We have audited USA Technologies, Inc. and subsidiaries' internal control over financial reporting as of June 30, 2016, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. USA Technologies, Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management's assessment. Management identified control deficiencias, including significant deficiencies, in the design or operating effectiveness of the Company’s internal control over financial reporting, which when aggregated, represent a material weakness in internal control. The significant deficiencies included that the operation of an existing control did not result in timely resolution of account receivable aging issues; the design of certain internal controls allowed for errors or omissions in the accrual process; and one operational control that did not identify certain merchant receivables as one of the critical accounts to be audited on a monthly basis. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2016 financial statements, and this report does not affect our report dated September 13, 2016 on those financial statements.
In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, USA Technologies, Inc. and subsidiaries has not maintained effective internal control over financial reporting as of June 30, 2016, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of USA Technologies, Inc. and subsidiaries as of June 30, 2016 and 2015, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended June 30, 2016 and our report dated September 13, 2016 expressed an unqualified opinion.
USA Technologies, Inc.
Consolidated Statements of Cash Flows
($ in thousands, except shares)
|
|
Year ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(6,806
|
)
|
|
$
|
(1,089
|
)
|
|
$
|
27,531
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges incurred in connection with the vesting and issuance of common stock for employee and director compensation
|
|
|
849
|
|
|
|
716
|
|
|
|
529
|
|
(Gain) loss on disposal of property and equipment
|
|
|
(167
|
)
|
|
|
(17
|
)
|
|
|
4
|
|
Non-cash interest and amortization of debt discount
|
|
|
13
|
|
|
|
-
|
|
|
|
2
|
|
Bad debt expense
|
|
|
1,450
|
|
|
|
1,098
|
|
|
|
134
|
|
Depreciation
|
|
|
5,135
|
|
|
|
5,731
|
|
|
|
5,464
|
|
Amortization
|
|
|
87
|
|
|
|
-
|
|
|
|
22
|
|
Impairment of intangible asset
|
|
|
432
|
|
|
|
-
|
|
|
|
-
|
|
Change in fair value of warrant liabilities
|
|
|
5,674
|
|
|
|
393
|
|
|
|
(66
|
)
|
Deferred income taxes, net
|
|
|
(660
|
)
|
|
|
215
|
|
|
|
(27,301
|
)
|
Gain on sale of finance receivables
|
|
|
-
|
|
|
|
(52
|
)
|
|
|
-
|
|
Recognition of deferred gain from sale-leaseback transactions
|
|
|
(860
|
)
|
|
|
(834
|
)
|
|
|
(10
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(375
|
)
|
|
|
(2,539
|
)
|
|
|
(204
|
)
|
Finance receivables
|
|
|
(2,040
|
)
|
|
|
(4,114
|
)
|
|
|
53
|
|
Inventory
|
|
|
1,036
|
|
|
|
(1,931
|
)
|
|
|
370
|
|
Prepaid expenses and other current assets
|
|
|
(763
|
)
|
|
|
(304
|
)
|
|
|
(191
|
)
|
Accounts payable
|
|
|
1,814
|
|
|
|
941
|
|
|
|
460
|
|
Accrued expenses
|
|
|
1,266
|
|
|
|
55
|
|
|
|
267
|
|
Income taxes payable
|
|
|
383
|
|
|
|
33
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
6,468
|
|
|
|
(1,698
|
)
|
|
|
7,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase and additions of property and equipment
|
|
|
(536
|
)
|
|
|
(60
|
)
|
|
|
(111
|
)
|
Purchase of property for rental program
|
|
|
-
|
|
|
|
(1,642
|
)
|
|
|
(10,883
|
)
|
Proceeds from sale of rental equipment under sale-leaseback transactions
|
|
|
-
|
|
|
|
4,994
|
|
|
|
2,995
|
|
Proceeds from sale of property and equipment
|
|
|
389
|
|
|
|
62
|
|
|
|
82
|
|
Cash paid for assets acquired from VendScreen
|
|
|
(5,625
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(5,772
|
)
|
|
|
3,354
|
|
|
|
(7,917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in retirement of common stock
|
|
|
(213
|
)
|
|
|
(62
|
)
|
|
|
(89
|
)
|
Proceeds from exercise of common stock warrants
|
|
|
4,918
|
|
|
|
-
|
|
|
|
2,362
|
|
Proceeds from line of credit
|
|
|
7,163
|
|
|
|
-
|
|
|
|
2,000
|
|
Repayment of line of credit
|
|
|
(3,992
|
)
|
|
|
(1,000
|
)
|
|
|
-
|
|
Repayment of long-term debt
|
|
|
(674
|
)
|
|
|
(359
|
)
|
|
|
(375
|
)
|
Proceeds from long-term debt
|
|
|
-
|
|
|
|
2,057
|
|
|
|
-
|
|
Excess tax benefits from share-based compensation
|
|
|
-
|
|
|
|
10
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
7,202
|
|
|
|
646
|
|
|
|
3,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
7,898
|
|
|
|
2,302
|
|
|
|
3,091
|
|
Cash and cash equivalents at beginning of year
|
|
|
11,374
|
|
|
|
9,072
|
|
|
|
5,981
|
|
Cash at end of year
|
|
$
|
19,272
|
|
|
$
|
11,374
|
|
|
$
|
9,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid in cash
|
|
$
|
551
|
|
|
$
|
306
|
|
|
$
|
260
|
|
Income taxes paid in cash
|
|
$
|
501
|
|
|
$
|
31
|
|
|
$
|
-
|
|
Depreciation expense allocated to cost of services
|
|
$
|
4,575
|
|
|
$
|
5,120
|
|
|
$
|
4,881
|
|
Reclass of rental program property to inventory, net
|
|
$
|
1,150
|
|
|
$
|
674
|
|
|
$
|
33
|
|
Prepaid items financed with debt
|
|
$
|
103
|
|
|
$
|
103
|
|
|
$
|
102
|
|
Warrant issuance for debt discount
|
|
$
|
52
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Debt financing costs financed with debt
|
|
$
|
79
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Equipment and software acquired under capital lease
|
|
$
|
444
|
|
|
$
|
108
|
|
|
$
|
325
|
|
Disposal of property and equipment
|
|
$
|
1,081
|
|
|
$
|
842
|
|
|
$
|
710
|
|
Disposal of property and equipment under sale-leaseback transactions
|
|
$
|
-
|
|
|
$
|
3,873
|
|
|
$
|
1,919
|
|
USA Technologies, Inc.
Notes to Consolidated Financial Statements
1. BUSINESS
USA Technologies, Inc. (the “Company”, “We”, “USAT”, or “Our”) was incorporated in the Commonwealth of Pennsylvania in January 1992. We are a provider of technology-enabled solutions and value-added services that facilitate electronic payment transactions primarily within the unattended Point of Sale (“POS”) market. We are a leading provider in the small ticket, beverage and food vending industry and are expanding our solutions and services to other unattended market segments, such as amusement, commercial laundry, kiosk and others. Since our founding, we have designed and marketed systems and solutions that facilitate electronic payment options, as well as telemetry Internet of Things (“IoT”) and machine-to-machine (“M2M”) services, which include the ability to remotely monitor, control, and report on the results of distributed assets containing our electronic payment solutions. Historically, these distributed assets have relied on cash for payment in the form of coins or bills, whereas, our systems allow them to accept cashless payments such as through the use of credit or debit cards or other emerging contactless forms, such as mobile payment. All of our customers are located in North America.
2. ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. 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 consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
CASH
The Company maintains its cash in bank deposit accounts, which may exceed federally insured limits at times.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable include amounts due to the Company for sales of equipment, other amounts due from customers, merchant service receivables, and unbilled amounts due from customers, net of the allowance for uncollectible accounts.
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments, including from a shortfall in the customer transaction fund flow from which the Company would normally collect amounts due.
The allowance is determined through an analysis of various factors including the aging of the accounts receivable, the strength of the relationship with the customer, the capacity of the customer transaction fund flow to satisfy the amount due from the customer, an assessment of collection costs and other factors. The allowance for doubtful accounts receivable is management’s best estimate as of the respective reporting date. The Company writes off accounts receivable against the allowance when management determines the balance is uncollectible and the Company ceases collection efforts. Management believes that the allowance recorded is adequate to provide for its estimated credit losses.
USA Technologies, Inc.
Notes to Consolidated Financial Statements
2. ACCOUNTING POLICIES (CONTINUED)
FINANCE RECEIVABLES
The Company offers extended payment terms to certain customers for equipment sales under its Quick Start Program. In accordance with the Financial Accounting Standards Board Accounting Standards Codification® (“ASC”) Topic 840, “Leases”, agreements under the Quick Start Program qualify for sales-type lease accounting. Accordingly, the future minimum lease payments are classified as finance receivables in the Company’s consolidated balance sheets. Finance receivables or Quick Start leases are generally for a sixty month term. 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. 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.
INVENTORY, Net
Inventory consists of finished goods and packaging materials. The Company’s inventory is stated at the lower of cost (average cost basis) or market.
PROPERTY AND EQUIPMENT, Net
Property and equipment are recorded at cost. Property and equipment are depreciated on the straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized on the straight-line basis over the lesser of the estimated useful life of the asset or the respective lease term.
GOODWILL AND INTANGIBLE ASSETS
The Company’s intangible assets include goodwill, trademarks, non-compete agreements, brand, developed technology and customer relationships.
The Company’s trademarks with an indefinite economic life are not being amortized. The trademarks, not subject to amortization, are related to the EnergyMiser asset group and consist of four trademarks. The Company tests indefinite-life intangible assets for impairment using a two-step process. The first step screens for potential impairment, while the second step measures the amount of impairment. The Company uses a relief from royalty analysis to complete the first step in this process. Testing for impairment is to be done at least annually and at other times if events or circumstances arise that indicate that impairment may have occurred. The Company has selected April 1 as its annual test date for its indefinite-lived intangible assets. The Company concluded there was no impairment of trademarks during the fiscal years ended June 30, 2015 and 2014, respectively. During the fourth quarter of the fiscal year ended June 30, 2016, the fair value of the trademarks were determined to have inconsequential value based on the “relief from royalty” methodology. This assessment resulted in an impairment write-down during the fourth fiscal quarter of $432 thousand, which is included in “Impairment of intangible asset” in the Consolidated Statement of Operations for the fiscal year ended June 30, 2016. (See Note 7 Goodwill and Intangible Assets for details.)
USA Technologies, Inc.
Notes to Consolidated Financial Statements
2. ACCOUNTING POLICIES (CONTINUED)
Goodwill represents the excess of cost over fair value of the net assets purchased in acquisitions. The Company accounts for goodwill in accordance with ASC 350, “Intangibles – Goodwill and Other”. Under ASC 350, goodwill is not amortized to earnings, but instead is subject to periodic testing for impairment. Testing for impairment is to be done at least annually and at other times if events or circumstances arise that indicate that impairment may have occurred. The Company has selected April 1 as its annual test date. The Company has concluded there has been no impairment of goodwill during the fiscal years ended June 30, 2016, 2015 and 2014, respectively.
LONG-LIVED ASSETS
In accordance with ASC 360, “Impairment or Disposal of Long-Lived Assets”, the Company reviews its definite lived long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the carrying amount of an asset or group of assets exceeds its net realizable value, the asset will be written down to its fair value. In the period when the plan of sale criteria of ASC 360 are met, definite lived long-lived assets are reported as held for sale, depreciation and amortization cease, and the assets are reported at the lower of carrying value or fair value less costs to sell. The Company has concluded that the carrying amount of definite lived long-lived assets is recoverable as of June 30, 2016 and 2015.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and Disclosures (“Topic 820”): Improving Disclosures about Fair Value Measurements.” ASU 2010-06 amends certain disclosure requirements of Subtopic 820-10. This ASU provides additional disclosures for transfers in and out of Levels 1 and 2 and for activity in Level 3. This ASU also clarifies certain other existing disclosure requirements including level of desegregation and disclosures around inputs and valuation techniques.
The Company’s financial assets and liabilities are accounted for in accordance with ASC 820 “Fair Value Measurement.” Under ASC 820 the Company uses inputs from the three levels of the fair value hierarchy to measure its financial assets and liabilities. The three levels are as follows:
Level 1- Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2- Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3- Inputs are unobservable and reflect the Company’s assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available.
The Company’s financial instruments, principally accounts receivable, short-term finance receivables, prepaid expenses and other assets, accounts payable and accrued expenses, are carried at cost which approximates fair value due to the short-term maturity of these instruments. The fair value of the Company’s obligations under its long-term debt agreements and the long-term portion of its finance receivables approximate their carrying value as such instruments are at market rates currently available to the Company.
CONCENTRATION OF RISK
S
Financial instruments that subject the Company to a concentration of credit risk consist principally of cash and accounts and finance receivables. The Company maintains cash with various financial institutions where accounts may exceed federally insured limits at times. Approximately 18%, 35% and 22% of the Company’s trade accounts and finance receivables at June 30, 2016, 2015 and 2014, respectively, were concentrated with one customer.
USA Technologies, Inc.
Notes to Consolidated Financial Statements
2. ACCOUNTING POLICIES (CONTINUED)
Concentration of revenues with customers subject the Company to operating risks. Approximately 16%, 21% and 26% of the Company’s license and transaction processing revenues for the years ended June 30, 2016, 2015 and 2014, respectively, were concentrated with one customer. Approximately 28% and 17% of the Company’s equipment sales revenue were concentrated with one customer for the years ended June 30, 2016 and 2015, respectively, with no concentrations for the year ended June 30, 2014. The Company’s customers are principally located in the United States.
REVENUE RECOGNITION
Revenue from the sale or QuickStart lease of equipment is recognized on the terms of free-on-board shipping point. Activation fee revenue, if applicable, is recognized when the Company’s cashless payment device is initially activated for use on the Company network. Transaction processing revenue is recognized upon the usage of the Company’s cashless payment and control network. License fees for access to the Company’s devices and network services are recognized on a monthly basis. In all cases, revenue is only recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed and determinable, and collection of the resulting receivable is reasonably assured. The Company estimates an allowance for product returns at the date of sale and license and transaction fee refunds on a monthly basis.
ePort hardware is available to customers under the QuickStart program pursuant to which the customer would enter into a five-year non-cancelable lease with either the Company or a third-party leasing company for the devices. The Company qualifies for sales type lease accounting. Accordingly, the company recognizes a portion of lease payments as interest income. At the end of the lease period, the customer would have the option to purchase the device at its residual value.
EQUIPMENT RENTAL
The Company offers its customers a rental program for its ePort devices, the JumpStart program (“JumpStart”). JumpStart terms are typically 36 months and are cancellable with thirty to sixty days’ written notice. In accordance with ASC 840, “Leases”, the Company classifies the rental agreements as operating leases, with service fee revenue related to the leases included in license and transaction fees in the Consolidated Statements of Operations. Cost for the JumpStart revenues, which consists of depreciation expense on the JumpStart equipment, is included in cost of services in the Consolidated Statements of Operations. ePort equipment utilized by the JumpStart program is included in property and equipment, net on the Consolidated Balance Sheet.
WARRANTY COSTS
The Company generally warrants its products for one to three years. Warranty costs are estimated and recorded at the time of sale based on historical warranty experience, if available. These costs are reviewed and adjusted, if necessary, periodically throughout the year.
SHIPPING AND HANDLING
Shipping and handling fees billed to our customers in connection with sales are recorded as revenue. The costs incurred for shipping and handling of our product are recorded as cost of equipment.
ADVERTISING
Advertising costs are expensed as incurred. Advertising expense was $0.3 million, $0.2 million, and $0.2 million in the fiscal years ended June 30, 2016, 2015, and 2014, respectively.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses are expensed as incurred. Research and development expenses, which are included in selling, general and administrative expenses in the Consolidated Statements of Operations, were approximately $1.4 million, $1.5 million and $1.0 million, for the years ended June 30, 2016, 2015, and 2014, respectively. Our research and development initiatives focus on adding features and functionality to our system solutions through the development and utilization of our processing and reporting network and new technology.
USA Technologies, Inc.
Notes to Consolidated Financial Statements
2. ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING FOR EQUITY AWARDS
In accordance with ASC 718 the cost of employee services received in exchange for an award of equity instruments is based on the grant-date fair value of the award and allocated over the requisite service period of the award.
Litigation Costs
From time to time, we are involved in litigation, claims, contingencies and other legal matters. We record a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statement and (ii) the range of the loss can be reasonably estimated. We expense legal costs, including those legal costs expected to be incurred in connection with a loss contingency, as incurred.
INCOME TAXES
The Company follows the provisions of FASB ASC 740, Accounting for Uncertainty in Income Taxes,
which
provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial
statements. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized upon the adoption of ASC 740 and in subsequent periods.
Income taxes are computed using the asset and liability method of accounting. Under the asset and liability method, a deferred tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carryforwards. The measurement of deferred income tax assets is adjusted by a valuation allowance, if necessary, to recognize future tax benefits only to the extent, based on available evidence, it is more likely than not such benefits will be realized. The Company recognizes interest and penalties, if any, related to uncertain tax positions in selling, general and administrative expenses. No interest or penalties related to uncertain tax positions were accrued or incurred during the years ended June 30, 2016, 2015, and 2014.
The Company files income tax returns in the United States federal jurisdiction and various state jurisdictions. The tax years ended June 30, 2013 through June 30, 2016 remain open to examination by taxing jurisdictions to which the Company is subject. As of June 30, 2016, the Company did not have any income tax examinations in process.
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per share are calculated by dividing net income (loss) applicable to common shares by the weighted average common shares outstanding for the period. Diluted earnings (loss) per share are calculated by dividing net income (loss) applicable to common shares by the weighted average common shares outstanding for the period plus the dilutive effects of common stock equivalents unless the effects of such common stock equivalents are anti-dilutive. For the years ended June 30, 2016, 2015 and 2014 no effect for common stock equivalents was considered in the calculation of diluted earnings (loss) per share because their effect was anti-dilutive.
The consolidated financial statements included in this Form 10-K reflect additional shares of common stock and preferred stock that had been issued and outstanding in prior periods but were not reflected as such in previous consolidated financial statements as explained in Note 19. The basic and diluted weighted average number of common shares outstanding for the years ended June 30, 2015 and 2014 have been adjusted to reflect the additional number of shares pertaining to each of those years. The foregoing adjustments in basic and diluted weighted common shares outstanding did not affect the previously reported net loss per common share-basic or diluted for the year ended June 30, 2015. The previously reported net income per common share-basic and diluted for the year ended June 30, 2014 was decreased from $.78 to $.77 as a result of the foregoing adjustments.
SOFTWARE DEVELOPMENT COSTS
Costs incurred during the preliminary project along with post-implementation stages of internal use computer software development and costs incurred to maintain existing product offerings are expensed as incurred. The capitalization and ongoing assessment of recoverability of development costs require considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility and estimated economic life. At June 30, 2016, the Company had $137 thousand in capitalized software development which is being amortized over a period of three years.
USA Technologies, Inc.
Notes to Consolidated Financial Statements
2. ACCOUNTING POLICIES (CONTINUED)
OTHER COMPREHENSIVE INCOME
ASC 220, “Comprehensive Income”, prescribes the reporting required for comprehensive income and items of other comprehensive income. Entities having no items of other comprehensive income are not required to report on comprehensive income. The Company has no items of other comprehensive income for its years ended June 30, 2016, 2015 or 2014.
