off experience by industry and national economic data.
Account balances are charged off against the allowance after all means of
collection have been exhausted and the potential for recovery is considered
remote. The Company does not have any off-balance-sheet credit exposure
related to its customers.
Concentration of credit risk
The Company's largest customer represented 35.1% (June 2006: 29.1%) of trade
accounts receivable as of August 31, 2006 and 63.2% (June 2006: 66.8%) of
sales for the fiscal period ended August 31, 2006. Two other customers
represented 27% or more of net sales and trade accounts receivable as of
and for the period ended August 31, 2006.
c) Inventories
Inventories are stated at the lower cost or market value. Cost is determined
using the first-in, first-out method for all inventories.
d) Property, Plant and Equipment
Property, plant and equipment are stated at cost.
Depreciation on plant and equipment is calculated on the straight-line
method over the estimated useful lives of the assets. The depreciation
rates range from 7.5% to 33.33% (June 2006: 7.5% to 33.33%).
e) Other Current Assets and Other Assets Other assets are comprised of prepaid
expenses and other non-trade receivables.
f) Income Taxes
74
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
75
GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD
Notes to Financial Statements
August 31, 2006 and June 30, 2006
1) Summary of significant Accounting Policies and Practices (cont)
g) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
h) Impairment of Long-Lived Assets
Long-Lived assets are 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 estimated undiscounted
future 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 depreciation ceases.
The Company did not recognize any impairment adjustments in August 2006 (June
2006: nil).
i) Revenue Recognition
The Company recognizes revenue upon shipment of products and
passage of title to its customers, or at the time services are
completed with respect to repairs not covered by warranty
agreements.
j) Commitments and Contingencies
Liabilities for loss contingencies arising from claims,
assessments, litigation, fines and penalties and other sources are
recorded when it is probable that a liability has been incurred and
the amount of the assessment and or remediation can be reasonably
estimated. No such amounts were recorded in August 2006 and June
2006.
k) Advertising expenses
Advertising expenses are recognized in the statement of
operations as incurred.
l)Cash and cash equivalents
76
Cash and cash equivalents comprise cash on hand, cash at bank
and term deposits with banking institutions. The Term Deposits are
for a period of 30 days. These have been rolled over since year-end.
Cash at bank includes cash denominated in Australian and US dollars.
US dollar denominated bank accounts are restated at year-end to spot
rates at year-end with the gain recognized in the Statement of
Operations.
77
GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD
Notes to Financial Statements
August 31, 2006 and June 30, 2006
2) Income Taxes
All pre tax income is derived from domestic operations.
Total income taxes for the period ended August 31, 2006 and year ended June
30, 2006 consist of:
Current Deferred Total
---------- ------------- ---------
Period ended August 31, 2006: A$ 14,489 - 14,489
========== ============= =========
Year ended June 30, 2006: A$ 80,335 (18,732) 61,603
========== ============= =========
|
Income tax expense was $14,489 and $61,603 for the period ended August
31, 2006 and year ended June 30, 2006 respectively, and differed from the
amounts computed by applying the Australian federal income tax rate of
30% (June 2006: 30%) to pre tax income as a result of the following:
August 2006 June 2006
-------------- -----------
Computed "expected" tax A$ 14,489 54,956
expense
Other, net - 6,647
-------------- ---------
A$ 14,489 61,603
============== =========
|
78
GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD
Notes to Financial Statements
August 31, 2006 and June 30, 2006
2) Income Taxes (continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at August
31, 2006 and June 30, 2006 are presented below.
August 2006 June 2006
At 30 % tax rate At 30% tax rate
----------------- ---------------
Deferred tax assets:
Accounts receivable principally due to A$
allowance for doubtful accounts 3,000 3,000
Inventory 10,731 10,731
Employee leave entitlements 50,185 50,185
Bonus provision 116,145 116,145
Unrealised foreign exchange movements 8,223 8,223
Other 25,257 25,257
----------------- ---------------
Total gross deferred tax
assets 213,541 213,541
----------------- ---------------
Net deferred tax assets 213,541 213,541
================= ===============
|
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realised. The ultimate realisation of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods, which the deferred
tax assets are deductible, management believes it is more likely than not
the Company will realize the benefits of these deductible differences at
August 31, 2006.
79
GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD
Notes to Financial Statements
August 31, 2006 and June 30, 2006
3) Pension and Other Post Retirement Benefits
The Company contributed to a defined contribution superannuation fund on
behalf of its employees. Contributions are based upon Australian statutory
minimum percentage of salary plus any additional contributions included in
employee's employment agreement. The company contributed A$23,986 and
A$93,188 during August 2006 and June 2006 respectively to the fund. There
were no contributions outstanding at year-end.
The Company does not sponsor any other post employment benefits for its
employees.
4) Accrued Liabilities
August 2006 June 2006
Goods and services tax payable A$ 78,018 58,207
Accrued expenses 467,845 467,982
Provision for employee leave 167,283 167,283
Warranty provision 75,000 75,000
--------------- ------------
A$ 788,146 768,472
=============== ============
|
5) Commitments
Non cancellable operating lease commitments
Future operating lease commitments August 2006 June 2006
not provided for in the financial
statements and payable:
Within one year A$ 166,000 181,000
One to two years 188,000 188,000
Two to three years 15,000 15,000
---------------- -----------
A$ 369,000 384,000
---------------- -----------
|
The Company leases property under a non-cancellable 4 year operating lease
expiring in July 2006.
The company exercised the option in July 2004 to extend the lease for two
years.
The Company has not entered into any capital leases.
6) Cost of Goods Sold
80
August 2006 June 2006
Opening Inventory (excluding stock inA$
transit) 2,968,716 5,300,666
Add
Purchases - GPT Inc 751,346 6,521,841
Purchases - Other 3,300 248,594
Freight and other charges 11,652 161,681
----------------- --------------
3,735,014 12,232,782
Less
Ending Inventory (excluding stock in
transit) (2,179,959) (2,968,716)
----------------- --------------
Cost of Goods Sold A$ 1,555,055 9,264,066
================= ==============
|
81
GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD
Notes to Financial Statements
August 31, 2006 and June 30, 2006
7) Related parties
The company was 50% owned by Global Payment Technologies, Inc, a company
incorporated in the United States of America. Global Payment Technologies,
Inc disposed of its interest on 4 September 2006 to ACN 121 187 068 Pty
Limited, a company domiciled in Australia. The other 50% is owned by a
private trust of which the Managing Director of the company is a
beneficiary.
During the period, the Company purchased inventories from Global Payment
Technologies, Inc., which totalled $739,870 (June 2006: $6,521,841). An
amount of A$1,702,173 payable to Global Payment Technologies, Inc is
included in Trade accounts payable at balance date (June 2006: $1,612,556).
As of August 31, 2006 the Company had receivables from eCash Holdings Pty
Limited of $82,908, (June 2006: $67,139) which were primarily attributable
to payments made by the Company on behalf of eCash Holdings Pty Limited to
employees and vendors of eCash Holdings Pty Limited. Interest is charged on
the balance at the rate of 7% p.a. This amount has been repaid since
balance date.
During the period, the Company had sales to eCash Holdings Pty Limited
totalling $Nil (June 2006: $1,836). An amount of $Nil is included in Trade
accounts receivable at balance date (June 2006: $Nil).
