SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
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Date of report (Date of earliest event reported): January 16, 2004
USA TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 000-50054 23-2679963
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(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
100 Deerfield Lane, Suite 140
Malvern, Pennsylvania 19355
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: 610-989-0340
Item 5. Other Events.
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The Strategic Alliance Agreement dated October 8, 2003 by and between
USA Technologies, Inc. and Conopco, Inc. dba Unilever Home & Personal Care North
America ("Unilever") is attached hereto as Exhibit 10.1. As set forth therein,
Unilever has agreed to pay to USA a fee based upon the number of actual
injections of Unilever Products in the USA e-Suds system during the term of the
agreement. In addition, Unilever has agreed to make payments to USA to be used
to market and promote the project. The actual amount of these payments is
dependent upon the number of washing machine installations and average number of
injections per washing machine during the term of the agreement as compared to
the forecasted installations and injections, all in accordance with the formula
set forth in the agreement. The summary description of the agreement described
above does not purport to be complete and is qualified in its entirety by
reference to Strategic Alliance Agreement filed as an Exhibit hereto.
Item 9. Regulation FD Disclosure.
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On January 16, 2004, USA Technologies, Inc. held its annual meeting of
shareholders. The full text of the speech of George R. Jensen, Jr., Chief
Executive Officer and Chairman, presented at the meeting is attached as Exhibit
99.1 to this Current Report on Form 8-K.
Statements in Exhibit 99.1 that are not strictly historical are
"forward looking" statements within the meaning of the safe harbor provisions of
the federal securities laws. Investors are cautioned that such statements are
only predictions, and speak only as of January 16, 2004, the date of the
presentation. USA Technologies does not assume any obligation to update such
information in the future. USA Technologies' actual results in the future may
differ materially from those projected in the forward looking statements due to
risks and uncertainties that exist in USA Technologies' operations and business
environment including but not limited to: the ability to achieve positive cash
flow, including the ability to keep expenses at current levels; the ability to
maintain or increase revenues in the future; the ability to install our products
or sell our products in the future, including the e-Suds machines, Sony kiosks,
or the willingness of ZiLOG customers to use our network; the risk of
commercialization of USA's Technologies' products, including completion of the
e-Port software on the ZiLOG chip; and whether our patents are valuable and
present licensing opportunities.
SIGNATURES
Pursuant to the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned hereunto duly
authorized.
USA TECHNOLOGIES, INC.
By: /s/ George R. Jensen, Jr.
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George R. Jensen, Jr.
Chief Executive Officer
Dated: January 22, 2004
EXHIBIT INDEX
Exhibit No. Description
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10.1 Strategic Alliance Agreement dated October 8, 2003 by and between USA
Technologies, Inc. and Conopco, Inc. dba Unilever Home & Personal Care
North America
99.1 Speech of George R. Jensen, Jr. at January 16, 2004 Annual
Shareholder's Meeting
Exhibit 10.1 Strategic Alliance Agreement This Strategic Alliance Agreement is made this 8th day of October 2003, by and between USA Technologies, Inc., a Pennsylvania corporation ("USA"), and Conopco, Inc. dba Unilever Home & Personal Care North America, a New York corporation ("Unilever"). Background USA is a provider of an unattended laundry injection system known as e-Suds, all as more fully described in Exhibit "A" hereto ("USA e-Suds System"). Unilever is a provider of laundry detergent and conditioners, all as described in Exhibit "B" ("Unilever Products"). As more fully set forth herein, the parties have entered into a strategic alliance pursuant to which Unilever shall act as a supplier of Unilever Products to USA for use in the USA e-Suds System at the point of consumption in colleges and universities across the United States. Agreement NOW THEREFORE, intending to be legally bound hereby, the parties hereto agree as follows:
1. Sale of Unilever Products. During the term of this Agreement, USA agrees to purchase from Unilever and Unilever agrees to sell to USA the Unilever Products for dispensing through the USA e-Suds Systems to be located in colleges and universities across the United States. USA agrees to pay Unilever $35.36 per 5 gal. box (168 3.8oz. Doses) of laundry detergent and $138.40 per 5 gal. Box (640 1oz. Doses) of conditioner. USA will monitor usage of Unilever Products at the various locations and order Unilever Products as necessary. Each purchase of Unilever Product shall be governed by Unilever's standard terms of sale. USA shall be entitled to a 2% early payment discount calculated on the gross invoice for payments received within 19 days for checks and within 29 days for electronic funds transfers. Unilever agrees (at its cost) to deliver the Unilever Products directly to the laundry operators as reasonably instructed by USA; provided, however, each such operator shall have no more than one location. Any damaged or unusable Unilever Products received by a laundry operator for use with a USA e-Suds System will be returned to Unilever and credited to USA in accordance with Unilever's Unsaleable Merchandise Policy attached hereto as Exhibit "C". USA agrees that the fee per box of laundry detergent and conditioner may be increased by Unilever in the event of a price increase to Unilever by its suppliers. The pricing will be reviewed each semester and any increase shall be conditioned upon Unilever's production of documentation to USA that reasonably substantiates the increase in costs to Unilever. 2. Unilever Payments. A. Investment Payments. Subject to the provisions of this Section 2, Unilever shall pay to USA a fee based upon the number of injections of Unilever Products in the USA e-Suds Systems during the term hereof as set forth below (the "Investment Payments").
