<PAGE>
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, 2000
------------------
( ) 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.
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(Exact name of small business issuer as specified in its charter)
Pennsylvania 23-2679963
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(State or other jurisdiction of (I.R.S. employer Identification No.)
incorporation or organization)
200 Plant Avenue, Wayne, Pennsylvania 19087
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(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 3, 2000, there were 15,954,302 shares of Common Stock, no par
value, and 559,044 shares of Series A Convertible Preferred Stock, no par value,
outstanding.
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USA TECHNOLOGIES, INC.
INDEX
PAGE NO.
Part I - Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - September 30, 2000 (Unaudited)
and June 30, 2000 1
Consolidated Statements of Operations - Three months ended
September 30, 2000 and 1999 (Unaudited) 2
Consolidated Statement of Shareholders' Deficit 3
September 30, 2000 (Unaudited)
Consolidated Statements of Cash Flows - Three months ended 4
September 30, 2000 and 1999 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Part II - Other Information 12
Item 2. Changes in Securities 12
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USA Technologies, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
------------------- -------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,290,573 $ 1,859,360
Accounts receivable less allowance
for uncollectible accounts of $55,659 at September
30, 2000 (unaudited) and $50,000 at June 30, 2000 545,456 603,171
Inventory 1,134,362 992,980
Prepaid expenses and other current assets 338,424 300,607
Deposits - 192,000
Subscriptions receivable 175,000 12,199
------------------- -------------------
Total current assets 3,483,815 3,960,317
Property and equipment, at cost, net of accumulated
depreciation of $511,033 at September 30, 2000
(unaudited) and $465,704 at June 30, 2000 551,829 384,847
Software development costs 486,767 149,304
Other assets 33,690 14,740
------------------- -------------------
Total assets $ 4,556,101 $ 4,509,208
=================== ===================
Liabilities and shareholders' deficit
Current liabilities:
Accounts payable $ 1,058,000 $ 1,194,391
Accrued expenses 773,748 554,243
Equipment line of credit 168,472 183,196
Current obligations under capital leases 9,900 9,493
------------------- -------------------
Total current liabilities 2,010,120 1,941,323
Senior Notes 2,915,632 2,688,402
Obligations under capital leases, less current portion 32,704 34,965
------------------- -------------------
Total liabilities 4,958,456 4,664,690
Shareholders' deficit:
Preferred Stock, no par value, authorized shares - 1,800,000:
Series A Convertible Preferred:
Authorized shares - 900,000; issued and outstanding shares -
562,444 at September 30, 2000 (unaudited) and 566,444 at
June 30, 2000 (liquidation preference of $ 9,884,912 at
September 30, 2000 - unaudited) 3,983,946 4,012,266
Common Stock, no par value:
Authorized shares - 62,000,000
Issued and outstanding shares - 15,283,198 at
September 30, 2000 (unaudited) and 13,375,291 at
June 30, 2000 26,156,406 24,204,050
Deferred compensation (180,250) (206,000)
Subscriptions receivable (525,000) -
Accumulated deficit (29,837,457) (28,165,798)
------------------- -------------------
Total shareholders' deficit (402,355) (155,482)
------------------- -------------------
Total liabilities and shareholders' deficit $ 4,556,101 $ 4,509,208
=================== ===================
</TABLE>
See accompanying notes.
1
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USA Technologies, Inc.
Consolidated Statements of Operations
(Unaudited)
Three months ended
September 30,
2000 1999
------------------ -------------------
Revenues:
Equipment sales $ 242,798 $ 358,327
License and transaction fees 163,961 154,865
------------------ -------------------
Total revenues 406,759 513,192
Operating Expenses:
Cost of sales 250,506 321,396
General and administrative 817,110 1,185,611
Compensation 592,029 447,293
Depreciation and amortization 32,823 12,158
------------------ -------------------
Total operating expenses 1,692,468 1,966,458
------------------ -------------------
(1,285,709) (1,453,266)
Other income (expense):
Interest income 28,684 17,252
Interest expense (363,258) (418,375)
Joint Venture activities (18,376) (33,142)
------------------ -------------------
Total other income (expense) (352,950) (434,265)
------------------ -------------------
Net loss (1,638,659) (1,887,531)
Cumulative preferred dividends (421,833) (469,183)
------------------ -------------------
Loss applicable to common shares $ (2,060,492) $ (2,356,714)
Loss per common share
(basic and diluted) $ (0.14) $ (0.37)
Weighted average number of common
shares outstanding (basic and
diluted) 14,329,248 6,410,516
See accompanying notes.