For the period ended August 31, 2006 and the year ended 30 June 2006, the
Company charged eCash Holdings Pty Limited a management fee for
administrative tasks conducted by the Company on behalf of eCash Holdings
Pty Limited, which is included in other sundry income in the accompanying
statement of operations.
eCash Holdings Pty Limited was owned 35% by Global Payment Technologies,
Inc., 35% by the private trust of the Managing Director of the Company, and
30% by an unrelated third party. Global Payment Technologies, Inc disposed
of its interest on 25 August 2006 to ACN 121 187 068 Pty Limited, a company
domiciled in Australia.
There were no other transactions with related parties.
82
Report of Independent Registered Public Accounting Firm
The Board of Directors
Global Payment Technologies, Inc
We have audited the accompanying balance sheets of Global Payment Technologies
Australia Pty Ltd as of June 30, 2006 and 2005, and the related statement of
operations, stockholders' equity, and cash flows for the years ended June 30,
2006 and 2005. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Global Payment Technologies
Australia Pty Ltd as of June 30, 2006 and 2005, and the results of its
operations and its cash flows for the years ended June 30, 2006, 2005 and 2004
in conformity with US generally accepted accounting principles.
/s/ Pitcher Partners,
Sydney, Australia
|
11th January 2007
83
GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD
Balance Sheets
June 30, 2006 and 2005
Assets 2006 2005
-------------- ------------
Current assets:
Cash and equivalents A$ 2,405,739 1,358,427
Trade accounts receivable, less allowances for doubtful
accounts of A$10,000 in 2006 and A$10,000 in 2005 1,006,953 3,005,021
Inventories 3,513,694 6,497,354
Receivable from affiliate 67,139 1,009,172
Other current assets 74,466 55,781
-------------- ------------
Total current assets 7,067,991 11,925,755
-------------- ------------
Non current assets:
Deferred income taxes 213,541 194,809
Property, plant and equipment
Machinery and equipment 381,802 371,892
Less accumulated depreciation and amortization (249,184) (213,958)
-------------- ------------
Net property, plant and equipment 132,618 157,934
-------------- ------------
Total non current assets 346,159 352,743
-------------- ------------
Total assets A$ 7,414,150 12,278,498
============== ============
Liabilities and Stockholders' Equity
Current Liabilities:
Trade accounts payable A$ 1,643,659 5,833,912
Income taxes payable 4,357 7,312
Accrued liabilities 768,472 761,196
-------------- ------------
Total current liabilities 2,416,488 6,602,420
-------------- ------------
Total liabilities 2,416,488 6,602,420
-------------- ------------
Commitments and contingencies (Note 1)
Stockholders' equity: Common stock
Issued and outstanding 20,000 shares in 2006 and
20,000 shares in 2005 20,000 20,000
Retained earnings 4,977,662 5,656,078
-------------- ------------
Total stockholders' equity 4,997,662 5,676,078
-------------- ------------
Total liabilities and stockholders' A$
equity 7,414,150 12,278,498
============== ============
|
See accompanying notes to financial statements.
84
GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD
Statements of Operations
Years ended June 30, 2006, 2005 and 2004
2006 2005 2004
--------------- -------------- ------------
Servicing income 191,184 250,306 207,416
Net sales A$ 10,963,570 17,104,350 17,409, 545
--------------- -------------- ------------
Total sales 11,154,754 17,354,656 17,616,961
Cost of goods sold
- GPT Inc (9,070,800) (14,307,241) (14,363,467)
- Other (193,266) (185,508) (326,806)
--------------- -------------- ------------
Gross profit
1,890,688 2,861,907 2,926,688
Selling, general and administrative
expenses (1,834,094) (1,947,755) (1,777,565)
--------------- -------------- ------------
Operating income 56,594 914,152 1,149,123
Other income (expense):
Interest income 114,593 162,179 140,252
Other sundry income 12,000 12,000 63,240
--------------- -------------- ------------
Income before income
taxes 183,187 1,088,331 1,352,615
Income taxes (61,603) (328,385) (407,189)
--------------- -------------- ------------
Net income 121,584 759,946 945,426
=============== ============== ============
|
See accompanying notes to financial statements
85
GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD
Statements of Stockholders' Equity
Years ended June 30, 2006, 2005 and 2004
Common Retained Total
Stock Earnings Stockholders'
Equity
-------------- -------------- ----------------
Balances at June 30, 2003 A$ 20,000 4,550,706 4,570,706
Net income (unaudited) - 945,426 945,426
Dividends declared - (600,000) (600,000)
-------------- -------------- ----------------
Balances at June 30, 2004 A$ 20,000 4,896,132 4,916,132
Net income - 759,946 759,946
Dividends declared - - -
-------------- -------------- ----------------
Balances at June 30, 2005 A$ 20,000 5,656,078 5,676,078
Net income - 121,584 121,584
Dividends declared - (800,000) (800,000)
-------------- -------------- ----------------
Balances at June 30, 2006 20,000 4,977,662 4,997,662
============== ============== ================
|
See accompanying notes to financial statements
86
GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD
Statements of Cash Flows
Years ended June 30, 2006, 2005 and 2004
2006 2005 2004
------------ ------------ ------------
Net income A$ 121,584 759,946 945,426
Adjusted to reconcile net income to net cash
provided by operating activities:
Depreciation and amortisation of property, plant
and equipment 35,226 40,757 42,209
Write off of obsolete stock 17,024 - -
(Increase) / decrease in trade accounts
receivable 1,998,068 (853,005) 325,074
(Increase) / decrease in inventories 2,966,636 (1,987,545) 2,841,050
(Increase) / decrease in prepayments (18,685) 85,559 (90,925)
(Increase) / decrease in intercompany receivables 942,033 27,516 425,667
Increase / (decrease) in trade accounts payable (4,190,253) 582,360 (3,476,080)
Increase / (decrease) in accrued liabilities 7,276 (284,767) (17,082)
(Increase) / decrease in deferred income taxes (18,732) 37,134 291,214
Increase / (decrease) in income tax provision (2,955) 7,312 -
(Increase) / decrease in income tax receivable - 192,545 (184,320)
------------ ------------ ------------
Net cash provided by/ (used in)
operating activities 1,857,222 (1,392,188) 1,102,233
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures, including interest
capitalized (9,910) (11,023) (7,997)
------------ ------------ ------------
Net cash used in investing activities (9,910) (11,023) (7,997)
------------ ------------ ------------
Cash flows from financing activities:
Dividends paid (800,000) - (600,000)
------------ ------------ ------------
Net cash used in financing activities (800,000) - (600,000)
------------ ------------ ------------
Net decrease in cash and cash
equivalents 1,047,312 (1,403,211) 494,236
Cash and cash equivalents at beginning of year 1,358,427 2,761,638 2,267,402
------------ ------------ ------------
Cash and cash equivalents at end of year A$
2,405,739 1,358,427 2,761,638
============ ============ ============
|
See accompanying notes to financial statements
87
GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD
Notes to Financial Statements
June 30, 2006, 2005 and 2004
2. Summary of Significant Accounting Policies and Practices
a) Description of Business
Global Payment Technologies Australia Pty Limited (the "Company") distributes
and services paper currency validating equipment used in gaming and vending
machines in Australia and other countries. There were no significant
changes in the nature of the Company's principal activity during the fiscal
year.
b) Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear
interest. The allowance for doubtful accounts is the Company's best
estimate of the amount of probable credit losses in the Company's existing
accounts receivable. The Company determines the allowance based on
historical write-off experience by industry and national economic data.
