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 December 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 incorporation or organization) (I.R.S. employer Identification No.)
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 February 10, 1997, there were 26,644,144 shares of Common Stock, no par
value, and 803,095 shares of Series A Convertible Preferred Stock, no par value,
outstanding.
This document is comprised of 15 pages.
USA TECHNOLOGIES, INC.
INDEX
PAGE NO.
Part I - Financial Information
Item 1. Financial Statements
Balance Sheets - December 31, 1996 and June 30, 1996 1
Statements of Operations - Three and six months ended 2
December 31, 1996 and 1995
Statement of Shareholders' Equity - December 31, 1996 3
Statement of Cash Flows - Six months ended 4
December 31, 1996
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II - Other Information
Item 6. Exhibits and Reports on Form 8 - K 12
USA Technologies, Inc
(A Development Stage Corporation)
Balance Sheets
December 31, June 30,
1996 1996
ASSETS: ------------ -----------
Current Assets: (Unaudited)
Cash ........................................................ $ 652,858 $ 1,773,356
Trade receivables ........................................... 39,809 --
Inventory ................................................... 469,085 426,391
Stock subscriptions receivable .............................. -- 106,350
Prepaid expenses and deposits ............................... -- 3,614
----------- -----------
Total current assets ............................................... 1,161,752 2,309,711
Property and equipment,at cost,net ................................. 229,458 235,214
Other Assets ....................................................... 14,129 42,446
----------- -----------
Total assets $ 1,405,339 $ 2,587,371
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................ $ 186,893 $ 301,849
Accrued expenses ............................................ 17,384 41,559
Capital lease obligation .................................... 16,350 9,048
----------- -----------
Total current liabilities .......................................... 220,627 352,456
Obligation under capital lease,less current portion ......... 34,122 21,209
Accrued rent ................................................ 41,037 13,516
----------- -----------
Total liabilities 295,786 387,181
Shareholders' equity:
Preferred stock,no par value:
Authorized shares -1,000,000
Series A Convertible issued and outstanding shares -
793,995 at December 31,1996 and 796,025 at June 30,1996
(Liquidation preference of $10,290,590 at December 31,1996).. 6,758,857 6,776,132
Common stock, no par value:
Authorized shares - 45,000,000
Issued and outstanding shares - 25,659,144 at December 31,
1996 and 23,023,976 at June 30,1996 ......................... 3,336,844 2,720,201
Deficit accumulated during the development stage ................... (8,986,148) (7,296,143)
----------- -----------
Total shareholders' equity ........................................ 1,109,553 2,200,190
----------- -----------
Total liabilities and shareholders' equity ......................... $ 1,405,339 $ 2,587,371
=========== ===========
(See accompanying notes)
1
USA Technologies, Inc
(A Development Stage Corporation)
Statements of Operations
Three months ended Six months ended Date of Inception Through
December 31, December 31, --------------------------
--------------------------- -------------------------- December 31, June 30,
1996 1995 1996 1995 1996 1996
------------ ------------ ------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue:
Equipment sales ..................... $ 70,572 $ -- $ 89,463 $ -- $ 89,463 $ --
License fee income .................. 26,699 13,085 46,943 22,883 $ 110,601 63,658
Interest income ..................... 5,233 8,982 17,236 20,054 $ 70,640 53,404
------------ ------------ ------------ ------------ ----------- -----------
Total revenue ............................. 102,504 22,067 153,642 42,937 270,704 117,062
------------ ------------ ------------ ------------ ----------- -----------
Costs and expenses:
Cost of goods sold .................. 55,656 -- 64,885 -- $ 64,885 --
General and administrative .......... 687,915 322,289 1,107,970 603,895 $ 3,973,493 2,865,523
Compensation ........................ 258,100 196,576 496,204 454,070 $ 2,961,980 2,465,776
Depreciation and amortization ....... 23,261 5,106 46,522 10,212 $ 144,916 98,394
Advertising ......................... 48,467 26,811 79,472 43,134 $ 432,474 353,002
Provision for losses on equipment ... 31,705 -- 31,705 -- $ 432,420 400,715
Interest ............................ 10,211 319 12,021 660 $ 138,632 126,611