2
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USA Technologies, Inc.
Consolidated Statement of Shareholders' Deficit
(Unaudited)
<TABLE>
<CAPTION>
Series A
Convertible
Preferred Common Deferred Subscriptions Accumulated
Stock Stock Compensation Receivable Deficit Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 2000 $ 4,012,266 $24,204,050 $ (206,000) $ - $(28,165,798) $ (155,482)
Conversion of 4,000 shares of Convertible
Preferred Stock to 4,000 shares of
Common Stock (28,320) 28,320 - - - -
Conversion of $33,000 of cumulative
preferred dividends into 3,300 shares of
Common Stock at $10.00 per share - 33,000 - - (33,000) -
Issuance of 12,250 shares of Common
Stock to employees as compensation - 20,275 - - - 20,275
Issuance of 4,000 shares of Common Stock
from the conversion of $10,000 of the
12% Senior Notes at $2.50 per share - 7,482 - - - 7,482
Exercise of 734,350 Common Stock
warrants at $1.00 per share - 734,350 - - - 734,350
Compensation expense related to deferred
stock awards - - 25,750 - - 25,750
Issuance of 1,150,000 Common Stock
warrants in connection with the 2000-B
Private Placement - 368,000 - - - 368,000
Issuance of 1,150,000 shares of Common
Stock at $1.00 per share in connection
with the 2000-B Private Placement, net
of offering costs of $21,071 - 760,929 - (525,000) - 235,929
Issuance of 1,200,000 Common Stock
commitment warrants in connection with
the $20 million equity line Investment
Agreement - - - - - -
Net loss - - - - (1,638,659) (1,638,659)
----------------------------------------------------------------------------------------
Balance, September 30, 2000 $ 3,983,946 $26,156,406 $(180,250) $(525,000) $(29,837,457) $ (402,355)
========================================================================================
</TABLE>
See accompanying notes.
3
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USA Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30,
2000 1999
---------------------------------------
<S> <C> <C>
Operating activities
Net loss $ (1,638,659) $ (1,887,531)
Adjustments to reconcile net loss to net cash
used in operating activities:
Compensation charges incurred in connection with
stock awards and the issuance of Common Stock 46,025 6,000
Interest amortization relating to Senior Note Offering 234,712 256,610
Depreciation and amortization 45,597 17,169
Provision for allowance for uncollectible accounts 5,659 5,950
Changes in operating assets and liabilities:
Accounts receivable 52,056 (85,943)
Inventory (156,492) 106,669
Prepaid expenses, deposits, and other assets 154,133 14,021
Accounts payable (136,391) (9,965)
Accrued expenses 219,505 213,228
---------------------------------------
Net cash used in operating activities (1,173,855) (1,363,792)
Investing activities
Purchase of property and equipment (197,469) (29,734)
Increase in software development costs (337,463) -
---------------------------------------
Net cash used in investing activities (534,932) (29,734)
Financing activities
Net proceeds from issuance of Common Stock and issuance and
exercise of Common Stock warrants 1,163,279 68,000
Payment of deferred financing costs (18,900) -
Net repayment of equipment line of credit (14,724) (23,698)
Collection of subscriptions receivable 12,199 97,488
Repayment of principal on capital lease obligations (1,854) (1,998)
---------------------------------------
Net cash provided by financing activities 1,140,000 139,792
---------------------------------------
Net decrease in cash and cash equivalents (568,787) (1,253,734)
Cash and cash equivalents at beginning of year 1,859,360 1,665,016
---------------------------------------
Cash and cash equivalents at end of period $ 1,290,573 $ 411,282
=======================================
Supplemental disclosures of cash flow information:
Transfer of inventory to property and equipment $ 15,110 $ 28,840
=======================================
Transfer of depreciation to cost of sales $ 12,774 $ 5,011
=======================================
Conversion of Convertible Preferred Stock to Common Stock $ 28,320 $ 109,740
=======================================
Conversion of Convertible Preferred Dividends to Common Stock $ 33,000 $ 93,370
=======================================
Conversion of Senior Notes to Common Stock $ 7,482 $ -
=======================================
Cash paid for interest $ 128,546 $ 161,765
=======================================
Prepaid stock compensation $ - $ 550,000
=======================================
Subscriptions receivable $ 700,000 $ -
=======================================
</TABLE>
See accompanying notes.