RECENT ACCOUNTING PRONOUCEMENTS
The Company is evaluating whether the effects of the following recent accounting pronouncements or any other recently issued, but not yet effective accounting standards, will have a material effect on the Company’s consolidated financial position, results of operations or cash flows.
In May 2014, the Financial Accounting Standards Board issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU was amended by ASU No. 2015-14, issued in August 2015, which deferred the original effective date by one year. The new guidance provides a single model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. The new standard also requires expanded qualitative and quantitative disclosures about the nature, timing and uncertainty of revenue and cash flows rising from contracts with customers. The ASU is now effective for fiscal years, and interim reporting periods within those years, beginning with the year ending June 30, 2019.
In June 2014, the Financial Accounting Standards Board issued ASU 2014-12 Compensation - Stock Compensation (Topic 718); Accounting for share-based payments when the terms of the award provide that a performance target could be achieved after the requisite service period. Under the new guidance an entity will not record compensation expense related to an award until it becomes probable that the performance target will be met. This pronouncement will be effective for the Company beginning with the year ending June 30, 2017.
In April 2015, the Financial Accounting Standards Board issued ASU 2015-03 Interest - Imputation of Interest (Subtopic 835-30): Simplifying the presentation of debt issuance costs. This standard is part of FASB’s simplification initiative which has as its objective to identify, evaluate, and improve areas where cost and complexity can be reduced while maintaining or improving the usefulness of the information for users. The Company adopted this pronouncement for the year ended June 30, 2016.
In July 2015, the Financial Accounting Standards Board issued ASU 2015-11 Inventory (Topic 330): Simplifying the measurement of inventory. This standard is part of FASB’s simplification initiative which has as its objective to identify, evaluate, and improve areas where cost and complexity can be reduced while maintaining or improving the usefulness of the information for users. This pronouncement will be effective for the Company beginning with the year ending June 30, 2018.
In September 2015, the Financial Accounting Standards Board issued ASU 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments". ASU 2015-16 eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. ASU 2015-16 will be effective for the Company beginning with the quarter ending September 30, 2016. Since this standard is prospective, the impact of ASU 2015-16 on the Company's financial condition, results of operations and cash flows will depend upon the nature of any measurement period adjustments identified in future periods.
In November 2015, the Financial Accounting Standards Board issued ASU 2015-17, "Balance Sheet Classification of Deferred Taxes" ("ASU 2015-17"), which will require entities to present all deferred tax liabilities and assets as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. The standard will be effective for the Company beginning with the quarter ending September 30, 2017. Early application is permitted. The standard can be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented.
In February 2016, the Financial Accounting Standards Board issued ASU 2016-02 “Leases” (Topic 842). Under the new guidance, those leases classified as operating leases under previous GAAP, will be recognized on our consolidated balance sheet as liabilities with corresponding right-of-use assets. This pronouncement will be effective for the Company beginning with the year ending June 30, 2018.
USA Technologies, Inc.
Notes to Consolidated Financial Statements
2. ACCOUNTING POLICIES (CONTINUED)
In March 2016, the Financial Accounting Standards Board issued ASU 2016-09 Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The new guidance simplifies several aspects of accounting and presentation for share-bases compensation. This pronouncement will be effective for the Company beginning with the year ending June 30, 2018.
In August 2016, the Financial Accounting Standards Board issued ASU 2016-15 Statement of Cash Flows Classification of Certain Cash Receipts and Cash Payments (Topic 230). This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This pronouncement will be effective for the Company beginning with the year ending June 30, 2018.
There are three amendments to ASU 2014-09 issued in 2016. They are ASU 2016-08, issued in March 2016 Revenue from Contracts with Customers (Topic 606) Principal versus Agent Considerations which clarifies those relationships with the customer, ASU 2016-10, issued in April 2016 Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing, what is the entity’s obligations to its customer and what is the customer’s entitlement in the license agreements and ASU 2016-12, issued in April 2016 Revenue from Contracts with Customers (Topic 606), Narrow Scope Improvements and Practical Expedients, guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contract modifications at transition. These amendments to ASU 2014-09 are now effective for fiscal years, and interim reporting periods within those years, beginning with the year ending June 30, 2019.
RECLASSIFICATION
As reported in the Company’s Form 10-Q for the quarter ended September 30, 2015, commencing with the September 30, 2015 financial statements, the Company changed the manner in which it presents certain uncollected customer accounts receivable and the related allowance in its consolidated balance sheets and the related statements of cash flows. These accounts receivable represent a large number of small balance amounts due from customers for processing and service fees which had not been billed to customers, and as to which, there had been no customer transaction proceeds from which the Company could collect the amounts due in accordance with its normal procedures. The previous accounting classification recorded these amounts as a reduction of its accounts payable in the consolidated balance sheets and the related statements of cash flows. The new accounting classification moves these amounts to accounts receivable and allowance for bad debt.
USA Technologies, Inc.
Notes to Consolidated Financial Statements
2. ACCOUNTING POLICIES (CONTINUED)
($ in thousands)
|
|
June 30, 2015 Balances
|
|
Consolidated Balance Sheet Line Items
|
|
|
|
|
Reclassification
|
|
|
As reclassified
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable, net of allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
Reclassification of balances included in accounts payable to accounts receivable
|
|
|
|
|
$
|
2,114
|
|
|
|
|
Reclassification of the allowance for doubtful accounts in accounts payable
|
|
|
|
|
|
(815
|
)
|
|
|
|
|
|
$
|
4,672
|
|
|
$
|
1,299
|
|
|
$
|
5,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of the allowance for doubtful accounts in accounts payable
|
|
$
|
(494
|
)
|
|
$
|
(815
|
)
|
|
$
|
(1,309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of balances included in accounts payable to accounts receivable
|
|
|
|
|
|
$
|
2,114
|
|
|
|
|
|
Reclassification of the allowance for doubtful accounts in accounts payable
|
|
|
|
|
|
|
(815
|
)
|
|
|
|
|
|
|
$
|
9,243
|
|
|
$
|
1,299
|
|
|
$
|
10,542
|
|
Accordingly, the respective balances for all prior periods presented in these financial statements were reclassified in order to be consistent with and comparable to the accounting classification of these items in our June 30, 2015 financial statements. The new accounting classification as well as the reclassification for prior periods had no effect on the consolidated statements of operations or the consolidated statements of shareholders’ equity. The details of the reclassification of the consolidated balance sheets were disclosed in the Company’s Form 10-Q for the quarter ended September 30, 2015. The consolidated statements of cash flows amounts are presented in the table below:
($ in thousands)
|
|
For the fiscal year ended June 30, 2015
|
|
Consolidated Statement of Cash Flow Line Items
|
|
|
|
|
Reclassification
|
|
|
As reclassified
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
|
|
|
|
|
|
|
|
Reclassification of cash provided by and included in accounts payable to accounts receivable
|
|
$
|
(2,517
|
)
|
|
$
|
(22
|
)
|
|
$
|
(2,539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of cash used in and included in accounts payable to accounts receivable
|
|
$
|
919
|
|
|
$
|
22
|
|
|
$
|
941
|
|
USA Technologies, Inc.
Notes to Consolidated Financial Statements
2. ACCOUNTING POLICIES (CONTINUED)
($ in thousands)
|
|
For the fiscal year ended June 30, 2014
|
|
Consolidated Statement of Cash Flow Line Items
|
|
|
|
|
Reclassification
|
|
|
As reclassified
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
|
|
|
|
|
|
|
|
Reclassification of cash provided by and included in accounts payable to accounts receivable
|
|
$
|
(157
|
)
|
|
$
|
(47
|
)
|
|
$
|
(204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of cash used in and included in accounts payable to accounts receivable
|
|
$
|
413
|
|
|
$
|
47
|
|
|
$
|
460
|
|
USA Technologies, Inc.
Notes to Consolidated Financial Statements
3. ACQUISITION
VENDSCREEN, INC.
On January 15, 2016, the Company executed an Asset Purchase Agreement with VendScreen, Inc. (“VendScreen”), a Portland, Oregon based developer of vending industry cashless payment technology, by which it acquired substantially all of VendScreen’s assets and assumed specified liabilities, for a cash payment of $5.625 million. The purchase price was funded using $2.625 million in cash, and the balance of $3.0 million from a term loan which was converted from a line of credit.
This acquisition expands the Company’s capability with interactive media (touchscreen) and content delivery through VendScreen’s cloud-based content delivery platform, device platform and products, customer base, vendor management system (VMS) integration, and consumer product information including nutritional data. In addition to new technology and services, the acquisition adds a West Coast operational footprint, with former VendScreen employees able to offer expanded customer services, sales and technical support. On the date of the acquisition, VendScreen had approximately 150 customers with approximately 6,000 connections. Of those 150 customers approximately 50% are new customers of USAT.
The following table summarizes the preliminary purchase price allocation to reflect the fair values of the assets acquired and liabilities assumed at the date of acquisition.
USA Technologies, Inc.
Notes to Consolidated Financial Statements
3. ACQUISITION (CONTINUED)
($ in thousands)
|
|
|
|
|
|
|
|
Consideration:
Fair value of total consideration paid in cash
|
|
$
|
5,625
|
|
|
|
|
|
|
Acquisition / non-recurring acquisition expenses:
|
|
$
|
842
|
|
|
|
|
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed:
|
|
|
|
|
|
|
|
|
|
Financial Assets:
|
|
|
|
|
Accounts receivable
|
|
$
|
3
|
|
Finance receivables
|
|
|
628
|
|
Other current assets
|
|
|
20
|
|
Deferred income taxes
|
|
|
18
|
|
|
|
|
669
|
|
|
|
|
|
|
Property, plant & equipment
|
|
|
81
|
|
|
|
|
|
|
Identifiable intangible assets:
|
|
|
|
|
Developed technology
|
|
|
639
|
|
Customer relationships
|
|
|
149
|
|
Brand
|
|
|
95
|
|
Noncompete agreements
|
|
|
2
|
|
Fair value of intangible assets
|
|
|
885
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
Accrued liabilities
|
|
|
(50
|
)
|
|
|
|
|
|
Total identifiable net assets
|
|
|
1,585
|
|
|
|
|
|
|
Goodwill
|
|
|
4,040
|
|
|
|
|
|
|
Total Fair Value
|
|
$
|
5,625
|
|
Of the $885 thousand of acquired intangible assets, $639 thousand was assigned to Developed Technology that is subject to amortization over 5 years, $149 thousand was assigned to Customer Relationships which are subject to amortization over 10 years; $2 thousand was assigned to a non-compete agreement that is subject to amortization over 2 years, and $95 thousand was assigned to the Brand that is subject to amortization over 3 years. All of the intangible assets are amortizable for income tax purposes.
VendScreen has been included in the accompanying consolidated financial statements of the Company since the date of acquisition. The $842 thousand of acquisition / non-recurring expenses consists of non-recurring expenses incurred in connection with the acquisition and integration of the VendScreen business and were included in SG&A expenses during the 1 year ended June 30, 2016.
The acquired business contributed net revenues of $1.2 million during the fiscal year ended June 30, 2016. ASC No. 2010-29 requires the disclosure of additional information including the amounts of earnings of the acquiree since the acquisition date included in the consolidated income statement, and the revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred at the beginning of the prior annual reporting period (supplemental pro forma information). The disclosure of such information was impractical and is not provided as (1) the acquiree had been integrated into the Company’s operation such that discreet financial information of the acquiree could not be determined, and (2) the financial records of the acquiree were not adequate to allow the preparation of supplemental pro forma information.
USA Technologies, Inc.
Notes to Consolidated Financial Statements
4. EARNINGS PER SHARE CALCULATION
The calculation of basic earnings per share (“eps”) and diluted earnings per share is presented below:
|
|
Year Ended June 30
|
|
($ in thousands, except per share data)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted earnings per share
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(6,806
|
)
|
|
$
|
(1,089
|
)
|
|
$
|
27,531
|
|
Preferred dividends
|
|
|
(668
|
)
|
|
|
(668
|
)
|
|
|
(668
|
)
|
Net income (loss) available to common shareholders
|
|
$
|
(7,474
|
)
|
|
$
|
(1,757
|
)
|
|
$
|
26,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share
- Weighted average shares outstanding
|
|
|
36,309,047
|
|
|
|
35,719,211
|
|
|
|
34,667,769
|
|
Effect of dilutive potential common shares
|
|
|
-
|
|
|
|
-
|
|
|
|
341,790
|
|
Denominator for diluted earnings per share
- Adjusted weighted average shares outstanding
|
|
|
36,309,047
|
|
|
|
35,719,211
|
#
|
|
|
35,009,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(0.21
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.21
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.77
|
|
Antidilutive shares excluded from the calculation of diluted earnings per share were 1,168,689, 252,827 and 98,497 for the years ended June 30, 2016, 2015 and 2014, respectively.
5. FINANCE RECEIVABLES
Finance receivables consist of the following:
($ in thousands)
|
|
|
|
|
|
|
|
|
|
Total finance receivables
|
|
$
|
7,306
|
|
|
$
|
4,639
|
|
Less current portion
|
|
|
3,588
|
|
|
|
941
|
|
Non-current portion of finance receivables
|
|
$
|
3,718
|
|
|
$
|
3,698
|
|
Credit quality indicators consist of the following:
Credit Quality Indicators
|
|
|
|
|
|
|
($ in thousands)
|
|
|
|
|
|
|
Performing
|
|
$
|
7,174
|
|
|
$
|
4,619
|
|
Nonperforming
|
|
|
132
|
|
|
|
20
|
|
Total
|
|
$
|
7,306
|
|
|
$
|
4,639
|
|
USA Technologies, Inc.
Notes to Consolidated Financial Statements
5. FINANCE RECEIVABLES (CONTINUED)
Age Analysis of Past Due Finance Receivables
As of June 30, 2016
($ in thousands)
|
|
|
|
|
|
|
|
Greater than
90 Days Past
Due
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QuickStart Leases
|
|
$
|
98
|
|
|
$
|
31
|
|
|
$
|
3
|
|
|
$
|
132
|
|
|
$
|
7,174
|
|
|
$
|
7,306
|
|
Age Analysis of Past Due Finance Receivables
As of June 30, 2015
($ in thousands)
|
|
|
|
|
|
|
|
Greater than
90 Days Past
Due
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QuickStart Leases
|
|
$
|
-
|
|
|
$
|
16
|
|
|
$
|
5
|
|
|
$
|
21
|
|
|
$
|
4,618
|
|
|
$
|
4,639
|
|
Finance receivables due for each of the fiscal years following June 30, 2016 are as follows:
($ in thousands)
|
|
|
|
|
|
|
|
2017
|
|
$
|
3,588
|
|
2018
|
|
|
1,246
|
|
2019
|
|
|
1,246
|
|
2020
|
|
|
944
|
|
2021 and beyond
|
|
|
282
|
|
|
|
$
|
7,306
|
|
6. PROPERTY AND EQUIPMENT, net
Property and equipment, at cost, consist of the following:
|
|
Useful
|
|
June 30, 2016
|
|
($ in thousands)
|
|
Lives
|
|
Cost
|
|
|
|
|
|
Net
|
|
Computer equipment and software
|
|
3-7 years
|
|
$
|
5,506
|
|
|
$
|
(4,374
|
)
|
|
$
|
1,132
|
|
Property and equipment used for rental program
|
|
5 years
|
|
|
26,648
|
|
|
|
(18,246
|
)
|
|
|
8,402
|
|
Furniture and equipment
|
|
3-7 years
|
|
|
874
|
|
|
|
(654
|
)
|
|
|
220
|
|
Leasehold improvements
|
|
Lesser of life or lease term
|
|
|
575
|
|
|
|
(564
|
)
|
|
|
11
|
|
|
|
|
|
$
|
33,603
|
|
|
$
|
(23,838
|
)
|
|
$
|
9,765
|
|
|
|
Useful
|
|
June 30, 2015
|
|
($ in thousands)
|
|
Lives
|
|
Cost
|
|
|
|
|
|
Net
|
|
Computer equipment and purchased software
|
|
3-7 years
|
|
$
|
4,670
|
|
|
$
|
(4,017
|
)
|
|
$
|
653
|
|
Property and equipment used for rental program
|
|
5 years
|
|
|
26,469
|
|
|
|
(14,476
|
)
|
|
|
11,993
|
|
Furniture and equipment
|
|
3-7 years
|
|
|
723
|
|
|
|
(572
|
)
|
|
|
151
|
|
Leasehold improvements
|
|
Lesser of life or lease term
|
|
|
575
|
|
|
|
(503
|
)
|
|
|
72
|
|
|
|
|
|
$
|
32,437
|
|
|
$
|
(19,568
|
)
|
|
$
|
12,869
|
|
USA Technologies, Inc.
Notes to Consolidated Financial Statements
6. PROPERTY AND EQUIPMENT, net (CONTINUED)
Assets under capital leases totaled approximately $2.6 million and $2.1 million as of June 30, 2016 and 2015, respectively. Capital lease amortization of approximately $271 thousand, $349 thousand and $305 thousand, is included in depreciation expense for the years ended June 30, 2016, 2015, and 2014, respectively.
7. GOODWILL AND INTANGIBLE ASSETS
Amortization expense relating to all acquired intangible assets was approximately $87 thousand, $0 and $22 thousand during each of the years ended June 30, 2016, 2015 and 2014, respectively. Intangible asset balances consisted of the following:
|
|
Beginning
|
|
|
Year ended June 30, 2016
|
|
|
Ending
|
|
|
($ in thousands)
|
|
Balance
|
|
|
Additions/
|
|
|
|
|
|
Balance
|
|
Amortization
|
|
|
July 1, 2015
|
|
|
Adjustments
|
|
|
Amortization
|
|
|
June 30, 2016
|
|
Period
|
Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks - Indefinite
|
|
$
|
432
|
|
|
$
|
(432
|
)(1)
|
|
$
|
-
|
|
|
$
|
-
|
|
Indefinite
|
Non-compete agreements
|
|
|
-
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
1
|
|
2 years
|
Brand
|
|
|
-
|
|
|
|
95
|
|
|
|
(16
|
)
|
|
|
79
|
|
3 years
|
Developed technology
|
|
|
-
|
|
|
|
639
|
|
|
|
(63
|
)
|
|
|
576
|
|
5 years
|
Customer relationships
|
|
|
-
|
|
|
|
149
|
|
|
|
(7
|
)
|
|
|
142
|
|
10 years
|
Total Intangible Assets
|
|
$
|
432
|
|
|
$
|
453
|
|
|
$
|
(87
|
)
|
|
$
|
798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
7,663
|
|
|
|
4,040
|
|
|
|
-
|
|
|
|
11,703
|
|
Indefinite
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Intangible Assets & Goodwill
|
|
$
|
8,095
|
|
|
$
|
4,493
|
|
|
$
|
(87
|
)
|
|
$
|
12,501
|
|
|
|
|
Beginning
|
|
|
Year ended June 30, 2015
|
|
|
Ending
|
|
|
($ in thousands)
|
|
Balance
|
|
|
Additions/
|
|
|
|
|
|
Balance
|
|
Amortization
|
|
|
July 1, 2014
|
|
|
Adjustments
|
|
|
Amortization
|
|
|
June 30, 2015
|
|
Period
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks - Indefinite
|
|
$
|
432
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
432
|
|
Indefinite
|
Total Intangible Assets
|
|
$
|
432
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
7,663
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,663
|
|
Indefinite
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,095
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,095
|
|
|
(1)
|
The Company’s test for impairment of its indefinite-lived trademarks consists of the trademarks: 1) VendingMiser, 2) CoolerMiser, 3) PlugMiser and 4) SnackMiser. As a result of its testing in fiscal years ended June 30, 2015 and 2014 the Company determined that no impairment had occurred. In the testing in fiscal year 2016, the Company determined that the sum of the expected discounted cash flows attributable to the trademarks was less than its carrying value of $432 thousand, and that an impairment write-down was required. The fair value of the trademarks was determined by a method known as “relief from royalty”, in which the fair value is determined by reference to the amount of royalty income the intangible would generate if it were licensed in an arm’s-length transaction. The essential assumptions in a valuation via an income approach are as follows:
|
USA Technologies, Inc.
