UNITED STATES
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, 2003
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from ____________________ to _____________________
Commission file number 0-50054
USA Technologies, Inc.
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(Exact name of small business issuer as specified in its charter)
Pennsylvania 23-2679963
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) Identification No.)
100 Deerfield Lane, Suite 140, Malvern, Pennsylvania 19355
- ---------------------------------------------------- -----
(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, 2004 there were 293,516,953 shares of Common Stock, no par
value, outstanding.
USA TECHNOLOGIES, INC.
INDEX
PAGE NO.
PART I - Financial Information
ITEM 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets - December 31, 2003
and June 30, 2003 2
Consolidated Statements of Operations - Three and six months
ended December 31, 2003 and 2002 3
Consolidated Statement of Shareholders' Equity - Six months
ended December 31, 2003 4
Consolidated Statements of Cash Flows - Six months ended
December 31, 2003 and 2002 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis or Plan
of Operations 16
ITEM 3. Controls and Procedures 27
PART II - Other Information 28
ITEM 2. Changes in Securities
ITEM 6. Exhibits and Reports on Form 8-K 28
SIGNATURES 30
1
USA Technologies, Inc.
Consolidated Balance Sheets
DECEMBER 31, JUNE 30,
2003 2003
(UNAUDITED)
--------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,521,804 $ 2,384,455
Accounts receivable, less allowance for uncollectible accounts
of $121,000 at December 31, 2003 and $65,000 at June 30, 2003 1,850,832 414,796
Other receivable 674,649 --
Inventory 1,017,214 457,900
Prepaid expenses and other current assets 344,661 201,383
Subscriptions receivable 11,237 1,013,400
Investment 794,645 904,049
Assets held for sale 135,000 --
--------------------------------
Total current assets 7,350,042 5,375,983
Property and equipment, less accumulated depreciation of
$2,762,518 at December 31, 2003 and $3,216,139 at
June 30, 2003 728,416 943,784
Software development costs, at cost, less accumulated amortization
of $4,993,300 at December 31, 2003 and $4,327,526 at June 30, 2003 332,887 998,660
Goodwill 7,985,207 7,945,580
Intangibles, less accumulated amortization of $918,868 at
December 31, 2003 and $328,500 at June 30, 2003 11,450,132 2,591,500
Other assets 8,544 37,174
--------------------------------
Total assets $ 27,855,228 $ 17,892,681
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,609,907 $ 2,266,156
Accrued expenses 2,841,181 2,720,743
Current obligations under long-term debt 639,611 830,674
Convertible Senior Notes 365,123 349,942
--------------------------------
Total current liabilities 6,455,822 6,167,515
Convertible Senior Notes, less current portion 6,327,306 7,808,469
Long-term debt, less current portion 23,048 224,614
--------------------------------
Total liabilities 12,806,176 14,200,598
Shareholders' equity:
Preferred Stock, no par value:
Authorized shares--1,800,000
Series A Convertible Preferred--Authorized shares - 900,000
Issued and outstanding shares--524,192 at December 31, 2003 and
524,492 at June 30, 2003 (liquidation preference of
$11,544,576 at December 31, 2003) 3,713,121 3,715,246
Common Stock, no par value:
Authorized shares--400,000,000
Issued and outstanding shares--287,317,721 at December 31, 2003
and 218,741,042 at June 30, 2003 102,939,543 78,790,405
Accumulated other comprehensive income 254,484 --
Accumulated deficit (91,858,096) (78,813,568)
--------------------------------
Total shareholders' equity 15,049,052 3,692,083
--------------------------------
Total liabilities and shareholders' equity $ 27,855,228 $ 17,892,681
================================
See accompanying notes.
2
USA Technologies, Inc.
Consolidated Statements of Operations
(Unaudited)
Three months ended Six months ended
December 31, December 31,
2003 2002 2003 2002
-------------------------------- --------------------------------
Revenues:
Equipment sales $ 1,425,176 $ 384,459 $ 2,711,654 $ 572,947
Product sales and other 222,253 75,576 296,734 278,880
License and transaction fees 267,157 314,612 586,806 657,265
-------------------------------- --------------------------------
Total revenues 1,914,586 774,647 3,595,194 1,509,092
Cost of sales (including amortization
of software development costs) 1,083,419 671,940 2,165,582 1,339,400
-------------------------------- --------------------------------
Gross profit 831,167 102,707 1,429,612 169,692
Operating expenses:
General and administrative 1,780,242 1,368,373 3,282,011 3,010,751
Compensation 1,740,012 838,713 7,443,210 1,684,432
Depreciation and amortization 420,945 247,579 815,904 494,663
Loss on debt modification 41,618 -- 318,915 --
-------------------------------- --------------------------------
Total operating expenses 3,982,817 2,454,665 11,860,040 5,189,846
-------------------------------- --------------------------------
Operating loss (3,151,650) (2,351,958) (10,430,428) (5,020,154)
Other income (expense):
Interest income 12,087 4,263 19,816 7,237
Gain on termination of contract 515,844 -- 515,844 --
Gain on sale of investment -- -- 31,361 --
Interest expense:
Coupon or stated rate (241,749) (329,677) (507,240) (585,955)
Non-cash interest and
amortization of debt discount (872,156) (953,625) (2,670,061) (1,606,343)
-------------------------------- --------------------------------
Total interest expense (1,113,905) (1,283,302) (3,177,301) (2,192,298)
-------------------------------- --------------------------------
Total other income (expense) (585,974) (1,279,039) (2,610,280) (2,185,061)
-------------------------------- --------------------------------
Net loss (3,737,624) (3,630,997) (13,040,708) (7,205,215)
Cumulative preferred dividends -- -- (393,369) (396,962)
-------------------------------- --------------------------------
Loss applicable to common shares $ (3,737,624) $ (3,630,997) $ (13,434,077) $ (7,602,177)
================================ ================================
Loss per common share (basic and diluted) $ (0.01) $ (0.04) $ (0.05) $ (0.10)
================================ ================================
Weighted average number of common shares
outstanding (basic and diluted) 284,277,552 87,713,910 267,133,382 79,493,416
================================ ================================
See accompanying notes.
