U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1O-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
------------------------------------------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to _____________________
Commission file number 33-70992
USA Technologies, Inc.
----------------------
(Exact name of small business issuer as specified in its charter)
Pennsylvania 23-2679963
------------ ----------
(State or other jurisdiction (I.R.S. employer Identification No.)
of incorporation or organization)
200 Plant Avenue, Wayne, Pennsylvania 19087
------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, area code first. (610)-989-0340
--------------
Check whether the Registrant has (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
--- ---
As of November 9, 2001, there were 30,923,242 shares of Common Stock, no par
value, outstanding.
USA TECHNOLOGIES, INC.
INDEX
PAGE NO.
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Balance Sheets - September 30, 2001 and June 30, 2000 1
Statement of Operations - Three months ended
September 30, 2001 and 2000 2
Statement of Shareholders' Deficit - September 30, 2001 3
Statement of Cash Flows - Three months ended
September 30, 2001 and 2000 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II - Other Information
Item 2. Changes in Securities 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
USA Technologies, Inc.
Balance Sheets
September 30, June 30,
2001 2001
------------ ------------
(Unaudited) (Note 2)
Assets
Current assets:
Cash and cash equivalents $ 939,268 $ 817,570
Accounts receivable 130,339 64,752
Inventory 745,924 560,410
Prepaid expenses and other current assets 732,908 428,825
Subscriptions receivable 130,000 29,000
------------ ------------
Total current assets 2,678,439 1,900,557
Property and equipment, net of accumulated
depreciation of $754,734 at September 30, 2001
and $672,913 at June 30, 2001 683,538 761,324
Software development costs 3,866,130 3,087,415
Other assets 31,765 31,765
------------ ------------
Total assets $ 7,259,872 $ 5,781,061
============ ============
Liabilities and shareholders'deficit
Current liabilities:
Accounts payable $ 2,865,284 $ 2,607,570
Accrued expenses 826,632 1,355,595
Equipment line of credit 42,132 45,785
Convertible Senior Notes 225,852 211,704
Current obligations under capital leases 74,030 70,446
------------ ------------
Total current liabilities 4,033,930 4,291,100
Convertible Senior Notes, less current portion 4,009,538 4,236,281
Convertible Debenture, net of discount 18,750 --
Obligations under capital leases, less current portion 33,669 53,577
------------ ------------
Total liabilities 8,095,887 8,580,958
Shareholders' deficit:
Preferred Stock, no par value:
Series A Convertible Preferred:
Authorized shares - 1,800,000; issued and outstanding shares -
550,959 at September 30, 2001 and 555,284 at
June 30, 2001 (liquidation preference of $10,582,879 at
September 30, 2001) 3,902,632 3,933,253
Common Stock, no par value:
Authorized shares - 62,000,000
Issued and outstanding shares - 27,446,388 at
September 30, 2001 and 21,450,755
at June 30, 2001 37,222,233 32,977,922
Deferred compensation and other (455,250) (502,000)
Accumulated deficit (41,505,630) (39,209,072)
------------ ------------
Total shareholders' deficit (836,015) (2,799,897)
------------ ------------
Total liabilities and shareholders' deficit $ 7,259,872 $ 5,781,061
============ ============
See accompanying notes.
1
USA Technologies, Inc.
Statements of Operations
(Unaudited)
Three months ended
September 30,
2001 2000
-----------------------------------
Revenues:
Equipment sales $ 201,896 $ 242,798
License and transaction fees 163,851 163,961
-----------------------------------
Total revenues 365,747 406,759
Operating expenses:
Cost of sales 213,034 250,506
General and administrative 1,131,207 835,486
Compensation 902,092 592,029
Depreciation and amortization 81,821 32,823
-----------------------------------
Total operating expenses 2,328,154 1,710,844
-----------------------------------
(1,962,407) (1,304,085)
Interest income (expenses):
Interest income 2,756 28,684
Interest expense:
Coupon or stated rate (166,497) (128,546)
Non-cash amortization of (278,656) (234,712)
debt discount
Less: Amounts capitalized 147,166 23,249
-----------------------------------
Total interest expense (297,987) (340,009)
-----------------------------------
Total interest income (expense) (295,231) (311,325)
-----------------------------------
Net loss (2,257,638) (1,615,410)
Cumulative preferred dividends (413,219) (421,833)
-----------------------------------
Loss applicable to common shares $ (2,670,857) $ (2,037,243)
===================================
Loss per common share (basic and
diluted) $ (0.11) $ (0.14)
===================================
Weighted average number of common
shares outstanding (basic and
diluted) 24,448,579 14,329,248
===================================
See accompanying notes.