Notes to Consolidated Financial Statements
7. GOODWILL AND INTANGIBLE ASSETS (CONTINUED)
|
·
|
The related dollar sales volume;
|
|
·
|
The percentage royalty on sales;
|
|
·
|
The adjustment for taxes;
|
|
·
|
The remaining useful economic life;
|
|
·
|
The percentage return on investment; and,
|
|
·
|
The tax amortization benefit.
|
During the fourth quarter of the fiscal year ended June 30, 2016, the fair value of the trademarks was determined to have inconsequential value based on the “relief from royalty” methodology. This assessment resulted in an impairment write-down during the fourth fiscal quarter of $432 thousand, which is included in “Impairment of intangible asset” in the Consolidated Statement of Operations for the fiscal year ended June 30, 2016.
At June 30, 2016, amortizable intangible asset balances were:
|
|
|
|
|
|
|
|
|
($ in thousands)
|
Cost
|
|
|
|
Net Book Value
|
|
|
|
|
|
|
|
|
Non-compete agreements
|
|
$
|
2
|
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
Brand
|
|
|
95
|
|
|
|
(16
|
)
|
|
$
|
79
|
|
Developed Technology
|
|
|
639
|
|
|
|
(63
|
)
|
|
$
|
576
|
|
Customer Relationships
|
|
|
149
|
|
|
|
(7
|
)
|
|
$
|
142
|
|
|
|
$
|
885
|
|
|
$
|
(87
|
)
|
|
$
|
798
|
|
There were no amortizable intangible assets at June 30, 2015.
Estimated annual amortization expense for amortizable intangible assets is as follows:
2017
|
|
$
|
175
|
|
2018
|
|
|
175
|
|
2019
|
|
|
159
|
|
2020
|
|
|
143
|
|
2021
|
|
|
79
|
|
Thereafter
|
|
|
67
|
|
|
|
$
|
798
|
|
USA Technologies, Inc.
Notes to Consolidated Financial Statements
8. ACCRUED EXPENSES
Accrued expenses consist of the following:
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued compensation and related sales commissions
|
|
$
|
1,268
|
|
|
$
|
673
|
|
Accrued professional fees
|
|
|
809
|
|
|
|
301
|
|
Accrued taxes and filing fees
|
|
|
795
|
|
|
|
505
|
|
Advanced customer billings
|
|
|
236
|
|
|
|
390
|
|
Accrued rent
|
|
|
2
|
|
|
|
75
|
|
Accrued other
|
|
|
363
|
|
|
|
213
|
|
|
|
|
3,473
|
|
|
|
2,157
|
|
Less current portion
|
|
|
(3,458
|
)
|
|
|
(2,108
|
)
|
|
|
$
|
15
|
|
|
$
|
49
|
|
9. LINE OF CREDIT
On January 15, 2016, the Company and Avidbank Corporate Finance, a division of Avidbank (“Avidbank”) entered into a Fifteenth Amendment (the “Amendment”) to the Loan and Security Agreement (as amended, the “Avidbank Loan Agreement”) previously entered into between them. The Avidbank Loan Agreement provided for a secured asset-based revolving line of credit facility (the “Avidbank Line of Credit”) of up to $7.0 million. The outstanding balance of the amounts advanced under the Avidbank Line of Credit bear interest at 2% above the prime rate as published in
The Wall Street Journal
or five percent (5%), whichever is higher. Avidbank also made a three-year term loan to the Company in the principal amount of $3.0 million (the “Term Loan”). The Term Loan was used by the Company to repay to Avidbank an advance that had been made to the Company under the Avidbank Line of Credit in December 2015, and which had been used by the Company to pay for the VendScreen business. The Term Loan provides that interest only is payable monthly during year one, interest and principal is payable monthly during years two and three, and all outstanding principal and accrued interest is due and payable on the third anniversary of the Term Loan. The Term Loan bears interest at an annual rate equal to 1.75% above the prime rate as published from time to time by
The Wall Street Journal
, or five percent (5%), whichever is higher. The Amendment increased the amount available under the Avidbank Line of Credit to $7.5 million less the amount then outstanding under the Term Loan.
On March 29, 2016, the Company entered into a Loan and Security Agreement and other ancillary documents (the “Heritage Loan Documents”) with Heritage Bank of Commerce (“Heritage Bank”), providing for a secured asset-based revolving line of credit in an amount of up to $12.0 million (the “Heritage Line of Credit”).
The Company utilized approximately $7.0 million under the Heritage Line of Credit to satisfy the existing Avidbank Line of Credit and related Term Loan, and approximately $80 thousand under the Heritage Line of Credit to pay closing fees, recorded as a debt discount, of Heritage Bank. The amount of advances remaining available to the Company under the Heritage Line of Credit as of June 30, 2016 was approximately $4.8 million.
The Heritage Loan Documents provide that the aggregate amount of advances under the Heritage Line of Credit shall not exceed the lesser of (i) $12.0 million, or (ii) eighty-five percent (85%) of license and transaction fee revenue (as is reflected as such in the Company’s consolidated statement of operations) for the preceding three (3) calendar months.
USA Technologies, Inc.
Notes to Consolidated Financial Statements
9. LINE OF CREDIT (CONTINUED)
The outstanding daily balance of the amounts advanced under the Heritage Line of Credit will bear interest at 2.25% above the prime rate as published from time to time in
The Wall Street Journal
. At June 30, 2016, this prime rate was 3.50%. Interest is payable by the Company to Heritage Bank on a monthly basis.
The Heritage Line of Credit and the Company’s obligations under the Heritage Loan Documents are secured by substantially all of the Company’s assets, including its intellectual property.
The maturity date of the Heritage Line of Credit is March 29, 2017. At the time of maturity, all outstanding advances under the Heritage Line of Credit as well as any unpaid interest are due and payable. Prior to maturity of the Heritage Line of Credit, the Company may prepay amounts due under the Heritage Line of Credit without penalty, and subject to the terms of the Heritage Loan Documents, may re-borrow any such amounts.
The Heritage Loan Documents contain customary representations and warranties and affirmative and negative covenants applicable to the Company. The Heritage Loan Documents also require the Company to achieve a minimum Adjusted EBITDA, as defined in the Heritage Loan Documents, measured on a quarterly basis. The Heritage Loan Documents also require that the number of the Company’s connections as of the end of each fiscal quarter shall not decrease by more than five percent as compared to the number of the Company’s connections as of the end of the immediately prior fiscal quarter. As of June 30, 2016, the Company was not in compliance with the minimum Adjusted EBITDA provision of the debt covenant. The Company received a waiver from its bank for the covenant default.
The Heritage Loan Documents also contain customary events of default, including, among other things, payment defaults, breaches of covenants, and bankruptcy and insolvency events, subject to grace periods in certain instances. Upon an event of default, Heritage Bank may declare all of the outstanding obligations of the Company under the Heritage Line of Credit and Heritage Loan Documents to be immediately due and payable, and exercise any other rights provided for under the Heritage Loan Documents, including foreclosing on the collateral securing the Heritage Loan Documents. In connection with the Heritage Loan Documents, the Company issued to Heritage Bank warrants to purchase up to 23,978 shares of common stock of the Company at an exercise price of $5.00 per share. The warrants are exercisable at any time through March 29, 2021 subject to earlier termination in the event of a business combination (as defined in the Heritage Loan Documents).
The fair value of the warrants of $52 thousand was charged against the current obligation under the line of credit and amortized as interest expense on a straight-line basis over 12 months. The Black-Sholes method was used to calculate fair value of the warrants.
The balance due on the Heritage line of credit was $7.2 million at June 30, 2016 and the balance due on the Avidbank line of credit was $4.0 million at June 30, 2015. As of June 30, 2016, $4.8 million was available under our line of credit.
($ in thousands)
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Principal balance at period-end
|
|
$
|
7,217
|
|
|
$
|
4,000
|
|
Unamortized discount
|
|
|
(98
|
)
|
|
|
-
|
|
Line of credit, net
|
|
$
|
7,119
|
|
|
$
|
4,000
|
|
Maximum amount outstanding at any month end
|
|
$
|
7,217
|
|
|
$
|
5,000
|
|
Average balance outstanding during the period
|
|
$
|
4,959
|
|
|
$
|
4,100
|
|
Weighted-average interest rate:
|
|
|
|
|
|
|
|
|
As of the period-end
|
|
|
5.8
|
%
|
|
|
5.3
|
%
|
Paid during the period
|
|
|
5.5
|
%
|
|
|
5.3
|
%
|
Interest expense on the Line of Credit was approximately $260 thousand, $211 thousand and $221 thousand during each of the years ended June 30, 2016, 2015 and 2014 respectively.
USA Technologies, Inc.
Notes to Consolidated Financial Statements
10. LONG-TERM DEBT
ASSIGNMENT OF QUICKSTART LEASES
In February and May 2015, the Company assigned its interest in certain finance receivables (various 60 month QuickStart leases) to third-party finance companies in exchange for cash and the assumption of financing obligations in the aggregate of $1.8 million and $304 thousand, respectively. These assignment transactions contain recourse provisions for the Company which requires the proceeds from the assignment to be treated as long-term debt. The financing obligations range in rate from 9.4% to 9.5%.
CAPITAL LEASE OBLIGATIONS
The Company periodically enters into capital lease obligations to finance certain office and network equipment for use in its daily operations. During the year periods ended June 30, 2016, 2015 and 2014, the Company entered into capital lease obligations of $444 thousand, $108 thousand and $325 thousand, respectively. The interest rates on these obligations ranged from approximately 5.6% to 9.0%. The lease terms range from 2 to 5 years. The value of the acquired equipment is included in property and equipment and depreciated over the applicable estimated useful lives accordingly.
The balance of long-term debt as of June 30, 2016 and June 30, 2015 are shown in the table below.
($ in thousands)
|
|
|
|
|
|
|
|
|
|
Assignment of QuickStart Leases
|
|
$
|
1,600
|
|
|
$
|
1,994
|
|
Capital lease obligations
|
|
|
605
|
|
|
|
338
|
|
|
|
$
|
2,205
|
|
|
$
|
2,332
|
|
Less current portion
|
|
|
629
|
|
|
|
478
|
|
|
|
$
|
1,576
|
|
|
$
|
1,854
|
|
The maturities of long-term debt for each of the fiscal years following June 30, 2016 are as follows:
($ in thousands)
|
|
|
|
|
|
|
|
2017
|
|
$
|
629
|
|
2018
|
|
|
625
|
|
2019
|
|
|
588
|
|
2020
|
|
|
358
|
|
2021
|
|
|
5
|
|
|
|
$
|
2,205
|
|
USA Technologies, Inc.
Notes to Consolidated Financial Statements
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with the fair value hierarchy described in Note 2, the following table shows the fair value of the Company’s financial instruments that are required to be measured at fair value as of June 30, 2016 and 2015:
($ in thousands)
June 30, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant liability, 2.2 million warrants exercisable at $2.6058 from September 17, 2011 through September 17, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,739
|
|
|
$
|
3,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant liability, 3.9 million warrants exercisable at $2.6058 from September 17, 2011 through September 17, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
978
|
|
|
$
|
978
|
|
As of June 30, 2016 and June 30, 2015, the Company held no Level 1 or Level 2 financial instruments.
As of June 30, 2016 and 2015 fair values of the Company’s Level 3 financial instrument totaled $3,739 million and $978 thousand for 2.2 million and 3.9 million warrants, respectively. The level 3 financial instrument consists of common stock warrants issued by the company in March 2011, which include features requiring liability treatment of the warrants. The fair value of warrants issued March 2011 to purchase shares of the Company's common stock is based on valuations performed by an independent third party valuation firm. The fair value was determined using proprietary valuation models using the quality of the underlying securities of the warrants, restrictions on the warrants and security underlying the warrants, time restrictions and precedent sale transactions completed on the secondary market or in other private transactions. There were no transfer of assets or liabilities between level 1, level 2, or level 3 during the years ended June 30, 2016 and 2015.
($ in thousands)
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
(978
|
)
|
|
$
|
(585
|
)
|
Increase due to change in fair value of warrant liabilities
|
|
|
(5,674
|
)
|
|
|
(393
|
)
|
Reduction due to warrant exercises
|
|
|
2,913
|
|
|
|
-
|
|
Ending balance
|
|
$
|
(3,739
|
)
|
|
$
|
(978
|
)
|
12. WARRANTS
All warrants outstanding as of June 30, 2016 were exercisable. The following table shows exercise prices and expiration dates for warrants outstanding as of June 30, 2016:
|
|
|
|
|
|
2,376,675
|
|
$
|
2.61
|
|
September 18, 2016
|
|
45,000
|
|
$
|
2.10
|
|
December 31, 2017
|
|
23,978
|
|
$
|
5.00
|
|
March 29, 2021
|
|
2,445,653
|
|
|
|
|
|
USA Technologies, Inc.
Notes to Consolidated Financial Statements
12. WARRANTS (CONTINUED)
Warrant activity for the years ended June 30, 2016, 2015, and 2014 was as follows:
|
|
Warrants
|
|
Outstanding at June 30, 2013
|
|
|
7,361,708
|
|
Issued
|
|
|
-
|
|
Exercised
|
|
|
(2,090,226
|
)
|
Expired
|
|
|
(962,482
|
)
|
Outstanding at June 30, 2014
|
|
|
4,309,000
|
|
Issued
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
Expired
|
|
|
-
|
|
Outstanding at June 30, 2015
|
|
|
4,309,000
|
|
Issued
|
|
|
23,978
|
|
Exercised
|
|
|
(1,887,325
|
)
|
Expired
|
|
|
-
|
|
Outstanding at June 30, 2016
|
|
|
2,445,653
|
|
On May 12, 2010, in conjunction with a public offering, the Company issued warrants to purchase 2.8 million shares of Common Stock, exercisable at $1.13 per share at any time prior to December 31, 2013. During the year ended June 30, 2014, 2.1 million of these warrants were exercised at $1.13 per share for cash proceeds of $2.4 million. Warrants to purchase 59 thousand shares of Common Stock expired unexercised on December 31, 2013.
In conjunction with this public offering, the Company also issued to the placement agent warrants to purchase 165,207 and 15,717 shares of Common Stock, exercisable at $1.13 per share at any time prior to May 12, and July 7, 2013, respectively. During the year ended June 30, 2013 the placement agent elected cashless exercises of 36,186 warrants resulting in the issuance of 17,094 shares of Common Stock and exercised warrants to purchase 13,216 shares of Common Stock at $1.13 per share for cash proceeds of $14,934. Warrants to purchase 1,258 shares of Common Stock expired unexercised in May 2013.
On March 17, 2011, in conjunction with a private placement offering the Company issued warrants to purchase up to 4.3 million shares of Common Stock, exercisable at $2.6058 per share. The 4.3 million warrants are exercisable from September 18, 2011 through September 17, 2016. During the year ended June 30, 2016, approximately 1.9 million warrants were exercised under this offering for cash proceeds of approximately $4.92 million. The balance of exercisable warrants as of June 30, 2016 is 2.4 million.
3.9 million of the warrants issued under this private placement offering contain a provision that if a Fundamental Transaction occurs, notably a change in control, the warrant holder may require the Company to pay the Black-Scholes calculated value of the then unexercised warrant to the warrant holder in cash. As such the Company has recorded a liability of $3.7 million and $978 thousand at June 30, 2016 and 2015, respectively, for the estimated fair value of the warrants in its Consolidated Balance Sheet (see Note 11-Fair Value of Financial Instruments). Period to period changes in the fair value of these warrants are reflected through income.
In conjunction with the Loan and Security agreement (Note 9 – Line of Credit) and as a condition of the Bank entering into the First Amendment, the Company issued to the Bank warrants to purchase up to 45 thousand shares of Common Stock of the Company. The warrants are exercisable at any time prior to December 31, 2017 at an exercise price of $2.10 per share. Upon issuance, the fair value of the warrants was $55 thousand using a Black Scholes model, which was recorded as prepaid interest and included in other assets on the Consolidated Balance Sheet, and was amortized as non-cash interest expense over the remaining term of the Line of Credit as amended in January 2013. Non-cash interest of $2 thousand was recognized for the year ended June 30, 2014 relating to these warrants. As of June 30, 2016 none of these warrants have been exercised.
On March 29, 2016, the Company entered into a Loan and Security Agreement with a secondary bank (Note 9 – Line of Credit), providing a secured asset-based revolving line of credit in an amount of up to $12 million. In conjunction with the Loan and Security Agreement the company issued to the bank warrants to purchase up to 24 thousand shares of Common Stock of the Company. The warrants are exercisable at any time prior to March 29, 2021 at an exercise price of $5.00 per share. At the time of issuance the fair value of the warrants was estimated at $52 thousand using a Black Scholes model. This was recorded as a contra -debt item and is included in the line of credit on the Consolidated Balance Sheet, and is being amortized as a non-cash interest expense over the remaining term of the Line of Credit. Non-cash interest expense of $13 thousand has been recognized for the year ending June 30, 2016 related to this warrant.
USA Technologies, Inc.
Notes to Consolidated Financial Statements
13. INCOME TAXES
The Company has significant deferred tax assets, a substantial amount of which result from operating loss carryforwards. The Company routinely evaluates its ability to realize the benefits of these assets to determine whether it is more likely than not that such benefit will be realized. In periods prior to the year ended June 30, 2014, the Company’s evaluation of its ability to realize the benefit from its deferred tax assets resulted in a full valuation allowance against such assets. Based upon earnings performance that the Company had achieved along with the belief that such performance will continue into future years, the Company determined during the year ended June 30, 2014 that it was more likely than not that a substantial portion of its deferred tax assets would be realized with approximately $64 million of its operating loss carryforwards being utilized to offset corresponding future years’ taxable income resulting in a reduction in its valuation allowances recorded in prior years.
In addition to considering recent periods’ performance, the evaluation of the amount of deferred tax assets expected to be realized involves forecasting the amount of taxable income that will be generated in future years. The number of connections added in a service year is a key metric which, in the Company’s recurring revenue service model, becomes an important ingredient in driving future growth and earnings. The Company has forecasted future results using estimates that management believes to be achievable. With respect to its forecasts, the Company also has taken into account several industry analysts who have projected that demand for technology and services similar to the Company’s will continue to grow in the markets the Company serves.
If in future periods the Company demonstrates its ability to grow taxable income in excess of the forecasts it has used, it will re-evaluate the need to keep some, or all, of the remaining valuation allowances of approximately $23 million on its deferred tax assets.
The benefit (provision) for income taxes for the years ended June 30, 2016, 2015 and 2014 is comprised of the following:
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(7
|
)
|
|
$
|
(58
|
)
|
|
$
|
(21
|
)
|
State
|
|
|
(38
|
)
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
|
(45
|
)
|
|
|
(64
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
407
|
|
|
|
365
|
|
|
|
20,970
|
|
State
|
|
|
253
|
|
|
|
(590
|
)
|
|
|
6,306
|
|
|
|
|
660
|
|
|
|
(225
|
)
|
|
|
27,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
615
|
|
|
$
|
(289
|
)
|
|
$
|
27,255
|
|
The provision for income taxes for the year ended June 30, 2015 includes $396 thousand for the state and federal income tax effects of a decrease in the applicable state tax rate used to tax effect deferred tax assets caused by a state income tax law change.