3
USA Technologies, Inc.
Consolidated Statement of Shareholders' Equity
(Unaudited)
SERIES A ACCUMULATED
CONVERTIBLE OTHER
PREFERRED COMMON ACCUMULATED COMPREHENSIVE
STOCK STOCK DEFICIT INCOME TOTAL
------------------------------------------------------------------------------------
Balance, June 30, 2003 $ 3,715,246 $ 78,790,405 $ (78,813,568) $ -- $ 3,692,083
Issuance of 300 shares of Common
Stock from the conversion of 300
shares of Preferred Stock (2,125) 2,125 -- -- --
Issuance of 382 shares of Common Stock
from the conversion of cumulative
preferred dividends at $10.00 per share -- 3,820 (3,820) -- --
Exercise of 3,035,258 Common Stock
Warrants at $0.10 per share -- 303,526 -- -- 303,526
Issuance of 9,971,669 shares of Common
Stock from the conversion of
12% Senior Notes -- 1,994,334 -- -- 1,994,334
Issuance of 594,000 shares of Common
Stock in exchange for salaries and
professional services -- 215,980 -- -- 215,980
Issuance of 10,500,000 shares of
Common Stock to executive in
connection with employment agreement -- 4,620,000 -- -- 4,620,000
Issuance of 23,239,036 shares of
Common Stock with various private
placement offerings at varying
prices per share -- 5,270,529 -- -- 5,270,529
Issuance of shares of Common Stock and
related Common 1,066,034 Stock
Warrants in lieu of cash payment
for interest on the 12% Senior Notes -- 479,617 -- -- 479,617
Debt discount relating to beneficial
conversion feature on 12% Senior Notes -- 1,981,007 -- -- 1,981,007
Issuance of 20,170,000 shares of Common
Stock in connection with the Bayview
acquisition -- 9,278,200 -- -- 9,278,200
Net loss -- -- (13,040,708) -- (13,040,708)
Unrealized gain on investment -- -- -- 254,484 254,484
-------------
Total comprehensive loss (12,786,224)
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Balance, December 31, 2003 $ 3,713,121 $ 102,939,543 $ (91,858,096) $ 254,484 $ 15,049,052
====================================================================================
See accompanying notes
4
USA Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
SIX MONTHS ENDED
DECEMBER 31,
2003 2002
------------------------------
OPERATING ACTIVITIES
Net loss $(13,040,708) $ (7,205,215)
Adjustments to reconcile net loss to net cash used in operating activities:
Charges incurred in connection with the issuance of Common Stock,
Common Stock Purchase Warrants and Senior Notes 4,835,980 399,187
Interest expense on Senior Notes paid through the issuance of Common Stock 479,617 318,011
Interest amortization related to Senior Notes and Convertible Debentures 2,190,444 1,288,332
Amortization 1,256,142 728,552
Depreciation 271,294 348,663
Loss on debt modification 318,915 --
Gain on sale of investment (31,361) --
Gain on contract settlement (515,844) --
Changes in operating assets and liabilities:
Accounts receivable (1,442,536) (82,311)
Inventory (559,314) 135,199
Prepaid expenses and other assets (131,744) (48,190)
Accounts payable 474,592 1,006,528
Accrued expenses 410,372 25,182
------------------------------
Net cash used in operating activities (5,484,151) (3,086,062)
INVESTING ACTIVITIES
Purchase of property and equipment (229,369) (92,484)
Cash paid in connection with Bayview acquisition (727,969) --
Cash received for sale of Jubilee shares 395,249 --
------------------------------
Net cash used in investing activities (562,089) (92,484)
FINANCING ACTIVITIES
Net proceeds from issuance of Common Stock and
exercise of Common Stock Warrants 5,574,055 1,657,583
Net proceeds from issuance of Senior Notes and Convertible Debentures -- 1,792,150
Net repayment of long-term debt (392,629) (346,348)
Collection of subscriptions receivable 1,002,163 35,000
------------------------------
Net cash provided by financing activities 6,183,589 3,138,385
------------------------------
Net increase (decrease) in cash and cash equivalents 137,349 (40,161)
Cash and cash equivalents at beginning of period 2,384,455 557,970
------------------------------
Cash and cash equivalents at end of period $ 2,521,804 $ 517,809
==============================
Supplemental disclosures of cash flow information:
Conversion of Convertible Preferred Stock to Common Stock $ 2,125 $ 1,062
==============================
Conversion of Convertible Preferred Dividends to Common Stock $ 3,820 $ 1,570
==============================
Cash paid for interest $ 464,864 $ 371,972
==============================
Subscriptions receivable $ 11,237 $ 276,000
==============================
Conversion of Senior Notes and Convertible Debenture to Common Stock $ 1,994,334 $ 273,058
==============================
Beneficial conversion feature related to Senior Notes $ 1,981,007 $ 1,084,120
==============================
Prepaid stock expenses through issuance of Common Stock $ 105,000 $ 236,800
==============================
Prepaid Senior Note issuances $ -- $ 1,329,800
==============================
Issuance of Common Stock in connection with the Bayview acquisition $ 9,278,200 $ --
==============================
Other receivable from termination of contract $ 674,649 $ --
==============================
Deposits used to fund debt and equity $ -- $ 360,000
==============================
Issuance of Common Stock related to Senior Note Offering $ -- $ 1,750,062
==============================
See accompanying notes.