Costs incurred in connection with $ 0
abandoned private placement .. -- -- -- -- $ 50,000 50,000
------------ ------------ ------------ ------------ ----------- -----------
Total costs and expenses .................. 1,115,315 551,101 1,838,779 1,111,971 8,198,800 6,360,021
------------ ------------ ------------ ------------ ----------- -----------
Net loss .................................. (1,012,811) (529,034) (1,685,137) (1,069,034) (7,928,096) (6,242,959)
------------ ------------ ------------ ------------ =========== ===========
Cumulative preferred dividends ............ -- -- (597,019) (477,150)
------------ ------------ ------------ ------------
Loss applicable to common shares .......... ($ 1,012,811) ($ 529,034) ($ 2,282,156) ($ 1,546,184)
============ ============ ============ ============
Loss per common share ..................... ($ 0.05) ($ 0.04) ($ 0.12) ($ 0.11)
============ ============ ============ ============
Weighted average number of
common shares outstanding ........... 19,722,421 14,399,600 19,190,699 14,349,600
============ ============ ============ ============
(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
October 1996-issuance of 250,000 shares
of Common Stock in exchange for
consulting services ................................. 117,500 117,500
October 1996-issuance of 15,000 shares
of Common Stock in exchange for
consulting services ................................. 8,000 8,000
November 1996-conversion of 2,030 shares of
Convertible Preferred Stock to 20,300 shares
of Common Stock ..................................... (17,275) 17,275
November 1996-conversion of $4,868 of
cumulative preferred dividends into 4,868
shares of Common Stock at $1.00 per share ........... 4,868 (4,868)
December 1996- Common Stock warrants
exercised-2,345,000 at $.20 per warrant ............. 469,000 469,000
Net loss .................................................... (1,685,137) (1,685,137)
---------- ---------- ----------- ----------
Balance, December 31, 1996 (Unaudited) $6,758,857 $3,336,844 ($8,986,148) $1,109,553
========== ========== =========== ==========
(See accompanying notes)
3
USA Technologies, Inc
(A Development Stage Corporation)
Statements of Cash Flows
Six months ended
December 31,
-----------------------------
1996 1995
----------- -----------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES
Net loss ....................................... ($1,685,137) ($1,069,035)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Depreciation/amortization ............... 46,522 10,212
Compensation charges incurred
in connection with the issuance
of Common Stock ......................... 125,500 50,000
Changes in operating assets
and liabilities:
Trade receivables ....................... (39,809)
Inventory ............................... (42,694)
Prepaid expenses,deposits,
and other assets ........................ 31,931 42,513
Accounts payable ........................ (114,956) 81,413
Accrued expenses ........................ 3,346 (1,302)
----------- -----------
Net cash used by operating
activities .............................. (1,675,297) (886,199)
INVESTING ACTIVITIES
Purchase of property and equipment ............. (40,766) (443,119)
Proceeds from sale of property and equipment ... -- 51,000
----------- -----------
Net cash used by investing activities .......... (40,766) (392,119)
FINANCING ACTIVITIES
Repayment of note payable ...................... -- (1,239)
Net proceeds/(Repayment) of principal on capital
lease obligation ........................ 20,215 (4,777)
Net proceeds from issuance of
common stock ............................ 575,350 14,000
Net proceeds from issuance of
preferred convertible stock ............. -- 1,441,185
----------- -----------
Net cash provided by
financing activities .................... 595,565 1,449,169
----------- -----------
Net (decrease)increase in cash ................. (1,120,498) 170,851
Cash at beginning of period .................... 1,773,356 376,191
----------- -----------
Cash at end of period .......................... $ 652,858 $ 547,042
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASHFLOW INFORMATION:
Capital lease obligation ....................... $ 27,972 --
=========== ===========
(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 an
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 its control systems, the Company generally retains a
percentage 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 six
months ended December 31, 1996 and 1995, and for the date of inception through
December 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.
