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, 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)
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 8, 1996, there were 23,023,976 shares of Common Stock, no par
value, and 796,025 shares of Series A Convertible Preferred Stock, no par value,
outstanding.
This document is comprised of 14 pages.
USA TECHNOLOGIES, INC.
INDEX
PAGE NO.
Part I - Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 1996 and June 30, 1996 1
Statements of Operations - Three months ended 2
September 30, 1996 and 1995
Statement of Shareholders' Equity - September 30, 1996 3
Statement of Cash Flows - Three months ended 4
September 30, 1996 and 1995
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II - Other Information 11
Item 6. Exhibits and Reports on Form 8 - K
USA Technologies, Inc.
(A Development Stage Corporation)
Balance Sheets
September 30, June 30,
1996 1996
------------- ------------
ASSETS:
Current Assets: (Unaudited)
Cash $1,037,335 $1,773,356
Trade receivables 17,517 -
Inventory 548,259 426,391
Stock subscriptions receivable - 106,350
Prepaid expenses and deposits 4,237 3,614
---------- ----------
Total current assets 1,607,348 2,309,711
Property and equipment,at cost,net 240,666 235,214
Other Assets 4,028 42,446
---------- ----------
Total assets $1,852,042 $2,587,371
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $163,223 $301,849
Accrued expenses 104,857 41,559
Capital lease obligation 19,968 9,048
---------- ----------
Total current liabilities 288,048 352,456
Obligation under Capital lease,less current portion 36,130 21,209
Accrued rent - 13,516
---------- ----------
Total liabilities 324,178 387,181
Shareholders' equity:
Preferred stock, no par value:
Authorized shares -1,000,000
Series A Convertible issued and outstanding shares - 796,025
at September 30, 1996 and June 30, 1996 (Liquidation
preference of $10,357,385 at September 30, 1996) 6,776,132 6,776,132
Common stock, no par value:
Authorized shares - 45,000,000
Issued and outstanding shares - 23,023,976 at September 30,
1996 and June 30, 1996 2,720,201 2,720,201
Deficit accumulated during the development stage (7,968,469) (7,296,143)
---------- ----------
Total shareholders' equity 1,527,864 2,200,190
---------- ----------
Total liabilities and shareholders' equity $1,852,042 $2,587,371
========== ==========
(See accompanying notes)
1
USA Technologies, Inc.
(A Development Stage Corporation)
Statements of Operations
Three months ended Date of Inception Through
September 30, -------------------------
----------------------------- September 30, June 30,
1996 1995 1996 1996
---------- ---------- ------------- --------------
(Unaudited) (Unaudited) (Unaudited)
Revenue:
Equipment sales $18,891 $ $18,891 $ -
License fee income 20,244 9,798 83,902 63,658
Interest income 12,003 11,072 65,407 53,404
---------- ---------- ---------- ----------
Total revenue 51,138 20,870 168,200 117,062
---------- ---------- ---------- ----------
Costs and expenses:
Cost of goods sold 9,229 - 9,229 -
General and administrative 420,055 281,606 3,285,578 2,865,523
Compensation 238,104 257,494 2,703,880 2,465,776
Depreciation and amortization 23,261 5,106 121,655 98,394
Advertising 31,005 16,323 384,007 353,002
Provision for losses on equipment - - 400,715 400,715
Interest 1,810 340 128,421 126,611
Costs incurred in connection with
abandoned private placement - - 50,000 50,000
---------- ---------- ---------- ----------
Total costs and expenses 723,464 560,869 7,083,485 6,360,021
---------- ---------- ---------- ----------
Net loss (672,326) (539,999) (6,915,285) (6,242,959)
---------- ---------- ========== ==========
Cumulative preferred dividends (597,019) (477,150)
---------- ----------
Loss applicable to common shares ($1,269,345) ($1,017,149)
=========== ===========
Loss per common share ($0.07) ($0.08)
====== ======
Weighted average number of
common shares outstanding 18,658,976 12,354,333
=========== ===========
(See accompanying notes)
2
USA Technologies, Inc.
(A Development Stage Corporation)
Statement of
Shareholders Equity
Deficit
Series A Accumulated
Convertible During the
Preferred Common Development
Stock Stock Stage Total
Balance, June 30, 1996 $6,776,132 $2,720,201 ($7,296,143) $2,200,190
Net loss (672,326) ($672,326)
---------- ---------- ----------- ----------
Balance, September 30, 1995 (Unaudited) $6,776,132 $2,720,201 ($7,968,469) $1,527,864
========== ========== =========== ==========
(See accompanying notes)
3
USA Technologies, Inc.