Number of Forecasted Semester Cost Per Injection Installations* Spring 2004 $.1443 -0- Fall 2004 $.1443 2,000 Spring 2005 $ 0.07 4,950 Fall 2005 $ 0.07 10,000 Spring 2006 $ 0.05 24,000 Fall 2006 $ 0.05 50,000 Spring 2007 $0.045 67,500 Fall 2007 $0.045 100,000 Spring 2008 $ 0.04 152,500 Fall 2008 $ 0.04 250,000 *To be installed by February 1st and September 1st of each semester. The "Spring" semester means the four months of February through May and the "Fall" semester means the eight months of June through January. For purposes of the above, the cost per each injection does not change based on the product dispensed. The cost per injection applies separately to detergent as well as conditioner. For example, if a student injects detergent and conditioner for one load of wash, it is counted as two (2) injections. B. Pre-Investment Payments. In order to facilitate the acceptance of the USA e-Suds Systems into the marketplace, Unilever agrees to make a nonrefundable payment to USA as described below ("Pre-Investment Payment"). USA shall distribute the Pre-Investment Payments to the various operators to optimize the performance of the e-Suds business. USA distributions of Pre-Investment Payments may also include but are not limited to operator subsidies, trade events, trade advertising, and/or other pertinent market development fees. Distributions of Pre-Investment payments will be limited to operators who agree to allow branding of their machines with the Unilever "all" logo. Branding will be with a sign that includes the "all" logo and the slogan "You can have it all" that is on the order of 3 inches by 10 inches. These signs will be provided at Unilever's expense but installed by the operators in a manner as approved by Unilever. The Pre-Investment Payment for the injection fees shall be paid in advance of each semester as set forth below:
Semester Pre-Investment Payment Payment Date - -------- ---------------------- ------------ Fall 2003 $ 200,000.00 12/15/2003 Spring 2004 - - Fall 2004 $ 72,037.00 11/15/2004 Spring 2005 $ 145,530.00 03/15/2005 Fall 2005 $ 249,480.00 11/15/2005 Spring 2006 $ 519,750.00 03/15/2006 Fall 2006 $ 631,496.25 11/15/2006 Spring 2007 $ 935,550.00 03/15/2007 Fall 2007 $1,268,190.00 11/15/2007 Spring 2008 $2,079,000.00 03/15/2008 Beginning with Fall 2004 semester, the Pre-Investment Payments shall be decreased (but not increased) by multiplying the relevant Pre-Investment Payment by the following formula (the "Fulfillment Index"): [# of installed washing machines on the first day of the month in which the calculation is made times the average # of injections per machine for the prior semester] ---------------------------------- [# of machines forecasted for the current semester times 693] USA shall calculate and deliver to Unilever a detailed calculation of the Fulfillment Index and Pre-Investment Payment, as adjusted, by each February 15th and September 15th during the term of this Agreement. C. Sales in Excess of Pre-Investment Payment. The Pre-Investment Payment shall be credited towards the Investment Payment based on the actual injections made during the applicable semester(s) at the rates set forth in Section A, above. When the Pre-Investment Payment is entirely offset, USA will invoice Unilever for the amount of the Investment Payment due as a result of such excess. USA will provide such invoice on a quarterly basis with payment due by Unilever within thirty (30) days of receipt of the invoice. 3. USA Duties. During the term of this Agreement, USA, working with existing operators, will provide, place, network and manage new USA e-Suds Systems in colleges and universities located in the United States. The e-Suds services made available by USA will include:
o Processing non-cash transactions o Selling detergent and conditioner (consumables) at the point of consumption o Monitoring of consumable volume to ensure efficient supply chain management o Monitoring of machine status to ensure machines are operating at top performance o Usage reporting to include consumables usage on a college and university basis by product SKU o Online availability of machines o E-mail notification to student machine users when wash and dry cycles are complete o Prioritizing, managing and reporting of the machine installation schedule o Calculating the formula described in Section 2.B and the amount of Investment Payment due each semester pursuant to Section 2.C o Managing initial investment fund transactions and continuing operations with USA e-Suds systems operators o All gang controllers included in the system will be branded with a sign that includes the all logo and the slogan "You can have it all" that is a maximum size of 2.5 inches by 6.75 inches. These signs will be provided at Unilever's expense but installed by USA and/or the operators. o All e-mail alerts for the system will be branded with a message that includes the all logo and the slogan "You can have it all". Unilever will provide these messages to USA. o Using its best efforts to obtain access for Unilever to laundry operators facilities and systems for additional branding opportunities, at Unilever's expense, including, but not limited to, laundry machines, websites, keycards, banners, and liquid box packaging o Insuring that the correct dosage of detergent is injected into the machine as directed from time to time by Unilever 4. Unilever Duties. During the term of this Agreement, Unilever shall perform the following:
A. Supply the Unilever Products to USA from time to time as described in Section 1 hereof; B. Deliver to USA the Pre-Investment Payments as set forth in Section 2 hereof; C. Deliver to USA the Investment Payments as set forth in Section 2 hereof; and D. Provide the required engineering personnel and expertise to design and implement the cabinet and pumping lines into the washing machines to be used by the USA e-Suds Systems covered by this Agreement. 5. Technical Collaboration. Following the date hereof, and upon the request of USA, USA and Unilever shall work together to integrate their respective equipment and systems so that a seamless USA e-Suds System can be provided to the marketplace. USA and Unilever shall have regular meetings to discuss development plans. 6. Competition. A. During the term hereof, Unilever shall solely and exclusively utilize the USA e-Suds System in the college and university market in the United States for the automated delivery of Unilever Products to unattended laundry machines, and shall not, directly or indirectly, in any manner whatsoever, promote, utilize or recommend any other brand or type of service or products which are similar to the USA e-Suds System in such market. B. During the term hereof, USA shall solely and exclusively utilize Unilever Product for the USA e-Suds System in the college and university market in the United States for the automated delivery of laundry detergents and conditioners to unattended laundry machines, and shall not, directly or indirectly, in any manner whatsoever, promote, utilize or recommend any other brand or type of product which are similar to Unilever Products in such market. 7. Trademarks.
A. During the course of its performance of this Agreement, USA shall be entitled to use the trademarks of Unilever only as specifically provided in this Agreement or as otherwise approved in writing by Unilever in advance. USA acknowledges that Unilever is the exclusive owner of such names and marks. USA further acknowledges that USA has no other license or similar right with respect to such marks and names, and covenants that it will neither claim nor assert any such right by reason of this Agreement or otherwise. B. During the course of its performance of this Agreement, Unilever shall be entitled to use the trademarks of USA only as specifically provided in this Agreement or as otherwise approved in writing by USA in advance. Unilever acknowledges that USA is the exclusive owner of such names and marks. Unilever further acknowledges that Unilever has no other license or similar right with respect to such marks and names, and covenants that it will neither claim nor assert any such right by reason of this Agreement or otherwise. 8. Confidentiality. A. 1. Except as expressly permitted by this Agreement, Unilever shall not, directly or indirectly, at any time from and after the date hereof, make any use of, exploit, disclose, or divulge to any other person, firm or corporation, any trade or business secret, information, documents, know-how, data, software, samples, specifications, formulae, technical descriptions, method or means, or any other confidential information concerning the business or policies of USA, or the USA e-Suds System, that Unilever learned as a result of, in connection with, through its association with, or through its affiliation with USA, whether or not pursuant to this Agreement. 2. Except as expressly permitted by this Agreement, USA shall not, directly or indirectly, at any time from and after the date hereof, make any use of, exploit, disclose, or divulge to any other person, firm or corporation, any trade or business secret, information, documents, know-how, data, samples, specifications, formulae, manufacturing processes, technical descriptions, method or means, or any other confidential information concerning the business or policies of Unilever, or the Unilever Products, that USA learned as a result of, in connection with, through its association with, or through its affiliation with Unilever, whether or not pursuant to this Agreement.