Account balances are charged off against the allowance after all means of
collection have been exhausted and the potential for recovery is considered
remote. The Company does not have any off-balance-sheet credit exposure
related to its customers.
Concentration of credit risk
The Company's largest customer represented 29% (2005: 33% and 2004: 47%) of
trade accounts receivable as of June 30, 2006 and 67% (2005: 54% and 2004:
59%) of sales for the fiscal year ended June 30, 2006. Two other customers
represented 29.5% (2005: 12%) or more of net sales and trade accounts
receivable as of and for the year ended June 30, 2006.
c) Inventories
Inventories are stated at the lower cost or market value. Cost is determined
using the first-in, first-out method for all inventories.
d) Property, Plant and Equipment
Property, plant and equipment are stated at cost.
Depreciation on plant and equipment is calculated on the straight-line
method over the estimated useful lives of the assets. The depreciation
rates range from 7.5% to 33.33% (2005: 7.5% to 27%; 2004: 7.5% to
27%).
e) Other Current Assets and Other Assets
Other assets are comprised of prepaid expenses and other non-trade
receivables.
88
g) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carry
forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
89
GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD
Notes to Financial Statements
June 30, 2006, 2005 and 2004
1) Summary of significant Accounting Policies and Practices (cont)
l) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
m) Impairment of Long-Lived Assets
Long-Lived assets are 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 estimated undiscounted
future 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 depreciation ceases.
The Company did not recognize any impairment adjustments in fiscal
2006 (2005: nil; 2004: nil).
n) Revenue Recognition
The Company recognizes revenue upon shipment of products and
passage of title to its customers, or at the time services are
completed with respect to repairs not covered by warranty
agreements.
o) Commitments and Contingencies
Liabilities for loss contingencies arising from claims,
assessments, litigation, fines and penalties and other sources are
recorded when it is probable that a liability has been incurred and
the amount of the assessment and or remediation can be reasonably
estimated. No such amounts were recorded in fiscal 2006, 2005 or
2004.
p) Advertising expenses
Advertising expenses are recognized in the statement of
operations as incurred.
90
l)Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, cash at bank
and term deposits with banking institutions. The Term Deposits are
for a period of 30 days. These have been rolled over since year-end.
Cash at bank includes cash denominated in Australian and US dollars.
US dollar denominated bank accounts are restated at year-end to spot
rates at year-end with the gain recognized in the Statement of
Operations.
91
GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD
Notes to Financial Statements
June 30, 2006, 2005 and 2004
2) Income Taxes
All pre tax income is derived from domestic operations.
Total income taxes for the years ended June 30, 2006, 2005 and 2004
consist of:
Current Deferred Total
----------------------------------
Year ended June 30, 2006: A$ 80,335 (18,732) 61,603
==================================
Year ended June 30, 2005: A$ 291,251 37,134 328,385
==================================
Year ended June 30, 2004: A$ 115,975 291,214 407,189
==================================
|
Income tax expense was $61,603, $328,385 and $407,189 for the years ended
June 30, 2006, June 30, 2005 and June 30, 2004, respectively, and
differed from the amounts computed by applying the Australian federal
income tax rate of 30% (2005: 30%; 2004: 30%) to pre tax income as a
result of the following:
2006 2005 2004
-----------------------------------
Computed "expected" tax A$ 54,956 326,499 405,785
expense
Other, net 6,647 1,886 1,404
-----------------------------------
A$ 61,603 328,385 407,189
===================================
|
92
GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD
Notes to Financial Statements
June 30, 2006, 2005 and 2004
6) Income Taxes (continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
June 30, 2006 and 2005 are presented below.
2006 2005
At 30 % tax At 30% tax
rate rate
----------------------------
Deferred tax assets:
Accounts receivable principally
due to allowance for doubtful A$ 3,000 3,000
accounts
Inventory 10,731 5,624
Employee leave entitlements 50,185 44,644
Bonus provision 116,145 94,897
Unrealised foreign exchange 8,223 21,357
movements
Other 25,257 25,287
----------------------------
Total gross deferred tax assets 213,541 194,809
----------------------------
Net deferred tax assets 213,541 194,809
============================
|
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realised. The ultimate realisation of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies
in making this assessment. Based upon the level of historical taxable
income and projections for future taxable income over the periods, which
the deferred tax assets are deductible, management believes it is more
likely than not the Company will realize the benefits of these deductible
differences at June 30, 2006.
93
GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD
Notes to Financial Statements
June 30, 2006, 2005 and 2004
7) Pension and Other Post Retirement Benefits
The Company contributed to a defined contribution superannuation fund
on behalf of its employees. Contributions are based upon Australian
statutory minimum percentage of salary plus any additional
contributions included in employee's employment agreement. The company
contributed A$93,188, A$83,304 and A$81,692 during fiscal years 2006,
2005 and 2004 respectively to the fund. There were no contributions
outstanding at year-end.
The Company does not sponsor any other post employment benefits for its
employees.
8) Accrued Liabilities
2006 2005
Goods and services tax payable A$ 58,207 141,837
Accrued expenses 467,982 395,545
Provision for employee leave 167,283 148,814
Warranty provision 75,000 75,000
----------------------------
A$ 768,472 761,196
============================
9) Commitments
|
Non cancellable operating lease commitments
Future operating lease commitments
not provided for in the financial
statements and payable: 2006 2005
Within one year A$ 181,000 210,000
One to two years 188,000 70,000
Two to three years 15,000 -
----------------------------
A$ 384,000 280,000
============================
|
The Company leases property under a non-cancellable 4 year operating
lease expiring in July 2006.
The company exercised the option in July 2004 to extend the lease for
two years.
The Company has not entered into any capital leases.
94
6) Cost of Goods Sold
2006 2005 2004
Opening Inventory (excluding A$
stock in transit) 5,300,666 2,580,220 3,228,659
Add
Purchases - GPT Inc 6,521,841 16,736,086 13,484,683
Purchases - Other 248,594 219,651 266,904
Freight and other charges 161,681 257,458 290,247
----------------------------------
----------------------------------
|
12,232,782 19,793,415 17,270,493
Less
Ending Inventory (excluding
stock in transit) (2,968,716) (5,300,666)(2,580,220)
Cost of Goods Sold A$ 9,264,066 14,492,749 14,690,273
95
GLOBAL PAYMENT TECHNOLOGIES AUSTRALIA PTY LTD
Notes to Financial Statements
June 30, 2006, 2005 and 2004
8) Related parties
The company was 50% owned by Global Payment Technologies, Inc, a
company incorporated in the United States of America. Global Payment
Technologies, Inc disposed of its interest on 4 September 2006 to ACN
121 187 068 Pty Limited, a company domiciled in Australia. The other
50% is owned by a private trust of which the Managing Director of the
company is a beneficiary.