2
USA Technologies, Inc.
Statement of Shareholders' Deficit
(Unaudited)
Series A
Convertible Deferred
Preferred Common Compensation Accumulated
Stock Stock and Other Deficit Total
-----------------------------------------------------------------------------------
Balance, June 30, 2001 $ 3,933,253 $ 32,977,922 $ (502,000) $(39,209,072) $ (2,799,897)
Conversion of 4,325 shares of Preferred
Stock to 4,325 shares of Common Stock (30,621) 30,621 -- -- --
Conversion of $38,920 of cumulative
preferred dividends into 3,892 shares of
Common Stock at $10.00 per share -- 38,920 -- (38,920) --
Issuance of 150,000 Common Stock Warrants
in exchange for professional services -- 55,500 -- -- 55,500
Issuance of 200,000 Common Stock Options in
exchange for professional services -- 66,000 -- -- 66,000
Issuance of 378,000 shares of Common Stock
from the conversion of $472,500 of the
2000 12% Senior Notes at $1.25 per share -- 472,500 -- -- 472,500
Exercise of 30,000 Common Stock warrants at
$1.00 per share -- 30,000 -- -- 30,000
Compensation expense related to deferred
stock awards -- -- 25,750 -- 25,750
Expense associated with options issued to
distributor -- -- 21,000 -- 21,000
Issuance of warrant to purchase 500,000
shares of Common Stock at $1.00 per
share, net of offering costs of $3,500 -- 46,500 -- -- 46,500
Issuance of 4,726,040 shares of Common
Stock in connection with the 2001-B
Private Placement, net of offering costs
of $108,630 -- 2,799,284 -- -- 2,799,284
Issuance of 735,502 shares of Common
Stock in connection with the 2001-C
Private Placement, net of offering costs
of $12,675 -- 408,769 -- -- 408,769
Debt discount relating to beneficial
conversion feature on the $225,000
Convertible Debentures -- 225,000 -- -- 225,000
Issuance of 117,874 shares of Common Stock
in lieu of cash payment for interest on
the 2000 12% Convertible Senior Note
Offering -- 59,217 -- -- 59,217
Other -- 12,000 -- -- 12,000
Net loss -- -- -- (2,257,638) (2,257,638)
-----------------------------------------------------------------------------------
Balance, September 30, 2001 $ 3,902,632 $ 37,222,233 $ (455,250) $(41,505,630) $ (836,015)
===================================================================================
See accompanying notes.
3
USA Technologies, Inc.