3. The restrictions set forth in subsections 1 and 2 above shall not apply to the extent that such confidential information either:(i) was known to the recipient prior to the disclosure thereof by the disclosing party as shown by written records; or (ii) is, or hereafter becomes, other than through the fault of the recipient, generally available to the public; or (iii) is disclosed to the recipient by a third party in under no obligation to keep such information confidential; or (iv) is developed by the recipient independently of any disclosures made hereunder, as evidenced by the recipient's written records. B. Except relating to the design and implementation of cabinet and pumping lines into washing machines to be used by the USA e-Suds Systems and as otherwise expressly agreed to between USA and Unilever, all documents, data, know-how, designs, inventions, names, method or means, materials, software programs, hardware, configurations, information, or any other materials or data of any kind furnished to Unilever by USA, or developed by Unilever on behalf of USA or at USA's direction or for USA's use, or otherwise devised, developed, created, or invented in connection with Unilever's affiliation with USA, jointly or otherwise, and which relate to the USA e-Suds System or USA's network technology, are and shall remain the sole and exclusive property of USA, and Unilever shall have no right or interest whatsoever thereto, including but not limited to any copyright or patent interest whatsoever. Unilever shall if requested, execute any legal instruments deemed necessary by USA to carry out the foregoing. Except as otherwise expressly agreed to between USA and Unilever all documents, data, know-how, designs, inventions, names, method or means, materials, software programs, hardware, configurations, information, or any other materials or data of any kind furnished to Unilever by USA, or developed by Unilever on behalf of USA or at USA's direction or for USA's use, or otherwise devised, developed, created, or invented in connection with Unilever's affiliation with USA, jointly or otherwise, and relating to the design and implementation of cabinet and pumping lines into washing machines to be used by the USA e-Suds Systems, are and shall remain the sole and exclusive property of Unilever, and USA shall have no right or interest whatsoever thereto, including but not limited to any copyright or patent interest whatsoever. USA shall if requested, execute any legal instruments deemed necessary by Unilever to carry out the foregoing. Notwithstanding anything else set forth herein, in no event shall USA have any right, title or interest in or to any formulations or product material relating to the Unilever Products.
C. Upon the termination or expiration of this Agreement, or at such earlier time as either party may request, each party shall return to the other party such confidential information within its possession or control. D. Each party agrees that it will make available the other party's confidential information to persons within its organization only on a "need to know" basis and that all persons to whom such confidential information is made available will be made aware of the strictly confidential nature of such confidential information and the restrictions placed hereunder on the use thereof. 9. Proprietary Software. A. Unilever acknowledges and agrees that the computer programs, computer software, electronic images, computer codes, computer configurations, and sounds ("Software") contained in or utilized by the USA e-Suds System are proprietary and confidential to USA and protected under United States copyright law. USA shall retain all right, title and interest in and to the Software and the USA e-Suds System. Unilever shall not copy, modify, adopt, translate, merge, reverse engineer, decompile, or disassemble, the Software or the USA e-Suds System, or create any derivative works based on the Software or the USA e-Suds System.
B. Unilever shall retain all right, title and interest in and to the Unilever Products. USA shall not copy, modify, adopt, translate, merge, reverse engineer, decompile, or disassemble, the Unilever Products, or create any derivative works based on the Unilever Products. 10. Expenses. Unless otherwise specifically agreed to by the parties, any and all expenses, costs, obligations, or liabilities whatsoever incurred by the parties in connection with the performance of this Agreement shall be borne solely and exclusively by the party incurring such expense, cost, obligation or liability. 11. Term. A. This Agreement shall commence on the date hereof and terminate upon the expiration of the 2008 Fall semester. Notwithstanding anything else set forth herein, if and whenever any party hereto shall default in the performance of any of the provisions of this Agreement, and the default shall continue unremedied for a period of sixty-days after receipt of written notice by the party in default, then upon the expiration of said sixty-day period, the party giving said notice may, at its option, terminate this Agreement by written notice of termination to the defaulting party. In addition, Unilever may terminate this Agreement immediately if the Fulfillment Index is equal to or less than 0.90 for two consecutive semesters. Any failure to terminate hereunder shall not constitute a condonation or waiver of subsequent defaults. In the event of any such termination, other than any payment otherwise due hereunder which is attributable to the period prior to such date of termination, and except as provided otherwise hereunder, this Agreement shall be null and void and of no further effect. The termination of this Agreement shall not limit, modify or affect any cause of action that may otherwise exist for any breach of this Agreement by either party hereto.