4
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USA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business
--------
USA Technologies, Inc. provides unattended, credit card activated
control systems for the copy, fax, debit card, vending and personal computer
industries. The Company's devices make available credit card payment technology
in connection with the sale of a variety of products and services. Customers are
located primarily in the United States and are currently comprised of hotels,
retail locations, university libraries and public libraries. 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 license fees and a percentage of the monies generated from all credit card
transactions conducted through its control systems.
The Company is developing its next generation of control systems
(e-Port(TM)) which is web-enabled, and includes capabilities for interactive
advertising and e-commerce. e-Port(TM) terminals are currently being piloted and
production quantities are expected in the second half of fiscal 2001.
As of September 30, 2000, the Company had a total installed base of
1,412 control systems, distributed as follows: 1,130 Business Express(R) or MBE
Business Express(R) control systems, 132 Business Express(R) Limited Service
(LSS) control systems, 36 Copy Express(TM) control systems, 27 Debit Express(TM)
control systems, 8 Fax/Printer Express(TM) control systems, and 40 Public PC(R)
control systems and 39 TransAct(R) control systems located primarily at various
hotels and libraries throughout the United States, Canada and Puerto Rico. The
total Business Express(R), MBE Business Express(R) or Business Express(R)
Limited Service (LSS) locations as of September 30, 2000 is 394, compared to 327
locations as of September 30, 1999.
2. Accounting Policies
-------------------
Interim Financial Information
The consolidated financial statements and disclosures included herein
for the three months ended September 30, 2000 and 1999 are unaudited. These
financial statements and disclosures have been prepared by the Company in
accordance with accounting principles generally accepted in the United States,
and reflect all adjustments consisting of adjustments of a normal and recurring
nature which, in the opinion of management, are necessary for a fair
presentation of the Company's consolidated financial position and the results of
its operations and cash flows.
Consolidation
The consolidated financial statements include the accounts of the MBE
Joint Venture (Note 5). All significant intercompany accounts and transactions
have been eliminated in consolidation.
5
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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. Depreciation is computed
using the straight-line method over three to seven years for financial statement
purposes and accelerated methods for income tax reporting purposes.
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 which 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.
All costs incurred in the research and development of new software and costs
incurred prior to the establishment of technological feasibility are expensed as
incurred. Amortization of such capitalized costs is 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 licensing
to the Company's customers.
Loss per Common Share
Loss per share is calculated by dividing the loss by the weighted
average common shares outstanding for the period. No exercise of stock options,
purchase rights, stock purchase warrants, or the conversion of preferred stock,
cumulative preferred dividends and senior notes is assumed because the assumed
exercise of these securities would be antidilutive.
