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 March 31, 1996
---------------------------------------
( ) 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.
Pennsylvania 23-2679963
- -------------------------------------------------------------------------------
(State jurisdiction of (I.R.S. employer Identification No.)
incorporation or organization)
1265 Drummers Lane, Suite 306, Wayne, Pa 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 May 3, 1996, there were 19,779,600 shares of Common Stock, no par value,
and 686,200 shares of Series A Convertible Preferred Stock, no par value,
outstanding.
This document is comprised of 13 pages.
USA TECHNOLOGIES, INC.
INDEX
PAGE NO.
Part I - Financial Information
Item 1. Financial Statements
Balance Sheets - March 31, 1996 and June 30, 1995 1
Statements of Operations - Three and nine months ended 2
March 31, 1996 and 1995.
Statement of Shareholders' Equity - March 31, 1996 3
Statement of Cash Flows - Nine months ended 4
March 31, 1996.
Notes to Financial Statements 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II - Other Information 10
Item 6. Exhibits and Reports on Form 8 - K 12
USA Technologies, Inc.
(A Development Stage Corporation)
Balance Sheets
March 31, June 30,
1996 1995
ASSETS: ------------- -------------
Current Assets: (Unaudited)
Cash.......................................................................... $414,551 $376,191
Stock subscriptions receivable................................................ 50,000
Prepaid expenses and deposits................................................. 14,574 3,137
---------- ----------
Total current assets................................................................. 429,125 429,328
Property and equipment,at cost,net................................................... 587,027 207,383
Other Assets 4,182 4,832
---------- ----------
Total assets......................................................................... $1,020,334 $641,543
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $260,083 $193,815
Accrued expenses.............................................................. 39,002 19,352
Capital lease obligation...................................................... 4,777
Note payable - other.......................................................... 1,836 4,166
---------- ----------
Total current liabilities............................................................ 300,921 222,110
Accrued rent.................................................................. 10,600 25,000
---------- ----------
Total liabilities.................................................................... 311,521 247,110
Shareholders' equity:
Preferred stock,no par value:
Authorized shares - 1,000,000
Series A Convertible issued and outstanding shares - 686,200
at March 31,1996 and 491,100 at June 30,1995 (Liquidation
preference of $8,162,116 at March 31,1996) 5,698,557 4,057,372
Common stock, no par value:
Authorized shares - 34,000,000
Issued and outstanding shares - 19,365,600 at March 31,
1996 and 18,254,300 at June 30,1996........................................... 1,509,486 909,172
Deficit accumulated during the development stage..................................... (6,499,230) (4,572,111)
---------- ----------
Total shareholders' equity........................................................... 708,813 394,433
---------- ----------
Total liabilities and shareholders' equity........................................... $1,020,334 $641,543
========== =========
(See accompanying notes)
1
USA Technologies, Inc.