B. Rights of First Refusal. If at any time within five years following the expiration of this Agreement pursuant to subsection A. above, USA shall desire to have any person or entity other than Unilever (the "Third Party"), supply products similar to the Unilever Products for use in the USA e-Suds System in colleges and universities across the United States, then USA shall give prompt written notice (referred to in this Section as the "Notice") of that desire to Unilever, together with a copy of a bona fide binding written proposal. Unilever shall have the right, but not the obligation, within thirty (30) days after receipt of the Notice, to elect to be the supplier of Unilever Products to the USA e-Suds System upon the terms and at the prices set forth in the proposal. In the event Unilever desires to exercise its right of first refusal, Unilever must provide written notice of that election to USA within said thirty (30) day period after the receipt of the Notice. Non-delivery of written notice by Unilever within the thirty (30) day period shall be conclusive of the fact that Unilever chooses not to exercise its rights hereunder; provided, however, such failure to exercise such right shall not extinguish Unilever's right of first refusal for subsequent periods during the five year period following the expiration of this Agreement. In the event Unilever fails to exercise its option, then USA may proceed with the proposal only pursuant to the price and upon all of the terms and conditions thereof. This subsection B shall not be applicable if this Agreement is terminated pursuant to subsection A due to a breach by Unilever hereby. C. Notwithstanding anything else set forth herein, all of the terms and conditions of Sections 7, 8, 9 11.B, 13 and 17 hereof shall survive the expiration or termination of this Agreement. 12. Relationship of Parties. USA, on the one hand, and Unilever, on the other, acknowledge and agree that each of them are independent contractors hereunder, and that nothing contained in this Agreement shall deem to have made them partners, joint venturers, or otherwise. In this regard, except as specifically provided otherwise herein, neither of their respective officers, employees, or agents shall be employees, officers, or agents of the other, and neither party shall have the power or the authority to obligate or bind the other. 13. Indemnification.
A. USA agrees to reimburse, indemnify and hold Unilever (as well as its employees and agents) harmless from and against all losses, claims, attorney's fees, liabilities, costs, damages, judgements, settlements, and/or expenses which Unilever (or its employees or agents) sustains or incurs as a result of the breach of this Agreement by USA, and/or from the negligent or willful acts or omissions of USA in the performance of this Agreement, and/or arising from or in connection with the use by a location of USA's e-Suds System. USA's obligations under this Section shall survive the termination of this Agreement. B. Unilever agrees to reimburse, indemnify and hold USA (as well as its employees and agents) harmless from and against all losses, claims, attorney's fees, liabilities, costs, damages, judgements, settlements, and/or expenses which USA (or its employees or agents) sustains or incurs as a result of the breach of this Agreement by Unilever, and/or from the negligent or willful acts or omissions of Unilever in the performance of this Agreement, and/or arising from or in connection with the use by a location of Unilever Products. Unilever's obligations under this Section shall survive the termination of this Agreement. 14. Good Faith, Inspection Rights. A. USA and Unilever shall cooperate with each other in good faith to attempt to resolve any business issues which may arise in the future from time to time. In this regard, the parties shall take any appropriate actions and execute and deliver any appropriate documents which may be necessary or appropriate to carry out the transactions contemplated by this Agreement. B. From time to time during the term of this Agreement, Unilever or its designee, upon prior written notice to USA and during regular business hours at USA's offices, may inspect and make copies of all records maintained by or under the control of USA relating to USA's books, records and systems in order to audit USA's compliance with this Agreement, including the prices charged to Unilever hereunder; provided, however, such inspections shall not take place more than once every ninety (90) days.
15. Notices. Any notices or consents required or permitted by this Agreement shall be in writing and shall be deemed delivered if delivered in person or national overnight courier or sent by certified mail, postage prepaid, return receipt requested, as follows, unless such address is changed by written notice hereunder: If to USA: USA Technologies, Inc. 100 Deerfield Lane, Suite 140 Malvern, Pennsylvania 19355 Attn. President If to Unilever: Unilever Home & Personal Care North America 33 Benedict Place Greenwich, Connecticut 06385 Attn. President With a copy to: Conopco, Inc. 390 Park Avenue New York, New York 10022 Attn. General Counsel 16. Applicable Law. The substantive laws of the Commonwealth of Delaware (without regard to its conflicts of laws rules) shall govern the construction of this Agreement and the rights and remedies of the parties hereto. The headings of the Sections of this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. If any provision of this Agreement is held to be invalid, the same shall not affect the remaining provisions of this Agreement which shall continue in full force and effect. 17. Arbitration. All disputes, controversies, or misunderstandings whatsoever arising out of or in connection with this Agreement, shall be settled and resolved by binding arbitration pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The arbitration shall be convened in the City of Wilmington , Delaware and shall be conducted by a single arbitrator. The costs and expenses of the arbitration, as well as the arbitrator's compensation shall be paid by the parties as shall be determined by the arbitrator. The parties intend that this Section shall survive the termination of this Agreement. The decision and award of the arbitrator shall be final and binding upon the parties and judgment may be entered on the award in any court of competent jurisdiction.