During the year, the Company purchased inventories from Global Payment
Technologies, Inc., which totalled $6,521,841 (2005: $16,736,086). An
amount of A$1,612,556 payable to Global Payment Technologies, Inc is
included in Trade accounts payable at balance date (2005: $5,652,566).
As of June 30, 2006 the Company had receivables from eCash Holdings
Pty Limited of $67,139, (2005: $1,009,172) which were primarily
attributable to payments made by the Company on behalf of eCash
Holdings Pty Limited to employees and vendors of eCash Holdings Pty
Limited. Interest is charged on the balance at the rate of 7% p.a.
This amount has been repaid since balance date.
During the year, the Company had sales to eCash Holdings Pty Limited
totalling $1,836 (2005: $469,391). An amount of A$Nil is included in
Trade accounts receivable at balance date (2005: $200,178).
For the year ended June 30, 2006, the Company charged eCash Holdings
Pty Limited a management fee for administrative tasks conducted by the
Company on behalf of eCash Holdings Pty Limited, which is included in
other sundry income in the accompanying statement of operations.
eCash Holdings Pty Limited was owned 35% by Global Payment
Technologies, Inc., 35% by the private trust of the Managing Director
of the Company, and 30% by an unrelated third party. Global Payment
Technologies, Inc disposed of its interest on 25 August 2006 to ACN
121 187 068 Pty Limited, a company domiciled in Australia.
There were no other transactions with related parties.
96
Report of Independent Registered Public Accounting Firm
The Board of Directors
eCash Holdings Pty Limited
We have audited the accompanying consolidated balance sheets of eCash Holdings
Pty Limited and subsidiaries as of June 30, 2006 and 2005 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended June 30, 2006, 2005 and 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of eCash
Holdings Pty Limited and subsidiaries as of June 30, 2006 and 2005, and the
consolidated results of their operations and cash flows for the years ended June
30, 2006, 2005 and 2004, in conformity with US generally accepted accounting
principles.
/s/ Pitcher Partners,
Sydney, Australia
|
11th January 2007
97
eCash Holdings Pty Limited and subsidiaries
Consolidated Balance Sheets
June 30, 2006
Assets
2006 2005
---------------------------
Current assets:
Cash and cash A$ 1,102,169 274,282
equivalents
Trade accounts receivable, less allowance for
doubtful accounts of A$NIL (2005-A$NIL) 362,617 166,296
Inventories 774,940 886,462
Deferred Income taxes 58,854 415,028
Other current assets 137,975 8,962
---------------------------
Total current assets 2,436,555 1,751,030
---------------------------
Property, plant and equipment
Machinery and equipment 16,378 20,905
Less accumulated depreciation and amortization (741) (3,907)
---------------------------
Net property, plant and equipment 15,637 16,998
---------------------------
Assets of discontinued operations - 652,831
---------------------------
Total assets A$ 2,452,192 2,420,859
===========================
Liabilities and Stockholders' Equity
Current liabilities:
A$
Trade accounts payable 339,582 830,405
Income taxes payable 507,712 (59,951)
Payable to affiliate 67,139 1,009,172
Accrued liabilities 350,219 366,096
Liabilities of discontinued operations - 198,979
---------------------------
Total current liabilities 1,264,652 2,344,701
---------------------------
Total liabilities 1,264,652 2,344,701
---------------------------
Stockholders' equity:
Common Stock
Issued and outstanding 3,000 shares in 2006
and 3,000 shares in 2005 3,000 3,000
Retained earnings 1,184,540 73,158
---------------------------
Total stockholders' equity 1,187,540 76,158
---------------------------
Total liabilities and stockholders' A$ 2,452,192 2,420,859
equity ===========================
|
Commitments and contingencies (Note 1)
See accompanying notes to the consolidated financial statements.
98
eCash Holdings Pty Limited and subsidiaries
Consolidated Statements of Operations
Year ended June 30, 2006
2006 2005 2004
Continuing operations
Sales A$ 4,635,873 1,525,034 1,427,159
Cost of goods sold (including
rebate and other direct costs) (3,283,678) (1,489,513) (710,341)
----------------------------------------
Gross profit 1,352,195 35,521 716,818
Selling, general and administrative (1,103,886) (658,897) (530,495)
expenses
----------------------------------------
Operating income/(loss) 248,309 (623,376) 186,323
Other income / (expense):
Interest revenue 58,152 9,383 1,426
Rental income 795 (75) 2,865
Other income 75,144 95,295 3,332
Interest expense (15,216) (73,423) (84,524)
Servicing income 12,792 14,214 30,758
Maintenance costs - - (25,140)
Rebate income 17,118 29,375 46,919
----------------------------------------
Income/(loss) from continuing 397,094 (548,607) 161,959
operations before income taxes
Income taxes credit / (expense) (119,072) 330,563 (204,804)
----------------------------------------
Income/(loss) from continuing
operations 278,022 (218,044) (42,845)
----------------------------------------
Discontinued operations (Note 8)
Profit / (loss) from
discontinued operations 2,761,943 (56,988) (224,562)
Income taxes credit / (expense) (828,583) 84,465 -
----------------------------------------
Income/(loss) from
discontinued operations 1,933,360 27,477 (224,562)
----------------------------------------
Net income 2,211,382 (190,567) (267,407)
========================================
See accompanying notes to the consolidated financial statements.
|
99
eCash Holdings Pty Limited and subsidiaries
Consolidated Statements of Stockholders' Equity
Year ended June 30, 2006
Common Retained Total
Stock Earnings Stockholders'
Equity
---------------------------------------
Balances at June 30, 2003 (Unaudited) A$ 2,984 531,132 534,116
Net income/(loss) - (267,407) (267,407)
Share adjustment 16 - 16
---------------------------------------
Balances at June 30, 2004 A$ 3,000 263,725 266,725
Net income/(loss) - (190,567) (190,567)
---------------------------------------
Balances at June 30, 2005 A$ 3,000 73,158 76,158
Net income/(loss) - 2,211,382 2,211,382
Dividends declared - (1,100,000) (1,100,000)
---------------------------------------
Balances at June 30, 2006 A$ 3,000 1,184,540 1,187,540
=======================================
See accompanying notes to the consolidated financial statements.
|
100
eCash Holdings Pty Limited and subsidiaries
Consolidated Statements of Cash Flows
Year ended June 30, 2006
2006 2005 2004
-----------------------------------------
Net income/(loss) A$ 2,211,382 (190,567) (267,407)
Adjustments to reconcile net income
to net cash providing by operating
activities:
Net profit on disposal of business (3,335,839) - -
Depreciation and amortisation of
property, plant and equipment 79,339 110,457 60,496
Increase/(decrease) in doubtful debts - (27,000) -
(Increase)/decrease in trade (52,644) (136,192) (42,351)
accounts receivable
(Increase)/decrease in prepayments (3,821) - -
(Increase)/decrease in inventories 111,522 (15,535) 974,204
(Increase)/decrease in other (124,254) 120,320 (116,420)
assets
Increase/(decrease) in related party (942,033) (21,240) (431,834)
balances
Increase/(decrease) in trade (625,081) 713,731 125,374
accounts payable
Increase/(decrease) in provisions
and other accruals (80,598) 209,014 (67,830)
(Increase)/decrease in income tax 567,663 38,330 -
balance
(Increase)/decrease in deferred tax 356,174 (415,028) 208,850
balance
-----------------------------------------
Net cash provided by/(used in)
operating activities (1,838,190) 386,290 443,082
-----------------------------------------
Cash flows from investing activities:
Net cash inflow upon disposal of 3,872,791 - -
business
Capital expenditure, including
interest capitalised (122,490) (227,205) (447,269)
-----------------------------------------
Net cash provided by/(used in)
investing activities 3,750,301 (227,205) (447,269)
-----------------------------------------
Cash flow from financing activities:
Issue of shares - - 16
Dividends paid (1,100,000) - -
-----------------------------------------
Net cash provided by/(used in)
financing activities (1,100,000) - 16
-----------------------------------------
Net increase/(decrease) in cash
and cash equivalents 812,111 159,085 (4,171)
Cash and cash equivalents at beginning of 290,058 130,973 135,144
year
-----------------------------------------
Cash and cash equivalents at end of year A$ 1,102,169 290,058 130,973
=========================================
See accompanying notes to consolidated financial statements.
