Attached files
| file | filename |
|---|---|
| EX-10.1 - EXHIBIT 10.1 - CANTALOUPE, INC. | ex10_1.htm |
| EX-31.2 - EXHIBIT 31.2 - CANTALOUPE, INC. | ex31_2.htm |
| EX-31.1 - EXHIBIT 31.1 - CANTALOUPE, INC. | ex31_1.htm |
| EX-32.1 - EXHIBIT 32.1 - CANTALOUPE, INC. | ex32_1.htm |
| EX-32.2 - EXHIBIT 32.2 - CANTALOUPE, INC. | ex32_2.htm |
| EX-10.2 - EXHIBIT 10.2 - CANTALOUPE, INC. | ex10_2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1O-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended December 31, 2010
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934
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For the transition period from
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to
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Commission file number 001-33365
USA Technologies, Inc.
(Exact name of registrant as specified in its charter)
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Pennsylvania
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23-2679963
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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100 Deerfield Lane, Suite 140, Malvern, Pennsylvania
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19355
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(Address of principal executive offices)
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(Zip Code)
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(610) 989-0340
(Registrant's telephone number, including area code)
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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes o No x
As of January 19, 2011, there were 26,010,781 shares of Common Stock, no par value, outstanding.
USA TECHNOLOGIES, INC.
TABLE OF CONTENTS
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PAGE
NO.
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||
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Part I - Financial Statements
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Item 1.
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Condensed Financial Statements (Unaudited)
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3
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4
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5
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6
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7
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Item 2.
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12
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Item 3.
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18
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Item 4.
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18
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Part II - Other Information
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Item 2.
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18
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Item 6.
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19
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20
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USA Technologies, Inc.
Consolidated Balance Sheets
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December 31,
2010
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June 30,
2010
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|||||||
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(Unaudited)
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||||||||
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Assets
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||||||||
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Current assets:
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||||||
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Cash and cash equivalents
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$ | 4,995,996 | $ | 7,604,324 | ||||
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Accounts receivable, less allowance for uncollectible accounts of $47,000 and $41,000, respectively
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1,260,945 | 2,048,421 | ||||||
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Finance receivables
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256,781 | 242,452 | ||||||
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Inventory, net
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1,351,601 | 2,633,971 | ||||||
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Prepaid expenses and other current assets
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480,542 | 847,344 | ||||||
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Total current assets
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8,345,865 | 13,376,512 | ||||||
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Finance receivables, less current portion
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228,871 | 339,341 | ||||||
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Property and equipment, net
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7,934,562 | 4,511,889 | ||||||
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Intangibles, net
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3,293,453 | 3,810,653 | ||||||
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Goodwill
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7,663,208 | 7,663,208 | ||||||
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Other assets
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160,299 | 146,821 | ||||||
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Total assets
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$ | 27,626,258 | $ | 29,848,424 | ||||
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Liabilities and shareholders’ equity
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||||||||
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Current liabilities:
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||||||||
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Accounts payable
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$ | 4,768,289 | $ | 4,570,730 | ||||
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Accrued expenses
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1,494,995 | 1,869,367 | ||||||
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Current obligations under long-term debt
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308,147 | 344,652 | ||||||
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Total current liabilities
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6,571,431 | 6,784,749 | ||||||
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Long-term debt, less current portion
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150,206 | 251,503 | ||||||
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Total liabilities
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6,721,637 | 7,036,252 | ||||||
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Commitments and contingencies
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||||||||
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Shareholders’ equity:
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||||||||
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Preferred stock, no par value: Authorized shares- 1,800,000 Series A convertible preferred- Authorized shares 900,000; Issued and outstanding shares- 442,968 and 444,468, respectively (liquidation preference of $14,364,874 and $14,079,523, respectively)
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3,138,056 | 3,148,676 | ||||||
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Common stock, no par value: Authorized shares- 640,000,000; Issued and outstanding shares- 26,009,281 and 25,497,155, respectively
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210,114,364 | 209,958,552 | ||||||
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Accumulated deficit
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(192,347,799 | ) | (190,295,056 | ) | ||||
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Total shareholders’ equity
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20,904,621 | 22,812,172 | ||||||
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Total liabilities and shareholders’ equity
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$ | 27,626,258 | $ | 29,848,424 | ||||
See accompanying notes.
USA Technologies, Inc.
Consolidated Statements of Operations
(Unaudited)
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Three months ended
December 31,
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Six months ended
December 31,
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||||||||||
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2010
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2009
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2010
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2009
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Revenues:
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Equipment sales
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$
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2,260,826
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$
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1,697,053
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$
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3,357,020
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|
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$
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3,634,460
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License and transaction fees
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3,755,690
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2,073,786
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7,100,163
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3,964,015
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Total revenues
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|
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6,016,516
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|
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3,770,839
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|
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10,457,183
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7,598,475
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|
|
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Cost of equipment
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843,683
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1,080,878
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1,492,581
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2,390,235
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Cost of services
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2,684,812
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1,680,565
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5,121,011
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|
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3,168,722
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Cost of sales
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3,528,495
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2,761,443
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6,613,592
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5,558,957
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Gross profit
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2,488,021
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1,009,396
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3,843,591
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2,039,518
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Operating expenses:
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||
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Selling, general and administrative
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2,262,967
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4,857,366
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5,176,266
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8,423,143
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Depreciation and amortization
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365,677
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400,366
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707,218
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785,431
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Total operating expenses
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2,628,644
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5,257,732
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5,883,484
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9,208,574
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Operating loss
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|
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(140,623
|
)
|
|
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(4,248,336
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)
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|
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(2,039,893
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)
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|
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(7,169,056
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)
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|
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Other income (expense):
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Interest income
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17,469
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12,699
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42,779
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27,636
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Interest expense
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|
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(9,977
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)
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|
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(9,719
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)
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|
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(22,629
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)
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|
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(30,135
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)
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Total other income (expense), net
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|
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7,492
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2,980
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20,150
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(2,499
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)
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Net loss
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|
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(133,131
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)
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|
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(4,245,356
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)
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(2,019,743
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)
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(7,171,555
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)
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Cumulative preferred dividends
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|
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-
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-
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(333,351
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)
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(382,703
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)
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Loss applicable to common shares
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|
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(133,131
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)
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(4,245,356
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)
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|
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(2,353,094
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)
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|
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(7,554,258
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)
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||
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Loss per common share (basic and diluted)
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$
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(0.01
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)
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$
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(0.19
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)
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$
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(0.09
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)
|
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$
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(0.36
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)
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|
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|
|
|
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|
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Weighted average number of common shares outstanding (basic and diluted)
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|
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26,005,257
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22,728,252
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|
|
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25,923,931
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|
|
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21,274,089
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|
See accompanying notes.