Statements of Cash Flows
(Unaudited)
Three months ended September 30,
2001 2000
----------------------------------
Operating activities
Net loss $(2,257,638) $(1,615,410)
Adjustments to reconcile net loss to net cash
used in operating activities:
Charges incurred in connection with Stock awards and the issuance of
Common Stock and Common Stock Purchase Warrants 889,558 46,025
Interest / amortization relating to Senior Notes and Convertible
Debentures 278,656 211,463
Issuance of Common Stock in lieu of cash payments for interest on 59,217 --
Senior Note
Depreciation 81,821 45,597
Changes in operating assets and liabilities:
Accounts receivable (65,587) 57,715
Inventory (185,514) (156,492)
Prepaid expenses, deposits, and other assets 7,311 154,133
Accounts payable 257,714 (136,391)
Accrued expenses (528,964) 219,505
----------------------------------
Net cash used in operating activities (1,463,426) (1,173,855)
Investing activities
Purchase of property and equipment (4,035) (197,469)
Increase in software development costs (778,715) (337,463)
----------------------------------
Net cash used in investing activities (782,750) (534,932)
Financing activities
Net proceeds from issuance of Common Stock and
exercise of Common Stock warrants and options 2,263,851 1,163,279
Proceeds from issuance of Convertible Debenture 100,000 --
Net repayment of equipment line of credit (3,653) (14,724)
Collection of subscriptions receivable 24,000 12,199
Repayment of principal on capital lease obligations (16,324) (1,854)
----------------------------------
Net cash provided by financing activities 2,367,874 1,140,000
----------------------------------
Net increase (decrease) in cash and cash equivalents 121,698 (568,787)
Cash and cash equivalents at beginning of year 817,570 1,859,360
----------------------------------
Cash and cash equivalents at end of period $ 939,268 $ 1,290,573
==================================
Supplemental disclosures of cash flow information:
Conversion of Convertible Preferred Stock to Common Stock $ 30,621 $ 28,320
==================================
Conversion of Cumulative Preferred Dividends to Common Stock $ 38,920 $ 33,000
==================================
Conversion of Senior Notes to Common Stock $ 472,500 $ 7,482
==================================
Transfer of depreciation to cost of sales $ 16,590 $ 12,774
==================================
Cash paid for interest $ 166,497 $ 128,546
==================================
Prepaid stock compensation $ 311,394 $ --
==================================
Subscriptions receivable $ 125,000 $ 700,000
==================================
Transfer of inventory to property and equipment $ -- $ 15,110
==================================
See accompanying notes.
5
USA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. Business
USA Technologies, Inc. provides unattended, cashless payment / control
systems and associated network and financial services for the copy, fax, debit
card, smart card, vending, laundry and personal computer industries. The
Company's devices make available credit and debit card and other payment methods
in connection with the sale of a variety of products and services. Customers are
located primarily in the continental United States. The Company also has
installations in Alaska, Hawaii, Puerto Rico and Europe. Sample customers
include major hotel chains, consumer package goods companies, information
technology companies, vending operators. Distribution and Strategic partners
include International Business Machines, Marconi plc., DoubleClick, Xerox and
Sprint. The Company generates its revenues from the direct sale of its control
systems and the resale of configured business equipment utilizing its control
systems, as well as by network fees and a percentage of the monies generated
from all credit card transactions conducted through its control systems.
The Company has developed and commenced shipping of its next generation
of cashless control/payment systems, network and financial services
(e-Port(TM)). Current e-Port(TM) shipments include capabilities for credit card
processing, tracking of vending inventory, wireless communication and reporting
of this inventory data to a monitoring station. New networking and financial
services capabilities currently being delivered via USALive(TM) to customers
include electronic transfer of funds and transaction reports to customers. e-
Port(TM) terminal and USALive network capabilities currently in beta and
targeted for shipment to certain customers late fiscal Q2 include interactive
advertising, web based transaction reporting and terminal management, acceptance
of other forms cashless payment systems.
As of September 30, 2001, the Company had a total installed base
located at various hotels, libraries, and vending machine locations throughout
the United States, consisting of 1,566 control systems, distributed as follows:
964 Business Express(R) or MBE Business Express(TM) control systems, 171
Business Express(R) Limited Service (LSS) control systems, 20 Copy Express(TM)
control systems, 10 Debit Express(TM) control systems, 4 Fax/Printer Express(TM)
control systems, 6 Public PC(TM) control systems and 187 standalone TransAct(TM)
control systems, 60 systems in placements of office equipment, and 144 non web
enabled e-Port(TM) control systems. The total Business Express(R) or MBE
Business Express(TM), LSS, Copy Express(TM), Debit Express(TM), Fax/Printer
Express(TM), Public PC(R), TransAct(TM) and e-Port(TM) locations as of September
30, 2001 is 468, compared to 394 locations as of September 30, 2000.