5
USA Technologies, Inc.
Notes To Consolidated Financial Statements
(Unaudited)
1. BUSINESS
USA Technologies, Inc., a Pennsylvania corporation (the "Company"), was
incorporated on January 16, 1992. The Company provides unattended cashless
payment/control systems and associated network and services for the copy, fax,
debit card, smart card, personal computer, laundry, and vending industries. The
Company's devices make available credit and debit card and other payment methods
in connection with the sale of a variety of products and services. The Company's
customers are principally located in the United States and are comprised of
hotels, chains, consumer package goods companies, information technology and
vending operators.
The Company offers the Business Express(R) and Business Express(R)
Limited Service (LSS) principally to the hospitality industry. The Business
Express(R) and Business Express(R) Limited Service (LSS) combines the Company's
business applications for computers, copiers and facsimile machines into a
business center unit. The Company has developed its next generation of cashless
control/payment systems (e-Port(TM)), which includes capabilities for
interactive multimedia and e-commerce, acceptance of other forms of electronic
payments and remote monitoring of host machine data and is being marketed and
sold to operators, distributors and original equipment manufacturers (OEM)
primarily in the vending industry.
With the acquisition of the assets of Bayview Technology Group, LLC in
July 2003, the Company also sells and distributes energy saving devices. These
devices control energy consumption in vending machines, glass front coolers,
laser printers, monitors and other office peripherals, and are used throughout
the United States by many of the same customers that use the Company's other
equipment and services.
2. ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments considered necessary have been included.
Operating results for the three and six month periods ended December 31, 2003
are not necessarily indicative of the results that may be expected for the year
ending June 30, 2004. The balance sheet at June 30, 2003 has been derived from
the audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
For further information, refer to the financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended June 30, 2003.
6
RECLASSIFICATION
Certain amounts in the prior period financial statements have been
reclassified to conform to the current year presentation.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company and Stitch Networks Corporation ("Stitch"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
CASH EQUIVALENTS
Cash equivalents represent all highly liquid investments with original
maturities of three months or less. Cash equivalents are comprised of a money
market fund and certificates of deposit.
INVENTORY
Inventory, which principally consists of finished goods and components,
is stated at the lower of cost (first-in, first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. The straight-line method
of depreciation is used over the estimated useful lives of the related assets.
Leasehold improvements are amortized on the straight-line basis over the lesser
of the estimated useful life of the asset or the respective lease terms.
IMPAIRMENT OF LONG LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 144
(SFAS 144), "Accounting for the Impairment or Disposal of Long-lived Assets",
the Company reviews its long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. If the carrying amount of an asset or group of assets exceeds its
net realizable value, the asset will be written down to its fair value.
In the period when the plan of sale criteria of SFAS 144 are met,
long-lived assets are reported as held for sale, depreciation and amortization
cease, and the assets are reported at the lower of carrying value or fair value
less costs to sell.
7
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the excess of cost over fair value of the net
assets purchased in acquisitions. The Company accounts for goodwill in
accordance with Statement of Financial Accounting Standards No. 142 (SFAS No.
142), "Goodwill and Other Intangible Assets". Under SFAS No. 142, goodwill is
not amortized to earnings, but instead is subject to periodic testing for
impairment. The Company tests goodwill for impairment using a two-step process.
The first step screens for potential impairment, while the second step measures
the amount of impairment, if any. The Company uses a discounted cash flow
analysis to complete the first step in this process. Testing for impairment is
to be done at least annually and at other times if events or circumstances arise
that indicate that impairment may have occurred. The Company has selected April
1 as its annual test date. During the six months ended December 31, 2003, no
events or circumstances arose indicating that impairment of goodwill may have
occurred.