|
101
eCash Holdings Pty Ltd and subsidiaries
Notes to the Consolidated Financial Statements
(1) Summary of Significant Accounting Policies and Practices
(a) Description of Business
eCash Holdings Pty Ltd (the "Company") was incorporated on 13 October 1999
and remained dormant until the 2002 financial year. The company operates
in the distribution and servicing of automatic teller machines. In 2002,
the Company did not trade, rather it allowed a related party to trade on
its behalf under an agreed contractual arrangement and in return an agency
fee was received. In 2003, the Company commenced trading in its own right.
On 17 July 2003 the company changed its name from eCash Pty Limited to
eCash Holdings Pty Limited.
(b) Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not
bear interest. The allowance for doubtful accounts is the Company's best
estimate of the amount of probable credit losses in the Company's existing
accounts receivable. The Company determines the allowance based on
historical write-off experience by industry and national economic data.
Account balances are charged off against the allowance after all means of
collection have been exhausted and the potential for recovery is
considered remote. The Company does not have any off-balance-sheet credit
exposure related to its customers.
Concentration of credit risk
The Group's largest ATM sales customer, represented 57.9% (2005:
43.6%) and (2004: 0%) of trade accounts receivable as of June 30, 2006
and 76.5% (2005: 31%) and (2004: 0%) of sales for the fiscal year ended
June 30, 2006. The Group's largest ATM rebate customer, represented 0%
(2005: 44.6%) of trade accounts receivable as of June 30, 2006 and 100%
(2005: 100% and 2004: 100%) of rebate income for the fiscal year ended
June 30, 2006.
(c) Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined using the first-in, first-out method for all inventories.
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost.
Depreciation on plant and equipment is calculated on the straight-line
method over the estimated useful lives of the assets. The depreciation
rates range from 7.5% to 21% (2005: 7.5% to 21%) and (2004: 7.5% to 21%).
(e) Other Current Assets and Other Assets
Other assets are comprised of rental bonds, prepaid expenditure, and
other non-trade receivables.
102
eCash Holdings Pty Ltd and subsidiaries
Notes to the Consolidated Financial Statements
(1) Summary of Significant Accounting Policies and Practices (cont)
(f) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Capital gains tax, if applicable, is provided for in establishing period
income tax expense when an asset is sold.
(g) Use of estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(h) Impairment of Long-Lived Assets
Long-lived assets, such as property, plant and equipment, and purchased
intangibles subject to amortization, are 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
estimated undiscounted future 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 depreciation ceases.
An impairment loss is recognised to the extent that the carrying amount
exceeds the asset's fair value. The Company did not recognise any
impairment adjustments in fiscal 2006, 2005 and 2004.
(i) Revenue Recognition
The Company recognises revenue when products are shipped and the customer
takes ownership and assumes risk of loss. Interest income is recognised as
it accrues. Service revenue is recognised as the services are provided.
Rebate income is brought to account at the time the rebate is earned.
103
(j) Commitments and Contingencies
Liabilities for loss contingencies, including environmental remediation
costs, arising from claims, assessments, litigation, fines and penalties
and other sources are recorded when it is probable that a liability has
been incurred and the amount of the assessment and/or remediation can be
reasonably estimated.
(k) Advertising expenses
Advertising expenses are recognised in the statement of operations as
incurred.
104
eCash Holdings Pty Ltd and subsidiaries
Notes to the Consolidated Financial Statements
(1) Summary of Significant Accounting Policies and Practices (cont)
(l) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, cash at bank and term
deposits with banking institutions. Cash at bank includes cash
denominated in Australian and US dollars. US dollar denominated bank
accounts are restated at year-end to spot rates at year-end with the
gain/loss recognised in the Statement of Operations.
(m) Consolidation
The consolidated financial statements of the consolidated entity include
the financial statements of the Company, being the chief entity, and its
controlled entities ("the consolidated entity").
Where an entity either began or ceased to be controlled during the year,
the results are included only from the date control commenced or up to the
date control ceased.
The balances and effects of transactions, between controlled entities
included in the consolidated financial statements have been eliminated.
(n) Investments in controlled entities
Capital ATM Pty Limited was incorporated on 17 March 2003 with the eCash
Holdings Pty Limited investing A$1 share capital at the date of
incorporation acquiring a 100% interest.
Custom Cash Pty Limited was incorporated on 18 March 2003 with the eCash
Holdings Pty Limited investing A$1 share capital at the date of
incorporation acquiring a 100% interest.
eCash Pty Limited was incorporated on 24 July 2003 with eCash Holdings Pty
Ltd investing $1 share capital at the date of incorporation acquiring 100%
interest.
eCash Management Pty Limited was incorporated on 12 September 2002 with
eCash Holdings Pty Limited investing A$1 share capital at the date of
incorporation acquiring 100% interest.
(2) Income Taxes
Total income tax (expense) credit for the years ended June 30, 2006, 2005
and 2004 consist of:
Current Deferred Total
Year ended June 30, 2006: A$ (591,480) (356,175) (947,655)
========================================
Year ended June 30, 2005: A$ - 415,028 415,028
========================================
Year ended June 30, 2004: A$ 4,046 (208,850) (204,804)
========================================
|
105
eCash Holdings Pty Ltd and subsidiaries
Notes to the Consolidated Financial Statements
(2) Income Taxes (cont)
Income tax expense was A$947,655 for the year ended June 30, 2006 and a
credit of A$415,028 for the year ended June 30, 2005 and an expense of
$204,804 for the year ended June 30, 2004 and differed from the amounts
computed by applying the Australian federal income tax rate of 30% (2005:
30%) and (2004: 30%) to pre tax income as a result of the following:
2006 2005 2004
----------------------------------------
Computed "expected" tax A$
expense/(credit) 947,741 (181,679) (18,781)
Computed "expected" tax
expense/(credit) of not deductible 2,155 2,017 -
----------------------------------------
Computed "expected" tax
expense/(credit) of
consolidated tax group 949,896 (179,662) (18,781)
Timing differences reversal (2,241) - 163,757
Tax losses and timing
differences (previously not
recognised / brought to account) - (235,366) 59,828
Increase (reduction) in income
taxes resulting from other net - - -
misc items
----------------------------------------
A$ 947,655 (415,028) 204,804
========================================
|
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at 30
June 2006 are presented below.