A reconciliation of the benefit (provision) for income taxes for the years ended June 30, 2016, 2015 and 2014 to the indicated benefit (provision) based on income (loss) before benefit (provision) for income taxes at the federal statutory rate of 34% is as follows:
($ in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Indicated benefit (provision) at federal statutory rate of 34%
|
|
$
|
2,523
|
|
|
$
|
272
|
|
|
$
|
(94
|
)
|
Effects of permanent differences
|
|
|
(2,040
|
(A)
|
|
|
(215
|
)
|
|
|
(8
|
)
|
State income taxes, net of federal benefit
|
|
|
199
|
|
|
|
(410
|
)
|
|
|
(18
|
)
|
Income tax credits
|
|
|
70
|
|
|
|
40
|
|
|
|
-
|
|
Changes related to prior years
|
|
|
-
|
|
|
|
187
|
|
|
|
-
|
|
Changes in valuation allowances
|
|
|
(137
|
|
|
|
(163
|
)
|
|
|
27,375
|
|
|
|
$
|
615
|
|
|
$
|
(289
|
)
|
|
$
|
27,255
|
|
|
(A)
|
Increase in the effects of permanent differences due to the tax effect of the change in fair value of warrant liabilities in 2016
|
USA Technologies, Inc.
Notes to Consolidated Financial Statements
13. INCOME TAXES (CONTINUED)
At June 30, 2016 the Company had federal operating loss carryforwards of approximately $162 million to offset future taxable income expiring through approximately 2036. The timing and extent to which the Company can utilize operating loss carryforwards in any year may be limited by provisions of the Internal Revenue Code regarding changes in ownership of corporations (i.e. IRS Code Section 382). The changes in ownership limitations under IRS Code Section 382 have had the effect of limiting the maximum amount of operating loss carryforwards as of June 30, 2016 available for use to offset future years’ taxable income to approximately $124 million. Those operating loss carryforwards start to expire June 30, 2022.
The net deferred tax assets arose primarily from net operating loss carryforwards, as well as the use of different accounting methods for financial statement and income tax reporting purposes as follows:
|
|
June 30,
|
|
($ in thousands)
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
46,691
|
|
|
$
|
46,919
|
|
Asset reserves
|
|
|
1,713
|
|
|
|
792
|
|
Deferred research and development costs
|
|
|
1,356
|
|
|
|
1,009
|
|
Intangibles
|
|
|
539
|
|
|
|
606
|
|
Deferred gain on assets under sale-leaseback transaction
|
|
|
331
|
|
|
|
632
|
|
Stock-based compensation
|
|
|
377
|
|
|
|
224
|
|
Other
|
|
|
379
|
|
|
|
437
|
|
|
|
|
51,386
|
|
|
|
50,619
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
(528
|
)
|
|
|
(492
|
)
|
Intangibles and goodwill
|
|
|
-
|
|
|
|
(84
|
)
|
Deferred tax assets, net
|
|
|
50,858
|
|
|
|
50,043
|
|
Valuation allowance
|
|
|
(23,134
|
)
|
|
|
(22,997
|
)
|
Deferred tax assets (liabilties), net of allowance
|
|
|
27,724
|
|
|
|
27,046
|
|
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
2,271
|
|
|
|
1,258
|
|
Deferred tax assets (liabilties), non-current
|
|
$
|
25,453
|
|
|
$
|
25,788
|
|
14. STOCK BASED COMPENSATION PLANS
The Company has three active stock based compensation plans at June 30, 2016 as shown in the table below:
Date Approved
|
|
Name of Plan
|
|
Type of Plan
|
|
|
|
June 2013
|
|
2013 Stock Incentive Plan
|
|
Stock
|
|
|
500,000
|
|
June 2014
|
|
2014 Stock Option Incentive Plan
|
|
Stock Options
|
|
|
750,000
|
|
June 2015
|
|
2015 Equity Incentive Plan
|
|
Stock & Stock Options
|
|
|
1,250,000
|
|
|
|
|
|
|
|
|
2,500,000
|
|
USA Technologies, Inc.
Notes to Consolidated Financial Statements
14. STOCK BASED COMPENSATION PLANS (CONTINUED)
As of June 30, 2016, the Company had reserved shares of Common Stock for future issuance for the following:
Exercise of Common Stock Warrants
|
|
|
2,445,653
|
|
Conversions of Preferred Stock and cumulative Preferred Stock dividends
|
|
|
99,999
|
|
Issuance under 2013 Stock Incentive Plan
|
|
|
162,330
|
|
Issuance under 2014 Stock Option Incentive Plan
|
|
|
737,215
|
|
Issuance under 2015 Stock Incentive Plan
|
|
|
1,250,000
|
|
Issuance to former Chief Executive Officer upon the occurrence of a USA Transaction
|
|
|
140,000
|
|
Total shares reserved for future issuance
|
|
|
4,835,197
|
|
STOCK OPTIONS
The Company estimates the grant date fair value of the stock options it grants using a Black-Scholes valuation model. The Company’s assumption for expected volatility is based on its historical volatility data related to market trading of its own common stock. The Company bases its assumptions for expected life of the new stock option grants on the life of the option granted, and if relevant, its analysis of the historical exercise patterns of its stock options. The dividend yield assumption is based on dividends expected to be paid over the expected life of the stock option. The risk-free interest rate assumption is determined by using the U.S. Treasury rates of the same period as the expected option term of each stock option.
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
59-66
|
%
|
|
|
78-79
|
%
|
|
|
79
|
%
|
Expected life
|
|
4.5 years
|
|
|
7 years
|
|
|
7 years
|
|
Expected dividends
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Risk-free interest rate
|
|
|
1.46-1.49
|
%
|
|
|
1.59-2.04
|
%
|
|
|
2.22
|
%
|
The 2014 Stock Option Incentive Plan was approved in June 2014 therefore there was no stock based compensation expense related to stock options for the years ended June 30, 2014. Stock based compensation related to stock options for the years ended June 30, 2016 and June 30, 2015 was $338 and $370 thousand respectively. Unrecognized compensation related to stock option grants as of June 30, 2016 and June 30, 2015 was $167 thousand and $297 thousand respectively.
The following table provides information about outstanding options:
|
For the Twelve Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
Shares
|
|
Weighted
Average Grant
Date Fair Value
|
|
Shares
|
|
Weighted
Average Grant
Date Fair Value
|
|
Shares
|
|
Weighted
Average Grant
Date Fair Value
|
|
Outstanding options, beginning of period
|
|
|
538,888
|
|
|
$
|
1.32
|
|
|
|
120,000
|
|
|
$
|
1.49
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
199,586
|
|
|
$
|
1.63
|
|
|
|
438,888
|
|
|
$
|
1.30
|
|
|
|
120,000
|
|
|
$
|
1.49
|
|
Forfeited
|
|
|
(95,000
|
)
|
|
$
|
1.80
|
|
|
|
(20,000
|
)
|
|
$
|
1.49
|
|
|
|
-
|
|
|
|
-
|
|
Excercised
|
|
|
(33,333
|
)
|
|
$
|
1.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options, end of period
|
|
|
610,141
|
|
|
$
|
1.35
|
|
|
|
538,888
|
|
|
$
|
1.33
|
|
|
|
120,000
|
|
|
$
|
1.49
|
|
The following table provides information related to options as of June 30, 2016:
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
|
Options Outstanding
|
|
|
Remaining Contractual
Life
|
|
|
Shares Exercisable
|
|
|
Remaining Contractual
Life
|
|
|
Weighted Average
Exercise Price
|
|
$
|
1.62 to $1.68
|
|
|
|
75,000
|
|
|
|
5.51
|
|
|
|
25,002
|
|
|
|
5.51
|
|
|
|
1.65
|
|
$
|
1.80
|
|
|
|
295,555
|
|
|
|
5.16
|
|
|
|
195,555
|
|
|
|
5.16
|
|
|
|
1.8
|
|
$
|
2.05
|
|
|
|
100,000
|
|
|
|
4.97
|
|
|
|
66,670
|
|
|
|
4.97
|
|
|
|
2.05
|
|
$
|
2.09
|
|
|
|
10,000
|
|
|
|
5.58
|
|
|
|
3,333
|
|
|
|
5.58
|
|
|
|
2.09
|
|
$
|
2.75
|
|
|
|
25,000
|
|
|
|
5.77
|
|
|
|
8,333
|
|
|
|
5.77
|
|
|
|
2.75
|
|
$
|
2.94
|
|
|
|
75,000
|
|
|
|
6.53
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
$
|
3.38
|
|
|
|
29,586
|
|
|
|
6.06
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
610,141
|
|
|
|
5.42
|
|
|
|
298,893
|
|
|
|
5.17
|
|
|
|
1.87
|
|
USA Technologies, Inc.
Notes to Consolidated Financial Statements
14. STOCK BASED COMPENSATION PLANS (CONTINUED)
The following table provides information about unvested options:
|
For the Twelve Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
Shares
|
|
Weighted
Average Grant
Date Fair Value
|
|
Shares
|
|
Weighted
Average Grant
Date Fair Value
|
|
Shares
|
|
Weighted
Average Grant
Date Fair Value
|
|
Unvested options, beginning of period
|
|
|
505,553
|
|
|
$
|
1.32
|
|
|
|
120,000
|
|
|
$
|
1.49
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
199,586
|
|
|
$
|
1.63
|
|
|
|
438,888
|
|
|
$
|
1.30
|
|
|
|
120,000
|
|
|
$
|
1.49
|
|
Vested
|
|
|
(298,891
|
)
|
|
$
|
1.31
|
|
|
|
(33,335
|
)
|
|
$
|
1.49
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(95,000
|
)
|
|
$
|
1.80
|
|
|
|
(20,000
|
)
|
|
$
|
1.49
|
|
|
|
-
|
|
|
|
-
|
|
Unvested options, end of period
|
|
|
311,248
|
|
|
$
|
1.39
|
|
|
|
505,553
|
|
|
$
|
1.32
|
|
|
|
120,000
|
|
|
$
|
1.49
|
|
The following table provides information about options outstanding and exercisable options:
|
As of June 30,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
610,141
|
|
|
|
298,893
|
|
|
|
538,888
|
|
|
|
33,335
|
|
|
|
120,000
|
|
|
|
-
|
|
Weighted average exercise price
|
|
$
|
2.07
|
|
|
$
|
1.87
|
|
|
$
|
1.86
|
|
|
$
|
2.05
|
|
|
$
|
2.05
|
|
|
|
-
|
|
Aggregate intrinsic value
|
|
$
|
1,341,828
|
|
|
$
|
717,343
|
|
|
$
|
451,177
|
|
|
$
|
21,668
|
|
|
$
|
7,200
|
|
|
|
-
|
|
Weighted average contractual term
|
|
$
|
5.42
|
|
|
|
5.17
|
|
|
|
6.21
|
|
|
|
5.97
|
|
|
|
6.97
|
|
|
|
-
|
|
Share price as of June 30
|
|
$
|
4.27
|
|
|
$
|
4.27
|
|
|
$
|
2.70
|
|
|
$
|
2.70
|
|
|
$
|
2.11
|
|
|
$
|
2.11
|
|
STOCK GRANTS
A summary of the status of the Company’s nonvested common shares as of June 30, 2016, 2015, and 2014, and changes during the years then ended is presented below:
|
|
Shares
|
|
|
Weighted-Average
Grant-Date
Fair Value
|
|
|
|
|
|
|
|
|
Nonvested at June 30, 2013
|
|
|
97,146
|
|
|
$
|
1.52
|
|
Granted
|
|
|
10,000
|
|
|
|
2.17
|
|
Vested
|
|
|
(55,001
|
)
|
|
|
1.62
|
|
Forfeited, Director changes
|
|
|
(3,334
|
)
|
|
|
0.94
|
|
Forfeited, Employee shares not earned
|
|
|
(5,000
|
)
|
|
|
1.52
|
|
Nonvested at June 30, 2014
|
|
|
43,811
|
|
|
$
|
1.59
|
|
Granted
|
|
|
155,927
|
|
|
|
2.00
|
|
Vested
|
|
|
(181,134
|
)
|
|
|
1.89
|
|
Nonvested at June 30, 2015
|
|
|
18,604
|
|
|
$
|
1.88
|
|
Granted
|
|
|
131,558
|
|
|
|
3.04
|
|
Vested
|
|
|
(21,664
|
)
|
|
|
2.70
|
|
Nonvested at June 30, 2016
|
|
|
128,498
|
|
|
$
|
2.97
|
|
USA Technologies, Inc.
Notes to Consolidated Financial Statements
15. PREFERRED STOCK
The authorized Preferred Stock may be issued from time to time in one or more series, each series with such rights, preferences or restrictions as determined by the Board of Directors. As of June 30, 2016 each share of Series A Preferred Stock is convertible into 0.194 of a share of Common Stock and each share of Series A Preferred Stock is entitled to 0.194 of a vote on all matters on which the holders of Common Stock are entitled to vote. Series A Preferred Stock provides for an annual cumulative dividend of $1.50 per share, payable when, and if declared by the Board of Directors, to the shareholders of record in equal parts on February 1 and August 1 of each year. Any and all accumulated and unpaid cash dividends on the Series A Preferred Stock must be declared and paid prior to the declaration and payment of any dividends on the Common Stock.
The Series A Preferred Stock may be called for redemption at the option of the Board of Directors for a price of $11.00 per share plus payment of all accrued and unpaid dividends. No such redemption has occurred as of June 30, 2016. In the event of any liquidation as defined in the Company’s Articles of Incorporation, the holders of shares of Series A Preferred Stock issued shall be entitled to receive $10.00 for each outstanding share plus all cumulative unpaid dividends. If funds are insufficient for this distribution, the assets available will be distributed ratably among the preferred shareholders. The Series A Preferred Stock liquidation preference as of June 30, 2016 and 2015 is as follows:
($ in thousands)
|
|
|
|
|
|
|
|
|
|
For Shares outstanding at $10.00 per share
|
|
$
|
4,451
|
|
|
$
|
4,451
|
|
Cumulative unpaid dividends
|
|
|
13,657
|
|
|
|
12,989
|
|
|
|
$
|
18,108
|
|
|
$
|
17,440
|
|
Cumulative unpaid dividends are convertible into common shares at $1,000 per common share at the option of the shareholder. During the years ended June 30, 2016, 2015 and 2014, no shares of Preferred Stock nor cumulative preferred dividends were converted into shares of common stock.
16. RETIREMENT PLAN
The Company’s 401(k) Plan (the “Retirement Plan”) allows employees who have completed six months of service to make voluntary contributions up to a maximum of 100% of their annual compensation, as defined in the Retirement Plan. The Company may, in its discretion, make a matching contribution, a profit sharing contribution, a qualified non-elective contribution, and/or a safe harbor 401(k) contribution to the Retirement Plan. The Company must make an annual election, at the beginning of the plan year, as to whether it will make a safe harbor contribution to the plan. In fiscal years 2016, 2015 and 2014, the Company elected and made a safe harbor matching contributions of 100% of the participant’s first 3% and 50% of the next 2% of compensation deferred into the Retirement Plan. The Company’s safe harbor contributions for the years ended June 30, 2016, 2015 and 2014 approximated $189 thousand, $192 thousand and $168 thousand, respectively.
17. RELATED PARTY TRANSACTIONS
There were no related party transactions during the years ended June 30, 2016, 2015 and 2014.
18. COMMITMENTS AND CONTINGENCIES
SALE AND LEASEBACK TRANSACTIONS
In June 2014, the Company and a third party finance company, entered into six Sale Leaseback Agreements (the “Sale Leaseback Agreements” or a “Sale Leaseback Agreement”) pursuant to which a third-party finance company purchased ePort equipment owned by the Company and used by the Company in its JumpStart Program. As of June 30, 2014, a third-party finance company completed the purchase from the Company, the ePort equipment under the first two of the Sale Leaseback Agreements.
USA Technologies, Inc.
Notes to Consolidated Financial Statements
18. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In the quarter ended September 2014, a third-party finance company completed the purchase from the Company of the ePort equipment described in the last four of the Sale Leaseback Agreements. Upon the completion of the sale under these agreements, the Company computed a gain on the sale of its ePort equipment, which is deferred and will be amortized in proportion to the related gross rental charged to expense over the lease terms in accordance with the FASB topic ASC 840-40, “Sale Leaseback Transactions”. The computed gain on the sale will be recognized ratably over the 36-month term and charged as a reduction to the Company’s JumpStart rent expense included in costs of services in the Company’s Consolidated Statement of Operations. The Company is accounting for the Sale Leaseback as an operating lease and is obligated to pay to Varilease a base monthly rental for this equipment during the 36-month lease term. The future lease payment obligations under these agreements are included in the table at the bottom of this note.
Upon the completion of the sales, the Company computed gains on the sale of its ePort equipment as follows:
($ in thousands)
|
|
Year ended June 30,
|
|
|
|
2015
|
|
Rental equipment sold, cost
|
|
$
|
3,873
|
|
Rental equipment sold, accumulated depreciation upon sale
|
|
|
(331
|
)
|
Rental equipment sold, net book value
|
|
|
3,542
|
|
Proceeds from sale
|
|
|
4,994
|
|
Gain on sale of rental equipment
|
|
$
|
1,452
|
|
In accordance with the FASB topic ASC 840-40, “Sale Leaseback Transactions”, any gain shall be deferred and shall be amortized in proportion to the related gross rental charged to expense over the lease term. The computed gain on the sale will be recognized ratably over the 36 month term and charged as a reduction to the Company’s JumpStart rent expense included in costs of services in the Company’s Consolidated Statement of Operations. For the years ended June 30, 2016 and 2015 the Company recognized gains as follows:
($ in thousands)
|
|
Year ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Beginning balance
|
|
$
|
1,760
|
|
|
$
|
1,142
|
|
Gain on sale of rental equipment
|
|
|
-
|
|
|
|
1,452
|
|
Recognition of deferred gain
|
|
|
(860
|
)
|
|
|
(834
|
)
|
Ending balance
|
|
|
900
|
|
|
|
1,760
|
|
Less current portion
|
|
|
860
|
|
|
|
860
|
|
Non-current portion of deferred gain
|
|
$
|
40
|
|
|
$
|
900
|
|
USA Technologies, Inc.
Notes to Consolidated Financial Statements
18. COMMITMENTS AND CONTINGENCIES (CONTINUED)
OTHER LEASES
Other lease commitments include leases for its operations from various facilities. The Company leases space located in Malvern, Pennsylvania for its principal executive office and used for general administrative functions, sales activities, product development, and customer support. In April 2016, the Company entered into a Third Amendment to Office Space Lease (the “Third Amendment”) which amended certain terms of its existing lease (the “Lease”) for its Malvern, Pennsylvania executive offices consisting of approximately 17,249 square feet located on the first floor of the building (the “Current Premises”). The Third Amendment provides that the Company will relocate from the Current Premises to new offices located on the third floor of the building (the “New Offices”) consisting of approximately 17,689 square feet. Substantially all of the improvements to the New Offices will be constructed by the landlord at the landlord’s cost and expense. When the New Offices are substantially completed, the Company would relocate from the Current Premises to the New Premises (the “New Premises Commencement Date”). The Third Amendment provides that the term of the Lease is extended from the prior expiration date of April 30, 2016 until seven years following July 1, 2016 (the” New Premises Commencement Date”). The Company’s monthly base rent for the premises will increase from approximately $32 thousand to $36 thousand on the New Premises Commencement Date, and will increase each year thereafter up to a maximum monthly base rent of approximately $41 thousand. The Third Amendment also grants to the Company the option to extend the term of the Lease for an additional five year period with a minimum of one year advance notice prior to the expiration of the initial term, and provides certain rights of first offer on additional space located on the third floor of the building. The straight-line rent expense for this office is approximately $38 thousand per month for the duration of the lease.