USA Technologies, Inc.
Consolidated Statement of Shareholders’ Equity
(Unaudited)
|
|
|
Series A
Convertible
Preferred
Stock
|
Common
Stock
|
Accumulated Deficit
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Total
|
|
||||||||||
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Balance, June 30, 2010
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|
$
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3,148,676
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$
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209,958,552
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|
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$
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(190,295,056
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)
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$
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22,812,172
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Conversion of 1,500 shares of preferred stock into 15 shares of common stock
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(10,620)
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10,620
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-
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|||||||||||||
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Conversion of $33,000 of preferred dividends into 33 shares of common stock at $1,000 per share
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33,000
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(33,000
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)
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-
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||||||||||||
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Issuance of 261,953 shares of common stock at $0.90 per share less issuance costs of $227,672
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8,085
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8,085
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||||||||||||||
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Retirement of 2,217 shares of common stock
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(2,261
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)
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(2,261
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)
|
||||||||||||
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Issuance of 16,000 fully-vested shares of common stock to employees and vesting of shares granted under the 2008 Stock Incentive Plan
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8,802
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8,802
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||||||||||||||
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Issuance of 86,342 shares of common stock for settlement of Long-Term Equity Incentive Program liability for Fiscal Year 2010
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97,566
|
97,566
|
||||||||||||||
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Issuance of 150,000 shares of common stock to Lincoln Park Capital
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-
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-
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||||||||||||||
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Net Loss
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(2,019,743
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)
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(2,019,743
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)
|
||||||||||||
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Balance, December 31, 2010
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$
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3,138,056
|
$
|
210,114,364
|
$
|
(192,347,799
|
)
|
$
|
20,904,621
|
|||||||
See accompanying notes.
USA Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
|
Six months ended
December 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Operating activities
|
||||||||
|
Net loss
|
$ | (2,019,743 | ) | $ | (7,171,555 | ) | ||
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
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Charges incurred in connection with the vesting and issuance of common stock for employee compensation
|
8,802 | 61,931 | ||||||
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Charges incurred in connection with the Long-term Equity Incentive Program
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54,395 | 104,730 | ||||||
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Bad debt expense
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25,728 | 67,432 | ||||||
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Amortization
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517,200 | 517,200 | ||||||
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Depreciation, $414,646 and $56,742 of which is allocated to cost of services for the six months ended December 31, 2010 and 2009
|
604,664 | 324,973 | ||||||
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Loss on disposal of property and equipment
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10,380 | - | ||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable
|
761,748 | (495,637 | ) | |||||
|
Finance receivables
|
96,141 | (964,732 | ) | |||||
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Inventory
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(2,541,602 | ) | (700,555 | ) | ||||
|
Prepaid expenses and other assets
|
447,635 | 188,026 | ||||||
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Accounts payable
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197,559 | (687,203 | ) | |||||
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Accrued expenses
|
(331,201 | ) | 1,443,841 | |||||
|
Net cash used in operating activities
|
(2,168,294 | ) | (7,311,549 | ) | ||||
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Investing activities
|
||||||||
|
Purchase of property and equipment, net
|
(213,745 | ) | (281,391 | ) | ||||
|
Net cash used in investing activities
|
(213,745 | ) | (281,391 | ) | ||||
|
|
||||||||
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Financing activities
|
||||||||
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Net proceeds from the issuance (retirement) of common stock
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5,824 | 12,948,491 | ||||||
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Payments for the retirement of preferred stock
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- | (200,911 | ) | |||||
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Repayment of long-term debt
|
(232,113 | ) | (330,024 | ) | ||||
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Net cash provided by (used in) financing activities
|
(226,289 | ) | 12,417,556 | |||||
|
|
||||||||
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Net increase (decrease) in cash and cash equivalents
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(2,608,328 | ) | 4,824,616 | |||||
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Cash and cash equivalents at beginning of period
|
7,604,324 | 6,748,262 | ||||||
|
Cash and cash equivalents at end of period
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$ | 4,995,996 | $ | 11,572,878 | ||||
|
|
||||||||
|
Supplemental disclosures of cash flow information:
|
||||||||
|
Prepaid insurance financed with long-term debt
|
$ | 94,311 | $ | 85,991 | ||||
|
Cash paid for interest
|
$ | 23,269 | $ | 11,976 | ||||
|
Transfer of inventory to property and equipment for rental units
|
$ | 3,823,972 | $ | 106,232 | ||||
|
Conversion of convertible preferred stock to common stock
|
$ | 10,620 | $ | - | ||||
|
Conversion of cumulative preferred dividends to common stock
|
$ | 33,000 | $ | - | ||||
|
Disposal of property and equipment
|
$ | 140,931 | $ | - | ||||
|
Equipment acquired under capital lease
|
$ | - | $ | 17,337 | ||||
See accompanying notes.
USA Technologies, Inc.
Notes to Consolidated Financial Statements
|
1.
|
Accounting Policies
|
Business
USA Technologies, Inc. (the “Company”, “We” or “Our”) was incorporated in the Commonwealth of Pennsylvania in January 1992. The Company is a leading supplier of cashless payment, remote management, reporting and energy management solutions serving the unattended point of sale market. Our networked devices and associated services enable the owners and operators of everyday, stand-alone, distributed assets, such as vending machines, kiosks, personal computers, photocopiers, and laundry equipment, the ability to offer their customers cashless payment options, as well as remotely monitor, control and report on the results of these distributed assets. As part of our Intelligent Vending® solution, our Company also manufactures and sells energy management products which reduce the electrical power consumption of vending related equipment, such as refrigerated vending machines and glass front coolers, thus reducing the electrical energy costs associated with operating this equipment.