(A Development Stage Corporation)
Statement of Operations
Date of Inception Through
Three months ended Nine months ended ---------------------------
March 31, March 31, March 31, June 30
-------------------------- --------------------------
1996 1995 1996 1995 1996 1995
----------- ---------- ----------- ----------- ----------- ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue:
License fee income................... 13,419 2,036 36,302 2,829 46,981 10,679
Interest income...................... 5,209 1,276 25,263 4,554 46,799 21,536
----------- ---------- ----------- ----------- ----------- ------------
Total revenue................................ 18,628 3,312 61,565 7,383 93,780 32,215
----------- ---------- ----------- ----------- ----------- ------------
Costs and expenses:
Compensation......................... 195,629 165,349 649,699 498,237 2,212,077 1,562,378
General and administrative........... 407,878 116,205 960,882 370,451 2,133,577 1,172,695
Provision for losses on
obsolete equipment............. -- -- -- -- 356,615 356,615
Advertising.......................... 1,981 13,682 45,115 48,648 336,725 291,610
Interest............................. 3,580 395 4,240 49,602 125,102 120,862
Research and development............. 31,830 2,121 82,721 32,483 325,660 242,939
Depreciation and amortization........ 5,106 5,106 15,318 13,616 41,696 26,378
Costs incurred in connection with
abandoned private placement.... -- -- -- -- 50,000 50,000
----------- ---------- ----------- ----------- ----------- ------------
Total costs and expenses..................... 646,004 302,858 1,757,975 1,013,037 5,581,452 3,823,477
----------- ---------- ----------- ----------- ----------- ------------
Net loss..................................... (627,376) (299,546) (1,696,410) (1,005,654) (5,487,672) (3,791,262)
----------- ---------- ----------- ----------- ----------- ------------
Cumulative preferred dividends............... (477,150) 276,839 (954,300) 500,056
----------- ---------- ----------- -----------
Loss applicable to common shares............. ($1,104,526) ($576,385) ($2,650,710) ($1,505,710)
=========== ========= ========== ==========
Loss per common share........................ ($0.07) ($0.05) ($0.18) ($0.13)
=========== ========= ========== ==========
Weighted average number of
common shares outstanding............ 14,871,767 11,656,883 14,760,322 11,450,468
=========== ========= ========== ==========
(See accompanying notes)
2
USA Technologies, Inc.
(A Development Stage Corporation)
Statement of
Shareholders' Equity
(Unaudited)
Deficit
Series A Accumulated
Convertible During the
Preferred Common Development
Stock Stock Stage Total
Balance, June 30, 1995 $4,057,372 $909,172 ($4,572,111) $394,433
July 1995 - 145.1 Units(145,100 shares,
net of offering costs,of Convertible
Preferred Stock at $10 per share)........................... 1,441,185 1,441,185
July 1995 - September 1995 - issuance
of 100,000 common shares in exchange
for consulting services..................................... 50,000 50,000
July 1995 - Common Stock options
exercised - 180,000 shares at
$.05 per share.............................................. 9,000 9,000
August 1995 - Common Stock dividend
distributed - 3 shares of Common Stock
for each outstanding share of Preferred
Stock on August 1, 1995 (435,300 shares).................... 230,709 (230,709) --
October 1995 - Common Stock options
exercised - 100,000 shares at
$.05 per share.............................................. 5,000 5,000
January 1996-issuance of 30,000 shares
in exchange for consulting services......................... 14,205 14,205
February 1996-Common Stock warrants
excercised-145,500 shares at $.40 per
share....................................................... 58,200 58,200
February 1996-issuance of 50,000 preferred
shares at $4.00 per share................................... 200,000 200,000
March 1996-Common Stock warrants
excercised-125,500 shares at $.40 per
share....................................................... 50,200 50,200
March 1996-issuance of 300,000 shares
in exchange for consulting services......................... 183,000 183,000
March 1996-Cancellation of 305,000 shares
of Common Stock.............................................
Net loss.......................................................... (1,696,410) (1,696,410)
----------- ----------- ------------ ----------
Balance, March 31, 1996 $5,698,557 $1,509,486 ($6,499,230) $708,813
========== ========== =========== ==========
(See accompanying notes)
3
USA Technologies, Inc.