The Company leases space in Malvern, Pennsylvania for its product warehousing and shipping support. In March 2016, the Company extended its lease from March 1, 2016 through February 29, 2019. The lease includes monthly rental payments of $5 thousand. Beginning in March 2016 the straight-line rent expense for this operations site is approximately $5 thousand per month for the duration of the lease period.
The Company leases space in Portland, Oregon related to its VendScreen acquisition. The current lease consists of approximately 9,319 square feet. The lease includes monthly rental payments of $20 thousand and will terminate on September 30, 2016. The Company is currently negotiating a new lease for space related to this facility.
Rent expense under operating leases was approximately $479 thousand, $354 thousand and $372 thousand during the years ended June 30, 2016, 2015, and 2014, respectively.
SUMMARY OF LEASE OBLIGATIONS
Future minimum lease payments for fiscal years subsequent to June 30, 2016 under non-cancellable operating leases and capital leases are as follows:
($ in thousands)
|
|
Operating Leases
from Sale Leaseback
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
$
|
2,641
|
|
|
$
|
552
|
|
|
$
|
3,193
|
|
|
$
|
299
|
|
2018
|
|
|
138
|
|
|
|
503
|
|
|
|
641
|
|
|
|
236
|
|
2019
|
|
|
-
|
|
|
|
498
|
|
|
|
498
|
|
|
|
142
|
|
2020
|
|
|
-
|
|
|
|
459
|
|
|
|
459
|
|
|
|
-
|
|
2021
|
|
|
-
|
|
|
|
468
|
|
|
|
468
|
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
|
|
963
|
|
|
|
963
|
|
|
|
-
|
|
Total minimum lease payments
|
|
$
|
2,779
|
|
|
$
|
3,443
|
|
|
$
|
6,222
|
|
|
$
|
677
|
|
Less Amount Representing interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
|
|
Present Value of net minimum lease payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
605
|
|
Less Current obligations under capital leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
255
|
|
Obligations under capital leases, less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
350
|
|
USA Technologies, Inc.
Notes to Consolidated Financial Statements
18. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LITIGATION
As previously reported, on October 1, 2015, a purported class action was filed in the United States District Court for the Eastern District of Pennsylvania against the Company and its executive officers alleging violations under the Securities Exchange Act of 1934. On December 15, 2015, the court appointed a lead plaintiff, and on January 18, 2016, the plaintiff filed an amended complaint that set forth the same causes of action and requested substantially the same relief as the original complaint. On February 1, 2016, the Company filed a motion to dismiss the amended complaint. On April 11, 2016, the Court held oral argument on the Company’s motion, and on April 14, 2016, the Court issued an order granting the Company’s motion to dismiss the amended complaint without leave to amend. On May 13, 2016, the plaintiff appealed the Court’s order to the United States Court of Appeals for the Third Circuit.
On August 16, 2016, the plaintiff filed a Motion For Relief From Final Judgment with the District Court seeking an order modifying the District Court’s April 14, 2016 order dismissing the complaint, and permitting the plaintiff to now file an amended complaint due to alleged newly discovered evidence. By Order dated September 6, 2016, the District Court found that the Motion raised a substantial issue, and directed the plaintiff to notify the Court of Appeals thereof. On September 7, 2016, the plaintiff so notified the Court of Appeals. It is anticipated that the Court of Appeals will remand the case to the District Court pending the District Court’s ruling on the Motion. The Company’s response to the Motion is due by no later than September 15, 2016. The Company believes that the Motion has no merit and intends to vigorously oppose the Motion.
By letter dated December 7, 2015, a purported shareholder of the Company demanded that the Board of Directors investigate, remedy and commence proceedings against certain of the Company’s current and former officers and directors for breach of fiduciary duties in connection with the material weakness in its internal controls over financial reporting which were more fully described in the Company’s Form 10-K for the fiscal year ended June 30, 2015 (the “2015 Form 10-K”). In response to the demand letter, the Board of Directors formed a special litigation committee (the “SLC”) consisting of Joel Brooks and William Reilly, Jr., in order to investigate and evaluate the demand letter. On June 1, 2016, and before the SLC had concluded its investigation, the purported shareholder filed a purported derivative action on behalf of the Company in the Chester County, Pennsylvania, Court of Common Pleas, against certain current and former officers and directors. The complaint alleges that the defendants breached their fiduciary duties relating to the material weakness in internal controls reported in the 2015 Form 10-K. The complaint seeks unspecified damages against the defendants and certain equitable relief. On July 15, 2016 the SLC issued its
report (
the “SLC Report”) which, among other things, concluded that the none of the current or former officers or Directors had breached their fiduciary duties, that it was not in the best interests of the Company to pursue the pending shareholder derivative action, and that the Company request the Court to dismiss the action in its entirety. On August 1, 2016, the Board of Directors of the Company adopted all of the conclusions and recommendations set forth in the SLC Report. On August 16, 2016, the Company filed with the Court a Motion to Dismiss the shareholder derivative complaint. As of the date hereof, the court has not ruled on the Motion to Dismiss.
The ultimate outcome of these matters cannot be determined at this time. The Company believes that it has meritorious defenses to such claims and is defending them vigorously, and has not recorded a provision for the ultimate outcome of these matters in its financial statements.
USA Technologies, Inc.
Notes to Consolidated Financial Statements
19. REVISIONS OF PREVIOUSLY REPORTED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included in this Form 10-K reflect additional shares of common stock and preferred stock that had been issued and outstanding in prior periods but were not reflected as such in previous consolidated financial statements. The additional shares primarily consisted of unvested shares of common stock awarded to officers and directors pursuant to the Company’s equity compensation plans.
The Consolidated Statement of Shareholders’ Equity has been adjusted to reflect these additional common and preferred shares as of June 30, 2013. The June 30, 2015 Consolidated Balance Sheet has also been adjusted to reflect these additional shares; and the liquidation preference of preferred stock as of such date has been increased by $85 thousand.
The cumulative preferred dividends and the basic and diluted weighted average number of common shares outstanding in the Consolidated Statements of Operations for the fiscal years ended June 30, 2015 and 2014 have also been adjusted. The foregoing adjustments in basic and diluted weighted common shares outstanding did not affect the previously reported net income (loss) per common share-basic or diluted for the fiscal year ended June 30, 2015. For the fiscal year ended June 30, 2014 net income per common share-basic and diluted decreased from $.78 to $.77.
Revised Consolidated Statements of Operations
($ in thousands)
|
|
Year ended June 30, 2014
|
|
|
|
|
|
|
Adjustment
|
|
|
As Revised
|
|
Cumulative preferred dividends
|
|
$
|
(664
|
)
|
|
$
|
(4
|
)
|
|
$
|
(668
|
)
|
Net income (loss) applicable to common shares
|
|
$
|
26,867
|
|
|
$
|
(4
|
)
|
|
$
|
26,863
|
|
Net earnings (loss) per common share basic
|
|
$
|
0.78
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.77
|
|
Net earnings (loss) per common share diluted
|
|
$
|
0.78
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.77
|
|
Basic weighted average number of common shares outstanding
|
|
|
34,613,497
|
|
|
|
54,272
|
|
|
|
34,667,769
|
|
Diluted weighted average number of common shares outstanding
|
|
|
34,613,497
|
|
|
|
396,062
|
|
|
|
35,009,559
|
|
($ in thousands)
|
Year ended June 30, 2015
|
|
|
|
|
Adjustment
|
|
As Revised
|
|
Cumulative preferred dividends
|
|
$
|
(664
|
)
|
|
$
|
(4
|
)
|
|
$
|
(668
|
)
|
Net income (loss) applicable to common shares
|
|
$
|
(1,753
|
)
|
|
$
|
(4
|
)
|
|
$
|
(1,757
|
)
|
Basic and diluted weighted average number of common shares outstanding
|
|
|
35,663,386
|
|
|
|
55,825
|
|
|
|
35,719,211
|
|
Revised Consolidated Statements of Equity
($ in thousands)
|
|
Year ended June 30, 2014
|
|
Common Shares
|
|
|
|
|
Adjustment
|
|
|
As Revised
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
2010 Stock Incentive Plan
|
|
|
6,668
|
|
|
|
(3,334
|
)
|
|
|
3,334
|
|
2011 Stock Incentive Plan
|
|
|
51,667
|
|
|
|
(51,667
|
)
|
|
|
-
|
|
2012 Stock Incentive Plan
|
|
|
-
|
|
|
|
158,505
|
|
|
|
158,505
|
|
2013 Stock Incentive Plan
|
|
|
131,203
|
|
|
|
(75,393
|
)
|
|
|
55,810
|
|
Retirement of common stock
|
|
|
(49,311
|
)
|
|
|
(3,334
|
)
|
|
|
(52,645
|
)
|
Balance June 30, 2014
|
|
|
35,514,685
|
|
|
|
87,438
|
|
|
|
35,602,123
|
|
|
|
Year ended June 30, 2015
|
|
Common Shares
|
|
|
|
|
Adjustment
|
|
|
As Revised
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
2011 Stock Incentive Plan
|
|
|
10,002
|
|
|
|
(10,002
|
)
|
|
|
-
|
|
2012 Stock Incentive Plan
|
|
|
88,991
|
|
|
|
(55,293
|
)
|
|
|
33,698
|
|
2013 Stock Incentive Plan
|
|
|
165,463
|
|
|
|
(5,722
|
)
|
|
|
159,741
|
|
2014 Stock Incentive Plan
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Retirement of common stock
|
|
|
(31,899
|
)
|
|
|
-
|
|
|
|
(31,899
|
)
|
Balance June 30, 2015
|
|
|
35,747,242
|
|
|
|
16,421
|
|
|
|
35,763,663
|
|
USA Technologies, Inc.
Notes to Consolidated Financial Statements
20. UNAUDITED QUARTERLY DATA
|
|
UNAUDITED
|
|
YEAR ENDED JUNE 30, 2016
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
16,600
|
|
|
$
|
18,503
|
|
|
$
|
20,361
|
|
|
$
|
21,944
|
|
|
$
|
77,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
5,047
|
|
|
$
|
5,483
|
|
|
$
|
5,672
|
|
|
$
|
5,783
|
|
|
$
|
21,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
112
|
|
|
$
|
594
|
|
|
$
|
(595
|
)
|
|
$
|
(1,578
|
)
|
|
$
|
(1,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
360
|
|
|
$
|
(874
|
)
|
|
$
|
(5,420
|
)
|
|
$
|
(872
|
)
|
|
$
|
(6,806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative preferred dividends
|
|
$
|
(334
|
)
|
|
$
|
-
|
|
|
$
|
(334
|
)
|
|
$
|
-
|
|
|
$
|
(668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common shares
|
|
$
|
26
|
|
|
$
|
(874
|
)
|
|
$
|
(5,754
|
)
|
|
$
|
(872
|
)
|
|
$
|
(7,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.00
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
35,848,395
|
|
|
|
35,909,933
|
|
|
|
36,161,626
|
|
|
|
37,325,681
|
|
|
|
36,309,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
36,487,879
|
|
|
|
35,909,933
|
|
|
|
36,161,626
|
|
|
|
37,325,681
|
|
|
|
36,309,047
|
|
|
|
UNAUDITED
|
|
YEAR ENDED JUNE 30, 2015
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
12,253
|
|
|
$
|
12,821
|
|
|
$
|
15,358
|
|
|
$
|
17,645
|
|
|
$
|
58,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
3,135
|
|
|
$
|
3,733
|
|
|
$
|
5,146
|
|
|
$
|
4,809
|
|
|
$
|
16,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(667
|
)
|
|
$
|
51
|
|
|
$
|
731
|
|
|
$
|
(355
|
)
|
|
$
|
(240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(61
|
)
|
|
$
|
(261
|
)
|
|
$
|
(567
|
)
|
|
$
|
(200
|
)
|
|
$
|
(1,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative preferred dividends
|
|
$
|
(334
|
)
|
|
$
|
-
|
|
|
$
|
(334
|
)
|
|
$
|
-
|
|
|
$
|
(668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common shares
|
|
$
|
(395
|
)
|
|
$
|
(261
|
)
|
|
$
|
(901
|
)
|
|
$
|
(200
|
)
|
|
$
|
(1,757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
35,651,732
|
|
|
|
35,716,848
|
|
|
|
35,747,979
|
|
|
|
35,761,370
|
|
|
|
35,719,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
35,651,732
|
|
|
|
35,716,848
|
|
|
|
35,747,979
|
|
|
|
36,206,934
|
|
|
|
35,719,211
|
|
USA Technologies, Inc.
Consolidated Balance Sheets
($ in thousands, except shares)
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
Assets
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
17,780
|
|
|
$
|
19,272
|
|
Accounts receivable, less allowance for doubtful accounts of $2,851 and $2,814, respectively
|
|
|
6,734
|
|
|
|
4,899
|
|
Finance receivables, less allowance for credit losses of $25 and $0, respectively
|
|
|
2,057
|
|
|
|
3,588
|
|
Inventory, net
|
|
|
4,147
|
|
|
|
2,031
|
|
Prepaid expenses and other current assets
|
|
|
1,628
|
|
|
|
987
|
|
Deferred income taxes
|
|
|
2,271
|
|
|
|
2,271
|
|
Total current assets
|
|
|
34,617
|
|
|
|
33,048
|
|
|
|
|
|
|
|
|
|
|
Finance receivables, less current portion
|
|
|
7,548
|
|
|
|
3,718
|
|
Other assets
|
|
|
137
|
|
|
|
348
|
|
Property and equipment, net
|
|
|
9,173
|
|
|
|
9,765
|
|
Deferred income taxes
|
|
|
25,359
|
|
|
|
25,453
|
|
Intangibles, net
|
|
|
666
|
|
|
|
798
|
|
Goodwill
|
|
|
11,492
|
|
|
|
11,703
|
|
Total assets
|
|
$
|
88,992
|
|
|
$
|
84,833
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders’ equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
11,529
|
|
|
$
|
12,354
|
|
Accrued expenses
|
|
|
3,111
|
|
|
|
3,458
|
|
Line of credit, net
|
|
|
7,021
|
|
|
|
7,119
|
|
Current obligations under long-term debt
|
|
|
786
|
|
|
|
629
|
|
Income taxes payable
|
|
|
—
|
|
|
|
18
|
|
Warrant liabilities
|
|
|
—
|
|
|
|
3,739
|
|
Deferred gain from sale-leaseback transactions
|
|
|
255
|
|
|
|
860
|
|
Total current liabilities
|
|
|
22,702
|
|
|
|
28,177
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
|
1,239
|
|
|
|
1,576
|
|
Accrued expenses, less current portion
|
|
|
52
|
|
|
|
15
|
|
Deferred gain from sale-leaseback transactions, less current portion
|
|
|
—
|
|
|
|
40
|
|
Total long-term liabilities
|
|
|
1,291
|
|
|
|
1,631
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
23,993
|
|
|
|
29,808
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock, no par value:
|
|
|
|
|
|
|
|
|
Authorized shares- 1,800,000 Series A convertible preferred- Authorized shares- 900,000 Issued and outstanding shares- 445,063 with liquidation preference of $18,775 and $18,108, respectively
|
|
|
3,138
|
|
|
|
3,138
|
|
Common stock, no par value: Authorized shares- 640,000,000 Issued and outstanding shares- 40,327,675 and 37,783,444, respectively
|
|
|
245,463
|
|
|
|
233,394
|
|
Accumulated deficit
|
|
|
(183,602
|
)
|
|
|
(181,507
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
64,999
|
|
|
|
55,025
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
88,992
|
|
|
$
|
84,833
|
|
See accompanying notes.
USA Technologies, Inc.
Consolidated Statements of Operations
(Unaudited)
|
|
Three months ended
March 31,
|
|
|
Nine months ended
March 31,
|
|
($ in thousands, except shares and per share data)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
License and transaction fees
|
|
$
|
17,459
|
|
|
$
|
14,727
|
|
|
$
|
50,463
|
|
|
$
|
41,326
|
|
Equipment sales
|
|
|
9,001
|
|
|
|
5,634
|
|
|
|
19,341
|
|
|
|
14,138
|
|
Total revenues
|
|
|
26,460
|
|
|
|
20,361
|
|
|
|
69,804
|
|
|
|
55,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of sales/revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
11,876
|
|
|
|
9,703
|
|
|
|
34,508
|
|
|
|
27,475
|
|
Cost of equipment
|
|
|
7,959
|
|
|
|
4,986
|
|
|
|
16,170
|
|
|
|
11,787
|
|
Total costs of sales/revenues
|
|
|
19,835
|
|
|
|
14,689
|
|
|
|
50,678
|
|
|
|
39,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
6,625
|
|
|
|
5,672
|
|
|
|
19,126
|
|
|
|
16,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
5,947
|
|
|
|
6,094
|
|
|
|
18,649
|
|
|
|
15,652
|
|
Depreciation and amortization
|
|
|
259
|
|
|
|
173
|
|
|
|
774
|
|
|
|
439
|
|
Total operating expenses
|
|
|
6,206
|
|
|
|
6,267
|
|
|
|
19,423
|
|
|
|
16,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
419
|
|
|
|
(595
|
)
|
|
|
(297
|
)
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
114
|
|
|
|
67
|
|
|
|
387
|
|
|
|
138
|
|
Interest expense
|
|
|
(188
|
)
|
|
|
(180
|
)
|
|
|
(601
|
)
|
|
|
(403
|
)
|
Change in fair value of warrant liabilities
|
|
|
-
|
|
|
|
(4,805
|
)
|
|
|
(1,490
|
)
|
|
|
(5,692
|
)
|
Total other expense, net
|
|
|
(74
|
)
|
|
|
(4,918
|
)
|
|
|
(1,704
|
)
|
|
|
(5,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
345
|
|
|
|
(5,513
|
)
|
|
|
(2,001
|
)
|
|
|
(5,846
|
)
|
(Provision) benefit for income taxes
|
|
|
(209
|
)
|
|
|
93
|
|
|
|
(94
|
)
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
136
|
|
|
|
(5,420
|
)
|
|
|
(2,095
|
)
|
|
|
(5,934
|
)
|
Cumulative preferred dividends
|
|
|
(334
|
)
|
|
|
(334
|
)
|
|
|
(668
|
)
|
|
|
(668
|
)
|
Net loss applicable to common shares
|
|
$
|
(198
|
)
|
|
$
|
(5,754
|
)
|
|
$
|
(2,763
|
)
|
|
$
|
(6,602
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share - basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average number of common shares outstanding
|
|
|
40,327,697
|
|
|
|
36,161,626
|
|
|
|
39,703,690
|
|
|
|
35,972,633
|
|
See accompanying notes.
USA Technologies, Inc.