3. Financing Activities
--------------------
During August 2000 the Company's Board of Directors authorized a
$1,150,000 private placement offering (the "2000-B" offering) of up to 1,150,000
shares of restricted Common Stock at $1.00 per share to a limited number of
6
<PAGE>
accredited investors. For each share purchased, the Company will issue a Common
Stock purchase warrant to purchase one share of restricted Common Stock for
$1.00 at any time through January 31, 2001. The fair value of the 1,150,000
Common Stock warrants was estimated at $368,000 at the date of issuance using
the Black-Scholes option pricing model. At September 30, 2000, the Company
received signed subscription agreements in the amount of $1,150,000, of which
$450,000 of proceeds had been collected, resulting in subscriptions receivable
of $700,000. Of this amount, $175,000 of proceeds has been received subsequent
to September 30, 2000 and is reflected in current assets at September 30, 2000.
During September 2000, the Company entered into an Investment Agreement
with Swartz Private Equity, LLC for an equity line of up to $20 million over a
period not to exceed three years. Investments are determined monthly based on
the current market prices of the Company's Common Stock in accordance with the
terms of the Agreement. The purchase price per share for Swartz would equal 91%
of the market price of the Common Stock at the time of purchase, and additional
warrants at the same price would be granted in an amount equal to 10% of the
number of shares actually purchased. Swartz received 1,200,000 Commitment
Warrants with 10 year terms at an initial exercise price of $1.00, adjusted to
lower market pricing if applicable, and will be granted additional Commitment
Warrants at the same price and term, if required, to keep the number of
Commitment Warrants equal to 5% (decreasing over a five year period to 0%) of
the outstanding Common Stock of the Company on a fully diluted basis. The fair
value of the 1,200,000 Commitment Warrants was estimated at $1,176,000 at the
date of issuance using the Black-Scholes option pricing model.
Any purchases by Swartz under the Investment Agreement are subject to
an effective registration statement covering the resale of the Common Stock by
Swartz. During November 2000, the Company's registration statement covering the
Common Stock was declared effective.
During September 2000, the Company granted each holder of the Senior
Notes the option to elect to extend the maturity date of the holder's Senior
Note to December 31, 2002 from December 31, 2001. Upon such election, the
conversion rate for the holder's Senior Note will be reduced from $2.50 per
share to $2.00 per share through the note's extended maturity date.
4. Stock Options, Warrants and Purchase Rights
-------------------------------------------
During July and August 2000, the Company reduced the exercise price of
the 1995, 1996, 1996-B, 1997, 1998-A and 1998-B Common Stock purchase warrants,
and Common Stock purchase rights to $1.00 through December 31, 2000.
Additionally, during July and August 2000, the Company reduced the exercise
price of the 1999-B Common Stock purchase warrants from $1.50 to $1.00 per share
and extended the exercise date from July 31, 2000 to December 31, 2000. The
1999-B Common Stock purchase warrant holders who exercise their purchase
warrants on or before December 31, 2000 are granted an extension to March 31,
2001 to exercise their remaining shares (up to half of the original holding) at
$1.50.
As of September 30, 2000, there were 11,740 Common Stock Purchase
Rights outstanding; 984,767 options outstanding to purchase Common Stock at
exercise prices ranging from $.50 to $5.00 per share, of which 894,769 were
vested; 1,200,000 shares of Common Stock issuable upon exercise of the
Commitment Warrants issued to Swartz Private Equity in August 2000; 1,150,000
shares of Common Stock issuable upon exercise of the 2000-B warrants issued in
September 2000; 2,573,200 shares of Common Stock issuable upon exercise of the
1999-B warrants issued between October 1999 and December 1999; 125,400 shares of
Common Stock issued to consultants in August 1999; 14,000 shares of Common Stock
issuable upon exercise of the 1999-A warrants issued between November 1998 and
June 1999; 5,000 shares of Common Stock issuable upon exercise of the 1998-B
warrants issued in July 1998; 4,000 shares of Common Stock issuable upon
exercise of the 1998-A warrants issued in January and February 1998; 100,000
shares of Common Stock issuable upon exercise of warrants issued to affiliates
7
<PAGE>
and/or consultants of GEM Advisors, Inc. in June 1997; 1,500 shares of Common
Stock issuable upon exercise of the 1997 warrants issued in July 1997; 4,000
shares of Common Stock issuable upon exercise of the 1996-B warrants issued in
January and February 1997; 86,800 shares of Common Stock issuable upon exercise
of the 1996 warrants issued in 1996; and 67,000 shares of Common Stock issuable
upon exercise of the 1995 warrants issued in 1995.