Intangible assets include patents, trademarks and non-compete
arrangements purchased in acquisitions. Amortization of these intangibles is
computed using the straight-line method over their estimated useful lives of
five and ten years. Amortization expense was $309,150 and $590,368 for the three
and six months ended December 31, 2003, respectively, and $73,000 and $146,000
for the three and six months ended December 31, 2002, respectively.
REVENUE RECOGNITION
Revenue from the sale of equipment is recognized on the terms of
freight-on-board shipping point, or upon installation and acceptance of the
equipment if installation services are purchased for the related equipment.
Transaction processing revenue is recognized upon the usage of the Company's
cashless payment and control network. Service fees for access to the Company's
equipment and network services are recognized on a monthly basis. Product
revenues are recognized from the sale of products from Company owned vending
machines when there is purchase and acceptance of product by the vending
customer. Customers have the ability to return vended products for a full
refund. The Company estimates an allowance for product returns at the date of
sale.
INVESTMENT
The Company accounts for investments in accordance with Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities". Management determines the appropriate
classifications of securities at the time of purchase and reevaluates such
designation as of each balance sheet date. Available-for-sale securities are
carried at fair value, with the unrealized gains and losses reported as a
separate component of shareholders' equity in accumulated other comprehensive
income (loss). If the investment sustains an other-than-temporary decline in
fair value, the investment is written down to its fair value by a charge to
earnings.
8
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes software development costs pursuant to
Statement of Financial Accounting Standards No. 86 "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed", after technological
feasibility of the software is established and through the product's
availability for general release to the Company's customers. All costs incurred
in the research and development of new software and costs incurred prior to the
establishment of technological feasibility are expensed as incurred.
Amortization of software development costs commences when the product becomes
available for general release to customers. Amortization of software development
costs is calculated as the greater of the amount computed using (i) the ratio
that current gross revenues for a product bear to the total of current and
anticipated future gross revenues of that product or (ii) the straight-line
method over the remaining estimated economic life of the product. The Company
reviews the unamortized software development costs at each balance sheet date
and, if necessary, will write down the balance to net realizable value if the
unamortized costs exceed the net realizable value of the asset.
Software development costs are being amortized over a useful life of
two-years. Amortization expense, reflected in cost of sales, was $332,887 and
$665,774 for the three and six months ended December 31, 2003, respectively, and
$291,276 and $582,552 for the three and six months ended December 31, 2002,
respectively.
ACCOUNTING FOR STOCK OPTIONS
Statement of Financial Accounting Standards No. 123 (SFAS No.123),
"Accounting for Stock-Based Compensation", provides companies with a choice to
follow the provisions of SFAS No. 123 in determination of stock-based
compensation expense or to continue with the provisions of APB No. 25 (APB 25),
"Accounting for Stock Issued to Employees and Related Interpretations in
Accounting for Stock-Compensation Plans" and the related FASB Interpretation No.
44. The Company has elected to follow the provisions of APB 25. Under APB 25, if
the exercise price of the Company's stock options granted to employees and
directors equals or exceeds the market price of the underlying Common Stock on
the date of grant, no compensation expense is recognized. All stock options
granted by the Company have been at prices equal to the market price of the
Company's Common Stock on the dates of grant. Under SFAS No. 123 the fair value
of stock options is estimated at the date of grant using an option pricing model
such as Black-Scholes and the value determined is amortized to expense over the
option vesting period.
There were no stock options granted during the year ended June 30, 2003
or during the six months ended December 31, 2003. All options granted through
June 30, 2002 were vested as of that date. Therefore pro-forma net loss and
pro-forma net loss per common share under SFAS 123 for the three months and six
months ended December 31, 2003 and 2002 would be the same as reported by the
Company under APB 25.
9
LOSS PER COMMON SHARE
Basic earnings per share is calculated by dividing income (loss)
applicable to common shares by the weighted average common shares outstanding
for the period. Diluted earnings per share is calculated by dividing income
(loss) applicable to common shares by the weighted average common shares
outstanding for the period plus the dilutive effect (unless such effect is
anti-dilutive) of equity instruments. No exercise of stock options, purchase
rights, stock purchase warrants, or the conversion of senior notes, debentures,
preferred stock, or cumulative preferred dividends was assumed for the periods
presented because the assumed exercise of these securities would be
anti-dilutive.
3. ACQUISITIONS
BAYVIEW TECHNOLOGY GROUP, LLC
On July 11, 2003, the Company acquired substantially all of the assets
of Bayview Technology Group, LLC (Bayview). Under the terms of the asset
purchase agreement the Company issued to Bayview 20,000,000 shares of its
restricted Common Stock and cash of $631,247 to settle an obligation of Bayview.
The definitive agreement also provides for the Company to assume certain
obligations under a royalty agreement expiring May 31, 2006. In connection with
this transaction the Company also agreed to issue 170,000 shares of its
restricted Common Stock to a consultant who provided certain services to the
Company in connection with this acquisition.