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. Consulting fees of $125,500 were charged to operations representing
the estimated fair market value of the shares issued.
During December 1996 the Company issued 2,345,000 shares of Common
Stock upon the exercise of 2,345,000 Common Stock purchase warrants at an
exercise price of $.20 per common share, generating gross proceeds of $469,000.
6
4. Stock Options
During the quarter ended December 31, 1996, the Company granted to an
employee options to purchase up to 50,000 shares of Common Stock at $.65 per
share, to a consultant options to purchase up to 50,000 shares of Common Stock
at $.50 per share and to an employee options to purchase up to 10,000 shares of
Common Stock at $.50 per share. As of December 31, 1996, there was a total of
3,535,000 options outstanding at exercise prices ranging from $.25 to $.65 per
share, of which 3,185,000 were vested. All of the options granted were issued at
or above fair market value on the date of grant.
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 January 5,
1997. 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 six months ended December 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.
Effective January 5, 1997 all of the shares described above, with the
exception of those owned by the President of the Company, were released from
escrow concurrent with the expiration of the escrow agreement described above.
This represents a total of 824,500 shares of Common Stock.
7
The escrow agreement provides that it shall be terminated prior to June
30, 1998, and all of the President's shares of Common Stock currently held in
escrow shall be released and returned to him in the event of any dissolution,
merger, consolidation, sale of assets, stock sale, liquidation, tender offer,
exchange offer, or otherwise of or to the Company or its shareholders. In
connection with any such event, the President would not receive any
consideration for his shares of Common Stock unless and until each shareholder
(other than the President) has received an amount equal to $1.00 per share of
Common Stock.
8
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 December 31, 1996, the Company
has had nominal operating revenues and has generated funds primarily through the
sale of its securities. As of December 31, 1996 the Company has received, net of
expenses of such sales, the amount of $4,367,085 in connection with private
placements, $1,574,800 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 $8,986,148 at December 31, 1996 and such losses are expected to
continue at least through June 30, 1997.
Results of Operations
The fiscal quarter ended December 31, 1996 resulted in a net operating
loss of $1,012,811 compared to a net loss of $529,034 for the comparable fiscal
quarter ended December 31, 1995. On an overall basis these continuing and
increased losses reflect the development stage nature of the Company and the
significantly higher spending levels associated with the introduction of the
Company's latest proprietary product, the Business Express(TM). Losses are
projected to continue until sufficient revenue is generated from various
applications of the Company's proprietary technology.
Revenue from operations was $102,504 compared to $22,067 from the
previous year's fiscal quarter. This improvement reflects the Company's revised
strategy of selling its proprietary equipment as opposed to relying solely on
licensing and transaction processing revenues. Equipment sales totaled $70,572.
Licensing and processing revenue increased to $26,699 from $13,085 from the
prior year. 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 $1,115,315 which represents an increase
over the prior year of $564,214. 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. This
increase also includes a non cash charge of $125,500 for the issuance of Common
Stock in exchange for consulting services, and a non-cash charge of $31,705 to
provide for losses on inventory.
9
General and administrative expenses of $687,915 increased by $365,626.
The increase in this expense category was concentrated in Product Development
and Travel Expense, both of which resulted directly from the development and
introduction of the Business Express(TM).
Compensation expense of $258,100 increased by 31% due to permanent and
significantly higher staffing levels in the Marketing area. Depreciation and
amortization increased from $5,106 to $23,261 reflecting the increased
depreciable capital asset base. Advertising increased from $26,811 to $48,467 as
a result of the promotional expense related to the introduction of the Business
Express(TM).
The six month period ended December 31, 1996 resulted in a net loss of
$1,685,137, which compares to a net loss of $1,069,034 from the previous year.
Net revenue increased to $153,642 from the previous year's $42,937. Total
expenses rose to $1,838,779, representing an increase of $726,808 or 65% over
the previous year's comparable period. Major contributors to the increased
spending levels were concentrated in General and Administrative, Advertising ,
and Depreciation.