5. MBE Joint Venture
-----------------
In May 1999, the MBE Business Express Joint Venture was terminated.
Obligations for continued servicing of JV installations are being met by the
Company. At September 30, 2000 the JV recorded gross accounts payable to MBE of
approximately $146,000. The Company is currently involved in legal proceedings
with MBE.
6. Subsequent Events
-----------------
During October 2000, the Company authorized issuance of fully vested
options to purchase up to 200,000 shares of Common Stock at $1.50 to the Chief
Executive Officer of the Company.
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, (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, or if actually commercialized, to
obtain commercial acceptance thereof, (v) the ability of the Company to compete
with its competitors to obtain market share, or (vi) the ability of the Company
to obtain sufficient funds through operations or otherwise to repay its debt
obligations. 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.
8
<PAGE>
Results of Operations
The fiscal quarter ended September 30, 2000 resulted in a net operating
loss of $1,638,659 compared to a net operating loss of $1,887,531 for the fiscal
quarter ended September 30, 1999. Losses are projected to continue until
sufficient revenue is generated from equipment sales and licensing fees from the
Company's proprietary technology.
Revenues were $406,759 compared to $513,192 from the previous year's
fiscal quarter. This $106,433 or 21% shortfall reflects the sales of the
Company's lower priced product offerings consisting of the Business Express(R)
Limited Service (LSS) and stand-alone TransAct(R), which decreased the quarter's
average sale price per installation by 35%. Of the total revenues, equipment
sales totaled $242,798, a decrease of $115,529 or 32% over the same period last
year. License and transaction fees, however, increased to $163,961 from $154,865
for the same period during the prior year, an increase of 6%. This is due to the
continuing increase in the installed base of control systems. Revenue is still
well below the level required for the Company to be profitable.
Cost of sales of $250,506, which included labor, equipment, transaction
processing fees and depreciation on Company owned installations, represented a
decrease of $70,890 or 22% versus the same period during the prior year, and is
directly attributable to the decrease in equipment sales described above.
General and administrative expenses of $817,110 decreased by $368,501
or 31% from the same quarter last year. The principal reason was a decrease in
legal costs of $342,640 or 65%. Of this amount, approximately $295,000 was a
decrease in legal fees related to the MBE litigation. Other changes in general
and administrative costs included decreases in professional and consulting fees
of $78,448 or 63%, and decreases in advertising expenses of $19,243 or 42%;
offset by increases in licenses of $30,363 mostly due to DoubleClicks AdServer
software, increases in promotional and public relation costs of $31,766 or 168%,
and increases in trade show expense of $16,245 or 262%.
Compensation expense of $592,029 increased by $144,736 or 32%
predominantly due to increased personnel requirements, salaries and benefits in
all areas of the Company. Of this increase, $20,275 was non-cash due to the
issuance of 12,250 shares of Common Stock in lieu of salary, and an additional
$25,750 was a non-cash increase in amortization of deferred stock awards.
The interest expense decrease of $55,117 was due to three factors. Two
factors relate to the conversion of Senior Notes into Common Stock: the non-cash
amortization of the debt cost and the equity component decreased approximately
$28,000, and the cash interest payments on the 12% Senior Debt decreased
approximately $13,000. The third factor was a decrease in interest payments on
the inventory line of credit due to lower outstanding balances. Depreciation
expense increased from $12,158 to $32,823, directly attributable to an increase
in the depreciable asset base.