The acquired energy control equipment is used to reduce energy
consumption in vending machines, glass front coolers, laser printers, monitors
and other office peripherals throughout the United States. As a result of the
acquisition, the Company believes it will be a leading provider of end-to-end
networked solutions that includes wireless and internet connections, cashless
transaction and security/ID capability and interactive media functionality, and
remote inventory and auditing control and energy cost reductions and
environmental emissions reductions. The Company also expects to reduce costs
through economies of scale.
The acquisition cost of Bayview was $10,030,894, which principally was
comprised of the issuance of 20,000,000 shares of restricted Common Stock valued
at $9,200,000 and a cash payment of $631,247. The value of the 20,000,000 shares
of Common Stock was determined based on the average market price of the
Company's Common Stock over the two-day period before and after the definitive
agreement date of July 11, 2003. The purchase price also included acquisition
related costs of $199,647.
The following table summarizes the fair values of the assets acquired
and liabilities assumed at the date of acquisition.
Current assets $ 7,628
Property and equipment 244,704
Intangible assets 9,449,000
Goodwill 329,562
-----------
Total assets acquired $10,030,894
===========
10
Of the $9,449,000 of acquired intangible assets, $7,424,000 was
assigned to patents that are subject to amortization over a 10-year period,
$1,011,000 was assigned to non-compete agreements that are subject to
amortization over a 5-year period and $1,014,000 was assigned to trademarks and
trade names that are not subject to amortization.
The acquisition was accounted for using the purchase method and,
accordingly, the results of operations of Bayview have been included in the
accompanying consolidated statements of operations since the date of
acquisition. Results of operations of the Company for the six months ended
December 31, 2003 would not have been significantly different than reported had
the acquisition taken place July 1, 2003 as the acquisition occurred on July 11,
2003. Pro-forma combined results for the six months ended December 31, 2002
would have been as follows had the acquisition taken place July 1, 2002 -
revenues of $4,628,479; net loss of $7,234,269; loss applicable to common shares
of $7,631,231; loss per common share (basic and diluted) of $0.08.
STITCH NETWORKS CORPORATION
In connection with the acquisition of Stitch, in May 2002, the Company
determined that it would vacate the office space previously occupied by Stitch.
Accordingly, the Company accrued the remaining lease exit costs relating to this
lease in the amount of approximately $354,000 as part of the cost of purchasing
Stitch.
In November 2003, Stitch and the lessor of the office space reached an
agreement that required Stitch to pay the lessor $55,000 as consideration to
release Stitch from any further obligations under the lease. In addition, a
security deposit of approximately $9,000 was retained by the lessor.
Accordingly, the difference between estimated lease exit costs accrued and
actual consideration paid, was recorded as a reduction of goodwill in the amount
of $290,000 during the three months ended December 31, 2003.
4. INVESTMENT IN JUBILEE INVESTMENT TRUST
During the year ended June 30, 2003, the Company issued 15,000,000
shares of its Common Stock for an investment in 1,870,091 shares of Jubilee
Investment Trust, PLC ("Jubilee"), a United Kingdom Investment Trust whose
shares trade on the London Stock Exchange. The Company agreed not to sell the
Jubilee shares for a period of 90 days from January 24, 2003 and to not sell
more than 10% of the Jubilee shares during each month thereafter. Jubilee has
agreed not to sell the Company's shares of Common Stock for a period of two
years from the date of issuance unless agreed to by the Company. In September
2003, the Company sold 700,000 of its Jubilee shares for net proceeds of
$395,249, and realized a gain of $31,361 from the sale of these shares. An
unrealized gain of $254,484 on the remaining shares held by the Company is
reflected in shareholders' equity as Accumulated other comprehensive income at
December 31, 2003.
5. FINANCING ACTIVITIES
The Company had issued five series of Senior Notes with an interest
rate of 12%, which are convertible into shares of the Company's Common Stock.
The notes were scheduled to mature on December 31, 2003, 2004, 2005, 2006 and
2007. In March 2003, holders of the Senior Notes scheduled to mature on December
31, 2003 and 2004, respectively, were granted the right to extend their maturity
to December 31, 2006 and 2007, respectively, in exchange for reducing the
conversion rates from $1.25 to $0.20 per share for the 2003 Senior Notes and
from $0.40 to $0.20 per share for the 2004 Senior Notes. This offer expired on
December 31, 2003. During the six months ended December 31, 2003, certain Senior
Note holders agreed to exchange an aggregate of $2,301,453 of these notes for
new notes maturing in 2006 and 2007. These exchanges included all but $20,000 of
the Notes scheduled to mature on December 31, 2003. This amount, and Notes
scheduled to mature on December 31, 2004, are reflected as a current liability
as of December 31, 2003.
11
The exchange of the 2003 Senior Notes and 2004 Senior Notes for 2006
Senior Notes and 2007 Senior Notes was deemed a significant modification of the
terms of the 2003 and 2004 Senior Notes and, accordingly, the 2003 and 2004
Senior Notes that were exchanged have been extinguished. The unamortized debt
discount and other issuance costs of $318,915 remaining on the 2003 and 2004
Senior Notes exchanged and extinguished during the six months ended December 31,
2003 have been expensed and have been reported in the consolidated statements of
operations as a Loss on debt modification ($41,618 for the three months ended
December 31, 2003).