Interim Financial Information
The accompanying unaudited consolidated financial statements of USA Technologies, Inc. have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and therefore should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2010. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting of normal recurring adjustments, have been included. Operating results for the six month period ended December 31, 2010 are not necessarily indicative of the results that may be expected for the year ending June 30, 2011. The balance sheet at June 30, 2010 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.
The Company has incurred losses from its inception through June 30, 2010 and losses have continued through December 31, 2010 and are expected to continue during fiscal year 2011. The Company's ability to meet its future obligations is dependent upon the success of its products and services in the marketplace and available capital resources. Until the Company's products and services can generate sufficient operating revenues, the Company will be required to use its cash and cash equivalents on hand, as well as raise capital to meet its cash flow requirements including the issuance of Common Stock and the exercise of outstanding Common Stock warrants.
Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Stitch Networks Corporation ("Stitch") and USAT Capital Corp LLC (“USAT Capital”). All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Reclassification
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.
Cash and Cash Equivalents
Cash and cash equivalents represent all highly liquid investments with original maturities of three months or less. Cash equivalents are comprised of certificates of deposit and money market funds. The Company maintains its cash in bank deposit accounts, which may exceed federally insured limits at times.
Included in cash and cash equivalents at December 31, 2010 and June 30, 2010 was approximately $330,000 and $1,020,000, respectively, of cash received by the Company for transaction processing services which is payable to our customers. Included in accounts receivable are amounts for transactions processed with our card processers for which cash has not been received by the Company and included in accounts payable are amounts for transactions processed with our card processers and due to our customers, which are recorded net of fees due to the Company. Generally, contractual terms require us to remit amounts owed to our customers on a weekly basis.
USA Technologies, Inc.
Notes to Consolidated Financial Statements
|
1.
|
Accounting Policies (Continued)
|
Inventory
Inventory consists of finished goods and packaging materials. The Company's inventory is stated at the lower of cost (average cost basis) or market.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts receivable, finance receivables-current portion, other current assets, accounts payable and accrued expenses reported in the consolidated balance sheets equal or approximate fair value due to their short maturities. Cash equivalents of approximately $964,000 and $2,972,000 at December 31, 2010 and June 30, 2010, respectively, are deemed for valuation purposes to meet level one criteria under the fair value hierarchy – having quoted market prices in active markets for identical assets or liabilities. The fair value of the Company’s long-term finance receivables and long-term debt approximates book value as such instruments are at market rates currently available to the Company.
Income Taxes
No provision for income taxes has been made for the six months ended December 31, 2010 and 2009 given the Company’s losses in 2010 and 2009 and available net operating loss carryforwards. A benefit has not been recorded as the realization of the net operating losses is not assured and the timing in which the Company can utilize its net operating loss carryforwards in any year or in total may be limited by provisions of the Internal Revenue Code regarding changes in ownership of corporations.
Shared-Based Payment
The Company applies ASC Topic 718 “Stock Compensation” which requires the measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. Excluding the Long-Term Equity Incentive Program (the “LTIP”), the Company recorded stock compensation expense of $699 and $21,357 during the three months ended December 31, 2010 and 2009, respectively, and $8,802 and $61,931 during the six months ended December 31, 2010 and 2009, respectively, related to common stock grants and the vesting of shares previously granted to employees and officers. There were no common stock options granted, vested or recorded as expense during the six months ended December 31, 2010 and 2009.
Related to the change in fair value and/or the vesting of shares under the LTIP the Company recorded a reduction of stock compensation expense and expense of $6,907 and $27,472 during the three months ended December 31, 2010 and 2009, respectively. During the six months ended December 31, 2010 and 2009, the LTIP stock compensation expense was $54,395 and $104,730, respectively.
Loss Per Common Share
Basic earnings per share is calculated by dividing income (loss) applicable to common shares by the weighted average common shares outstanding for the period. Diluted earnings per share is calculated by dividing income (loss) applicable to common shares by the weighted average common shares outstanding for the period plus the dilutive effect (unless such effect is anti-dilutive) of potential common shares. No exercise of stock options, stock purchase warrants, or the conversion of preferred stock or cumulative preferred dividends was assumed during the periods presented because the assumed exercise of these securities would be anti-dilutive.
USA Technologies, Inc.
Notes to Consolidated Financial Statements
|
2.
|
Finance Receivables
|
Finance receivables include notes and sales-type leases to accommodate extended payment terms for equipment purchases to certain customers. Finance receivables are carried at their contractual amount and charged off against the allowance for credit losses when management determines that recovery is unlikely and the Company ceases collection efforts. Monthly payments for both types of receivables are collected by deduction from our customers’ vending and equipment transaction funds. The Company recognizes a portion of the note or lease payments as interest income in the accompanying consolidated financial statements based on the effective interest rate method.
Finance receivables consist of the following:
|
|
December 31
2010
|
|
|
June 30
2010
|
|
|||
|
|
(unaudited)
|
|
|
|
|
|||
|
Notes receivable
|
|
$
|
7,599
|
|
|
$
|
56,962
|
|
|
Lease receivables
|
|
|
478,053
|
|
|
|
524,831
|
|
|
Total finance receivables
|
|
|
485,652
|
|
|
|
581,793
|
|
|
Less current portion
|
|
|
256,781
|
|
|
|
242,452
|
|
|
Non-current portion of finance receivables
|
|
$
|
228,871
|
|
|
$
|
339,341
|
|
As of December 31, 2010 and June 30, 2010, the allowance for credit losses of finance receivables was $0. As the Company collects monthly payments of the receivables from the customers’ transaction funds the risk of loss was determined to be remote.
|
Credit Quality Indicators
As of December 31, 2010
|
||||||||||||
|
Credit risk profile based on payment activity:
|
||||||||||||
|
Notes
|
Leases
|
Total
|
||||||||||
|
Performing
|
$ | 7,599 | $ | 475,329 | $ | 482,928 | ||||||
|
Nonperforming
|
- | 2,724 | 2,724 | |||||||||
|
Total
|
$ | 7,599 | $ | 478,053 | $ | 485,652 | ||||||
|
Age Analysis of Past Due Finance Receivables
As of December 31, 2010
|
||||||||||||||||||||||||
|
31 – 60
Days Past Due
|
61 – 90
Days Past Due
|
Greater
than
90 Days
|
Total
Past Due
|
Current
|
Total
Finance Receivables
|
|||||||||||||||||||
|
Notes
|
$ | - | $ | - | $ | - | $ | - | $ | 7,599 | $ | 7,599 | ||||||||||||
|
Leases
|
71 | 71 | 675 | 817 | 477,236 | 478,053 | ||||||||||||||||||
|
Total
|
$ | 71 | $ | 71 | $ | 675 | $ | 817 | $ | 484,835 | $ | 485,652 | ||||||||||||
USA Technologies, Inc.