As of September 30, 2000, the Company had a total installed base of
1,412 control systems, distributed as follows: 1,130 Business Express(R) or MBE
Business Express(R) control systems, 132 Business Express(R) Limited Service
control systems, 36 Copy Express(TM) control systems, 27 Debit Express(TM)
control systems, 8 Fax/Printer Express(TM) control systems, and 40 Public PC(TM)
control systems and 39 TransActs(R) located at various hotels and libraries
throughout the United States, Canada and Puerto Rico. The total Business
Express(R) or MBE Business Express(R) locations as of September 30, 2000 is 394,
compared to 327 locations as of September 30, 1999. The total license and
9
<PAGE>
transaction fee revenues received by the Company from these systems increased 6%
from last fiscal year but is still well below the level required to achieve
profitability.
Plan of Operations
The Company has developed a product line extension to its flagship
Business Express(R) product, called the Business Express(R) Limited Service
Series (LSS). The LSS has copier and fax capabilities plus laptop printing,
dataport capabilities and credit card activated phone. The LSS is targeted to
the heart of the hospitality industry, which includes mid-market, limited
service and economy properties. As of September 30, 2000, 82 LSS locations have
been installed.
The Company has established an Authorized Reseller Program with
independent and national dealers and distributors of office products (primarily
copier and fax machines). Three standardized TransAct(R) packages have been
developed to penetrate the "pay as you go" business service markets in the
retail, university, transportation and apartment community environments, where
dealers and distributors already have established customers and appear to be
looking for a point of difference and some revenue generation possibilities. The
anticipated sales of the TransAct(R) will increase the licensing and usage
revenue streams of the Company.
The Company's next generation terminal, e-Port(TM), is nearing
completion of development, and should contain all the current functionality of
the TransAct(R) terminal for card processing, control and data management, and
in addition would be Web-enabled and offer capability for advertising, display
of local or national content (weather, sports, news highlights), and public
access electronic commerce. The Company has contracted with RadiSys, an
electronics and embedded systems contract manufacturer, to provide value added
design, development, fulfillment and product warranty services for the
e-Port(TM). The goal is to provide the Company with shortened time to market,
product excellence, and a lower total cost of goods. The Company anticipates
that this next generation, mass producible, Internet ready e-Port(TM) will be
delivered in the second half of fiscal year 2001. On a parallel path, IBM is
helping the Company to design and program the Web capable, enhanced version of
the network which will underlie all transaction processing for e-Port(TM),
including advertising and e-commerce.
During October 2000, the Company attended the annual National Automated
Merchandising Association's trade show, presenting e-Port(TM) to the vending
industry. The e-Port(TM) was demonstrated working in various vending
manufacturer's vending machines. Significant interest was shown by participants
in the vending supply chain: vending machine manufacturers, vending electronics
manufacturers, vending operators, vending machine contract feeders, and large
beverage companies. The Company is pursuing such interested parties.
The Company is marketing its products through its full-time sales
staff, consisting of four salespeople, directly to customer locations, to
management companies servicing these locations, and to office products dealers
and distributors. Strategic partnerships continue to be pursued and developed.
10
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Liquidity and Capital Resources
For the three month period ended September 30, 2000, there was a net
decrease in cash of $568,787. This was attributable to using $1,173,855 for
operating activities and $534,932 for investing activities, offset by $1,140,000
of net proceeds from financing activities. As of September 30, 2000, total cash
on hand was $1,290,573, and working capital was $1,473,695, of which $1,134,362
was in inventory.
During the quarter ended September 30, 2000, 734,350 Common Stock
warrants were exercised at $1.00 per share, resulting in proceeds to the Company
of $734,350.
During August 2000, the Company authorized a $1,150,000 private
placement offering (the "2000-B" offering) of up to 1,150,000 shares of
restricted Common Stock at $1.00 per share to a limited number of accredited
investors. For each share purchased, the Company will issue a Common Stock
purchase warrant to purchase one share of restricted Common Stock for $1.00 at
any time through January 31, 2001. At September 30, 2000, the Company received
signed subscription agreements in the amount of $1,150,000, of which $450,000 of
proceeds had been collected resulting in subscriptions receivable of $700,000.