(A Development Stage Corporation)
Statements of Cash Flows
Nine months ended
March 31,
-----------------------------------
1996 1995
------------ --------------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES
Net loss................................................ ($1,696,410) ($1,005,654)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Depreciation/amortization........................ 15,318 13,616
Compensation charges incurred
in connection with the issuance
of Common Stock.................................. 247,205 --
Changes in operating assets
and liabilities:
Prepaid expenses,deposits,
and other assets................................. 38,763 (1,584)
Accounts payable................................. 66,268 (20,547)
Accrued expenses................................. 5,250 (64,041)
----------- -----------
Net cash used by operating
activities....................................... (1,323,606) (1,078,210)
INVESTING ACTIVITIES
Purchase of property and equipment...................... (445,511) (91,359)
Proceeds from sale of property and equipment............ 51,000 --
----------- -----------
Net cash used by investing activities................... (394,511) (91,359)
FINANCING ACTIVITIES
Repayment of note payable................................ (2,330) (1,338)
Repayment of principal on capital
lease obligation.................................. (4,777) (1,881)
Net proceeds from issuance of
common stock...................................... 122,400 949
Net proceeds from issuance of
preferred convertible stock....................... 1,641,185 1,354,852
Net cash provided by
financing activities.............................. 1,756,478 1,352,582
----------- -----------
Net increase in cash..................................... 38,361 183,013
Cash at beginning of period.............................. 376,191 444,212
----------- -----------
Cash at end of period..................................... $414,552 $627,225
=========== ===========
SUPPLEMENTAL CASHFLOW INFORMATION:
Cash paid during the period for interest................ $4,240 $91,140
=========== ===========
(See accompanying notes)
4
USA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(A Development Stage Corporation)
1. Business
USA Technologies, Inc. a Pennsylvania corporation (the "Company"), was
incorporated on January 16, 1992. In May 1995, the Company changed it's name
from USA Entertainment Center, Inc, to USA Technologies, Inc. to more accurately
reflect its business. Substantially all of the Company's activities to date have
been devoted to raising capital, developing markets, and starting up operations
which commenced during July 1994. The Company intends to become the leading
owner and licenser of credit card activated control systems for the vending,
copying, debit card, and personal computer industries. The Company's products
make available credit card payment technology in connection with the sale of a
variety of products and services.
The Company generally retains fifteen to thirty percent of the gross
revenues in connection with the control systems. To date the total gross
revenues received by the Company from these systems has been nominal.
2. Accounting Policies
Interim Financial Information
The financial statements and disclosures included herein for the three
and nine months ended March 31, 1996 and 1995, and for the date of inception
through March 31, 1996 are unaudited. These financial statements and disclosures
have been prepared by the Company in accordance with generally accepted
accounting principles 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 financial position and the results of
it's operations and cash flows.
Revenue Recognition
Licensing revenues are recognized upon the usage of the Company's
credit card activated control systems.
Loss per Common Share
Loss per common share is based on the weighted average number of common
shares outstanding during the periods. No exercise of stock options, purchase
rights, purchase warrants, or the conversion of preferred stock and cumulative
preferred dividends was assumed because the exercise of these securities would
be antidilutive. The 4,365,000 common shares held in escrow (Note 5) are not
considered outstanding for purposes of calculating the loss per common share for
all periods presented.
5
3. Stock Transactions
During June 1995, the Company's Board of Directors authorized a
$1,500,000 private placement offering of 150 units at a unit price of $10,000
and each unit included 30,000 Common Stock purchase warrants and 1,000 shares of
Series A Convertible Preferred Stock. During July 1995, the Company obtained
approval to extend the private placement offering to 1,700,000 and 170 units.
During the quarter ending September 30, 1995 this private placement offering
closed and a total of 170 units were sold generating net proceeds of $1,647,567
($1,700,000 less offering costs of $52,433).
On May 12, 1995, the Company's shareholders approved the payment of a
stock dividend of 3 shares of Common Stock, for each outstanding share of Series
A Convertible Preferred Stock at the close of business on August 1, 1995.
Accordingly, a total of 1,908,600 shares of Common Stock were issued to the
shareholders of the Company's 636,200 shares of Preferred Stock outstanding on
the record date.
On May 6, 1995, the Company filed a registration statement on Form S-8,
pursuant to which 250,000 (subsequently amended to 280,000) shares of Common
Stock are to be issued to a consultant in consideration for services rendered
for the period April 1, 1995 through October 31, 1995. Through March 31, 1996,
the Company issued 280,000 shares under this agreement and charged $163,955 to
operations.
During February 1996, the Company filed a Form S-8 in connection with
an agreement with a consulting company whereby the Company issued 300,000 shares
of its common stock in exchange for consulting and advisory services to be
rendered to the Company.