2. Accounting Policies
Interim Financial Information
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary have been included. Operating results for the three month
period ended September 30, 2001 are not necessarily indicative of the results
that may be expected for the year ending June 30, 2002. The balance sheet at
June 30, 2001 has been derived from the audited financial statements at that
date but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
6
For further information, refer to the financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-KSB for the year
ended June 30, 2001.
Use of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash Equivalents
Cash equivalents represent all highly liquid investments with original
maturities of three months or less. Cash equivalents are comprised of a money
market fund and certificates of deposit.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or
market.
Property and Equipment
Property and equipment are recorded at cost. The straight-line method of
depreciation is used over the estimated useful lives of the related assets.
Revenue Recognition
Revenue from the sale of equipment is recognized upon installation and
customer acceptance of the related equipment. License fee revenue (including
transaction processing revenue) is recognized upon the usage of the Company's
credit card activated control systems.
Software Development Costs
The Company capitalizes software development costs that are incurred
subsequent to the establishment of the software's technological feasibility and
up to the product's availability for general release to the Company's customers.
Through September 30, 2001, the Company has capitalized approximately $3.9
million of such costs relating to the development of the e-Port(TM) network.
Amortization of such capitalized costs will be the greater of the amount
computed using (i) the ratio that current gross revenues for a product bear to
the total of current and anticipated future gross revenues of that product or
(ii) the straight line method over the remaining estimated economic life of the
product, including the period being reported on. Amortization of such costs will
commence when the software becomes available for general release and use by the
Company's customers which is expected to occur in the second or third quarter of
fiscal 2002. The Company anticipates capitalization of an additional $600,000
during fiscal 2002 prior to release of the basic networked, internet capable
e-Port(TM) to the marketplace, and an additional amount thereafter for
enhancements to the basic network. All costs incurred in the research and
development of new software and costs incurred prior to the establishment of
technological feasibility have been expensed as incurred.
7
Loss Per Common Share
Basic earnings per share is calculated by dividing income (loss)
applicable to common shares by the weighted average common shares outstanding
for the period. Diluted earnings per share is calculated by dividing income
(loss) applicable to common shares by the weighted average common shares
outstanding for the period plus the dilutive effect (unless such effect is
anti-dilutive) of equity instruments. No exercise of stock options, purchase
rights, stock purchase warrants, or the conversion of senior notes, debentures,
preferred stock, or cumulative preferred dividends was assumed for all periods
presented because the assumed exercise of these securities would be
antidilutive.
3. Financing Activities
During the quarter, the Company completed a $4,509,554 private placement
offering (the "2001-B" offering), consisting of 7,395,440 shares of restricted
Common Stock to accredited investors. For each share purchased, the Company
issued a Common Stock purchase warrant to purchase two shares of restricted
Common Stock for $0.50 per share. Half of the warrants are exercisable at any
time through December 31, 2001, with the other half exercisable until June 30,
2002. A total of $3,693,694 (6,156,157 shares) of the Common Stock was sold for
cash, and $815,860 (1,239,283 shares) of the Common Stock was issued in exchange
for services.
During the quarter, the Company initiated a private placement offering
(the "2001-C" offering), consisting of up to 4,500,000 shares of restricted
Common Stock at $0.50 per share to accredited investors. For each share
purchased, the Company will issue a Common Stock purchase warrant to purchase
one share of restricted Common Stock for $0.50 per share at any time through
March 31, 2002. Through September 30, 2001, the Company issued 735,502 shares of
Common Stock in connection with this Offering, generating proceeds before
offering costs of $421,444. Of this amount, $186,443 are for services and
$235,001 are for cash proceeds, which have been deposited by the Company.