Subsequent to September 30, 2000, an additional $175,000 of proceeds has been
received and is reflected in current assets at September 30, 2000.
During September 2000, the Company entered into an Investment Agreement
with Swartz Private Equity, LLC for an equity line of up to $20 million over a
period not to exceed three years. Investments are determined monthly based on
the current market prices of the Company's Common Stock in accordance with the
terms of the Agreement. The purchase price per share for Swartz would equal 91%
of the market price of the Common Stock at the time of purchase, and additional
warrants at the same price would be granted in an amount equal to 10% of the
number of shares actually purchased. Swartz received 1,200,000 Commitment
Warrants with 10 year terms at an initial exercise price of $1.00, adjusted to
lower market pricing if applicable, and will be granted additional Commitment
Warrants at the same price and term, if required, to keep the number of
Commitment Warrants equal to 5% (decreasing over a five year period to 0%) of
the outstanding Common Stock of the Company on a fully diluted basis. Any
purchases by Swartz under the Investment Agreement are subject to an effective
registration statement covering the resale of the Common Stock by Swartz. During
November 2000, the Company's registration statement covering the Common Stock
was declared effective.
The Company believes that existing and future proceeds from the 2000-B
offering and Investment Agreement, together with funds available from the
potential exercise of outstanding warrants and options, plus increased revenues
from its business would be sufficient to fund operations until at least through
the end of the fiscal year ending June 30, 2001. However, there can be no
assurance that any such additional sales of securities could be made by the
Company 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.
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<PAGE>
Part II - Other information
Item 2. Changes in Securities.
During the quarter ended September 30, 2000, 734,050 1999-B and 300
1995 Common Stock purchase warrants were exercised at $1.00 per warrant,
generating gross proceeds of $734,350. Such shares of Common Stock were issued
pursuant to the exemption from registration set forth in Section 4(2) of the
Act. The Company has registered all of these shares for resale by the holder
under the Act.
During the quarter ended September 30, 2000, the Company issued 4,000
shares of Common Stock upon the conversion of 4,000 shares of Series A Preferred
Stock and issued 3,300 shares of Common Stock upon the conversion of $33,000 of
cumulative dividends accrued and unpaid on these 4,000 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 ended September 30, 2000, the Company issued 4,000
shares of Common Stock upon the conversion of $10,000 of the 12% Senior Notes.
Such shares of Common Stock were issued pursuant to the exemption from
registration set forth in Section 3(a)(9) of the Act. The Company has registered
all of these shares for resale by the holder under the Act.
During the quarter ended September 30, 2000, the Company sold 1,150,000
shares of Common Stock pursuant to the 2000-B offering for $1.00 per share, for
gross proceeds of $1,150,000. For each share of restricted Common Stock
purchased, the Company will issue a Common Stock purchase warrant to purchase
one share of restricted Common Stock for $1.00 at any time through January 31,
2001. The shares of Common Stock and warrants were offered and sold by the
Company pursuant to the exemption from registration set forth in Section 4(2) of
the Act. The Company has registered under the Act all of the shares of Common
Stock and all of the shares underlying the warrants for resale by the holder.
In September 2000, the Company issued to Swartz Private Equity
1,200,000 Commitment Warrants at an initial exercise price of $1.00 in
connection with the $20 million equity line Investment Agreement. The warrants
are exercisable at any time within ten years following issuance and were offered
and sold by the Company pursuant to the exemption from registration set forth in
Section 4(2) of the Act. The Company has registered under the Act all of the
shares underlying the warrants for resale by Swartz.
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Signatures
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
USA TECHNOLOGIES, INC.
Date: November 14, 2000 By: /s/ George R. Jensen, Jr.
-----------------------------------------
George R. Jensen, Jr., Chairman,
Chief Executive Officer
Date: November 14, 2000 By: /s/ Leland P. Maxwell
-----------------------------------------
Leland P. Maxwell, Senior Vice President,
Chief Financial Officer
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