During February 1996, the Company sold 50,000 shares of its Series A
Convertible Preferred Stock for $200,000 to a private investment company
pursuant to Regulation S under the Securities Act of 1933.
During February 1996, the Company reduced the common stock purchase
warrant price on the warrants issued in connection with the 1995 private
placement offering from $.50 per warrant to $.40 per warrant through the period
ending April 30, 1996.
During April 1996, the Company's Board of Directors authorized a
$1,200,000 private placement offering of 120 units at a unit price of $10,000
and each unit will include 40,000 1996 common stock purchase warrants and 1,000
shares of Series A Convertible Preferred Stock. Each warrant will entitle the
holder to purchase one share of common stock for $.50 for a five year period,
provided that the exercise price is $.40 per share for the balance of 1996.
During April 1996, the Company's shareholders approved the increase in
the number of the Company's authorized common stock to 45,000,000 and to
increase the number of designated shares of Series A Convertible Preferred Stock
from 700,000 to 1,000,000.
6
During March and April 1996, the Company issued options to acquire up
to 450,000 shares of its common stock to certain employees of the Company at
$.65 per share, which was determined to be above the fair market value on the
date of grant. These options principally vest in quarterly intervals over a five
year period.
4. Stock Options
The Company's Board of Directors has granted Common Stock options to
employees and consultants. The majority of the options have been granted at or
above fair market value. During August 1995, options to purchase a total of
180,000 shares of Common Stock were exercised and shares were issued at the
option price of $.05 per share. In October 1995, options to purchase a total of
100,000 shares of Common Stock were exercised and shares were issued at the
option price of $.05 per share. As of March 31, 1996, there was a total of
2,785,000 options outstanding at exercise prices ranging from $.05 to $.25 per
share, of which 2,760,000 were exercisable.
5. Escrow and Cancellation Arrangements
At the request of the Pennsylvania Securities Commission, all of the
executive officers and directors of the Company serving at the commencement of
the initial public offering of the Company agreed to place in escrow 10,700,000
shares of Common Stock (subsequently amended to 8,395,000 by the cancellation of
2,305,000 shares by the President of the Company during June 1995 and February
1996) beneficially owned by them until December 29, 1996. Under certain
circumstances as outlined by the Pennsylvania Securities Commission, the
President's shares may be held in escrow for an additional period of time, but
not later than June 30, 1998. Any additional shares of Common Stock acquired by
the executive officers and directors will also be held in escrow. The executive
officers and directors have agreed not to sell, pledge, or transfer, directly or
indirectly, any of the Common Stock held in escrow or any options to acquire
stock they may own. Additionally, the President of the Company has agreed that
4,365,000 shares of his escrowed Common shares would be canceled by the Company
and would no longer be issued and outstanding unless certain performance
measures as specified by the Commission are achieved. If the performance
measures are achieved, the common shares released from escrow will result in a
compensatory charge to the Company's operations. The charge will be based on the
fair value of the Company's common shares on the date the shares are released
from escrow. During the nine months ended March 31, 1996, there was no such
charge to operations. The 4,365,000 shares are not considered outstanding for
purpose of calculating the loss per common share for all periods presented.
7
Item 2 Management's Discussion and Analysis of Results of Operation
and Financial Condition.
Introduction
Since its inception in January 1992, the Company, a development stage
corporation, has been engaged almost exclusively in research and development
activities focused on designing, developing, and marketing its credit card
activated control systems. From inception through March 31, 1996, the Company
has had nominal operating revenues and has generated funds primarily through the
sale of its securities. As of March 31, 1996 the Company has received, net of
expenses of such sales, the amount of $3,180,226 in connection with private
placements and $2,345,104 in connection with its initial public offering. The
Company has incurred operating losses since its inception resulting in an
accumulated deficit of $6,499,230 at March 31, 1996 and such losses are expected
to continue into fiscal 1997.