During the quarter, the Company sold a $225,000 9 3/4% Convertible
Debenture with a maturity date two years following issuance, to a private
investment company. Of this, $100,000 was received during the current quarter
and the remaining $125,000 was received subsequent to September 30, 2001. The
debenture may be converted into Common Stock at any time prior to maturity at a
price per share equal to the lower of $1.00 or 80% of the lowest market price
during the twenty trading days immediately prior to the conversion. In addition,
the investor is entitled to receive additional Common Stock purchase warrants
equal to ten times the number of Common shares converted from the debenture. The
Company also issued to this investor fully vested warrants to purchase up to
500,000 shares of Common Stock at a price per share equal to the lower of $1.00
or 80% of the lowest market price during the twenty trading days immediately
prior to the purchase. For this right, the Company received a non-refundable
payment of $50,000 which can be applied on a pro-rata basis toward the exercise
price of the 500,000 Warrants. The proceeds received were allocated to the debt
and equity instruments issued based on their relative fair values on the date of
the issuance.
8
In September, 2001, the Company lowered the price to $.50 from $1.00 at
which shares of Common Stock may be purchased by holders of the 12% Convertible
Senior Note due December 31, 2003, for those holders who wish to receive Common
Stock in lieu of their quarterly cash interest payments for the quarters ending
September 30, 2001 and December 31, 2001.
4. Stock Options, Warrants, Purchase Rights and Shares Outstanding
During the quarter, the Company issued 400,000 options to employees or
consultants at $0.70 per share, which approximated the market price at the time
of the grant. The options vested immediately and are exercisable at any time on
or before June 30, 2003. In addition, the Company issued 150,000 fully vested
warrants to a marketing and financial consultant in exchange for consulting
services rendered and to be rendered in the future. The warrants may be
exercised at any time within two years of issuance, at $0.70 per share.
As of September 30, 2001, 3,000,000 options that had been issued to
Marconi expired unexercised, and 1,000,000 warrants that had been issued to
Automated Merchandising Systems also expired unexercised on September 30, 2001.
As of September 30, 2001, there were 2,276,667 options outstanding to
purchase Common Stock at exercise prices ranging from $0.50 to $5.00 per share,
of which 1,826,667 were vested, and 17,945,210 shares of Common Stock issuable
upon exercise of 17,945,210 Common Stock warrants. On a fully diluted basis,
including the outstanding Common Stock, and the conversion into Common Stock of
all options, warrants and other convertible securities (assuming such
conversions occurred on September 30, 2001), the Company would have 55,469,760
common shares outstanding at September 30, 2001.
5. Subsequent Events
Subsequent to September 30, 2001 and through November 12, 2001, the
Company has deposited $356,010 of the 2001-C private placement. Through November
12, 2001, the total private placement of $2,190,430 consists of $591,011
deposited, $403,005 sold in lieu of cash payment for services rendered and to be
rendered to the Company, and $1,196,414 in subscriptions receivable.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Forward Looking Statements
This Form 10-QSB contains certain forward looking statements regarding,
among other things, the anticipated financial and operating results of the
Company. For this purpose, forward looking statements are any statements
contained herein that are not statements of historical fact and include, but are
not limited to, those preceded by or that include the words, "believes,"
"expects," "anticipates," or similar expressions. Those statements are subject
to known and unknown risks, uncertainties and other factors that could cause the
actual results to differ materially from those contemplated by the statements.
The forward looking information is based on various factors and was derived
using numerous assumptions. Important factors that could cause the Company's
actual results to differ materially from those projected, include, for example
(i) the ability of the Company to generate sufficient sales to generate
operating profits, or to sell products at a profit, (ii) the ability of the
Company to raise funds in the future through sales of securities, including but
not limited to the exercise of outstanding options and warrants, (iii) whether
the Company is able to enter into binding agreements with third parties to
assist in product or network development, (iv) the ability of the Company to
commercialize its developmental products including the e-Port(TM), or if
actually commercialized, to obtain commercial acceptance thereof, (v) the
ability of the Company to compete with its competitors to obtain market share,
(vi) the ability of the Company to obtain sufficient funds through operations or
otherwise to repay its debt obligations, (vii) the ability to collect its
subscriptions receivable, or (viii) the ability to locate and acquire suitable
acquisition opportunities, and if acquired, the ability of any such businesses
to generate operating profits. Although the Company believes that the forward
looking statements contained herein are reasonable, it can give no assurance
that the Company's expectations will be met.