2006 2005
At 30% Tax At 30% Tax
Rate Rate
Deferred tax assets:
Employee leave entitlements A$ 28,816 21,283
Bonus provision 33,000 37,506
Unrealised Foreign exchange (gains) / (2,962)
losses 13,117
Tax losses previously not brought to - 343,122
account
---------------------------
Deferred tax assets- gross 58,854 415,028
---------------------------
Less valuation allowance - -
---------------------------
Net deferred tax asset 58,854 415,028
===========================
|
In assessing the realisability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realised. The ultimate realisation of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies
in making this assessment.
106
eCash Holdings Pty Ltd and subsidiaries
Notes to Consolidated Financial Statements
(3) Pension and Other Post retirement Benefits
The Company contributed to a defined contribution superannuation fund on
behalf of its employees. Contributions are based upon Australian statutory
minimum percentages of salary plus any additional contributions included in
employee's employment agreement. The consolidated entity contributed A$35,680
during fiscal year 2006 (2005: A$32,022) and (2004: A$30,973). There were no
contributions outstanding at year-end.
The Company does not sponsor any other post employment benefits for its
employees.
(4) Accrued Liabilities
2006 2005
Goods and services tax payable A$ - 34,061
Accrued expenses 123,167 174,421
Deferred income 131,000 92,727
Provision for employee leave 96,052 64,887
---------------------------
A$ 350,219 366,096
===========================
|
(5) Cost of Goods Sold
2006 2005 2004
Opening Inventory A$ 886,462 870,927 1,824,131
Add
Purchases 3,474,894 1,755,954 125,511
Freight and other charges 454,638 978,702 488,565
---------------------------------------
4,815,994 3,605,583 2,438,207
Less
Ending Inventory (774,940) (886,462) (870,927)
---------------------------------------
Cost of Goods Sold A$ 4,041,054 2,719,121 1,567,280
=======================================
Continuing 3,283,678 1,489,513 710,341
Discontinued 757,376 1,229,608 856,939
---------------------------------------
Cost of Goods Sold A$ 4,041,054 2,719,121 1,567,280
=======================================
|
(6) Commitments
Non cancellable operating lease commitments
The consolidated entity has no operating lease commitments.
(7) Related parties
The company was 35% owned by Global Payments Technology, Inc., is 35%
owned by the private trust of the Managing Director of the Global Payment
Technology Australia Pty Limited, and is 30% owned by the Marketing
Director of Global Payment Technology Australia Pty Limited. Global
Payments Technology, Inc. disposed of its interest on 25 August 2006 to
ACN 121 187 068 Pty Limited, a company domiciled in Australia.
107
During the year the Group had purchases from Global Payment Technologies
Australia Pty Limited totalling A$1,836 (2005: A$469,391) and (2004:
A$415,787). An amount of A$0 (2005: A$200,178) and (2004: A$208,872) is
included in Trade accounts payable at balance date. In addition the Group
owed Global Payment Technologies Australia Pty Ltd A$67,139. (2005:
A$1,009,172).
Global Payment Technologies Australia Pty Limited, a related party, paid
salary, rental and other administrative costs on behalf of the
consolidated entity. These costs were recharged through the affiliate
loan accounts. The company paid salary, rental and other administrative
costs on behalf of its controlled entities. These amounts were recharged
through the affiliate accounts.
There were no other transactions with related parties.
108
eCash Holdings Pty Ltd and subsidiaries
Notes to Consolidated Financial Statements
(8) Discontinued Operations
During the 30 June 2006 financial year the group disposed of its ATM rental
business.
The business had the following income and expenditure during the years ended 30
June 2006, 2005 and 2004:
2006 2005 2004
Sales (including rebate A$ 657,665 1,429,556 822,477
income)
Cost of goods sold (including rebates
and other direct costs) (757,376) (1,229,608) (856,939)
----------------------------------------
Gross profit / (loss) (99,711) 199,948 (34,462)
Selling, general and administrative (486,405) (259,371) (192,610)
expenses
----------------------------------------
Operating income/(loss) (586,116) (59,423) (227,072)
Other income / (expense):
Profit on sale of business 3,335,839 - -
Other income - - 1,636
Interest revenue 12,220 2,435 874
----------------------------------------
Income/(loss) before 2,761,943 (56,988) (224,562)
income taxes
========================================
|
The business had the following assets and liabilities at 30 June 2006 and 2005.
Assets 2006 2005
---------------------------
Cash and cash - 15,776
equivalents
Trade accounts receivable - 143,875
Other current assets - 740
Property, plant and equipment - 492,440
---------------------------
Total assets - 652,831
===========================
Liabilities
Trade accounts payable - 134,258
Accrued liabilities - 64,721
---------------------------
Total liabilities - 198,979
===========================
|
(9) Cash and Cash Equivalents
Cash and cash equivalents are reconciled to the consolidated statement of cash
flows as follows:
2006 2005
Continuing operations A$ 1,102,169 274,282
Discontinued operations (Note 8) - 15,776
---------------------------
1,102,169 290,058
===========================
|
109
Report of Independent Registered Public Accounting Firm
The Board of Directors
eCash Holdings Pty Limited
We have audited the accompanying consolidated balance sheets of eCash Holdings
Pty Limited and subsidiaries as of August 31, 2006 and June 30, 2006 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the period ended August 31, 2006 and year ended June 30, 2006. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of eCash
Holdings Pty Limited and subsidiaries as of August 31, 2006 and June 30, 2006,
and the consolidated results of their operations and cash flows for the period
ended August 31, 2006 and year ended June 30, 2006 in conformity with US
generally accepted accounting principles.
/s/ Pitcher Partners,
Sydney, Australia
|
11th January 2007
110
eCash Holdings Pty Limited and subsidiaries
Consolidated Balance Sheets
August 31, 2006 and June 30, 2006
Assets
August 2006 June 2006
---------------------------
Current assets:
Cash and cash A$ 1,249,575 1,102,169
equivalents
Trade accounts receivable, less allowance for
doubtful accounts of A$NIL (2005-A$NIL) 472,700 362,617
Inventories 858,138 774,940
Deferred Income taxes 58,854 58,854
Other current assets 142,666 137,975
---------------------------
Total current assets 2,781,933 2,436,555
---------------------------
Property, plant and equipment
Machinery and equipment 16,378 16,378
Less accumulated depreciation and amortization (841) (741)
---------------------------
Net property, plant and equipment 15,537 15,637
---------------------------
Total assets A$ 2,797,470 2,452,192
===========================
Liabilities and Stockholders' Equity
Current liabilities:
A$
Trade accounts payable 583,383 339,582
Income taxes payable 611,281 507,712
Intercompany payable 82,908 67,139
Accrued liabilities 286,265 350,219
---------------------------
Total current liabilities 1,563,837 1,264,652
---------------------------
Total liabilities 1,563,837 1,264,652
---------------------------
Commitments and contingencies (Note 1)
Stockholders' equity:
Common Stock
Issued and outstanding 3,000 shares in 2006
and 3,000 shares in 2005 3,000 3,000
Retained earnings/(accumulated losses) 1,230,633 1,184,540
---------------------------
Total stockholders' equity 1,233,633 1,187,540
---------------------------
Total liabilities and stockholders' A$ 2,797,470 2,452,192
equity
===========================
|
See accompanying notes to the consolidated financial statements.