18. Binding Effect. This Agreement shall inure to the benefit of, and shall be binding upon, the respective permitted successors and assigns of the parties hereto; provided, however, that neither USA nor Unilever shall assign this Agreement in whole or in part without the prior written consent of the other. This Agreement constitutes the entire agreement between the parties hereto, and may only be amended or modified by a writing signed on behalf of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement on the day and year first above written. USA TECHNOLOGIES, INC. CONOPCO, INC. dba Unilever Home & Personal Care North America By: /s/ Stephen Herbert By: /s/ Bob Shipley -------------------- -------------------- Name: Stephen Herbert Name: Bob Shipley Title: President Title:General Manager, Laundry and Homecare
Exhibit 99.1
USA TECHNOLOGIES' ANNUAL SHAREHOLDERS MEETING - JANUARY 16, 2004
CHAIRMAN'S REMARKS
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The following remarks contain forward looking statements and the Company's
actual results may differ materially from those projected in the remarks.
Additional information concerning factors that could cause the actual results to
materially differ from those in the forward-looking statements can be found in
the Company's Report on Form 10-KSB for the fiscal year ended June 30, 2003, and
in the Company's registration Statement on Form SB-2 (File No. 333-101032) filed
December 19, 2003 with the Securities and Exchange Commission, including the
Risk Factors section thereof.
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Good morning ladies and gentlemen.
Thank you for coming to our annual Shareholders Meeting.
I'm delighted to see you all.
Over the next couple of hours it will be the pleasure of my team and I to bring
you up to date on the company's performance and outlook
We'll cover every aspect of the business
- -- our finances
- -- our accomplishments
- -- new products
- -- new customers
- -- and, what you can expect from USA Technologies moving forward
Let me begin by saying that we have turned the corner
- -- sales momentum is accelerating
- -- revenues are growing at record rates
- -- and, our products are winning prestigious awards
We have entered the growth stage of our business
- -- our balance sheet has never been better
- -- the company is sound
- -- the future has never looked better
And I have never been more confident that sales will continue to grow, and
faster than ever before.
The past two quarters saw remarkable growth
And December was our best month -- ever.
It's with a lot of pride that I report sales revenues for the month of December
2003, were in excess of $1 million
- -- our first million dollar month!
And we finished the quarter ending December 31 with $1.8 million in revenues
That's another record
- -- it's also 230 percent growth over the same quarter the previous year
Not only was December our first million dollar month, but it puts us within
reach of going cash flow positive
$1.4 million a month makes us cash flow positive
- -- this is the moment we've all been waiting for
- -- it's so close
Because of all the business we have in the pipeline, we're forecasting revenues
of between $8-10 million by June 30, the end of the 2004 fiscal year.
Think about it
- -- we did $2.8 million last fiscal year
- -- we expect to do $8 -10 million this fiscal year
- -- that's a 300 percent increase
Some of the business in the pipeline is with Fortune 500 companies which are
giants in the retail, entertainment, theme parks, and the automotive industry
Not only do we expect to be an $8 -10 million business this fiscal year, but we
expect to grow to between $25-30 million the following year
The acquisition of Bayview Technologies Group
- -- makers of our new energy management solutions
- -- has played a significant role
Most of the recent revenue growth occurred in three key areas of our business
- -- big orders for our VendingMisers and CoolerMisers
- -- a sudden surge in sales of our e-Port terminals
- -- and, growth in our Business Express Business Center offerings
We estimate we sold nearly 6,000 of our various terminal products in December
alone
As a result, USA Technologies is entering 2004 with record sales and with its
strongest balance sheet in history
- -- we have positive shareholder equity of $17.5 million
- -- and, we have 50 patents with hundreds of patent claims to protect the
opportunity
Just 1 year ago, our shareholder equity was $900,000 and monthly sales were
$250,000
- -- what a remarkable turnaround - $17.5 million in shareholder equity and a
million in sales in one month.