Results of Operations
The fiscal quarter ended September 30, 2001 resulted in a net operating
loss of $2,257,638 compared to a net operating loss of $1,615,410 for the fiscal
quarter ended September 30, 2000. Losses are projected to continue until
sufficient revenue is generated from equipment sales and licensing fees from the
Company's proprietary technology.
Revenues were $365,747 compared to $406,759 from the previous year's
fiscal quarter. This $41,012 or 10% decrease was due to a decrease in equipment
sales of the same amount, as sales from license fees remained consistent with
the September quarter of the prior year. Revenue is still well below the level
required for the Company to be profitable.
Cost of sales for the period included labor and equipment of $213,034, a
decrease of $37,472 or 15% compared to the same period during the prior year.
This decrease is directly attributable to the decrease in equipment sales
described above.
General and administrative expenses of $1,131,207 increased by $295,721
or 35% from the same quarter last year. The increase was due principally to
increases in spending for consulting and public relations services of $523,771
(of which $503,520 was non-cash), and increases in professional fees of $76,547,
partially offset by decreases in spending for legal services of $182,092,
primarily related to the MBE litigation which has been settled, advertising of
$42,491, outside services of $41,841, and promotional expense of $37,906.
Compensation expense of $902,092 increased by $310,063 or 52%, of which
$266,300 was due to increases in non cash compensation.
The interest expense decrease of $42,022 was primarily due to the
capitalization of software development interest costs associated with the
Company's spending to develop its e-Port(TM) network, partially offset by
smaller increases in cash interest payments and the amortization of the debt
discount. Depreciation expense increased from $32,823 to $81,821, largely due to
an increase in the depreciable asset base.
10
Of the total of $2,623,385 of operating and other expenses for the
quarter, $1,315,128 were non-cash expenses, primarily consulting, public
relations, employee compensation, depreciation, amortization, and interest.
Plan of Operations
During the quarter the Company sold e-Port terminals and network services
and continued its work towards commercialization of additional new e-Port(TM)
products and services. The Company also continued development of its
distribution channels, strategic partnerships, and current and future customers.
e-Port(TM) terminals are currently being sold and additional inventory is
expected to be delivered in the next quarter. Current e-Port(TM) shipments
include capabilities for credit card processing, tracking of vending inventory,
wireless communication and reporting of this inventory data to a monitoring
station. New networking and financial services capabilities currently being
delivered via USALive(TM) to customers include electronic transfer of funds and
transaction reports to customers. e-Port(TM) terminal and USALive network
capabilities currently in development and testing and targeted for shipment to
certain customers in the near future include internet capability, interactive
advertising, web based transaction reporting and terminal management, and
acceptance of other forms of cashless payment systems.
The Company is marketing its products through its full-time sales staff
consisting of six salespeople, approximately 25 authorized resellers, and
numerous office equipment and vending OEMs, either directly to customer
locations or to management companies servicing these locations. Strategic
partnerships and demonstration programs with key distributors continue to be
pursued and developed. Among these partnerships is the Teaming Agreement signed
with IBM in June, 2001, which has already generated IBM participation in
developing market strategies and in identifying specific customer opportunities
with numerous Fortune 100 consumer package goods, retail, pharmaceutical and
large vending companies. Applications for e-Port(TM) are believed to exist in a
wide variety of point of sale locations including retail, coin operated
laundrymats, car wash centers, postage machine dispensers and even possibly gas
pumps. In September, 2001, the Company signed a contract with United Taxi
Alliance, a newly formed non-profit organization, for the installation of up to
15,000 e-Ports(TM) over a three year period in taxis and a fleet of limousines
based in New York City.