Results of Operations
The fiscal quarter ended March 31, 1996 resulted in a net operating
loss of $627,376 or $.07 loss per Common Share. This contrasts to a net loss of
$299,546 or $.05 loss per Common Share for the comparable fiscal quarter ended
March 31, 1995. A significant portion of this increased loss is due to a
$183,000 charge to expense to reflect the issuance of 300,000 shares of Common
Stock, at market value, to an outside consultant for services performed. On an
overall basis these continuing losses reflect the development stage nature of
the Company. Losses are projected to continue until sufficient revenue is
generated from various applications of the Company's proprietary technology.
Revenue from operations was $13,419, compared to $2,036 from the
previous year's fiscal quarter and remains level with the immediately preceding
quarter ended December 31, 1995. Despite this modest increase, revenue is still
well below the level required to be profitable.
Expenses for the period were $646,004 which represents an increase over
the prior year of $343,146 or 113%, and is due primarily to the charge noted
above for consulting services.
Compensation increased by $30,280 or 18% over the prior year which is
attributable to increased staffing primarily in the marketing function as the
Company prepares for the introduction of its credit card activated personal
computer. General and administration expenses also increased by $291,674 or
250%. The major contributors to this sharp increase were Professional Fees -
$30,707 and Travel Expense - $27,238. Research and Development expense was also
up by $29,709 due to the increased number and pace of application projects.
8
For the nine month period ended March 31, 1996, the net operating loss
was $1,696,410 compared to last years quarter of $1,005,654, representing a 68%
increase and reflecting the accelerated level of operations. Revenue from
operations of $61,565 for the period compared to last years $2,829, while a
significant increase, remains well below breakeven requirements. Compensation
increased 30% and general and administrative was up 159% while interest expense
was favorably impacted by the elimination of the interest paid the previous
period to investors in the Company's initial public offering.
Plan of Operations
As of March 31, 1996 the Company's installation base consisted of the
following; Credit Card Copy ExpressTM 82, Credit Card Debit ExpressTM 19, Credit
Card Printer ExpressTM 14, Credit Card Vending ExpressTM 11, and the Credit Card
Computer ExpressTM 9, for a total of 135 control system units. It is the
Company's intention to increase the number of installed units as quickly as
possible.
During the current quarter, the company's newest product was launched,
the Credit Card Computer Express, or C3X. This product enables locations such as
libraries, hotels, convention centers and retailers to offer state of the art
computer technology and the capacity to charge for these services via credit
card. The company has entered into a dealer relationship with a major computer
manufacturer who will supply all required equipment configured to the Company's
specifications. Technical and leasing support has also been arranged.
In spite of the de-emphasis of the Golfers Oasis'TM product line, the
control technology developed has very broad application to the vending industry.
It is the Company's intention to pursue these applications under the Credit Card
Vending ExpressTM. trademark and attempt to broaden the current client
relationships with merchandisers who would dispense apparel and other higher
priced items such as paperback books, sunglasses, etc. via vending machines
utilizing the Company's control system.
The Company is also currently developing a "mini business center" which
will be completely credit card activated and will provide computer, copier and
facsimile services. It is the Company's intention to market this product line to
the hospitality industry and to "quick print" retail locations.
Additionally the Company has commenced development of an application of
its proprietary technology to the coin operated laundry industry. The prototype
is currently scheduled for completion in May 1996. This device would permit
consumers to utilize their credit cards in connection with laundry washing
machines and dryers.
9
Liquidity and Capital Resources
On July 31, 1995 the Company completed a private offering on a fully
subscribed basis. A total of 170 units were sold at $10,000 per unit, each
consisting of 1000 shares of Preferred Stock and warrants to purchase 30,000
shares of Common Stock, at a purchase price of $.50 per share, This offering
resulted in net proceeds to the Company of $1,647,567 ($1,700,000 less expenses
of $52,433). As of March 31, 1996, the Company's total cash balance was
$414,551. The Company anticipates that such cash would be utilized for selling,
general and administrative expense as well as capital investment and related
costs of installation.