Notes to Consolidated Financial Statements
|
3.
|
Accrued Expenses
|
Accrued expenses consist of the following:
|
|
|
December 31
2010
|
|
|
June 30
2010
|
|
||
|
|
(unaudited)
|
|
|
|
|
|||
|
Accrued compensation and sales commissions
|
|
$
|
764,382
|
|
|
$
|
922,741
|
|
|
Accrued professional fees
|
|
|
153,039
|
|
|
|
374,288
|
|
|
Accrued taxes and filing fees
|
|
|
226,671
|
|
|
|
222,249
|
|
|
Advanced customer billings
|
|
|
39,241
|
|
|
|
55,773
|
|
|
Accrued share-based payment liability
|
|
|
-
|
|
|
|
43,171
|
|
|
Accrued other
|
|
|
311,662
|
|
|
|
251,145
|
|
|
Accrued Expenses
|
|
$
|
1,494,995
|
|
|
$
|
1,869,367
|
|
|
4.
|
Long-Term Debt
|
Long-term debt consists of the following:
|
|
|
December 31
2010
|
|
|
June 30
2010
|
|
||
|
|
(unaudited)
|
|
|
|
|
|||
|
Capital lease obligations
|
|
$
|
168,996
|
|
|
$
|
280,261
|
|
|
Loan agreements
|
|
|
289,357
|
|
|
|
315,894
|
|
|
Total long-term debt
|
|
|
458,353
|
|
|
|
596,155
|
|
|
Less current portion
|
|
|
308,147
|
|
|
|
344,652
|
|
|
Non-current portion of long-term debt
|
|
$
|
150,206
|
|
|
$
|
251,503
|
|
During July 2010, the Company financed a portion of the premiums for various insurance policies totaling $94,331 due in nine monthly installments at an interest rate of 4.93%.
|
5.
|
Common Stock and Preferred Stock
|
On July 7, 2010, we sold an aggregate of 261,953 shares and related warrants to purchase up to 261,953 shares pursuant to a subscription rights offering which concluded on July 6, 2010. In connection with the offering, Source Capital Group, Inc. acted as dealer manager. As compensation for its services, Source received warrants to purchase up to 15,717 shares at $1.13 per share at any time through July 7, 2013. The warrants contain provisions for one demand registration of the sale of the underlying shares of common stock for a period of five years at our expense, and piggyback registration rights for a period of five years at our expense, and one demand registration right at the dealer manager’s expense for a period of five years. The Company received $235,757 of gross proceeds; after deductions for fees and expenses, net cash proceeds were $8,085.
On July 27, 2010, we executed a purchase agreement and a registration rights agreement with Lincoln Park Capital, LLC (“LPC”). Under the purchase agreement, we have the right to sell to LPC up to 4,851,408 shares of our common stock at our option for an aggregate purchase price of up to $5,000,000. Pursuant to the registration rights agreement, we filed a registration statement, which was declared effective on October 21, 2010, covering the common stock that has been issued or may be issued to LPC under the purchase agreement. Over approximately 25 months, generally we have the right to direct LPC to purchase up to 4,851,408 shares of our common stock in amounts up to 150,000 shares as often as every two business days under certain conditions. The purchase price of the shares will be based on the market price of our shares immediately prior to the time of sale as computed under the purchase agreement without any fixed discount. We may at any time in our sole discretion terminate the purchase agreement without fee, penalty or cost upon one business days notice. We issued 150,000 shares of our common stock to LPC as a commitment fee for entering into the purchase agreement, and we are obligated to issue up to 150,000 shares pro rata as LPC purchases up to $5,000,000 of our common stock as directed by us.
USA Technologies, Inc.
Notes to Consolidated Financial Statements
|
5.
|
Common Stock and Preferred Stock (Continued)
|
On October 7, 2010, 86,342 shares of common stock were issued to the Company’s executive officers on account of the 2010 fiscal year under the LTIP. The specific allocation of the shares among the executive officers was as follows: Mr. Jensen- 60,716 shares; Mr. Herbert- 18,261 shares; and Mr. DeMedio- 7,365 shares. On December 30, 2010, an executive officer exercised his right to cancel shares for payroll tax obligations. As a result, 2,217 shares of common stock were cancelled to satisfy $2,261 of related payroll tax obligations. The total compensation expense recognized for the LTIP on account of the 2010 fiscal year was $97,566, based on the closing price of the Company’s Common Stock on October 6, 2010 of $1.13; $43,171 of the total compensation expense was recorded in the fiscal year ended June 30, 2010, and $54,395 in the six months ended December 31, 2010.
|
6.
|
Common Stock Warrants
|
As of December 31, 2010, there were 12,304,418 Common Stock warrants outstanding, of which 9,289,011 warrants were currently exercisable at exercise prices ranging from $1.13 to $7.70 per share and 3,015,407 warrants, all with an exercise price of $1.13, are not exercisable until January 1, 2011. On October 1, 2010, 1,500,000 warrants, which were outstanding as of June 30, 2010 and September 30, 2010, were forfeited and are not outstanding as of December 31, 2010, due to performance hurdles in the First Data Joint Marketing Agreement not being achieved.
The following table shows a summary of warrants outstanding as of December 31, 2010:
|
Expiration
Date
|
NASDAQ
Symbol
|
Exercise
Price
|
Warrants
Outstanding
|
|
5/12/2013
|
Not Listed
|
$1.13
|
165,207
|
|
7/7/2013
|
Not Listed
|
$1.13
|
15,717
|
|
12/31/2013
|
USATZ
|
$1.13
|
3,015,407
|
|
12/31/2011
|
USATW
|
$2.20
|
7,285,792
|
|
12/31/2011
|
Not Listed
|
$2.20
|
291,432
|
|
9/14/2013
|
Not Listed
|
$5.90
|
903,955
|
|
12/31/2011
|
Not Listed
|
$6.40
|
609,376
|
|
10/17/2012
|
Not Listed
|
$7.70
|
17,532
|
| Total Warrants Outstanding | 12,304,418 | ||
|
7.
|
Commitments
|
In November 2010, the Company entered into an amended lease of its principal executive office in Malvern, Pennsylvania, which extended the lease term from December 31, 2010 to April 2016. The amendment includes rental payments of approximately $29,000 to $32,000 as well as a four month period of no rent payments. The straight-lined rent expense for this office is approximately $29,000 per month for the duration of the lease.