In October 2001, the Company unveiled enhancements to its e-Port(TM) and
the USALive(TM) network to the vending industry at Fall NAMA, the vending
industry's semi-annual trade show event. Enhancements include mobile commerce
technology permitting access to vending machines through customer cell phones;
proprietary wireless technology allowing for low cost, highly reliable
connectivity via existing customer telephone connections; and capability for
customers to manage their own e-Port locations and access vending machine data
and transaction data on the web. The e-Port(TM) was demonstrated in the booths
of seven different vending machine manufacturers, and the Company received sales
orders for our e-Port(TM) at the show. From the inception of e-Port(TM)
shipments to date, the Company has delivered e-Ports to or taken orders from 70
separate customers, many of them on behalf of very large corporations with
well-known brand names. Based upon current and near term product availability
and customer prospects, the Company expects to report improved sales in the
future.
A merchant banker has been retained by the Company to help it plan and
execute the growth of the Company. We are currently in negotiations to acquire a
profitable business unit of a multinational company with complementary
technology, products, services and customers. The Company is also pursuing
other possible other acquisitions which should build upon the current foundation
of technology, partnerships and customers. If completed, these acquisitions are
anticipated to increase potential market applications and increase near term
revenues of the Company.
11
Liquidity and Capital Resources
For the quarter ended September 30, 2001, there was a net increase in
cash of $121,698. This was attributable to $1,463,426 of cash used in operating
activities, $782,750 of cash used for investing activities, principally software
development cost for the new web enabled e-Port(TM) network, offset by cash
provided by financing activities of $2,367,874 primarily from the issuance of
Common Stock. The cash used in operating activities consisted of the operating
loss of $2,257,638, plus unfavorable changes of $515,040 in operating assets and
liabilities, partially offset by $889,558 in non cash charges from the issuance
of stock and warrants, and $278,656 of non cash amortization of debt discount.
As of September 30, 2001, total cash on hand was $939,268, and the working
capital deficit was $1,355,491, of which $745,924 was invested in inventory.
During the quarter, the Company initiated a private placement offering
(the "2001-C" offering), consisting of shares of restricted Common Stock at
$0.50 per share to accredited investors. For each share purchased, the Company
will issue a Common Stock purchase warrant to purchase one share of restricted
Common Stock for $0.50 per share at any time through March 31, 2002. This
offering was completed on October 19, 2001 with a total of 4,212,350 shares
subscribed for. Through November 12, 2001, the Company has deposited $591,011 of
the placement. The remainder of the total private placement of $2,190,430
consists of $403,005 sold in lieu of cash payment for services rendered and to
be rendered to the Company, and $1,196,414 in subscriptions receivable.
Cash inflows could potentially be generated by exercise of as many as 7.4
million warrants at $0.50 per warrant by the end of December 2001; 4.2 million
warrants at $0.50 per warrant by the end of March, 2002; and 7.4 million
warrants at $0.50 per warrant by the end of June, 2002. If all these securities
were exercised, a total of approximately $9.5 million in gross proceeds would be
received by the Company.
The Company's ability to meet its future obligations is dependent upon
the success of its products in the marketplace and its ability to raise capital,
which may not be readily available, until the Company's products can generate
sufficient operating revenues. These factors raise doubt about the Company's
ability to continue as a going concern. The Company believes that proceeds from
the potential exercise of outstanding warrants and options, and from additional
equity or debt offerings, plus revenues from its business, would be sufficient
to fund operations and investing activities until at least through the end of
the fiscal year. However, there can be no assurance that any such additional
sales of securities could be made by the Company, or that its subscriptions
receivable could be collected, or that increased revenues would result from its
business activities. Under such circumstances, the Company may cease to be a
going concern or may have to reduce its operations.