(A Development Stage Corporation)
Statements of Cash Flows
Three months ended
September 30,
------------------------------
1996 1995
-------------- -------------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES
Net loss ($672,326) ($539,999)
Adjus(TM)ents to reconcile net
loss to net cash used by
operating activities:
Depreciation/amortization 23,261 5,106
Compensation charges incurred
in connection with the issuance
of Common Stock - 50,000
Changes in operating assets
and liabilities:
Trade receivables (17,517)
Inventory (121,868)
Prepaid expenses, deposits,
and other assets 37,645 25,655
Accounts payable (138,626) (103,115)
Accrued expenses 49,782 4,777
---------- ----------
Net cash used by operating
activities (839,649) (557,576)
INVESTING ACTIVITIES
Purchase of property and equipment (2,722) (286,907)
Proceeds from sale of property and equipment - 51,000
---------- ----------
Net cash used by investing activities (2,722) (235,907)
FINANCING ACTIVITIES
Repayment of note payable - (1,778)
Net proceeds from issuance of
common stock 106,350 9,000
Net proceeds from issuance of
preferred convertible stock - 1,441,185
---------- ----------
Net cash provided by
financing activities 106,350 1,448,407
---------- ----------
Net (decrease)increase in cash (736,021) 654,924
Cash at beginning of period 1,773,356 376,191
---------- ----------
Cash at end of period $1,037,335 $1,031,115
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Capital lease obligation $25,841 -
========== ==========
(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. 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 sells the control system equipment directly to
the location service provider or through authorized dealers. Concurrent with the
sale of equipment, locations are required to execute a software licensing and
transaction processing agreement with the Company.
In connection with it's control systems, the Company generally retains
eight percent of the gross revenues, depending upon the level of services
provided by the Company. 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
months ended September 30, 1996 and 1995, and for the date of inception through
September 30, 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.
5
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 five to seven years for financial statement
purposes and accelerated methods for income tax reporting purposes.
Revenue Recognition
Licensing revenues are recognized upon the usage of the Company's
credit card activated control systems. Revenue from the sale of equipment is
recognized upon installation and customer acceptance.
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.
3. Stock Transactions
In August 1996, the Company authorized the issuance of 265,000 shares
of Common Stock to two consultants. The Company issued and registered these
shares in October 1996 under the Act and such shares are freely tradeable
thereunder.
4. Stock Options
In September 1996, the Company granted to an employee options to
purchase up to 50,000 shares of Common Stock at $.45 per share. In November
1996, the Company granted to an employee options to purchase up to 50,000 shares
of Common Stock at $.65 per share and to a consultant option to purchase up to
50,000 shares of Common Stock at $.50 per share. As of September 30, 1996, there
was a total of 2,885,000 options outstanding at exercise prices ranging from
$.05 to $.25 per share, of which 2,760,000 were exercisable. All of the options
granted were issued at or above fair market value on the date of grant.
6
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 8,603,675 by the cancellation of
2,305,000 shares by the President of the Company during June 1995 and February
1996 and the addition of 208,675 shares by officers and directors in August
1995, February 1996, and May 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 three months ended September 30, 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 September 30, 1996, the
Company has had nominal operating revenues and has generated funds primarily
through the sale of its securities. As of September 30, 1996 the Company has
received, net of expenses of such sales, the amount of $4,367,085 in connection
with private placements $1,105,800 from the exercise of Common Stock purchase
warrants, 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 $7,968,469 at September 30, 1996 and such losses are
expected to continue into fiscal 1997.
Results of Operations
The fiscal quarter ended September 30, 1996 resulted in a net operating
loss of $672,326 compared to a net loss of $539,999 for the comparable fiscal
quarter ended September 30, 1995. On an overall basis these continuing and
increasing 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 $51,138 compared to $20,870 from the
previous year's fiscal quarter. This is also the first period to reflect the
Company's revised strategy of selling its proprietary equipment as opposed to
relying solely on licensing and transaction processing revenues. Equipment sales
totaled $18,891. Licensing and processing revenue increased to $20,244 from
$9,798 for the same period in 1995. Despite this modest increase and change in
approach to the market, revenue is still well below the level required to be
profitable.