In December 2010, the Company entered into an amended lease of its operations site, also in Malvern, Pennsylvania, to extend the lease term from December 31, 2010 to December 31, 2011. Monthly lease payments are approximately $14,500.
|
Item 2.
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
Forward Looking Statements
This Form 10-Q contains certain forward-looking statements regarding, among other things, the anticipated financial and operating results of the Company. For this purpose, forward-looking statements are any statements contained herein that are not statements of historical fact and include, but are not limited to, those preceded by or that include the words, “estimate,” “could,” “should,” “would,” “likely,” “may,” “will,” “plan,” “intend,” “believes,” “expects,” “anticipates,” “projected,” or similar expressions. Those statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward looking information is based on various factors and was derived using numerous assumptions. Important factors that could cause the Company’s actual results to differ materially from those projected, include, for example:
|
|
●
|
general economic, market or business conditions;
|
|
|
●
|
the ability of the Company to generate sufficient sales to generate operating profits, or to sell products at a profit;
|
|
|
●
|
the ability of the Company to raise funds in the future through sales of securities;
|
|
|
●
|
the ability of the Company to obtain commercial acceptance of its products and services;
|
|
|
●
|
the ability of the Company to compete with its competitors to obtain market share;
|
|
|
●
|
whether our Company’s customers purchase ePort devices or our other products in the future at levels currently anticipated by our Company;
|
|
|
●
|
whether the Company’s customers continue to operate or commence operating ePorts received under the Jump Start Program or otherwise at levels currently anticipated by the Company;
|
|
|
●
|
the ability of the Company to obtain sufficient funds through operations or otherwise to repay its debt obligations, or to fund development and marketing of its products;
|
|
|
●
|
the ability of the Company to satisfy its trade obligations included in accounts payable and accrued liabilities;
|
|
|
●
|
the ability of the Company to predict or estimate its future quarterly or annual revenues and expenses given the developing and unpredictable market for its products and the lack of established revenues;
|
|
|
●
|
the ability of the Company to maintain its reduced cash-based SG&A expenses during the remainder of the 2011 fiscal year;
|
|
|
●
|
the ability of the Company to retain key customers from whom a significant portion of its revenues is derived;
|
|
|
●
|
the ability of a key customer to reduce or delay purchasing products from the Company; and
|
|
|
●
|
as a result of the slowdown in the economy and/or the tightening of the capital and credit markets, our customers may modify, delay or cancel plans to purchase our products or services, and suppliers may increase their prices, reduce their output or change their terms of sale.
|
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Actual results or business conditions may differ materially from those projected or suggested in forward-looking statements as a result of various factors including, but not limited to, those described above. We cannot assure you that we have identified all the factors that create uncertainties. Moreover, new risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. Readers should not place undue reliance on forward-looking statements.
Any forward-looking statement made by us in this Form 10-Q speaks only as of the date of this Form 10-Q. Unless required by law, we undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.
Results of Operations
Three months ended December 31, 2010 compared to the three months ended December 31, 2009
Revenues for the quarter ended December 31, 2010 were $6,016,516 compared to $3,770,839 for the quarter ended December 31, 2009. This $2,245,677 or 60% increase was primarily due to an increase in license and transaction fees of $1,681,904, or 81%, from the prior period as well as an increase in equipment sales of $563,773, or 33%, from the prior period. The increase in license and transaction fees was primarily due to the increase in the number of ePort® units connected to our USALive® network, and the associated fees generated by these connected units. As of December 31, 2010, the Company had approximately 109,000 connections to our USALive® network (including approximately 11,000 third party devices that have been certified to be connected to our network, utilize the Company’s network protocol and/or software and have a contractual, non-exclusive license to the Company’s patents and other intellectual property) as compared to approximately 63,000 connections to our USALive network (including approximately 6,600 third party devices that have been certified to be connected to our network, utilize the Company’s network protocol and/or software and have a contractual, non-exclusive license to the Company’s patents and other intellectual property) as of December 31, 2009. During the December 31, 2010 quarter, the Company added approximately 21,000 connections to our network.
In regards to transaction fees, during the quarter ended December 31, 2010, the Company processed approximately 15.9 million transactions totaling approximately $26.2 million compared to approximately 8.2 million transactions totaling approximately $15.0 million during the quarter ended December 31, 2009, an increase of approximately 94% in transaction volume and approximately 75% in dollars processed. In addition, our customer base increased with approximately 200 new e-Port customers added to its USALive® network during the three months ended December 31, 2010 bringing the total number of such customers to over 1,400 as of December 31, 2010. Last year the Company added 175 new customers in the three months ended December 31, 2009. By comparison, the company had approximately 775 customers as of December 31, 2009, representing an 81% increase during the past twelve calendar months.
The $563,773 increase in equipment sales was a result of increases of approximately $416,000 related to ePort® products and fees and an increase of approximately $178,000 in sales of Energy Miser products, offset by a decrease in other equipment sales of approximately $30,000. The net increase in ePort® related sales revenue of $416,000 versus a quarter a year ago is attributable to increases of (1) approximately $686,000 in activation related fees, (2) approximately $192,000 of Visa support funding for installation and making operational Visa accepting ePorts, and (3) approximately $73,000 of revenue recognized under our May 2008 agreement with a customer; these increases were offset by a decrease in ePort® hardware sales of approximately $535,000. The decrease in hardware sale revenue is due mainly to a significant portion of the ePort® units shipped during the quarter ended December 31, 2010 were part of the Jump Start Program, for which the Company records a one-time activation fee, but does not record an equipment (hardware) sale. The JumpStart program began at the end of the quarter ended December 31, 2009, therefore most ePort® units shipped during the quarter ended December 31, 2009 were sold to our customers and an equipment (hardware) sale was recorded. The Jump Start Program ended on December 31, 2010. Pursuant to the Jump Start Program, the Company is entitled to receive a one-time activation fee upon shipment of the device, a monthly service fee, generally commencing the month after shipment, and transactional processing fees due in connection with the cashless activity generated by the device.