During the six months ended December 31, 2003, the Company's share
price, on days when certain noteholders agreed to exchange their 2003 or 2004
Senior Notes for 2006 and 2007 Senior Notes, respectively, was greater than the
conversion price of the 2006 and 2007 Senior Notes. Therefore, the intrinsic
value of this beneficial conversion feature of $1,981,007 is reflected as
additional equity and debt discount and is being amortized to interest expense
through the maturity dates of these Senior Notes.
Debt discount and other issuance costs associated with the Senior Notes
are being amortized to interest expense over the remaining life of the debt
instruments. Upon conversion of Senior Notes into Common Stock, unamortized
costs relating to the notes converted are also charged to interest expense.
Total charges to interest for debt discount and other issuance costs were
$756,369 and $2,190,444 for the three and six months ended December 31, 2003,
respectively, and $774,727 and $1,288,332 for the three and six months ended
December 31, 2002, respectively.
As of December 31, 2003, outstanding debt for Senior Notes reflected in
the consolidated balance sheet was $6,692,429. This is comprised of $10,552,484
face amount of notes less unamortized debt discount and other issuance costs of
$3,860,055.
The holders of the Senior Notes have had the right to purchase shares
of the Company's Common Stock at $0.20 per share using quarterly interest
payments that are due in lieu of a cash payment for the interest. Additionally,
for each share purchased, the note holder is entitled to receive a warrant to
purchase one share of the Company's Common Stock at $0.20 per share exercisable
at any time through June 30, 2004. The Board of Directors authorized the Company
to offer Common Stock and Common Stock Warrants for cash interest due through
December 31, 2003. For the six months ended December 31, 2003, 1,066,034 common
shares were issued (along with an identical number of warrants) for payment of
interest due for the period of $213,188 to those note holders accepting the
offer. The fair value of the warrants issued and the beneficial conversion
feature related to the $0.20 per share rate used to convert the interest to
Common Stock totaled $266,429 and has been recorded as additional interest
expense for the period. For the three months ended December 31, 2003, $115,786
was charged to interest expense for these transactions.
12
During the six months ended December 31, 2003, the Company issued
shares of Common Stock in various transactions:
o 2,729,036 shares were issued at $0.10 per share under the 2003-A Private
Placement Offering authorized during fiscal year 2003 which generated net
proceeds of $268,029. The Company also issued 295,000 shares under this
offering for services rendered by consultants amounting to $105,000.
o 20,010,000 shares of Common Stock were issued to accredited investors at
$0.25 per share in four private placement offerings, which generated
proceeds of $5,002,500.
o 500,000 shares of Common Stock were issued to an accredited investor as
settlement resulting from a non-registration event as defined under the
agreement of sale entered into during November 2002.
6. LONG-TERM DEBT
Long-term debt consisted of the following:
December 31, June 30,
2003 2003
---------- ----------
Bank facility $ 516,009 $ 828,466
Working capital loans 96,765 166,765
Other, including capital lease obligations 49,885 60,057
---------- ----------
662,659 1,055,288
Less current portion 639,611 830,674
---------- ----------
$ 23,048 $ 224,614
========== ==========
The bank facility (the Facility) was utilized to fund the purchase of
vending machines placed at locations where Kodak film products are sold.
Borrowings were made from time to time under the Facility, with repayment
schedules set at the time of each borrowing, including equal monthly payments
over 36 months and an interest rate based upon 495 basis points over the three
year U.S. Treasury Notes. The Company granted the bank a security interest in
the vending machines. Repayment of principal is also insured by a Surety Bond
issued by a third-party insurer in exchange for an initial fee paid by the
Company. Final maturity, scheduled to extend into the fiscal year ending June
30, 2005, is anticipated to occur during the year ending June 30, 2004 due to
the termination of the vending placement agreement and the removal from service
and sale of the vending machines used as collateral for the bank facility. See
Note 9 Termination of Vending Agreement.
13
In connection with the Stitch acquisition, the Company assumed
long-term debt which included a vending equipment borrowing facility and working
capital loans. These loans are secured by certain assets of Stitch and bear
interest at 6.75% per annum. Such loans were payable on July 8, 2002. During
fiscal year 2003, the bank extended the due date on these loans on several
occasions under forbearance agreements. On November 6, 2003, the Company reached
an agreement with the bank to make monthly installments that will repay the
remaining balance by October 2004.
7. STOCK OPTIONS AND STOCK WARRANTS
The Company has granted options to employees to purchase shares of
Common Stock at prices that were at or above fair market value on the dates the
options were granted. The option term and vesting schedule were established by
the contract that granted the option. As of December 31, 2003, there were
2,638,985 options outstanding to purchase Common Stock at exercise prices
ranging from $0.165 to $2.00 per share, all of which were fully vested. As of
December 31, 2003, there were 44,591,785 fully vested warrants to purchase
Common Stock at exercise prices ranging from $0.067 to $1.25 per share.
8. AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT AND COMPENSATION
ARRANGEMENTS
In July 2003 the Company and the Company's Chief Executive Officer
(CEO) amended the terms of his employment agreement (expiring June 2005). Under
the terms of the previous Executive Employment Agreement, the CEO would have
been granted seven percent (non-dilutive) of all the then issued and outstanding
shares of the Company's Common Stock in the event a "USA Transaction" (as
defined) occurs, which among other events includes a change in control of the
Company. The amended terms of the Executive Employment Agreement, eliminates the
seven percent (non-dilutive) right to receive Common Stock upon a "USA
Transaction" and now grants the CEO an aggregate of 14,000,000 shares of Common
Stock subject to adjustment for stock splits or combinations in the event a "USA
Transaction" occurs. In exchange for the amendment of these terms, the Company
issued an aggregate of 10,500,000 shares of its Common Stock to the CEO valued
at $4,620,000 or $0.44 per share representing the quoted market price of the
Company's Common Stock on the date the purchase agreement was entered into and
the shares were granted as required by generally accepted accounting principles.
The issuance of the shares to the CEO had no effect on shareholders' equity and
did not impact the Company's cash flow from operations. In connection with this
amendment, the CEO also entered into a lock-up agreement pursuant to which he
shall not sell 2,500,000 of these shares for a one-year period and 8,000,000 of
these shares for a two-year period. The CEO will not be required to pay any
additional consideration for these shares of Common Stock. At the time of a "USA
Transaction", all of the 14,000,000 shares to be issued to the CEO in connection
with this amendment are automatically deemed to be issued and outstanding, and
will be entitled to be treated as any other issued and outstanding shares of
Common Stock. These shares will be irrevocable and fully vested, and have no
expiration date and will not be affected by the termination of the CEO with the
Company for any reason whatsoever.
14
During December 2003, the Company awarded cash bonuses based on recent
performance to its executive officers and an employee in the aggregate amount of
$645,000 that included a $250,000 bonus to its Chief Executive Officer and a
$225,000 bonus to its President.
9. TERMINATION OF KODAK VENDING PLACEMENT AGREEMENT
The Company's wholly owned subsidiary, Stitch, had entered into a
vending placement agreement whereby Stitch agreed to purchase film and cameras
directly from Eastman Kodak Company and vending machines from a supplier. Stitch
placed the vending machines at numerous locations throughout the United States
under agreements negotiated with the location owners and derived revenues
amounting to $144,000 and $347,000 for three and six months ended December 31,
2003, respectively.
As previously reported, Stitch alleged that the supplier and another
party to the vending agreement breached the vending agreement and the supplier
and another party to the vending agreement alleged that Stitch had breached the
vending agreement. Effective December 31, 2003, the parties finalized a
settlement of this matter which resulted in the termination of the vending
agreement as of December 31, 2003. Per the settlement agreement, the Company
will receive a payment from Kodak of approximately $675,000, which was received
in January 2004. The Company will also receive payments of $300 per vending
machine from the supplier of the vending machines, as the machines are pulled
from service at the supplier's sole cost and expense. Upon receipt of the $300
per machine, title to the vending machine will transfer from Stitch to the
supplier. The settlement agreement provides that all machines are to be pulled
from service no later than mid calendar year 2004. The agreement also provided
for the supplier to cancel a $124,000 obligation of Stitch for the purchase of
vending machines.
The vending machines were used as collateral to secure the bank
facility used to purchase the machines under which $516,009 was outstanding as
of December 31, 2003. The Company will repay this debt as the vending machines
are returned to the supplier.
This termination agreement resulted in a gain of $515,844 during the
quarter ended December 31, 2003 and such amount is reflected as Other income in
the December 31, 2003 Consolidated Statement of Operations. This gain is
comprised of the payment from Kodak of approximately $675,000 plus the
cancellation of Stitch's obligation to the supplier of the vending machines of
approximately $124,000 reduced by a write down of the carrying value of vending
machines of approximately $283,000 to reflect the vending machines at their
realizable value of $300 per machine. The vending machines are reported as
assets held for sale in the December 31, 2003 Consolidated Balance Sheet, as it
was determined that the plan of sale criteria in FAS 144 was met in the
termination agreement, at which time depreciation of these assets ceased. To the
extent any costs are incurred by Stitch to fulfill its obligations under the
settlement agreement, these costs will be recorded as incurred, as any
additional costs cannot be reasonably estimated at this time.
10. SUBSEQUENT EVENT
On January 16, 2004, an increase in the number of authorized shares,
from 400,000,000 to 475,000,000, was approved during the Company's Annual
Meeting of Shareholders.
Subsequent to December 31, 2003, 5,215,370 Common Stock Warrants were
exercised, which resulted in $465,070 of proceeds to the Company.