On May 1, 1996, the Company initiated a private offering of Securities,
under which a total of 120 units will be sold at $10,000 per unit. Each unit
consists of 1,000 shares of Preferred Stock and Warrants to purchase 40,000
shares of Common Stock at $.50 per share. As of May 10, 1996 the Company had
sold and collected $1,209,000 of the offering and anticipates that it will be
closed at a total of $1.3 million.
Management believes that the existing cash balance noted above together
with the proceeds of the offering will enable the Company to be sufficiently
capitalized to execute the operating plan outlined above, and will not require
additional funding through June 30, 1997.
During the nine month period ended March 31, 1996 net cash of
$1,323,607 was used by operating activities (principally compensation and
general and administrative expenses). Net investing activities of $394,511 were
principally due to the purchase of property and equipment of $445,911, net of
proceeds from the sale of property and equipment of $51,000. The net cash
provided by financing activities of $1,756,478 was principally due to the net
proceeds generated from the issuance of Common and Preferred stock of
$1,763,585.
Part II - Other information
Items 1,2,3, and 5 are not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on April 10, 1996.
10
(b) Election of Directors
The number of votes cast with respect to the election of the directors
was as follows:
For Withhold
George R. Jensen, Jr. 14,297,799 310,900
Keith L. Sterling 14,289,799 320,900
Peter G. Kapourelos 14,314,799 295,900
William W. Sellers 14,314,799 295,900
Henry B. DuPont Smith 14,245,799 295,900
William L. VanAlen, Jr. 14,314,799 295,900
Stephen P. Herbert 14,314,799 295,900
Each of the above individuals was elected as a director at the Annual
Meeting.
(c) In addition to the election of directors, the following other
matters were also voted on and approved at the Annual Meeting:
(i) A proposal to ratify the appointment of Ernst & Young LLP
as independent public accountants for the Company for its 1996 fiscal year. The
number of votes cast with respect to such matter was as follows:
Affirmative Votes 14,379,399
----------
Negative Votes 12,200
----------
Abstaining Votes 219,100
----------
Broker Non-Votes
----------
(ii) A proposal to act upon an amendment to the Company's
Articles of Incorporation increasing the number of authorized shares of Common
Stock to 45,000,000. The number of votes cast with respect to such matter was as
follows:
Affirmative Votes 13,937,549
----------
Negative Votes 556,450
----------
Abstaining Votes 146,200
----------
Broker Non-Votes
----------
(iii) A proposal to act upon an amendment to the Company's
Articles of Incorporation increasing the number of designated shares of Series A
Preferred Stock from 700,000 to 1,000,000. The number of votes cast with
respect to such matter was as follows:
Affirmative Votes 13,876,649
----------
Negative Votes 620,350
----------
Abstaining Votes 143,200
----------
Broker Non-Votes
----------
11
Item 6. Exhibits and Reports on Form 8 -K.
(a) None.
(b) Reports on Form 8 - K.
No reports on Form 8-K have been filed during the quarter for which this report
on Form 10-QSB is being filed.
12
Signature
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: May 13, 1996 /s/ George R. Jensen
------------------------------------------
George R. Jensen, Jr., President,
Chief Executive Officer
Date: May 13, 1996 /s/ Edward J. Sullivan
------------------------------------------
Edward J. Sullivan, Senior Vice President,
Chief Financial Officer
13
5
0000896429
USA TECHNOLOGIES, INC.
1,000
1,000
3-MOS
JUN-30-1996
JUL-01-1996
MAR-31-1996
1,000
414,551
0
0
0
0
429,125
587,027
0
1,020,334
300,921
0
0
5,698,557
1,509,486
0
1,020,334
0
18,628
0
646,004
0
0
3,580
(1,104,526)
0
(1,104,526)
0
0
0
(1,104,526)
(0.07)
(0.07)