Cost of sales consisted of equipment costs of $843,683 and $1,080,878 and network and transaction services related costs of $2,684,812 and $1,680,565 for the quarters ended December 31, 2010 and 2009, respectively. The increase in total cost of sales of $767,052 over the prior fiscal quarter was due to a decrease in equipment costs of $237,195, offset by an increase in network and transaction services related costs of $1,004,247. The decrease in equipment costs was a direct result of shipping more units under the Jump Start Program. The costs associated with the Jump Start units were recorded to Property and Equipment on the Consolidated Balance Sheet. The increase in network and transaction services costs was directly related to increases in units connected to the network and increases in processing volume, offset by decreases in third party supplier costs due to an amendment to a contract which occurred in the quarter ended December 31, 2009.
Gross profit for the quarter ended December 31, 2010 was $2,488,021 compared to gross profit of $1,009,396 for the same quarter in the previous fiscal year, an increase of $1,478,625, of which $800,968 is attributable to equipment sales and $677,657 is attributable to license and transaction fees. The increase in gross profit from equipment sales is predominately due to the increase in activation fees on Jump Start connections versus the quarter a year ago as well as the Visa support funding recorded during the quarter ended December 31, 2010. The increase in gross profit dollars from license and transaction fees was generated by additional devices connected to our network and a decrease in third party supplier costs related to the contract amendment referred to above. Percentage based total gross profit (“GP”) increased overall from 27% to 41%, equipment sales GP increased from 36% to 63%, and license and transaction fees GP increased from 19% to 29%.
Selling, general and administrative expense (SG&A) of $2,262,967, decreased by $2,594,399 or 53%, from the same quarter a year ago, due to proxy contest, litigation and settlement expenses incurred during the quarter ended December 31, 2009 of approximately $1,520,000, net of insurance reimbursements of approximately $472,000 and $1,074,000 as a result of the Company’s recent expense reduction efforts. These reductions consisted of decreases in consulting and other professional services of approximately $654,000, compensation expenses of approximately $178,000, product development material costs of approximately $62,000, advertising and marketing costs of approximately $52,000 and other net decreases of approximately $128,000.
The consulting and other professional services decrease of approximately $654,000 was primarily due to reductions in research and development services ($172,000) due to the completion of projects, as well as reductions in costs of information technology ($166,000), accounting ($86,000), legal ($78,000) and other services ($152,000). The compensation expense decrease of approximately $178,000 was due to decreases of approximately $69,000 in salaries and commissions, approximately $47,000 in benefit costs, as well as a decrease of approximately $62,000 in non-cash charges related to the LTIP and other stock compensation expenses.
The quarter ended December 31, 2010 resulted in a net loss of $133,131 (including approximately $608,000 of non-cash charges) compared to a net loss of $4,245,356 (including approximately $530,000 of non-cash charges) for the quarter ended December 31, 2009, an improvement of $4,112,215, or 97%. Net loss for the December 31, 2010 fiscal quarter was the lowest quarterly net loss since our shares became listed on The NASDAQ Stock Market in March 2007. For the December 31, 2010 quarter, the loss per common share was $.01 as compared to a loss per common share of $.19 for the prior corresponding quarter.
For the quarters ended December 31, 2010 and 2009, the Company had positive earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $456,335 and an EBITDA loss of $3,818,295, respectively. The Company has achieved its stated goals of having at least 100,000 connections to its network by December 31, 2010 as well as positive EBITDA for the December 31, 2010 quarter. As stated above, at December 31, 2010 the Company had approximately 109,000 connections to its network.
Pursuant to the Settlement Agreement dated February 4, 2010 (the “Settlement Agreement”) between the Company, Shareholder Advocates For Value Enhancement (the “Committee”), and certain other parties, only if the Company did not (i) achieve positive EBITDA during the quarter ended December 31, 2010, and (ii) have at least 100,000 connections to its network as of December 31, 2010, the Committee would have the right to name an additional nominee to serve as a director in addition to the two nominees presently named by them. As the Company has attained positive EBITDA for the quarter and had at least 100,000 connections to its network as of December 31, 2010, the Committee does not have the right to name an additional director.
Reconciliation of quarterly net loss to EBITDA for the quarters ended December 31, 2010 and 2009:
|
3 Months
Ended
|
3 Months
Ended
|
|||||||
|
December 31,
2010
|
December 31,
2009
|
|||||||
|
Net loss
|
$ | (133,131 | ) | $ | (4,245,356 | ) | ||
|
|
||||||||
|
Less interest income
|
(17,469 | ) | (12,699 | ) | ||||
|
|
||||||||
|
Plus interest expense
|
9,977 | 9,719 | ||||||
|
|
||||||||
|
Plus income tax expense
|
-- | -- | ||||||
|
|
||||||||
|
Plus depreciation expense
|
338,358 | 171,441 | ||||||
|
|
||||||||
|
Plus amortization expense
|
258,600 | 258,600 | ||||||
|
|
||||||||
|
EBITDA
|
$ | 456,335 | $ | (3,818,295 | ) | |||
EBITDA is defined as a non-GAAP financial measure by the Securities and Exchange Commission. This non-GAAP financial measure is not required by or defined under GAAP (Generally Accepted Accounting Principles), nor is the presentation of this financial measure intended to be considered in isolation or as a substitute for the financial measures prepared and presented in accordance with GAAP, including the net income or net loss of the Company. Management recognizes that non-GAAP financial measures have limitations in that they do not reflect all of the items associated with the Company's net income or net loss as determined in accordance with GAAP, and is not a substitute for or measure of the Company's profitability or net earnings. EBITDA is presented because as stated above, the Company had a stated goal of achieving positive EBITDA for the quarter ended December 31, 2010, and EBITDA is utilized in the Settlement Agreement.