Let's quickly recap some of our key accomplishments over the past six months, or
so:
- -- We announced restructuring of our go-to-market strategy, assigning new
leadership to strengthen focus on our core markets
- -- We expanded our Business Express product line to include customized
offerings to meet every budget and need
- -- We announced the co-marketing agreement with Vending Management Services
Limited, subsidiary of Coca-Cola Amatil
- -- Swank Audio Visuals selected us as its exclusive provider of automated
business center services to compliment its audio visual service to hotels
in more than 45 major cities nationwide
- -- Austin Energy, of Austin, Texas, began to deploy the VendingMiser on 4,400
of the city's soft drink machines
- -- e-Port was chosen as the solution of choice to equip vending machines
dispensing Playtex brand Banana Boat suncare products
- -- Albertson's, one of the world's largest food and drug retailers, announced
it was installing our Intelligent Vending and energy management solutions
at 1,100 of the company's supermarkets and drugstores
- -- Clark County School District, Las Vegas, reported it would install
VendingMisers on nearly 3,000 soft drink machines in schools across the
County, becoming the first school district to initiate an energy policy
district wide
- -- We announced a strategic agreement with Kinko's one of the world's biggest
document development and copying businesses, linking Kinko's offices with
our Business Express centers in hotels across the Nation
- -- Business Express won the two top awards at the International Hotel, Motel
and Restaurant Show held in New York. We won best product, and best new
technology
- -- Unilever announced it had entered into a five year, multi-million dollar
strategic alliance with us, targeting the 7-milion student laundry market
All these developments, and more have contributed towards our growing success
and generated news headlines
The USA Technologies' pipeline has never been richer with product, services,
solutions ... and business opportunity.
Our business partners and customers are some of the most powerful and
influential names in the IT, networking, vending, point-of-sale, wireless,
multimedia, entertainment, amusement parts, automotive and laundry industries
How many companies with just 42 employees can point to global giants like IBM,
Sony, Coke, Dr Pepper, Unilever, Kinko's, Disney, Mars Electronics, Marriott
Hotels, Sprint and ZiLOG ... and say: "They are our patners or customers."
We recently commercialized e-Suds and now have Unilever as a strategic partner
- -- the first Unilever/eSuds operations are being installed in colleges
starting this coming Spring Break
- -- And more will be rolled out during the Summer
Unilever is investing $2 million in the project, and this is a company that
doesn't invest that kind of money without doing its research
They see the e-Suds alliance as a major new initiative, taking their brand into
an entirely new market
And the e-Suds technology will incorporate the new ZiLOG web-enabled chip with
our software.
Which brings me to our partnership with ZiLOG
- -- an alliance to put our e-Port software on their new web-enabled computer chip
The chip with our software is nearing completion -- it will be ready this coming
Spring
ZiLOG has more than 4,000 customers and sells 150 million chips a year
We're already planning a worldwide marketing campaign with ZiLOG senior
executives
- -- we'll be visiting some of ZiLOG's key customers to promote our new solution
- -- and, naturally, we're excited
This, after all, is a solution that will help us break into the multi-billion
dollar point-of-sale marketplace -- it's an industry ZiLOG dominates
As I've said previously, the ZiLOG connection is vitally important to our growth
over the next three to four years
Allow me to explain ...
ZiLOG is forecasting in the first year alone, they will sell more than one
million web-enabled chips which have our e-Port software and they expect
one-third of these customers will connect to our network
Now let's take a closer look at what a million connections translates into for
our company...
We typically charge $120 a year in service fees and expect to net $60 per year
per connection.
With our other revenue streams covering the cost of running the Company and then
some, a million connections could add up to $60 million in after tax profits
That would translate into approximately 15 cents in earnings per share on a
fully diluted basis.
The Standard & Poors PE ratio today is 27, and with the same PE ratio we would
have a $4 stock price.
This is the potential promise of a million connections and the importance of the
ZiLOG partnership, and it starts this Spring
One million connections over the next three to four years
- -- that's our vision for building tremendous shareholder value.