12
Part II - Other Information
Item 2. Changes in Securities
During the quarter, the Company sold a $225,000 9 3/4% Convertible
Debenture with a maturity date two years following issuance, to a private
investment company. The debenture may be converted into Common Stock at any time
prior to maturity at a price per share equal to the lower of $1.00 or 80% of the
lowest market price during the twenty trading days immediately prior to the
conversion. In addition, the investor is entitled to receive additional Common
Stock purchase warrants equal to ten times the number of common shares converted
from the debenture. The Company also issued to this investor fully vested
warrants to purchase up to 500,000 shares of Common Stock at a price per share
equal to the lower of $1.00 or 80% of the lowest market price during the twenty
trading days immediately prior to the purchase. The Company issued these
securities pursuant to the exemption from registration set forth in Section 4(2)
of the Securities Act of 1933, as amended ("Act"). The Company has agreed at its
cost and expense to use its best efforts to register the Common Stock underlying
the debenture and warrants for resale by the holder under the Act.
In August, 2001, the Company granted to a consultant fully vested
warrants to purchase up to 150,000 shares of Common Stock at $0.70, in return
for services rendered or to be rendered to the Company. The Company issued the
warrants pursuant to the exemption from registration set forth in Section 4(2)
of the Act. The Company has agreed at its cost and expense to use its best
efforts to register the Common Stock underlying the warrants for resale by the
holder under the Act.
During the quarter, the Company completed a $4,509,554 private placement
offering (the "2001-B" offering), consisting of 7,395,440 shares of restricted
Common Stock to accredited investors. For each share purchased, the Company
issued a Common Stock purchase warrant to purchase two shares of restricted
Common Stock for $0.50 per share. The securities were issued pursuant to the
exemption from registration set forth in Section 4(2) of the Act and Rule 506
promulgated thereunder. The Company has agreed at its cost and expense to use
its best efforts to register the Common Stock as well as the Common Stock
underlying the warrants for resale by the holder under the Act.
During the quarter, the Company initiated a private placement offering
(the "2001-C" offering), consisting of up to 4,500,000 shares of restricted
Common Stock at $0.50 per share to accredited investors. For each share
purchased, the Company will issue a Common Stock purchase warrant to purchase
one share of restricted Common Stock for $0.50 per share at any time through
March 31, 2002. The securities were issued pursuant to the exemption from
registration set forth in Section 4(2) of the Act and Rule 506 promulgated
thereunder. The Company has agreed at its cost and expense to use its best
efforts to register the Common Stock as well as the Common Stock underlying the
warrants for resale by the holder under the Act. Through September 30, 2001,
signed subscription agreements of $421,444 have been received, of which $186,443
are for services rendered or to be rendered to us, and $235,001 are for cash
which has been deposited by the Company.
13
During the quarter, 117,874 shares of Common Stock were issued to certain
12% Senior Note Holders, in lieu of cash payment, for interest earned on the
Notes during the quarter. Such Note holders elected to receive Common Stock at
the rate of one share per $0.50 of interest earned. Such shares of Common Stock
were issued pursuant to the exemption from registration set forth in Section
3(a)(9) of the Act.
During the quarter, the Company issued 4,325 shares of Common Stock upon
the conversion of 4,325 shares of Series A Preferred Stock and issued 3,892
shares of Common Stock upon the conversion of $38,920 of cumulative dividends
accrued and unpaid on the aforesaid shares of Preferred Stock. Such shares of
Common Stock were issued pursuant to the exemption from registration set forth
in Section 3(a)(9) of the Act.
During the quarter, the Company granted to an employee and two
consultants, fully vested options to purchase up to 400,000 shares of Common
Stock for $0.70 at any time on or before June 30, 2003. The Company issued the
options pursuant to the exemption from registration set forth in Section 4(2) of
the Act. The Company has agreed at its cost and expense to use its best efforts
to register the Common Stock underlying the options for resale by the holder
under the Act.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. None.
(b) Reports on Form 8-K. During the quarter, a Report of Form 8-K was
filed on July 2, 2001 and on September 25, 2001, each reporting an event under
Item 5.
14
Signatures
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
USA TECHNOLOGIES, INC.
Date: November 14, 2001 /s/ George R. Jensen, Jr.
--------------------------------
George R. Jensen, Jr., Chairman,
Chief Executive Officer
Date: November 14, 2001 /s/ Leland P. Maxwell
----------------------------------
Leland P. Maxwell, Senior Vice
President, Chief Financial Officer