111
eCash Holdings Pty Limited and subsidiaries
Consolidated Statements of Operations
Period ended August 31, 2006 and June 30, 2006
August 2006 June 2006
Sales A$ 751,618 4,635,873
Cost of goods sold (534,777) (3,283,678)
-------------------------
Gross profit 216,841 1,352,195
Selling, general and administrative expenses (187,736) (1,103,886)
-------------------------
Operating income/(loss) 29,105 248,309
Other income (expense):
Interest revenue 10,359 58,152
Rental income - 795
Other income 20,919 75,144
Interest expense - (15,216)
Servicing income 5,510 12,792
Rebate income - 17,118
-------------------------
Income/(loss) from continuing
operations before income taxes 65,893 397,094
Income taxes credit (expense) (19,800) (119,072)
-------------------------
Income/(loss) from discontinued
operations 46,093 278,022
-------------------------
Discontinued operations (Note 8)
Profit / (loss) from discontinued operations - 2,761,943
Income taxes credit / (expense) - (828,583)
--------------------------
Income/(loss) from discontinued operations - 1,933,360
--------------------------
Net income 46,093 2,211,382
==========================
|
See accompanying notes to the consolidated financial statements.
112
eCash Holdings Pty Limited and subsidiaries
Consolidated Statements of Stockholders' Equity
Period ended August 31, 2006 and June 30, 2006
Common Retained Total
Stock Earnings Stockholders'
Equity
---------------------------------------
Balances at June 30, 2006 A$ 3,000 1,184,540 1,187,540
Net income/(loss) - 46,093 46,093
---------------------------------------
Balances at August 31, 2006 A$ 3,000 1,230,633 1,233,633
=======================================
|
See accompanying notes to the consolidated financial statements.
113
eCash Holdings Pty Limited and subsidiaries
Consolidated Statements of Cash Flows
Period ended August 31, 2006 and June 30, 2006
August 2006 June 2006
---------------------------
Net income/(loss) A$ 46,093 2,211,382
Adjustments to reconcile net income
to net cash providing by operating
activities:
Net profit on disposal of business - (3,335,839)
Depreciation and amortisation of
property, plant and equipment 100 79,339
Increase/(decrease) in doubtful debts -
(Increase)/decrease in trade (110,083) (52,644)
accounts receivable
(Increase)/decrease in prepayments (15,202) (3,821)
(Increase)/decrease in inventories (83,198) 111,522
(Increase)/decrease in other 10,511 (124,254)
assets
Increase/(decrease) in related party 15,769 (942,033)
balances
Increase/(decrease) in trade 243,801 (625,081)
accounts payable
Increase/(decrease) in provisions
and other accruals (63,954) (80,598)
(Increase)/decrease in income tax 103,569 567,663
balance
(Increase)/decrease in deferred tax 356,174
balance
---------------------------
Net cash provided by/(used in)
operating activities 147,406 (1,838,190)
---------------------------
Cash flows from investing activities:
Net cash inflow upon disposal of - 3,872,791
business
Capital expenditure, including
interest capitalised - (122,490)
---------------------------
Net cash provided by/(used in)
investing activities - 3,750,301
---------------------------
Cash flow from financing activities:
Issue of shares - -
Dividends paid - (1,100,000)
---------------------------
Net cash provided by/(used in)
financing activities - (1,100,000)
---------------------------
Net increase/(decrease) in cash
and cash equivalents 147,406 812,111
Cash and cash equivalents at beginning of 1,102,169 290,058
year
---------------------------
|
Cash and cash equivalents at end of year A$ 1,249,575 1,102,169
See accompanying notes to consolidated financial statements.
114
Cash Holdings Pty Ltd and subsidiaries
Notes to the Consolidated Financial Statements
(1) Summary of Significant Accounting Policies and Practices
(a) Description of Business
eCash Holdings Pty Ltd (the "Company") was incorporated on 13 October 1999
and remained dormant until the 2002 financial year. The company operates
in the distribution and servicing of automatic teller machines. In 2002,
the Company did not trade, rather it allowed a related party to trade on
its behalf under an agreed contractual arrangement and in return an agency
fee was received. In 2003, the Company commenced trading in its own right.
On 17 July 2003 the company changed its name from eCash Pty Limited to
eCash Holdings Pty Limited.
(b) Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not
bear interest. The allowance for doubtful accounts is the Company's best
estimate of the amount of probable credit losses in the Company's existing
accounts receivable. The Company determines the allowance based on
historical write-off experience by industry and national economic data.
Account balances are charged off against the allowance after all means of
collection have been exhausted and the potential for recovery is
considered remote. The Company does not have any off-balance-sheet credit
exposure related to its customers.
Concentration of credit risk
The Group's largest ATM sales customer, represented 62.4% (June 2006:
57.9%) of trade accounts receivable as of August 31, 2006 and 75.6% (June
2006: 76.5%) of sales for the fiscal period ended August 31, 2006. The
Group's largest ATM rebate customer, represented 0% (June 2006: 0%) of
trade accounts receivable as of August 31, 2006 and 0% (June 2006: 100%)
of rebate income for the fiscal period ended August 31, 2006.
(c) Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined using the first-in, first-out method for all inventories.
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost.
Depreciation on plant and equipment is calculated on the straight-line
method over the estimated useful lives of the assets. The depreciation
rates range from 7.5% to 21% (June 2006: 7.5% to 21%).
(e) Other Current Assets and Other Assets
Other assets are comprised of rental bonds, prepaid expenditure, and
other non-trade receivables.
115
Cash Holdings Pty Ltd and subsidiaries
Notes to the Consolidated Financial Statements
(2) Summary of Significant Accounting Policies and Practices (cont)
(f) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Capital gains tax, if applicable, is provided for in establishing period
income tax expense when an asset is sold.
(g) Use of estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(h) Impairment of Long-Lived Assets
Long-lived assets, such as property, plant and equipment, and purchased
intangibles subject to amortization, are 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
estimated undiscounted future 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 depreciation ceases.
An impairment loss is recognised to the extent that the carrying amount
exceeds the asset's fair value. The Company did not recognise any
impairment adjustments in August 2006 (June 2006: nil).
(i) Revenue Recognition
The Company recognises revenue when products are shipped and the customer
takes ownership and assumes risk of loss. Interest income is recognised as
it accrues. Service revenue is recognised as the services are provided.
Rebate income is brought to account at the time the rebate is earned.
(j) Commitments and Contingencies
Liabilities for loss contingencies, including environmental remediation
costs, arising from claims, assessments, litigation, fines and penalties
116
and other sources are recorded when it is probable that a liability has
been incurred and the amount of the assessment and/or remediation can be
reasonably estimated.
(k) Advertising expenses
Advertising expenses are recognized in the statement of operations as
incurred.
117
eCash Holdings Pty Ltd and subsidiaries
Notes to the Consolidated Financial Statements
(1) Summary of Significant Accounting Policies and Practices (cont)
(l) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, cash at bank and term
deposits with banking institutions. Cash at bank includes cash
denominated in Australian and US dollars. US dollar denominated bank
accounts are restated at year-end to spot rates at year-end with the
gain/loss recognised in the Statement of Operations.