Consolidated Statement of Shareholders’ Equity
(Unaudited)
|
|
Series A
Convertible
Preferred Stock
|
|
|
Common Stock
|
|
|
Accumulated
|
|
|
|
|
($ in thousands, except shares)
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Total
|
|
Balance, June 30, 2016
|
|
|
445,063
|
|
|
$
|
3,138
|
|
|
|
37,783,444
|
|
|
$
|
233,394
|
|
|
$
|
(181,507
|
)
|
|
$
|
55,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclass of fair value of warrant liability upon exercise of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,229
|
|
|
|
|
|
|
|
5,229
|
|
Exercise of warrants
|
|
|
|
|
|
|
|
|
|
|
2,401,408
|
|
|
|
6,193
|
|
|
|
|
|
|
|
6,193
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 Stock Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
149,356
|
|
|
|
288
|
|
|
|
|
|
|
|
288
|
|
2014 Stock Option Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155
|
|
|
|
|
|
|
|
155
|
|
2015 Equity Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235
|
|
|
|
|
|
|
|
235
|
|
Retirement of common stock
|
|
|
|
|
|
|
|
|
|
|
(6,533
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
(31
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,095
|
)
|
|
|
(2,095
|
)
|
Balance, March 31, 2017
|
|
|
445,063
|
|
|
$
|
3,138
|
|
|
|
40,327,675
|
|
|
$
|
245,463
|
|
|
$
|
(183,602
|
)
|
|
$
|
64,999
|
|
See accompanying notes.
USA Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
|
|
Three months ended
March 31,
|
|
|
Nine months ended
March 31,
|
|
($ in thousands)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
136
|
|
|
$
|
(5,420
|
)
|
|
$
|
(2,095
|
)
|
|
$
|
(5,934
|
)
|
Adjustments to reconcile net income (loss) to net cash provided/(used) by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges incurred in connection with the vesting and issuance of common stock and common stock options for employee and director compensation
|
|
|
233
|
|
|
|
142
|
|
|
|
678
|
|
|
|
651
|
|
Gain on disposal of property and equipment
|
|
|
(28
|
)
|
|
|
(15
|
)
|
|
|
(59
|
)
|
|
|
(57
|
)
|
Amortization of deferred financing fees
|
|
|
72
|
|
|
|
-
|
|
|
|
98
|
|
|
|
-
|
|
Bad debt expense
|
|
|
127
|
|
|
|
506
|
|
|
|
577
|
|
|
|
980
|
|
Depreciation
|
|
|
1,165
|
|
|
|
1,190
|
|
|
|
3,642
|
|
|
|
3,863
|
|
Amortization of intangible assets
|
|
|
45
|
|
|
|
44
|
|
|
|
132
|
|
|
|
44
|
|
Change in fair value of warrant liabilities
|
|
|
-
|
|
|
|
4,805
|
|
|
|
1,490
|
|
|
|
5,692
|
|
Deferred income taxes, net
|
|
|
209
|
|
|
|
(93
|
)
|
|
|
94
|
|
|
|
88
|
|
Recognition of deferred gain from sale-leaseback transactions
|
|
|
(216
|
)
|
|
|
(215
|
)
|
|
|
(646
|
)
|
|
|
(645
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(41
|
)
|
|
|
(1,660
|
)
|
|
|
(2,388
|
)
|
|
|
(2,070
|
)
|
Finance receivables
|
|
|
(4,232
|
)
|
|
|
(366
|
)
|
|
|
(2,113
|
)
|
|
|
(735
|
)
|
Inventory
|
|
|
647
|
|
|
|
250
|
|
|
|
(2,042
|
)
|
|
|
1,118
|
|
Prepaid expenses and other assets
|
|
|
136
|
|
|
|
(160
|
)
|
|
|
(406
|
)
|
|
|
(366
|
)
|
Accounts payable
|
|
|
2,441
|
|
|
|
4,154
|
|
|
|
(825
|
)
|
|
|
1,487
|
|
Accrued expenses
|
|
|
160
|
|
|
|
1,166
|
|
|
|
(414
|
)
|
|
|
1,151
|
|
Income taxes payable
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
(18
|
)
|
|
|
(70
|
)
|
Net cash provided/(used) by operating activities
|
|
|
848
|
|
|
|
4,328
|
|
|
|
(4,295
|
)
|
|
|
5,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase and additions of property and equipment
|
|
|
(183
|
)
|
|
|
(164
|
)
|
|
|
(792
|
)
|
|
|
(331
|
)
|
Purchase of property for rental program
|
|
|
(691
|
)
|
|
|
-
|
|
|
|
(2,026
|
)
|
|
|
-
|
|
Proceeds from sale of property and equipment
|
|
|
44
|
|
|
|
19
|
|
|
|
105
|
|
|
|
124
|
|
Cash paid for assets acquired from VendScreen
|
|
|
-
|
|
|
|
(5,625
|
)
|
|
|
-
|
|
|
|
(5,625
|
)
|
Net cash used by investing activities
|
|
|
(830
|
)
|
|
|
(5,770
|
)
|
|
|
(2,713
|
)
|
|
|
(5,832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used for the retirement of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(31
|
)
|
|
|
(40
|
)
|
Payment of deferred financing costs
|
|
|
(90
|
)
|
|
|
-
|
|
|
|
(90
|
)
|
|
|
-
|
|
Proceeds from exercise of common stock warrants
|
|
|
-
|
|
|
|
1,652
|
|
|
|
6,193
|
|
|
|
1,681
|
|
Proceeds (payments) from line of credit, net
|
|
|
-
|
|
|
|
33
|
|
|
|
-
|
|
|
|
3,033
|
|
Repayment of long-term debt
|
|
|
(182
|
)
|
|
|
(151
|
)
|
|
|
(556
|
)
|
|
|
(512
|
)
|
Net cash (used)/provided by financing activities
|
|
|
(272
|
)
|
|
|
1,534
|
|
|
|
5,516
|
|
|
|
4,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
|
(254
|
)
|
|
|
92
|
|
|
|
(1,492
|
)
|
|
|
3,527
|
|
Cash at beginning of period
|
|
|
18,034
|
|
|
|
14,809
|
|
|
|
19,272
|
|
|
|
11,374
|
|
Cash at end of period
|
|
$
|
17,780
|
|
|
$
|
14,901
|
|
|
$
|
17,780
|
|
|
$
|
14,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid in cash
|
|
$
|
59
|
|
|
$
|
191
|
|
|
$
|
528
|
|
|
$
|
404
|
|
Depreciation expense allocated to cost of services
|
|
$
|
950
|
|
|
$
|
1,051
|
|
|
$
|
3,000
|
|
|
$
|
3,436
|
|
Reclass of rental program property to inventory, net
|
|
$
|
8
|
|
|
$
|
347
|
|
|
$
|
74
|
|
|
$
|
845
|
|
Prepaid items financed with debt
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
54
|
|
|
$
|
103
|
|
Equipment and property acquired under capital lease
|
|
$
|
54
|
|
|
$
|
409
|
|
|
$
|
326
|
|
|
$
|
444
|
|
Disposal of property and equipment
|
|
$
|
87
|
|
|
$
|
189
|
|
|
$
|
748
|
|
|
$
|
526
|
|
Fair value of common stock warrants at issuance recorded as a debt discount
|
|
$
|
-
|
|
|
$
|
52
|
|
|
$
|
-
|
|
|
$
|
52
|
|
Debt financing cost financed with debt
|
|
$
|
-
|
|
|
$
|
79
|
|
|
$
|
-
|
|
|
$
|
79
|
|
USA Technologies, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. BUSINESS
USA Technologies, Inc. (the “Company”, “We”, “USAT”, or “Our”) was incorporated in the Commonwealth of Pennsylvania in January 1992. We are a provider of technology-enabled solutions and value-added services that facilitate electronic payment transactions primarily within the unattended Point of Sale (“POS”) market. We are a leading provider in the small ticket, beverage and food vending industry and are expanding our solutions and services to other unattended market segments, such as amusement, commercial laundry, kiosk and others. Since our founding, we have designed and marketed systems and solutions that facilitate electronic payment options, as well as telemetry Internet of Things (“IoT”) and machine-to-machine (“M2M”) services, which include the ability to remotely monitor, control, and report on the results of distributed assets containing our electronic payment solutions. Historically, these distributed assets have relied on cash for payment in the form of coins or bills, whereas, our systems allow them to accept cashless payments such as through the use of credit or debit cards or other emerging contactless forms, such as mobile payment. All of our customers are located in North America.
2. ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. 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 consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
CASH
The Company maintains its cash in bank deposit accounts, which may exceed federally insured limits at times.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable include amounts due to the Company for sales of equipment, other amounts due from customers, merchant service receivables, and unbilled amounts due from customers, net of the allowance for uncollectible accounts.
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments, including from a shortfall in the customer transaction fund flow from which the Company would normally collect amounts due.
The allowance is determined through an analysis of various factors including the aging of the accounts receivable, the strength of the relationship with the customer, the capacity of the customer transaction fund flow to satisfy the amount due from the customer, an assessment of collection costs and other factors. The allowance for doubtful accounts receivable is management’s best estimate as of the respective reporting date. The Company writes off accounts receivable against the allowance when management determines the balance is uncollectible and the Company ceases collection efforts. Management believes that the allowance recorded is adequate to provide for its estimated credit losses.
FINANCE RECEIVABLES
The Company offers extended payment terms to certain customers for equipment sales under its Quick Start Program. In accordance with the Financial Accounting Standards Board Accounting Standards Codification® (“ASC”) Topic 840, “Leases”, agreements under the Quick Start Program qualify for sales-type lease accounting. Accordingly, the future minimum lease payments are classified as finance receivables in the Company’s consolidated balance sheets. Finance receivables or Quick Start leases are generally for a sixty month term. 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. 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.
INVENTORY, Net
Inventory consists of finished goods and packaging materials. The Company’s inventory is stated at the lower of cost (average cost basis) or market.
PROPERTY AND EQUIPMENT, Net
Property and equipment are recorded at cost. Property and equipment are depreciated on the straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized on the straight-line basis over the lesser of the estimated useful life of the asset or the respective lease term.
GOODWILL AND INTANGIBLE ASSETS
The Company’s intangible assets include goodwill, trademarks, non-compete agreements, brand, developed technology and customer relationships.
Goodwill represents the excess of cost over fair value of the net assets purchased in acquisitions. The Company accounts for goodwill in accordance with ASC 350, “Intangibles – Goodwill and Other”. Under ASC 350, goodwill is not amortized to earnings, but instead is subject to periodic testing for impairment. Testing for impairment is to be done at least annually and at other times if events or circumstances arise that indicate that impairment may have occurred. The Company has selected April 1 as its annual test date.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and Disclosures (“Topic 820”): Improving Disclosures about Fair Value Measurements.” ASU 2010-06 amends certain disclosure requirements of Subtopic 820-10. This ASU provides additional disclosures for transfers in and out of Levels 1 and 2 and for activity in Level 3. This ASU also clarifies certain other existing disclosure requirements including level of desegregation and disclosures around inputs and valuation techniques.
The Company’s financial assets and liabilities are accounted for in accordance with ASC 820 “Fair Value Measurement.” Under ASC 820 the Company uses inputs from the three levels of the fair value hierarchy to measure its financial assets and liabilities. The three levels are as follows:
Level 1- Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2- Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3- Inputs are unobservable and reflect the Company’s assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available.
The Company’s financial instruments, principally accounts receivable, short-term finance receivables, prepaid expenses and other assets, accounts payable and accrued expenses, are carried at cost which approximates fair value due to the short-term maturity of these instruments. The fair value of the Company’s obligations under its long-term debt agreements and the long-term portion of its finance receivables approximate their carrying value as such instruments are at market rates currently available to the Company.
REVENUE RECOGNITION
Revenue from the sale or QuickStart lease of equipment is recognized on the terms of freight-on-board shipping point. Activation fee revenue, if applicable, is recognized when the Company’s cashless payment device is initially activated for use on the Company network. Transaction processing revenue is recognized upon the usage of the Company’s cashless payment and control network. License fees for access to the Company’s devices and network services are recognized on a monthly basis. In all cases, revenue is only recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed and determinable, and collection of the resulting receivable is reasonably assured. The Company estimates an allowance for product returns at the date of sale and license and transaction fee refunds on a monthly basis. The company makes an adjustment for rebates and product returns.
ePort hardware is available to customers under the QuickStart program pursuant to which the customer would enter into a five-year non-cancelable lease with either the Company or a third-party financing company for the devices. The Company utilizes its best estimate of selling price when calculating the revenue to be recorded under these leases. The leases qualify for sales type lease accounting. Accordingly, the Company recognizes a portion of lease payments as interest income for leases not placed with a third-party financing company. At the end of the lease period, the customer would have the option to purchase the device at its residual value.
PREFERRED STOCK
The Company adopted the provisions of ASU 2014-16 in determining whether the Company’s Series A Convertible Preferred Stock (“preferred stock”) is more equity-like or debt-like, and whether derivatives embedded in the preferred stock, if any, must be bifurcated and accounted for separately from its host contract. Based upon management’s review of the preferred stock features, management has determined that the preferred stock is more equity-like and that the embedded derivatives do not require bifurcation. As such, the adoption of this standard did not have a material impact on the company's financial statements.
ACCOUNTING FOR EQUITY AWARDS
In accordance with the ASC Topic 718, the cost of employee services received in exchange for an award of equity instruments is based on the grant-date fair value of the award and allocated over the vesting period of the award.
INCOME TAXES
The Company follows the ASC Topic 740, “Accounting for Uncertainty in Income Taxes”,
which
provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the consolidated financial statements. Accordingly, tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized upon the adoption of ASC Topic 740 and in subsequent periods.
Income taxes are computed using the asset and liability method of accounting. Under the asset and liability method, a deferred tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carryforwards. The measurement of deferred income tax assets is adjusted by a valuation allowance, if necessary, to recognize future tax benefits only to the extent that, based on available evidence, it is more likely than not such benefits will be realized. The Company recognizes interest and penalties, if any, related to uncertain tax positions in selling, general and administrative expenses. No interest or penalties related to uncertain tax positions were accrued or incurred during the three and nine months ended March 31, 2017 and 2016.
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per share are calculated by dividing income (loss) applicable to common shares by the weighted average common shares outstanding for the period. Diluted earnings per share are calculated by dividing income (loss) applicable to common shares by the weighted average common shares outstanding for the period plus the effect of potential common shares unless such effect is anti-dilutive.
SOFTWARE DEVELOPMENT COSTS
The Company follows the ASC Topic 350-40, “Accounting for the Cost of Computer Software Developed or obtained for Internal Use”, which provides for guidance for what costs can be capitalized for internal use.
Capitalized costs for internal-use software are included in fixed assets in the consolidated balance sheet and are amortized over three years. Costs incurred during the preliminary project along with post-implementation stages of internal use computer software development and costs incurred to maintain existing product offerings are expensed as incurred. The capitalization and ongoing assessment of recoverability of development costs require considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility and estimated economic life.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company is evaluating whether the effects of the following recent accounting will have a material effect on the Company’s consolidated financial position, results of operations or cash flows.
In January 2017, the FASB issued ASU 2017-04 – “Intangibles-Goodwill and Other (Topic 350): Simplifying the test for Goodwill Impairment.”
RECLASSIFICATION
Commencing with the June 30, 2016 financial statements, the Company changed the manner in which it presents certain unfunded finance receivables in its consolidated balance sheets and the related statements of cash flows. These finance receivables have yet to be and are expected to be funded by a third-party funding source. The previous accounting classification recorded these amounts as accounts receivable in the consolidated balance sheets and the related statements of cash flows. The impact of this change on the Statement of Cash Flows is as follows:
|
|
Three months ended
March 31, 2016
|
|
|
Nine months ended
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Original Statement of Cash Flows
|
|
$
|
(1,872
|
)
|
|
$
|
(154
|
)
|
|
$
|
(3,352
|
)
|
|
$
|
547
|
|
Reclass of Unfunded Leases, beginning of period (starting BS)
|
|
|
(2,096
|
)
|
|
|
2,096
|
|
|
|
(1,026
|
)
|
|
|
1,026
|
|
Reclass of Finance Receivables, end of period
|
|
|
2,308
|
|
|
|
(2,308
|
)
|
|
|
2,308
|
|
|
|
(2,308
|
)
|
Impact from the reclassification
|
|
|
212
|
|
|
|
(212
|
)
|
|
|
1,282
|
|
|
|
(1,282
|
)
|
Adjusted Statement of Cash Flows
|
|
$
|
(1,660
|
)
|
|
$
|
(366
|
)
|
|
$
|
(2,070
|
)
|
|
$
|
(735
|
)
|
3. FINANCE RECEIVABLES
Finance receivables consist of the following:
($ in thousands)
|
|
March 31,
2017
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
Total finance receivables
|
|
$
|
9,605
|
|
|
$
|
7,306
|
|
Less current portion
|
|
|
2,057
|
|
|
|
3,588
|
|
Non-current portion of finance receivables
|
|
$
|
7,548
|
|
|
$
|
3,718
|
|
The Company collects monthly payments of its finance receivables from the customers’ transaction fund flow. Accordingly, as the fund flow from these customers’ transactions is generally sufficient to satisfy the amount due to the Company, the risk of loss is considered low and the Company has provided for an allowance for credit losses for finance receivables of $25 thousand and zero as of March 31, 2017 and June 30, 2016, respectively. The number of Finance Receivables that are in a loss position is nine and zero as of March 31, 2017 and June 30, 2016 respectively.
Credit Quality Indicators
Credit risk profile based on payment activity:
($ in thousands)
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
Performing
|
|
$
|
9,527
|
|
|
$
|
7,174
|
|
Nonperforming
|
|
|
78
|
|
|
|
132
|
|
Total
|
|
$
|
9,605
|
|
|
$
|
7,306
|
|
Age Analysis of Past Due Finance Receivables
As of March 31, 2017
($ in thousands)
|
|
|
|
|
|
|
|
Greater than
90 Days Past
Due
|
|
|
|
|
|
Current
|
|
|
|
|
QuickStart Leases
|
|
$
|
31
|
|
|
$
|
1
|
|
|
$
|
21
|
|
|
$
|
53
|
|
|
$
|
9,552
|
|
|
$
|
9,605
|
|
Age Analysis of Past Due Finance Receivables
As of June 30, 2016
($ in thousands)
|
|
|
|
|
|
|
|
Greater than
90 Days Past
Due
|
|
|
|
|
|
Current
|
|
|
|
|
QuickStart Leases
|
|
$
|
98
|
|
|
$
|
31
|
|
|
$
|
3
|
|
|
$
|
132
|
|
|
$
|
7,174
|
|
|
$
|
7,306
|
|
4. GOODWILL AND INTANGIBLES
On January 15, 2016, the Company executed an Asset Purchase Agreement with VendScreen, Inc (“VendScreen”) a Portland, Oregon based developer of vending industry cashless payment technology, by which it acquired substantially all of VendScreen’s assets and assumed specified liabilities, for a cash payment of $5.62 million and the corresponding goodwill recorded was $4.0 million. In December 2016, the company finalized the opening balance sheet of VendScreen and recorded a reduction of goodwill for $211 thousand and increased finance receivables for the same amount. The final goodwill amount related to VendScreen opening balance sheet is $3.8 million.
The following table summarizes the final purchase price allocation to reflect the fair values of the assets acquired and liabilities assumed at the date of acquisition.