Plan of Operations
As of February 17, 1997 the Company had a total of 151 credit card
activated control systems installed in the field as follows:
Credit Card Copy Express(TM)60, Credit Card Debit Express(TM) 35,
Credit Card Computer Express(TM) 43, Fax Express(TM) 5, and Business Express(TM)
8. 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 toward the sale of equipment
utilizing the Company's control systems rather than the revenue sharing
arrangements previously employed. The Company still retains all rights to
software and proprietary technology which it licenses to location operators for
their exclusive use. This shift in approach reduces the Company's dependency on
licensing revenues and simultaneously reduces the Company's capital asset
requirements.
The Company completed development of the Business Express(TM) in August
1996 and there are currently eight sites in operation. The Company is marketing
its products through its full-time sales staff consisting of five persons,
either directly to customer locations or through facility management companies
servicing these locations.
10
Plans for the remainder of fiscal year 1997 include progressing from
the development stage to an operating mode. In October 1996, the Company
relocated its principal offices to a 7000 square foot facility which will
provide assembly and warehousing space for the anticipated increased production
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.
Liquidity and Capital Resources
For the six month period ended December 31, 1996, there was a net
decrease in cash of $1,120,498. This was attributable primarily to sustaining a
$1,685,137 operating loss and capital expenditures of $40,766, offset by
$575,350 raised through the issuance of Common Stock.
The Board of Directors approved a reduction in the exercise price of
5,200,000 Common Stock warrants issued in 1996. Effective November 1, 1996 the
exercise price was reduced to $.20 per share through February 28, 1997. This
resulted in the exercise of 2,345,000 1996 Common Stock purchase warrants for
net proceeds to the Company of $469,000 as of December 31, 1996.
In addition, in December, 1996 the Board of Directors authorized a
$200,000 private placement offering of 20 units at a unit price of $10,000. Each
unit included 1,000 shares of Series A Convertible Preferred Stock and 30,000
Common Stock purchase warrants at an exercise price of $.20 per share until July
1, 1997 and $.30 per share thereafter.
As of December 31, 1996, total cash on hand was $652,858. Subsequently
and through February 17, 1997, additional cash has been raised. A total of 9.1
units of the private placement offering approved in December 1996 has been sold
generating $91,000 of gross proceeds to the Company. In addition, 989,000 Common
Stock purchase warrants have been exercised at $.20 per share generating an
additional $197,800.
At the current level of operations and upon reflection of the
additional investments noted above, the Company has sufficient resources to
continue operations through April 1997. Subsequently, the Company anticipates
funding operations through additional sales of its securities. If all of the
3,280,000 outstanding Common Stock purchase warrants were exercised at $.20 per
share and the remaining private offering units were sold for $109,000, a total
of approximately $750,000 of gross proceeds to the Company would be generated.
The Company believes that this would be sufficient to fund operations through at
least June 30, 1997.
11
Part II - Other information
Items 1,2,3, 4, and 5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K
None.
Reports on Form 8-K.
A report on Form 8-K was filed by the Company on December 19,
1996 and disclosed certain events under Item 5 - Other events.
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: 2/19/97 /s/ George R. Jensen, Jr.
--------- -------------------------------------
George R. Jensen, Jr., President, Chief Executive Officer
Date: 2/19/97 /s/ Keith L. Sterling
--------- -------------------------------------
Keith L. Sterling, Executive Vice President,
Chief Financial Officer
13
5
0000896429
USA TECHNOLOGIES, INC.
1
US DOLLARS
3-MOS
JUN-30-1997
JUL-01-1996
DEC-31-1996
1.000
652,858
0
39,809
0
469,085
1,161,752
342,809
113,351
1,405,339
220,627
0
0
6,758,857
3,336,844
0
1,405,339
97,271
102,504
55,656
1,115,315
0
0
10,211
(1,012,811)
0
(1,012,811)
0
0
0
(1,012,811)
(0.05)
(0.05)