Important Relationship
In December 2010, the Company entered into a three year Strategic Partnership Agreement with a global, preeminent manufacturer of vending machines and payment systems (the “Manufacturer”). The Manufacturer also provides technology solutions for the vending and automatic merchandising industries. The Company has agreed to assist the Manufacturer to develop a cashless hardware solution that is integrated with the Company’s technology (the “Cashless Hardware Solution”) for the Manufacturer to sell to its customers. The Company also agreed to provide to the Manufacturer and its customers a non-exclusive, non-transferable license to certain Company patents and other intellectual property for use in the Cashless Hardware Solution solely for connecting to the Company’s network. Among other things, the Company will act as and be recommended as the Manufacturer’s lead provider of cashless services to the Manufacturer’s customers that purchase the Cashless Hardware Solution. The Agreement is a nonexclusive arrangement, and the Manufacturer is permitted during the term thereof to develop or utilize other cashless solutions other than the Cashless Hardware Solution that do not utilize the Company’s technology and/or connect to the Company’s network. The Agreement provides that the license to certain Company patents and other intellectual property shall not cover any Cashless Hardware Solution that is not connected to the Company’s network or to any other cashless solution that is not connected to the Company’s network.
Six months ended December 31, 2010 compared to the six months ended December 31, 2009
Revenues for the six month period ended December 31, 2010 were $10,457,183 compared to $7,598,475 for the same period in the prior fiscal year. This $2,858,708 or 38% increase was primarily due to an increase in license and transaction fees of $3,136,148, or 79%, from the prior period offset by a decrease in equipment sales of $277,440, or 8%, from the prior period. The increase in license and transaction fees was primarily due to the increase in the number of ePort® units connected to our USALive® network, and the associated fees generated by these connected units. As of December 31, 2010, the Company had approximately 109,000 connections to our USALive® network (including approximately 11,000 third party devices that have been certified to be connected to our network, utilize the Company’s network protocol and/or software and have a contractual, non-exclusive license to the Company’s patents and other intellectual property) as compared to approximately 63,000 connections to our USALive network (including approximately 6,600 third party devices that have been certified to be connected to our network, utilize the Company’s network protocol and/or software and have a contractual, non-exclusive license to the Company’s patents and other intellectual property) as of December 31, 2009. During the six month period ended December 31, 2010, the Company added approximately 27,000 connections to our network. In regards to transaction fees, during the six months ended December 31, 2010, the Company processed approximately 29.8 million transactions totaling approximately $50.7 million compared to approximately 15.5 million transactions totaling approximately $29.6 million during the six months ended December 31, 2009, an increase of approximately 92% in transaction volume and approximately 72% in dollars processed.
In addition, our customer base increased with approximately 350 new e-Port customers added to its USALive® network during the six months ended December 31, 2010 bringing the total number of such customers to over 1,400 as of December 31, 2010. Last year, the Company added 250 new customers in the six months ended December 31, 2009. By comparison, the company had approximately 775 customers as of December 31, 2009, representing an 81% increase during the past twelve calendar months.
The $277,440 decrease in equipment sales was a result of an increase of approximately of $75,000 related to Energy Miser products, offset by a net decrease of approximately $320,000 in sales of ePort® products and fees and a decrease of approximately of $32,000 in other equipment sales. The net decrease in ePort® related sales revenue of $320,000 is attributable to reduced hardware sales of approximately $1,282,000. The decrease in hardware sale revenue is due mainly to a significant portion of the ePort® units shipped during the quarter ended December 31, 2010 were part of the Jump Start Program, for which the Company records a one-time activation fee, but does not record an equipment (hardware) sale. The JumpStart Program began in December 2009, therefore most ePort® units shipped during the six months ended December 31, 2009 were sold to our customers and an equipment (hardware) sale was recorded. The Jump Start Program ended on December 31, 2010. Pursuant to the Jump Start Program, the Company is entitled to receive a one-time activation fee upon shipment of the device, a monthly service fee, generally commencing the month after shipment, and transactional processing fees due in connection with the cashless activity generated by the device. The decrease in hardware sales was offset by increases of (1) approximately $664,000 in activation related fees primarily related to Jump Start Program units, (2) $225,000 of Visa support funding for installation and making operational Visa accepting ePorts, and (3) approximately $73,000 of revenue recognized under our May 2008 agreement with a customer.
The Company entered into an Acceptance and Promotional Agreement with Visa USA, Inc. on August 16, 2010. Under the first program year of the agreement, the Company is entitled to receive up to $225,000 to be used to support the installation and making operational of up to 9,000 terminals, which accept the Visa brand, by no later than December 31, 2010. During the six months ended December 31, 2010, the Company recorded $225,000 of revenue related to the support funding for installation and making operational of Visa accepting terminals. As required by the Visa agreement, the Company supported the installation and made operational at least 9,000 terminals by December 31, 2010.
Cost of sales consisted of equipment costs of $1,492,581 and $2,390,235 and network and transaction services related costs of $5,121,011 and $3,168,722 for the six months ended December 31, 2010 and 2009, respectively. The increase in total cost of sales of $1,054,635 over the same period in the prior fiscal year was due to a decrease in equipment costs of $897,654, offset by an increase in network and transaction services of $1,952,289. The decrease in equipment costs was a direct result of shipping more units under the Jump Start Program. The costs associated with the Jump Start units were recorded to Property and Equipment on the Consolidated Balance Sheet. The Jump Start Program started in December 2009. The increase in network and transaction services costs was directly related to increases in units connected to the network and increases in processing volume, offset by decreases in third party supplier costs due to an amendment to a contract which occurred in the quarter ended December 31, 2009.
Gross profit for the six months ended December 31, 2010 was $3,843,591 compared to gross profit of $2,039,518 for the same period in the previous fiscal year, an increase of $1,804,073, of which $620,214 is attributable to equipment sales and $1,183,859 is attributable to license and transaction fees. The increase in gross profit from equipment sales is predominately due to the increase in activation fees on Jump Start connections as compared to the same six month period a year ago as well as the Visa support funding recorded during the six months ended December 31, 2010. The increase in gross profit dollars from license and transaction fees was generated by additional devices connected to our network and a decrease in third party supplier costs related to the contract amendment referred to above. GP increased overall from 27% to 37%, equipment sales GP increased from 34% to 56%, and license and transaction fees GP increased from 20% to 28%.