Consideration:
|
|
|
|
Fair value of total consideration paid in cash
|
|
$
|
5,625
|
|
|
|
|
|
|
Acquisition related costs:
|
|
$
|
842
|
|
|
|
|
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed:
|
|
|
|
|
|
|
Financial Assets:
|
|
|
|
|
Accounts Receivable
|
|
|
3
|
|
Finance Receivables
|
|
|
839
|
|
Other Current Assets
|
|
|
20
|
|
Deferred Income Taxes
|
|
|
18
|
|
|
|
|
880
|
|
|
|
|
|
|
Property, Plant & Equipment
|
|
|
81
|
|
|
|
|
|
|
Identifiable Intangible Assets:
|
|
|
|
|
Developed Technology
|
|
|
639
|
|
Customer Relationships
|
|
|
149
|
|
Brand
|
|
|
95
|
|
Noncompete Agreement
|
|
|
2
|
|
Fair Value of Intangible Assets
|
|
|
885
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
Accrued Liabilities
|
|
$
|
(50
|
)
|
|
|
|
|
|
Total identifiable net assets
|
|
$
|
1,796
|
|
|
|
|
|
|
Goodwill
|
|
$
|
3,829
|
|
|
|
|
|
|
Total Fair Value
|
|
$
|
5,625
|
|
During the three and nine months ending March 31, 2017, there was $45 thousand and $132 thousand, respectively, of amortization expense relating to acquired intangible assets. There was $44 thousand amortization expense relating to acquired intangible assets during the three and nine months ended March 31, 2016. Intangible asset balances consisted of the following:
($ in thousands)
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-compete agreements
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
2 years
|
Brand
|
|
|
79
|
|
|
|
—
|
|
|
|
(24
|
)
|
|
|
55
|
|
3 years
|
Developed technology
|
|
|
576
|
|
|
|
—
|
|
|
|
(96
|
)
|
|
|
480
|
|
5 years
|
Customer relationships
|
|
|
142
|
|
|
|
—
|
|
|
|
(11
|
)
|
|
|
131
|
|
10 years
|
Total Intangible Assets
|
|
$
|
798
|
|
|
$
|
—
|
|
|
$
|
(132
|
)
|
|
$
|
666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
11,703
|
|
|
$
|
(211
|
)
|
|
$
|
—
|
|
|
$
|
11,492
|
|
Indefinite
|
5. LINE OF CREDIT
During the fiscal year ended June 30, 2016, the Company entered into a Loan and Security Agreement and other ancillary documents (as amended, the “Heritage Loan Documents”) with Heritage Bank of Commerce (“Heritage Bank”), providing for a secured asset-based revolving line of credit in an amount of up to $12.0 million (the “Heritage Line of Credit”) at an interest rate calculated based on the Federal Reserves’ Prime, which was 3.75% at March 31, 2017, plus 2.25%. The Heritage Line of Credit and the Company’s obligations under the Heritage Loan Documents are secured by substantially all of the Company’s assets, including its intellectual property.
During March 2017, the Company entered into the third amendment with Heritage Bank that extended the maturity date of the Heritage Line of Credit from March 29, 2017 to September 30, 2018. The Company paid a toal of $90 thousand in deferred financing costs.
At the time of maturity, all outstanding advances under the Heritage Line of Credit as well as any unpaid interest are due and payable. Prior to maturity of the Heritage Line of Credit, the Company may prepay amounts due under the Heritage Line of Credit without penalty, and subject to the terms of the Heritage Loan Documents, may re-borrow any such amounts.
The Heritage Loan Documents contain customary representations and warranties and affirmative and negative covenants applicable to the Company. The Heritage Loan Documents also require the Company to achieve a minimum Adjusted EBITDA, as defined in the Heritage Loan Documents, measured on a quarterly basis; that the number of the Company’s connections as of the end of each fiscal quarter shall not decrease below a specified number or by more than five percent as compared to the number of the Company’s connections as of the end of the immediately prior fiscal quarter; and that the Company shall maintain a minimum balance of unrestricted cash at Heritage Bank.
The balance due on the Heritage Line of Credit was $7.0 million at March 31, 2017 and $7.1 million at June 30, 2016. Included in the Heritage Line of Credit balance is $90 thousand of unamortized debt issuance costs, which is reflected in our net liability of $7.0 million for the quarter ending March 31, 2017. As of March 31, 2017, $5.0 million was available under our line of credit. Interest expense on the line of credit was approximately $100 thousand and $300 thousand for the three and nine months ended March 31, 2017, respectively.
6. LONG-TERM DEBT
The Company periodically enters into capital lease obligations to finance certain office, network equipment and related support for use in its daily operations. During the nine-month period ended March 31, 2017, the Company commenced capital lease obligations of $380 thousand. The obligations are due in two to five years in monthly or quarterly installments of $1 thousand to $21 thousand. The value of the acquired equipment is included in property and equipment and amortized accordingly.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
As of June 30, 2016, the fair values of the Company’s Level 3 financial instrument totaled $3.7 million for 2.2 million warrants. The Level 3 financial instrument consist of common stock warrants issued by the Company in March 2011, which include features requiring liability treatment of the warrants. The fair value of warrants issued in March 2011 to purchase shares of the Company’s common stock is based on valuations performed by an independent third-party valuation firm. The fair value was determined using proprietary valuation models using the quality of the underlying securities of the warrants, restrictions on the warrants and security underlying the warrants, time restrictions and precedent sale transactions completed in the secondary market or in other private transactions. During the nine months ended March 31, 2017 all of the aforementioned warrants were exercised and the then-fair value warrant liability was reclassified as Common Stock.
The following table summarizes the changes in the Company’s Level 3 financial instruments for the three and nine months ended March 31, 2017 and 2016.
|
|
Three months ended
March 31,
|
|
Nine months ended
March 31,
|
|
($ in thousands)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Beginning balance
|
|
$
|
—
|
|
|
$
|
(1,865
|
)
|
|
$
|
(3,739
|
)
|
|
$
|
(978
|
)
|
Increase due to change in fair value of warrant liabilities
|
|
|
—
|
|
|
|
(4,805
|
)
|
|
|
(1,490
|
)
|
|
|
(5,692
|
)
|
Reclass of fair value of warranty liability to common stock upon exercise of warrants
|
|
|
—
|
|
|
|
706
|
|
|
|
5,229
|
|
|
|
706
|
|
Ending balance
|
|
$
|
—
|
|
|
$
|
(5,964
|
)
|
|
$
|
—
|
|
|
$
|
(5,964
|
)
|
There were no transfers of assets or liabilities between level 1, level 2, or level 3 during the three and nine months ended March 31, 2017 and March 31, 2016. As of March 31, 2017 and June 30, 2016, the Company held no Level 1 or Level 2 financial instruments.
8. INCOME TAXES
For the three and nine months ended March 31, 2017, income tax expense of $209 thousand and $94 thousand, respectively, (substantially all deferred income taxes) were recorded. The expense are based upon income before income taxes using an estimated annual effective income tax rate of 31% for the fiscal year ending June 30, 2017. The provision for the nine months ended March 31, 2017 consists of a charge for the tax effect of the change in the fair value of warrant liabilities which was treated discretely offset by a tax benefit based upon income before benefit for income taxes using the estimated annual effective income tax rate of 23% for the fiscal year ending June 30, 2017. All of those warrants were exercised as of September 30, 2016.
For the three and nine months ended March 31, 2016, an income tax benefit/(provision) of $93 thousand and $(88) thousand respectively, (substantially all deferred income taxes) were recorded. The benefit (provision) consist of a charge for the tax effect of the change in the fair value of warrant liabilities which was treated discretely offset by a tax benefit based upon loss before benefit (provision) for income taxes using an estimated annual effective income tax rate of 33% for the fiscal year ended June 30, 2016.
9. EQUITY
WARRANTS
During the three months ended March 31, 2017 and 2016, there were 0 and 634,100 warrants exercised. During the nine months ended March 31, 2017, 2,376,675 warrants were exercised at $2.6058 per share yielding proceeds of $6.2 million, and 24,733 warrants were exercised at $2.10 per share in a cashless exercise. The following table summarizes warrant activity for the three and nine months ended March 31, 2017 and 2016:
|
|
Three months ended
March 31,
|
|
|
Nine months ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Beginning balance
|
|
|
23,978
|
|
|
|
4,298,000
|
|
|
|
2,445,653
|
|
|
|
4,309,000
|
|
Issued
|
|
|
—
|
|
|
|
23,978
|
|
|
|
—
|
|
|
|
23,978
|
|
Exercised
|
|
|
—
|
|
|
|
(634,100
|
)
|
|
|
(2,401,408
|
)
|
|
|
(645,100
|
)
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
(20,267
|
)
|
|
|
—
|
|
Ending balance
|
|
|
23,978
|
|
|
|
3,687,878
|
|
|
|
23,978
|
|
|
|
3,687,878
|
|
STOCK OPTIONS
The Company estimates the grant date fair value of the stock options it grants using a Black-Scholes valuation model. The Company’s assumption for expected volatility is based on its historical volatility data related to market trading of its own common stock. The Company bases its assumptions for expected life of the new stock option grants on the life of the option granted, and if relevant, its analysis of the historical exercise patterns of its stock options. The dividend yield assumption is based on dividends expected to be paid over the expected life of the stock option. The risk-free interest rate assumption is determined by using the U.S. Treasury rates of the same period as the expected option term of each stock option.
In August 2016 stock options were awarded to purchase up to 20,080 shares of common stock at an exercise price of $4.98 per share. The options vest on August 31, 2017, and expire if not exercised prior to August 31, 2023. The options are intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended. During the quarter ending March 31, 2017, three employees were issued the option to purchase 105,000 shares of common stock, of which 75,000 are classified as non-qualified stock options, exercisable at $4.00 per share, and the remaining 30,000 are intended to qualify as incentive stock options, exercisable at $4.05 per share. Of the 105,000 shares of common stock issued for the option to purchase, 95,000 shares expire on March 31, 2024 and 10,000 expire on February 6, 2024. The fair value of options granted during the nine months ended March 31, 2017 and 2016 was estimated using the following weighted average assumptions:
|
|
Nine months ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Expected volatility
|
|
|
49 - 50
|
%
|
|
|
59 - 66
|
%
|
Expected life
|
|
3 - 4 years
|
|
|
4 - 4.5 years
|
|
Expected dividends
|
|
|
—
|
%
|
|
|
—
|
%
|
Risk-free interest rate
|
|
|
1.06 - 1.90
|
%
|
|
|
1.34 - 1.49
|
%
|
Number of options granted
|
|
|
125,080
|
|
|
|
194,586
|
|
Weighted average exercise price
|
|
$
|
4.17
|
|
|
$
|
3.21
|
|
Weighted average grant date fair value
|
|
$
|
1.68
|
|
|
$
|
1.64
|
|
Stock based compensation related to stock options for the three months ended March 31, 2017 and 2016 was $61 thousand and $67 thousand, respectively and $155 thousand and $274 thousand, respectively for the nine months ended March 31, 2017 and 2016.
COMMON STOCK
On July 1, 2016 $40 thousand of stock grants were awarded to each non-employee director based on the prior 30-day average closing price of the Company’s Common Stock, for a total of 56,784 shares. The shares vest as follows: 18,960 on July 1, 2017, 18,960 on July 1, 2018 and 18,954 on July 1, 2019. The total expense recognized for these grants during the three and nine months ended March 31, 2017 was $37 thousand and $110 thousand.
During the nine months ended March 31, 2017, the Company awarded an aggregate of 78,711 shares to its Chief Executive Officer and Chief Services Officer under its fiscal year 2016 long term stock incentive plan and an aggregate of 13,771 shares to three non-employee directors in satisfaction of board fees. During the nine-month period, the Chief Executive Officer cancelled 6,533 shares of Common Stock awarded to him under the 2016 fiscal year long term stock incentive plan in satisfaction of $31 thousand of related payroll obligations.
During the nine months ended March 31, 2017, the Company issued an aggregate of 2,401,408 shares upon the exercise of outstanding warrants.
LTI PLANS
The Board approved the Fiscal Year 2017 Long-Term Stock Incentive Plan (the “2017 LTI Stock Plan”) which provides that executive officers would be awarded shares of common stock of the Company in the event that certain metrics relating to the Company’s 2017 fiscal year would result in specified ranges of year-over-year percentage growth. The metrics are total number of connections as of June 30, 2017 as compared to total number of connections as of June 30, 2016 (50% weighting) and adjusted EBITDA earned during the 2017 fiscal year as compared to the adjusted EBITDA earned during the 2016 fiscal year (50% weighting).
If none of the minimum threshold year-over-year percentage target goals are achieved, the executive officers would not be awarded any shares. If all of the year-over-year percentage target goals are achieved, the executive officers would be awarded shares having the following value: Chief Executive Officer (“CEO”) - $675,000 (150% of base salary), Chief Services Officer (“CSO”) - $250,000 (100% of base salary), and Chief Financial Officer (“CFO”) - $103,125 (75% of base salary less proration for the current fiscal year). If all of the maximum distinguished year-over-year percentage target goals are achieved, the executive officers would be awarded shares having the following value: CEO - $1,012,500 (225% of base salary), CSO - $375,000 (150% of base salary), and CFO - $154,688 (112.50% of base salary less prorated for the current fiscal year). Assuming the minimum threshold year-over-year percentage target goal would be achieved for a particular metric, the number of shares to be awarded for that metric would be determined on a pro rata basis, provided that the award would not exceed the maximum distinguished award for that metric. The shares awarded under the 2017 LTI Stock Plan would vest as follows: one-third at the time of issuance; one-third on June 30, 2018; and one-third on June 30, 2019.
The Company had long-term stock incentive plans (“LTI”) in prior fiscal years for its then executive officers. Stock based compensation related to the LTI plans was as follows in the three and nine months ended March 31, 2017 and 2016:
|
|
Three months ended
March 31,
|
|
|
Nine months ended
March 31,
|
|
($ in thousands, except per share data)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
FY17 LTI Plan
|
|
$
|
81
|
|
|
$
|
—
|
|
|
$
|
236
|
|
|
$
|
—
|
|
FY16 LTI Plan
|
|
|
23
|
|
|
|
24
|
|
|
|
73
|
|
|
|
134
|
|
FY15 LTI Plan
|
|
|
3
|
|
|
|
8
|
|
|
|
6
|
|
|
|
48
|
|
FY14 LTI Plan
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
10
|
|
Total
|
|
$
|
107
|
|
|
$
|
34
|
|
|
$
|
315
|
|
|
$
|
192
|
|
10. COMMITMENTS AND CONTINGENCIES
During the nine months ended March 31, 2017 the Company entered into a lease agreement for its operations in Portland, Oregon, which commenced October 1, 2016. The new location consists of 5,362 square feet and will expire in December 2019. The lease includes monthly rental payments of $11 thousand. The straight-line rent expense for this lease is $11 thousand per month.
From time to time, the Company is involved in various legal proceedings arising during the normal course of business which, in the opinion of the management of the Company, will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.
Shares of Common Stock
William Blair
, 2017
Through and including (25 days after the commencement of this offering), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13.
|
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
|
The following is an itemized statement of the estimated amounts of all expenses payable by the Registrant in connection with the registration of the common stock.
SEC Registration Fee
|
|
$
|
4,636
|
|
FINRA filing fee
|
|
$
|
6,500
|
|
Printing and Mailing Expenses
|
|
$
|
*
|
|
Accounting Fees and Expenses
|
|
$
|
*
|
|
Legal Fees and Expenses
|
|
$
|
*
|
|
Other
|
|
$
|
*
|
|
Total
|
|
$
|
*
|
|
*
|
To be completed by amendment.
|
ITEM 14.
|
INDEMNIFICATION OF OFFICERS AND DIRECTORS.
|
Section 1746 of the Pennsylvania Business Corporation Law of 1988, as amended (“BCL”), authorizes a Pennsylvania corporation to indemnify its officers, directors, employees and agents under certain circumstances against expenses and liabilities incurred in legal proceedings involving such persons because of their holding or having held such positions with the corporation and to purchase and maintain insurance of such indemnification. Our By-laws substantively provide that we will indemnify our officers, directors, employees and agents to the fullest extent provided by Section 1746 of the BCL.
Section 1713 of the BCL permits a Pennsylvania corporation, by so providing in its By-laws, to eliminate the personal liability of a director for monetary damages for any action taken unless the director has breached or failed to perform the duties of his office and the breach or failure constitutes self-dealing, willful misconduct or recklessness. In addition, no such limitation of liability is available with respect to the responsibility or liability of a director pursuant to any criminal statute or for the payment of taxes pursuant to Federal, state or local law. Our By-laws eliminate the personal liability of the directors to the fullest extent permitted by Section 1713 of the BCL.
As permitted by the BCL, our By-laws provide that directors will not be personally liable, as such, for monetary damages for any action taken unless the director has breached or failed to perform the duties of a director under the BCL and the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness. This limitation of personal liability does not apply to any responsibility or liability pursuant to any criminal statute, or any liability for the payment of taxes pursuant to Federal, state or local law. The By-laws also include provisions for indemnification of our directors and officers to the fullest extent permitted by the BCL. In addition, the Company has entered into separate indemnification agreements with its directors and officers which require the Company to indemnify each of such officers and directors to the fullest extent permitted by the law of the Commonwealth of Pennsylvania against certain liabilities which may arise by reason of their status as directors and officers. The indemnification agreements also provide that the Company must advance all expenses incurred by the indemnified person in connection with any proceeding, provided the indemnified person undertakes to repay the advanced amounts if it is determined ultimately that the indemnified person is not entitled to be indemnified. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
ITEM 15.
|
RECENT SALES OF UNREGISTERED SECURITIES.
|
During the three years immediately preceding the date of the filing of this registration statement, the following securities were issued by the Company without registration under the Securities Act:
On March 29, 2016, the Company entered into a Loan and Security Agreement and other ancillary documents (the “Heritage Loan Documents”) with Heritage Bank of Commerce (“Heritage Bank”), providing for a secured asset-based revolving line of credit in an amount of up to $12.0 million (the “Heritage Line of Credit”). In connection with the Heritage Loan Documents, the Company issued to Heritage Bank warrants to purchase up to 23,978 shares of common stock of the Company at an exercise price of $5.00 per share. The warrants are exercisable at any time through March 29, 2021 subject to earlier termination in the event of a business combination (as defined in the warrants). The warrants were issued by the Company pursuant to the exemption from registration set forth in Section 4(a)(2) of the Securities Act.
ITEM 16.