Expenses for the period were $723,464 which represents an increase over
the prior year of $162,595 or 28%. Generally this increased expense level
reflects continuing developmental activity for the Company's newest product
offering, the Business Express(TM), as well as the associated costs of market
introduction. The major contributors to the increased expense level are
discussed below.
General and administrative expenses of $420,055 increased by $138,449
or 49.2%. The increase in this expense category was concentrated in the
following areas: Product Development increased by $78,448 and Travel Expense
increased by $55,882, both of which resulted directly from the development and
introduction of the Business Express(TM). In addition, Professional Fees
increased by $20,294, and Rent increased by $9,082 primarily due to the accrual
of continuing rent expense on the Company's former leased facilities.
8
Compensation expense of $238,104 decreased by 7.5% due to temporary
fluctuations in staffing levels and sales commission payments.
Depreciation increased from $5,106 to $23,261 reflecting the increased
depreciable capital asset base.
Advertising increased from $16,323 to $31,005 as a result of the
promotional expense related to the introduction of the Business Express(TM).
Plan of Operations
As of October 15, 1996, the Company had a total of 155 credit card
activated control systems installed in the filed as follows:
Credit Card Copy Express(TM) 73, Credit Card Debit Express(TM) 26,
Credit Card Computer Express(TM) 49, Fax Express(TM) 2, and Business Express(TM)
5. In July 1996, the licensing arrangement with the apparel manufacturer
operating the Vending Express(TM) equipment was terminated by the manufacturer
effective September 30, 1996. Through September 30, 1996 the total gross
revenues received by the Company from these systems has been nominal.
During the past year the Company has refined its direction on new
product development. It has shifted its emphasis to products capable of
generating new incremental revenue for equipment operators (ie. Computer
Express(TM), Business Express(TM), Automated Printer Payment System(TM)) as
opposed to in the past simply providing a better method of payment (ie. Copy
Express(TM)).
The Company introduced the Business Express(TM) in November 1996.
Development is complete and there are currently six sites in operation. The
marketing and sales function has been increased to four direct sales
representatives and four dealers in anticipation of the national roll out.
Another significant change in direction has been the move toward the
sale of the Company's proprietary equipment to operators rather than the revenue
sharing arrangements employed to date. The Company still retains all rights to
software and proprietary technology which it licenses to location operators for
their exclusive use. However this shift in market approach reduces the Company's
dependancy on equipment revenue by providing a built in gross profit on the sale
of the equipment, and simultaneously reduces the Company's capital asset
requirements.
Plans for the coming fiscal year include progressing from the
development stage to an operating mode. The Company relocated to a 7000 square
foot "flex space" type facility which will provide assembly and warehousing
space to support the roll out of the Business Express(TM). The Business
Express(TM), will be assembled at the Company's new facility and then shipped
direct for site installation by Company personnel.
9
Liquidity and Capital Resources
During the fiscal quarter ended September 30, 1996, the Company
utilized a total of $736,021 of cash as a result of sustaining a $672,326
operating loss. The balance of cash used is attributable to working capital
changes and financing activities. As of September 30, 1996, total cash on hand
was $1,037,335. At the current level of operations, and without an increase in
revenue, the Company has sufficient resources to continue operations for an
additional five months or through February 1997.
The Board of Directors has taken the necessary steps to provide for
additional equity capital by approving a reduction in the exercise price of
Common Stock warrants issued in 1996. Effective November 1, 1996 the exercise
price was reduced to $.25 per share on 5,200,000 Common Stock warrants issued in
1996. This would result in net proceeds to the Company of $1,300,000 on a fully
exercised basis.
10
Part II - Other information
Items 1,2,3, and 5 are not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None
11
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: November 12, 1996 /s/ George R. Jensen, Jr.
---------------------------- -----------------------
George R. Jensen, Jr.,
President, Chief Executive Officer
Date: November 12, 1996 /s/ Edward J. Sullivan
---------------------------- ---------------------
Edward J. Sullivan,
Senior Vice President,
Chief Financial Officer
12
5
0000896429
USA TECHNOLOGIES, INC.
1,000
US DOLLARS
3-MOS
JUN-30-1997
JUL-01-1996
SEP-30-1996
1.000
1,037,335
0
17,517
0
548,259
1,607,348
336,338
95,672
1,852,042
288,048
0
0
6,776,132
2,720,201
0
1,852,042
18,861
51,138
9,229
723,464
0
0
1,810
(672,326)
0
(672,326)
0
0
0
(672,326)
(0.07)
(0.07)