SG&A of $5,176,266, decreased by $3,246,877 or 39%, from the six month period a year ago, due to an approximate $1,727,000 decrease as a result of the Company’s recent expense reduction efforts and an approximate $1,520,000 decrease in proxy contest, litigation and settlement expenses incurred during the six months ended December 31, 2009. The Company’s expense reduction efforts of $1,727,000 consisted of decreases in consulting and other professional services of approximately $1,055,000, compensation expenses of approximately $289,000, product development material costs of approximately $137,000, advertising and marketing costs of approximately $73,000 and other net decreases of approximately $173,000.
The consulting and other professional services decrease of approximately $1,055,000 was primarily due to $456,000 of reductions in research and development services due to the completion of projects, as well as reductions in costs of information technology ($264,000), legal ($93,000), accounting ($87,000) and other services ($155,000). The compensation expense net decrease of approximately $289,000 was due to net decreases of approximately $180,000 in salaries and commissions, approximately $34,000 in benefit costs, as well as a decrease of approximately $111,000 in charges related to the LTIP and other non-cash compensation expenses, offset by an increase of approximately $36,000 in severance costs.
The six months ended December 31, 2010 resulted in a net loss of $2,019,743 (including approximately $1,221,000 of non-cash charges) compared to a net loss of $7,171,555 (including approximately $1,076,000 of non-cash charges) for the six months ended December 31, 2009, an improvement of $5,151,812, or 72%. Net loss for the six month period ended December 31, 2010 was the lowest six month net loss since our shares became listed on The NASDAQ Stock Market in March 2007. For the six month period ended December 31, 2010, the loss per common share was $.09 as compared to a loss per common share of $.36 for the prior corresponding six month period.
Liquidity and Capital Resources
For the six months ended December 31, 2010, net cash of $2,168,294 was used by operating activities, primarily due to cash used related to changes in the Company’s operating assets and liabilities of $1,369,720 and the net loss of $2,019,743 offset by non-cash charges totaling $1,221,169, representing the vesting and issuance of common stock for employee compensation, bad debt recovery, loss on disposal of equipment and the depreciation and amortization of assets.
The $1,369,720 change in the Company’s operating assets and liabilities, was primarily the result of $3,823,972 of inventory used in the Jump Start Program during the six months ended December 31, 2010 and a decrease in accrued expenses, offset by a decrease in inventory unrelated to inventory used in the Jump Start program, decreases in accounts and finance receivable and prepaid expenses and other assets, and an increase in accounts payable.
During the six months ended December 31, 2010, the Company used $213,745 in investing activities related to the purchase of network equipment and $226,289 in financing activities mainly due to repayment of long-term debt.
The Company has incurred losses since inception. Our accumulated deficit through December 31, 2010 is composed of cumulative losses amounting to approximately $189,500,000, preferred dividends converted to common stock of approximately $2,700,000, and charges incurred for the open-market purchases of preferred stock of approximately $150,000. The Company has historically raised capital through equity offerings in order to fund operations.
As of December 31, 2010 the Company had $4,995,996 of cash and cash equivalents on hand, of which approximately $330,000 was cash received by the Company for transaction processing services which is payable to customers.
During the remainder of the 2011 fiscal year, the Company anticipates incurring capital expenditures for property and equipment of approximately $290,000.
Our average monthly cash-based SG&A expenses during the quarter ended December 31, 2010 were approximately $751,000. Based on our financial forecasts and related assumptions, including continued increases in sales of our ePort® units, the Company believes its existing cash and cash equivalents as of December 31, 2010, should provide sufficient funds to meet the Company’s cash requirements, including capital expenditures and repayment of long-term debt, through at least July 1, 2011.
During July 2010, the Company signed a purchase agreement with Lincoln Park Capital Fund, LLC (“LPC”). Pursuant to the purchase agreement, and subject to the conditions set forth therein, we have the right to sell to LPC, and LPC has the obligation to purchase from us, up to 4,851,408 shares of common stock over a 25 month period with an aggregate purchase price not to exceed $5 million. We are not required to sell any shares to LPC, and we will control the timing and amount of any sales of shares to LPC. The sale of any shares to LPC is subject to our registering the shares under the Securities Act of 1933 (the “Act’). During October 2010, a registration statement covering the shares was declared effective by the Securities and Exchange Commission.
In the event that the Company would decide to increase its working capital or if actual operating results are not in accordance with our financial forecasts and related assumptions, the Company may sell shares to LPC under the purchase agreement.
As of the date of this report, we have not sold any shares to LPC and, subject to the qualifications described above, we do not anticipate selling any shares to LPC during the remainder of the 2011 fiscal year.
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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The Company's exposure to market risks for interest rate changes is not significant. Interest rates on its long-term debt are generally fixed and its investment in cash equivalents is not significant. Market risks related to fluctuations of foreign currencies are not significant and the Company has no derivative instruments.
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Controls and Procedures
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(a) Evaluation of disclosure controls and procedures.
The principal executive officer and principal financial officer have evaluated the Company’s disclosure controls and procedures as of December 31, 2010. Based on this evaluation, they conclude that the disclosure controls and procedures were effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in internal controls.
There have been no changes during the quarter ended December 31, 2010 in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
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Part II -
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Other Information
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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(a) Sales of Unregistered Securities during the Quarter ended December 31, 2010
During the quarter ended December 31, 2010, the Company issued the following number of shares of common stock to its executive officers under the LTIP on account of the fiscal year ended June 30, 2010: George R. Jensen, Jr. – 60,716 shares; Stephen P. Herbert – 18,261 shares; and David M. DeMedio – 7,365 shares. The issuance of the shares was exempt from registration under Section 4(2) of the Act.
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Exhibits
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Second Amendment to Agreement of Lease between BMR-Spring Mill Drive, L.P., as landlord, and the Company, as tenant, dated December 28, 2010.
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Second Amendment to Office Space Lease dated as of November 17, 2010 by and between the Company and Liberty Malvern, LP.
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Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
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Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
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Certification of the Chief Executive Officer pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Certification of the Chief Financial Officer pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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USA TECHNOLOGIES, INC.
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Date: January 20, 2011
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/s/ George R. Jensen, Jr.
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George R. Jensen, Jr., Chairman and
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Chief Executive Officer
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Date: January 20, 2011
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/s/ David M. DeMedio
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David M. DeMedio,
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Chief Financial Officer
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