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
|
The following exhibits are included herein or incorporated herein by reference:
|
|
|
|
1.1**
|
Form of Underwriting Agreement by and between the Company and William Blair & Company, L.L.C.
|
|
|
3.1
|
Amended and Restated Articles of Incorporation of the Company filed January 26, 2004 (Incorporated by reference to Exhibit 3.1.20 to Form 10-QSB filed on February 12, 2004).
|
|
|
3.1.1
|
First Amendment to Amended and Restated Articles of Incorporation of the Company filed on March 17, 2005 (Incorporated by reference to Exhibit 3.1.1 to Form S-1 Registration Statement No. 333-124078).
|
|
|
3.1.2
|
Second Amendment to Amended and Restated Articles of Incorporation of the Company filed on December 13, 2005 (Incorporated by reference to Exhibit 3.1.2 to Form S-1 Registration Statement No. 333-130992).
|
|
|
3.1.3
|
Third Amendment to Amended and Restated Articles of Incorporation of the Company filed on February 7, 2006 (Incorporated by reference to Exhibit 3.1.3 to Form 10-K filed on September 30, 2013).
|
|
|
3.1.4
|
Fourth Amendment to Amended and Restated Articles of Incorporation of the Company filed on July 25, 2007 (Incorporated by reference to Exhibit 3.1.3 to Form 10-K filed September 23, 2008).
|
|
|
3.1.5
|
Fifth Amendment to Amended and Restated Articles of Incorporation of the Company filed on March 6, 2008 (Incorporated by reference to Exhibit 3.1.4 to Form 10-K filed September 23, 2008).
|
|
|
3.2
|
Amended and Restated By-Laws of the Company dated as of April 24, 2014 (Incorporated by reference to Exhibit 3(i) to Form 8-K filed on April 30, 2014).
|
|
|
4.1
|
Warrant dated March 29, 2016 in favor of Heritage Bank of Commerce (Incorporated by reference to Exhibit 4.2 to Form 10-K filed on September 13, 2016).
|
|
|
5.1**
|
Opinion of Lurio & Associates, P.C.
|
|
|
10.1
|
Form of Indemnification Agreement between the Company and each of its officers and directors (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed May 14, 2007).
|
|
|
10.2
|
USA Technologies, Inc. 2013 Stock Incentive Plan (Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on May 20, 2013).
|
10.3
|
USA Technologies, Inc. 2014 Stock Option Incentive Plan (Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on May 15, 2014).
|
|
|
10.4
|
USA Technologies, Inc. 2015 Equity Incentive Plan (Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on May 15, 2015).
|
|
|
10.5
|
Amended and Restated Employment and Non-Competition Agreement between the Company and Stephen P. Herbert dated November 30, 2011. (Incorporated by reference to Exhibit 10.1 to Form 8-K filed December 5, 2011).
|
|
|
10.6
|
Employment and Non-Competition Agreement dated June 7, 2010 between the Company and Michael Lawlor (Incorporated by reference to Exhibit 10.22 to Form 10-K filed on September 30, 2013).
|
|
|
10.7
|
First Amendment to Employment and Non-Competition Agreement dated April 27, 2012 between the Company and Michael Lawlor (Incorporated by reference to Exhibit 10.23 to Form 10-K filed on September 30, 2013).
|
|
|
10.8
|
Employment and Non-Competition Agreement between the Company and David M. DeMedio dated April 12, 2005 (Incorporated by reference to Exhibit 10.22 to Form S-1 Registration Statement No. 333-124078).
|
|
|
10.9
|
First Amendment to Employment and Non-Competition Agreement between the Company and David M. DeMedio dated May 11, 2006 (Incorporated by reference to Exhibit 10.3 to Form 10-Q filed on May 15, 2006).
|
|
|
10.10
|
Second Amendment to Employment and Non-Competition Agreement dated March 13, 2007, between the Company and David M. DeMedio (Incorporated by reference to Exhibit 10.34 to Form S-1 filed April 12, 2007).
|
|
|
10.11
|
Third Amendment to Employment and Non-Competition Agreement between the Company and David M. DeMedio dated September 22, 2008 (Incorporated by reference to Exhibit 10.29 to Form 10-K filed September 24, 2008).
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10.12
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Letter from the Company to David M. DeMedio dated September 24, 2009 (Incorporated by reference to Exhibit 10.32 to Form 10-K filed September 25, 2009).
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10.13
|
Fifth Amendment to Employment and Non-Competition Agreement dated as of July 1, 2011 between the Company and David M. DeMedio (Incorporated by reference to Exhibit 10.31 to Form 10-K filed September 27, 2011).
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10.14
|
Sixth Amendment to Employment and Non-Competition Agreement dated September 27, 2011 between the Company and David M. DeMedio (Incorporated by reference to Exhibit 10.32 to Form 10-K filed September 27, 2011).
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10.15
|
Seventh Amendment to Employment and Non-Competition Agreement dated as of November 7, 2013 between the Company and David M. DeMedio (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed November 13, 2013).
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10.16
|
Separation Agreement and Release dated as of October 19, 2015 by and between the Company and David M. DeMedio (Incorporated by reference to Exhibit 10.1 to Form 8-K filed October 20, 2015).
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10.17
|
Letter Agreement dated July 22, 2015, by and between the Company and J. Duncan Smith (Incorporated by reference to Exhibit 10.1 to Form 8-K filed August 4, 2015).
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10.18
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Separation Agreement and Release dated as of January 22, 2016 by and between the Company and J. Duncan Smith (Incorporated by reference to Exhibit 10.1 to Form 8-K filed January 28, 2016).
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10.19
|
Letter agreement dated January 27, 2016, by and between the Company and Leland P. Maxwell (Incorporated by reference to Exhibit 10.2 to Form 8-K filed January 28, 2016).
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10.20
|
Letter agreement dated September 28, 2016, by and between the Company and Leland P. Maxwell (Incorporated by reference to Exhibit 10.1 to Form 8-K filed October 4, 2016).
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10.21
|
Employment Offer Letter dated as of March 10, 2017, by and between the Company and Priyanka Singh (Incorporated by reference to Exhibit 10.1 to Form 8-K filed March 28, 2017).
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10.22
|
Second Amendment Employment and Non-Competition Agreement dated as of April 29, 2016 by and between the Company and Michael K. Lawlor (Incorporated by reference to Exhibit 10.19 to Form 10-K filed on September 13, 2016).
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|
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10.23
|
Visa Incentive Agreement between the Company and Visa U.S.A. Inc., dated as of November 14, 2014 (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed February 17, 2015) (Portions of this exhibit were redacted pursuant to a confidential treatment request).
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10.24
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Mastercard Acceptance Agreement by and between the Company and Mastercard International Incorporated (Incorporated by reference to Exhibit 10.2 to Form 10-Q filed May 15, 2015) (Portions of this exhibit were redacted pursuant to a confidential treatment request).
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10.25
|
First Amendment to Mastercard Acceptance Agreement by and between the Company and Mastercard International Incorporated dated April 27, 2015 (Incorporated by reference to Exhibit 10.45 to Form 10-K filed September 30, 2015) (Portions of this exhibit were redacted pursuant to a confidential treatment request).
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10.26
|
Third Party Payment Processor Agreement dated April 24, 2015 by and among the Company, JPMorgan Chase Bank, N.A. and Paymentech, LLC (Incorporated by reference to Exhibit 10.46 to Form 10-K filed September 30, 2015) (Portions of this exhibit were redacted pursuant to a confidential treatment request).
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|
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10.27
|
Loan and Security Agreement dated March 29, 2016 by and between the Company and Heritage Bank of Commerce (Incorporated by reference to Exhibit 10.1 to Form 10-Q/A filed February 24, 2017)
(Portions of this exhibit were redacted pursuant to a confidential treatment request).
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|
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10.28
|
Intellectual Property Security Agreement dated March 29, 2016 by and between the Company and Heritage Bank of Commerce (Incorporated by reference to Exhibit 10.2 to Form 10-Q filed May 12, 2016)
(Portions of this exhibit were redacted pursuant to a confidential treatment request).
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10.29
|
Second Amendment to Loan and Security Agreement dated as of September 30, 2016 by and between the Company and Heritage Bank of Commerce (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed February 8, 2017)
(Portions of this exhibit were redacted pursuant to a confidentiality treatment request).
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|
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10.30
|
Third Amendment to Loan and Security Agreement dated as of March 24, 2017 by and between the Company and Heritage Bank of Commerce (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed May 10, 2017) (Portions of this exhibit were redacted pursuant to a confidentiality treatment request).
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10.31
|
Asset Purchase Agreement dated January 15, 2016 by and between the Company and VendScreen, Inc. (Incorporated by reference to Exhibit 2.1 to Form 10-Q filed May 12, 2016)
(Portions of this exhibit were redacted pursuant to a confidential treatment request).
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|
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21
|
List of significant subsidiaries of the Company (Incorporated by reference to Exhibit 21 to Form S-1 filed on March 16, 2010).
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|
23.1*
|
Consent of RSM US LLP, Independent Registered Public Accounting Firm.
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23.2**
|
Consent of Lurio & Associates, P.C. (to be included in Exhibit 5.1).
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|
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23.3*
|
Consent of Ballard Spahr LLP
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|
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24.1*
|
Power of Attorney (included on signature page hereof).
|
*
|
Filed herewith.
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|
**
|
To be filed by amendment
|
|
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in Malvern, Pennsylvania, on July 7, 2017.
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USA TECHNOLOGIES, INC.
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By:
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/s/ Stephen P. Herbert
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Stephen P. Herbert, Chairman
and Chief Executive Officer
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POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Stephen P. Herbert and Douglas M. Lurio as true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for them and in their name, place and stead, in any and all capacities, to sign any and all amendments (including pre-effective and post-effective amendments) to this registration statement and any additional registration statements filed pursuant to Rule 462, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission (the SEC), and generally to do all such things in their names and behalf in their capacities as officers and directors to enable the Company to comply with the provisions of the Securities Act of 1933 and all requirements of the SEC, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, ratifying and confirming all that said attorney-in-fact and agent, or their or his or her substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement on Form S-1 has been duly signed below by the following persons in the capacities and dates indicated.
SIGNATURES
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TITLE
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DATE
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/s/ Stephen P. Herbert
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Chairman of the Board of Directors
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July 7, 2017
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Stephen P. Herbert
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and Chief Executive Officer
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(Principal Executive Officer)
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/s/ Priyanka Singh, CPA
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Chief Financial Officer
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July 7, 2017
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Priyanka Singh, CPA
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(Principal Accounting Officer)
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/s/ Steven D. Barnhart
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Director
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July 7, 2017
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Steven D. Barnhart
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/s/ Joel Brooks
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Director
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July 7, 2017
|
Joel Brooks
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/s/ Robert L. Metzger
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Director
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July 7, 2017
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Robert L. Metzger
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/s/ Albin F. Moschner
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Director
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July 7, 2017
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Albin F. Moschner
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/s/ William J. Reilly, Jr.
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Director
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July 7, 2017
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William J. Reilly, Jr.
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/s/ William J. Schoch
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Director
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July 7, 2017
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William J. Schoch
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EXHIBIT INDEX
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Description
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1.1**
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|
Form of Underwriting Agreement by and between the Company and William Blair & Company, L.L.C.
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3.1
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Amended and Restated Articles of Incorporation of the Company filed January 26, 2004 (Incorporated by reference to Exhibit 3.1.20 to Form 10-QSB filed on February 12, 2004).
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3.1.1
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First Amendment to Amended and Restated Articles of Incorporation of the Company filed on March 17, 2005 (Incorporated by reference to Exhibit 3.1.1 to Form S-1 Registration Statement No. 333-124078).
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3.1.2
|
|
Second Amendment to Amended and Restated Articles of Incorporation of the Company filed on December 13, 2005 (Incorporated by reference to Exhibit 3.1.2 to Form S-1 Registration Statement No. 333-130992).
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3.1.3
|
|
Third Amendment to Amended and Restated Articles of Incorporation of the Company filed on February 7, 2006 (Incorporated by reference to Exhibit 3.1.3 to Form 10-K filed on September 30, 2013).
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3.1.4
|
|
Fourth Amendment to Amended and Restated Articles of Incorporation of the Company filed on July 25, 2007 (Incorporated by reference to Exhibit 3.1.3 to Form 10-K filed September 23, 2008).
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3.1.5
|
|
Fifth Amendment to Amended and Restated Articles of Incorporation of the Company filed on March 6, 2008 (Incorporated by reference to Exhibit 3.1.4 to Form 10-K filed September 23, 2008).
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3.2
|
|
Amended and Restated By-Laws of the Company dated as of April 24, 2014 (Incorporated by reference to Exhibit 3(i) to Form 8-K filed on April 30, 2014).
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4.1
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|
Warrant dated March 29, 2016 in favor of Heritage Bank of Commerce (Incorporated by reference to Exhibit 4.2 to Form 10-K filed on September 13, 2016).
|
|
|
|
5.1**
|
|
Opinion of Lurio & Associates, P.C.
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10.1
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|
Form of Indemnification Agreement between the Company and each of its officers and directors (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed May 14, 2007).
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10.2
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|
USA Technologies, Inc. 2013 Stock Incentive Plan (Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on May 20, 2013).
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10.3
|
|
USA Technologies, Inc. 2014 Stock Option Incentive Plan (Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on May 15, 2014).
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10.4
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|
USA Technologies, Inc. 2015 Equity Incentive Plan (Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on May 15, 2015).
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10.5
|
|
Amended and Restated Employment and Non-Competition Agreement between the Company and Stephen P. Herbert dated November 30, 2011. (Incorporated by reference to Exhibit 10.1 to Form 8-K filed December 5, 2011).
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|
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|
10.6
|
|
Employment and Non-Competition Agreement dated June 7, 2010 between the Company and Michael Lawlor (Incorporated by reference to Exhibit 10.22 to Form 10-K filed on September 30, 2013).
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|
|
|
10.7
|
|
First Amendment to Employment and Non-Competition Agreement dated April 27, 2012 between the Company and Michael Lawlor (Incorporated by reference to Exhibit 10.23 to Form 10-K filed on September 30, 2013).
|
|
|
|
10.8
|
|
Employment and Non-Competition Agreement between the Company and David M. DeMedio dated April 12, 2005 (Incorporated by reference to Exhibit 10.22 to Form S-1 Registration Statement No. 333-124078).
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|
|
|
10.9
|
|
First Amendment to Employment and Non-Competition Agreement between the Company and David M. DeMedio dated May 11, 2006 (Incorporated by reference to Exhibit 10.3 to Form 10-Q filed on May 15, 2006).
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|
|
|
10.10
|
|
Second Amendment to Employment and Non-Competition Agreement dated March 13, 2007, between the Company and David M. DeMedio (Incorporated by reference to Exhibit 10.34 to Form S-1 filed April 12, 2007).
|
|
|
|
10.11
|
|
Third Amendment to Employment and Non-Competition Agreement between the Company and David M. DeMedio dated September 22, 2008 (Incorporated by reference to Exhibit 10.29 to Form 10-K filed September 24, 2008).
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|
|
|
10.12
|
|
Letter from the Company to David M. DeMedio dated September 24, 2009 (Incorporated by reference to Exhibit 10.32 to Form 10-K filed September 25, 2009).
|
|
|
|
10.13
|
|
Fifth Amendment to Employment and Non-Competition Agreement dated as of July 1, 2011 between the Company and David M. DeMedio (Incorporated by reference to Exhibit 10.31 to Form 10-K filed September 27, 2011).
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|
|
|
10.14
|
|
Sixth Amendment to Employment and Non-Competition Agreement dated September 27, 2011 between the Company and David M. DeMedio (Incorporated by reference to Exhibit 10.32 to Form 10-K filed September 27, 2011).
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|
|
|
10.15
|
|
Seventh Amendment to Employment and Non-Competition Agreement dated as of November 7, 2013 between the Company and David M. DeMedio (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed November 13, 2013).
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|
|
|
10.16
|
|
Separation Agreement and Release dated as of October 19, 2015 by and between the Company and David M. DeMedio (Incorporated by reference to Exhibit 10.1 to Form 8-K filed October 20, 2015).
|
|
|
|
10.17
|
|
Letter Agreement dated July 22, 2015, by and between the Company and J. Duncan Smith (Incorporated by reference to Exhibit 10.1 to Form 8-K filed August 4, 2015).
|
|
|
|
10.18
|
|
Separation Agreement and Release dated as of January 22, 2016 by and between the Company and J. Duncan Smith (Incorporated by reference to Exhibit 10.1 to Form 8-K filed January 28, 2016).
|
|
|
|
10.19
|
|
Letter agreement dated January 27, 2016, by and between the Company and Leland P. Maxwell (Incorporated by reference to Exhibit 10.2 to Form 8-K filed January 28, 2016).
|
|
|
|
10.20
|
|
Letter agreement dated September 28, 2016, by and between the Company and Leland P. Maxwell (Incorporated by reference to Exhibit 10.1 to Form 8-K filed October 4, 2016).
|
|
|
|
10.21
|
|
Employment Offer Letter dated as of March 10, 2017, by and between the Company and Priyanka Singh (Incorporated by reference to Exhibit 10.1 to Form 8-K filed March 28, 2017).
|
|
|
|
10.22
|
|
Second Amendment Employment and Non-Competition Agreement dated as of April 29, 2016 by and between the Company and Michael K. Lawlor (Incorporated by reference to Exhibit 10.19 to Form 10-K filed on September 13, 2016).
|
|
|
|
10.23
|
|
Visa Incentive Agreement between the Company and Visa U.S.A. Inc., dated as of November 14, 2014 (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed February 17, 2015) (Portions of this exhibit were redacted pursuant to a confidential treatment request).
|
|
|
|
10.24
|
|
Mastercard Acceptance Agreement by and between the Company and Mastercard International Incorporated (Incorporated by reference to Exhibit 10.2 to Form 10-Q filed May 15, 2015) (Portions of this exhibit were redacted pursuant to a confidential treatment request).
|
|
|
|
10.25
|
|
First Amendment to Mastercard Acceptance Agreement by and between the Company and Mastercard International Incorporated dated April 27, 2015 (Incorporated by reference to Exhibit 10.45 to Form 10-K filed September 30, 2015) (Portions of this exhibit were redacted pursuant to a confidential treatment request).
|
|
|
|
10.26
|
|
Third Party Payment Processor Agreement dated April 24, 2015 by and among the Company, JPMorgan Chase Bank, N.A. and Paymentech, LLC (Incorporated by reference to Exhibit 10.46 to Form 10-K filed September 30, 2015) (Portions of this exhibit were redacted pursuant to a confidential treatment request).
|
|
|
|
10.27
|
|
Loan and Security Agreement dated March 29, 2016 by and between the Company and Heritage Bank of Commerce (Incorporated by reference to Exhibit 10.1 to Form 10-Q/A filed February 24, 2017) (Portions of this exhibit were redacted pursuant to a confidential treatment request).
|
|
|
|
10.28
|
|
Intellectual Property Security Agreement dated March 29, 2016 by and between the Company and Heritage Bank of Commerce (Incorporated by reference to Exhibit 10.2 to Form 10-Q filed May 12, 2016) (Portions of this exhibit were redacted pursuant to a confidential treatment request).
|
|
|
|
10.29
|
|
Second Amendment to Loan and Security Agreement dated as of September 30, 2016 by and between the Company and Heritage Bank of Commerce (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed February 8, 2017) (Portions of this exhibit were redacted pursuant to a confidentiality treatment request).
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|
|
|
10.30
|
|
Third Amendment to Loan and Security Agreement dated as of March 24, 2017 by and between the Company and Heritage Bank of Commerce (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed May 10, 2017) (Portions of this exhibit were redacted pursuant to a confidentiality treatment request).
|
|
|
|
10.31
|
|
Asset Purchase Agreement dated January 15, 2016 by and between the Company and VendScreen, Inc. (Incorporated by reference to Exhibit 2.1 to Form 10-Q filed May 12, 2016) (Portions of this exhibit were redacted pursuant to a confidential treatment request).
|
|
|
|
21
|
|
List of significant subsidiaries of the Company (Incorporated by reference to Exhibit 21 to Form S-1 filed on March 16, 2010).
|
|
|
|
|
|
Consent of RSM US LLP, Independent Registered Public Accounting Firm.
|
|
|
|
23.2**
|
|
Consent of Lurio & Associates, P.C. (to be included in Exhibit 5.1).
|
|
|
|
|
|
Consent of Ballard Spahr LLP
|
|
|
|
24.1*
|
|
Power of Attorney (included on signature page hereof).
|
|
|
|
*
|
|
Filed herewith
|
|
|
|
**
|
|
To be filed by amendment
|
|
|
|