(m) Consolidation
The consolidated financial statements of the consolidated entity include
the financial statements of the Company, being the chief entity, and its
controlled entities ("the consolidated entity").
Where an entity either began or ceased to be controlled during the year,
the results are included only from the date control commenced or up to the
date control ceased.
The balances and effects of transactions, between controlled entities
included in the consolidated financial statements have been eliminated.
(n) Investments in controlled entities
Capital ATM Pty Limited was incorporated on 17 March 2003 with the eCash
Holdings Pty Limited investing A$1 share capital at the date of
incorporation acquiring a 100% interest.
Custom Cash Pty Limited was incorporated on 18 March 2003 with the eCash
Holdings Pty Limited investing A$1 share capital at the date of
incorporation acquiring a 100% interest.
eCash Pty Limited was incorporated on 24 July 2003 with eCash Holdings Pty
Ltd investing $1 share capital at the date of incorporation acquiring 100%
interest.
eCash Management Pty Limited was incorporated on 12 September 2002 with
eCash Holdings Pty Limited investing A$1 share capital at the date of
incorporation acquiring 100% interest.
(2) Income Taxes
Total income tax (expense) credit for the years ended August 31, 2006 and
June 30, 2006 consist of:
Current Deferred Total
Year ended August 31, 2006: A$ (19,800) - (19,800)
========================================
Year ended June 30, 2006: A$ (591,480) (356,175) (947,655)
========================================
|
118
eCash Holdings Pty Ltd and subsidiaries
Notes to the Consolidated Financial Statements
(2) Income Taxes (cont)
Income tax expense was A$19,800 for the period ended August 31, 2006 and
A$947,655 for the year ended June 30, 2006 and differed from the amounts
computed by applying the Australian federal income tax rate of 30% (June
2006: 30%) to pre tax income as a result of the following:
August 2006 June 2006
---------------------------
Computed "expected" tax A$
expense/(credit) 19,800 947,741
Computed "expected" tax
expense/(credit) of not - 2,155
deductible
---------------------------
Computed "expected" tax
expense/(credit) of
consolidated tax group - 949,896
Timing differences reversal - (2,241)
Tax losses and timing
differences (previously not
recognized / brought to account) - -
Increase (reduction) in income
taxes resulting from other net - -
misc items
---------------------------
|
A$ 19,800 947,655
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at August
31, 2006 and 30 June 2006 are presented below.
August 2006 June 2006
At 30% Tax At 30% Tax
Rate Rate
Deferred tax assets:
Accounts receivable principally due to
allowance for doubtful accounts A$ - -
Employee leave entitlements 28,816 28,816
Bonus provision 33,000 33,000
Unrealized Foreign exchange (gains) / (2,962) (2,962)
losses
Tax losses previously not brought to - -
account
---------------------------
Deferred tax assets- gross 58,854 58,854
---------------------------
Less valuation allowance - -
---------------------------
Net deferred tax asset 58,854 58,854
===========================
|
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies
in making this assessment.
119
eCash Holdings Pty Ltd and subsidiaries
Notes to Consolidated Financial Statements
(3) Pension and Other Post retirement Benefits
The Company contributed to a defined contribution superannuation fund on
behalf of its employees. Contributions are based upon Australian statutory
minimum percentages of salary plus any additional contributions included in
employee's employment agreement. The consolidated entity contributed A$5,845
during period ended August 31, 2006 (June 2006: A$35,680). There were no
contributions outstanding at year-end.
The Company does not sponsor any other post employment benefits for its
employees.
(4) Accrued Liabilities
August 2006 June 2006
Accrued expenses A$ 165,713 123,167
Deferred income 24,500 131,000
Provision for employee leave 96,052 96,052
---------------------------
---------------------------
A$ 286,265 350,219
===========================
(5) Cost of Goods Sold
August 2006 June 2006
Opening Inventory A$ 774,940 886,462
Add
Purchases 606,370 3,474,894
Freight and other charges 11,605 454,638
---------------------------
---------------------------
1,392,915 4,815,994
Less
Ending Inventory (858,138) (774,940)
---------------------------
---------------------------
Cost of Goods Sold A$ 534,777 4,041,054
===========================
Continuing 534,777 3,283,678
Discontinued - 757,376
---------------------------
Cost of Goods Sold A$ 534,777 4,041,054
===========================
|
(6) Commitments
Non cancellable operating lease commitments
The company and consolidated entity have no operating lease commitments.
(7) Related parties
The company was 35% owned by Global Payments Technology, Inc., is 35%
owned by the private trust of the Managing Director of the Global Payment
Technology Australia Pty Limited, and is 30% owned by the Marketing
Director of Global Payment Technology Australia Pty Limited. Global
Payments Technology, Inc. disposed of its interest on 25 August 2006.
During the period the Group had purchases from Global Payment Technologies
Australia Pty Limited totalling A$0 (June 2006: A$1,836). An amount of A$0
120
(June 2006: A$0) is included in Trade accounts payable at balance date. In
addition the Group owed Global Payment Technologies Australia Pty Ltd
A$82,908 (June 2006: A$67,139).
Global Payment Technologies Australia Pty Limited, a related party, paid
salary, rental and other administrative costs on behalf of the
consolidated entity. These costs were recharged through the intercompany
loan accounts.
The company paid salary, rental and other administrative costs on behalf
of its controlled entities. These amounts were recharged through the
intercompany accounts.
There were no other transactions with related parties.
121
eCash Holdings Pty Ltd and subsidiaries
Notes to Consolidated Financial Statements
(8) Discontinued Operations
During the 30 June 2006 financial year the group disposed of its ATM rental
business.
The company had the following income and expenditure during the year ended 30
June 2006:
June 2006
Sales (including rebate A$ 657,665
income)
Cost of goods sold (including rebates and other direct costs)
(757,376)
-------------
Gross profit / (loss) (99,711)
Selling, general and administrative expenses (486,405)
-------------
Operating income/(loss) (586,116)
Other income / (expense):
Profit on sale of business 3,335,839
Other income -
Interest revenue 12,220
-------------
Income/(loss) before income taxes 2,761,943
=============
|
The discontinued business did not have any assets and liabilities at 30 June
2006.
122
Schedule II
GLOBAL PAYMENT TECHNOLOGIES, INC.
Schedule of Valuation and Qualifying Accounts
Column A Column B Column C Column D Column E
----------------------- ----------- -------------- ----------- -----------
Balance at Charged (credited) Deductions - Balance
beginning to costs and at end
Description of period expenses of period
----------------------- ----------- -------------- ----------- -----------
Allowance for doubtful
accounts:
September 30, 2005 250 47 145 (a) 152
September 30, 2006 152 61 54 (a) 159
September 30, 2007 159 (32) 41 (a) 86
Warranty Reserve
September 30, 2005 298 176 206 (b) 268
September 30, 2006 268 161 120 (b) 309
September 30, 2007 309 (174) 27 (b) 108
|
(a) Write-off of accounts.
(b) Expenses incurred under warranty obligation.
S-1
Global Payment Technolog... (CE) (USOTC:GPTX)
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