This spring we will also be launching our new Generation 5 e-Port
Now consider this
- -- our expected cost for the G5 e-Port is under $100 versus $300 for our G-4
- -- and we intend to sell it for just under $200,
- -- that's less than a typical bill acceptor or coin collector which sells for
$200
This will make the e-Port highly desirable and competitive
The G5 is cheaper for the customer
- -- and it delivers us a much better profit opportunity
How many of you remember our first e-Port prototype
- -- it cost $1,500
- -- we've come a long way
In our price sensitive marketplace, we knew we had to get the price down -- and
we did
The ZiLOG initiative will dramatically reduce the cost of manufacturing and
installing our e-Port technology into vending machines...
....all the way down to below $100 a unit for our basic bread and butter e-Port.
Then we add another $120 a year service fee on each sale, making it even more
profitable.
Just consider what we have accomplished in last year's very challenging time.
We were still able to complete the commercialization of our products, achieve
record sales, and vastly improve our balance sheet.
Now we're taking our products to the next level, bringing the cost down to where
everyone will be able to afford them... and, will want to buy them.
We're also working with Sony, to develop their PictureStation solution
It's our entrance into the lucrative kiosk market
- -- these are very high end kiosks
- -- where customers take their digital film for development
- -- they inject the memory card
- -- swipe a credit or debit card
- -- and out come the prints ... simple as that
We already have five operating successfully in the marketplace
We expect Sony to roll out more than 10,000 kiosks over the next two years.
Just this week we announced a partnership with Motient, owner and operator of
the nation's largest two-way wireless data network
Together, we're bringing wireless data connectivity and cashless vending to the
entertainment, travel and hospitality industries across America
We've already launched the solution successfully into multiple vending markets,
including the prestigious Disney Orlando theme park
We're ambitious and aggressive
- -- with Motient alone we expect to bring 10,000 vending machines on line
inside the next 12 months
The Motient-activated e-Ports have already attracted the attention of some very
prestigious and influential customers
They see low cost wireless connectivity and the e-Port as the way to bring
innovation to their vending accounts, providing greater convenience and ease of
use for everybody -- the end-user consumer -- and the vending operator
Finally, there's telematices...a gigantic opportunity in the automotive industry
Telematics is a name for internet wireless devices that provide a variety of
features in automobiles and trucks...
- -- Global positioning;
- -- Security against theft;
- -- The ability to receive content;
- -- Alert motorists of impending service requirements, or mechanical failure; and
- -- Help in the case of accidents
In the next few years, almost half of all cars on the road will be equipped with
telematics,
- -- and we have two vital telematics patents for the industry
- -- patents, that will be valuable to us for licensing revenue.
We closed an exciting calendar year, with numerous successes, and we enter the
New Year with our best balance sheet ever.. and sales are accelerating.
How did we get here?
- -- we raised $15 million in equity
- -- we extended for three years $4 million in convertible notes at 20 cents
that were due last December
- -- we extrended for three years another $4 million in notes at 20 cents due
December 2004
- -- we acquired Bayview Technologies, an extremely well timed acquisiton
- -- we took our patents issued from 22 to 50 patents issued and have another 35
pending
And now we're reaping the benefits
- -- a record $1 million in sales last month
- -- two consecutive record quarters
- -- approaching cash flow positive
We have a sound business model, generating revenue from a variety of areas
- -- from sale of hardware
- -- service fees that we take out of the electronic flow of funds for our
services
- -- we generate revenues from each transaction made
- -- and from licensing, an entirely new revenue stream
We are not dependent on any one industry, any one product, or any one customer
We have great balance with exciting products.
And we have a global market to sell our products and services to - it's an open
ended market opportunity
The global opportunity is especially true for our EnergyMiser solutions
Vending machines typically cost a location owner $400 per year per machine in
electricity costs.
Our EnergyMiser solutions can reduce that cost by almost half
They are tried and proven solutions, with nearly 100,000 already in the
marketplace
Energy in Europe is about 50 percent higher than in the States
- -- we intend to break into the European marketplace
- -- and be a big player
The future has never looked brighter for all our products
Just last month the major media reported that in 2003 more transactions were
made with credit/debit cards, than with cash, and CBS Market Watch indicated
that credit card vending over the next few years will become commonplace.
We've never been better prepared
- -- Never been better positioned
I said at the beginning of my remarks that we have turned the corner... that we
are entering the growth phase of our business
The success we've all been waiting for is wihtin reach
We are on the brink of becoming a world class company... a time when USA
Technologies becomes a household name
The economy is turning, and beginning to grow
And research shows that the markets we are targeting are ready to take off
2004 is going to be our year
I hope you feel the same.
Thank you.