Pursuant to the registration rights agreement with La Jolla Cove
Investors, Inc., we agreed to maintain an effective registration statement for
the resale by La Jolla of the 2,252,683 shares and the 17,465,370 shares
underlying the unexercised warrants held by La Jolla at all times from and after
the date of issuance of the shares or warrants, as the case may be. These shares
and warrants were issued by us to La Jolla in April, May and June 2003. From and
after the date of issuance of these securities and until December 22, 2003,
there was no effective registration statement covering these shares. In January
2004, we received a letter from La Jolla claiming, among other things, damages
in an unspecified amount because the Company had failed to maintain an effective
registration statement for these shares. We have informed La Jolla that any
delay in having the registration statement declared effective was reasonable
under the circumstances, and La Jolla is not entitled to damages. The Company
believes that the claims of La Jolla are without merit and that it will prevail
in this matter. Accordingly, there has been no provision recorded for this claim
in the financial statements.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
CRITICAL ACCOUNTING POLICIES
GENERAL
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. The Company believes that its critical accounting policies and
estimates relate to revenue recognition, software development costs, impairment
of long-lived assets, goodwill and intangible assets and investments. Future
results may differ from the estimates under different assumptions or conditions.
REVENUE RECOGNITION
Revenue from the sale of equipment is recognized on the terms of
freight-on-board shipping point, or upon installation and acceptance of the
equipment if installation services are purchased for the related equipment.
Transaction processing revenue is recognized upon the usage of the Company's
cashless payment and control network. Service fees for access to the Company's
equipment and network services are recognized on a monthly basis. Product
revenues are recognized from the sale of products from Company owned vending
machines when there is purchase and acceptance by the vending customer.
Customers have the ability to return vended products for a full refund. The
Company estimates an allowance of product returns at the date of sale.
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes software development costs pursuant to
Statement of Financial Accounting Standards No. 86 "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed", after technological
feasibility of the software is established and through the product's
availability for general release to the Company's customers. All costs incurred
in the research and development of new software and costs incurred prior to the
establishment of technological feasibility are expensed as incurred.
Amortization of software development costs commences when the product becomes
available for general release to customers. Amortization of software development
costs is calculated as the greater of the amount computed using (i) the ratio
that current gross revenues for a product bear to the total of current and
anticipated future gross revenues of that product or (ii) the straight-line
method over the remaining estimated economic life of the product. The Company
reviews the unamortized software development costs at each balance sheet date
and, if necessary, will write down the balance to net realizable value if the
unamortized costs exceed the net realizable value of the asset.
Software development costs are being amortized over a useful life of
two years ending in April 2004. Amortization expense, reflected in cost of
sales, was $333,000 and $666,000 for the three and six months ended December 31,
2003, respectively, and $291,000 and $583,000 for the three and six months ended
December 31, 2002, respectively.
16
IMPAIRMENT OF LONG LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-lived Assets", the Company
reviews its long-lived assets whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. If the
carrying amount of an asset or group of assets exceeds its net realizable value,
the asset will be written down to its fair value.
In the period when the plan of sale criteria of SFAS 144 are met,
long-lived assets are reported as held for sale, depreciation and amortization
cease, and assets are reported at the lower of carrying value or fair value less
costs to sell.
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the excess of cost over fair value of the net
assets purchased in acquisitions. The Company accounts for goodwill in
accordance with Statement of Financial Accounting Standards No. 142 (SFAS No.
142), "Goodwill and Other Intangible Assets". Under SFAS No. 142, goodwill is
not amortized to earnings, but instead is subject to periodic testing for
impairment. The Company tests goodwill for impairment using a two-step process.
The first step screens for potential impairment, while the second step measures
the amount of impairment, if any. The Company uses a discounted cash flow
analysis to complete the first step in this process. Testing for impairment is
to be done at least annually and at other times if events or circumstances arise
that indicate that impairment may have occurred. The Company has selected April
1 as its annual test date. To date, no impairment of goodwill has occurred.
Intangible assets include patents, trademarks and non-compete
arrangements purchased in acquisitions. Amortization of these intangibles is
computed using the straight-line method over their estimated useful lives of
five and ten years. Amortization expense was $309,000 and $590,000 for the three
and six months ended December 31, 2003, respectively, and $73,000 and $146,000
for the three and six months ended December 31, 2002, respectively.
INVESTMENT
The Company accounts for investments in accordance with Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities". Management determines the appropriate
classifications of securities at the time of purchase and reevaluates such
designation as of each balance sheet date. Available-for-sale securities are
carried at fair value, with the unrealized gains and losses reported as a
separate component of shareholders' equity in accumulated other comprehensive
income (loss).
A judgmental aspect of accounting for investments involves determining
whether an other-than-temporary decline in value of the investment has been
sustained. If it has been determined that an investment has sustained an
other-than-temporary decline in its value, the investment is written down to its
fair value by a charge to earnings. Such evaluation is dependent on the specific
facts and circumstances. Factors that are considered by the Company each quarter
in determining whether an other-than-temporary decline in value has occurred
include: the market value of the security in relation to its cost basis; the
financial condition of the investee; and the intent and ability to retain the
investment for a sufficient period of time to allow for recovery in the market
value of the investment. In evaluating the factors above for available-for-sale
securities, management presumes a decline in value to be other-than-temporary if
the quoted market price of the security is below the investment's cost basis for
a period of six months or more. However, the presumption of an
other-than-temporary decline in these instances may be overcome if there is
persuasive evidence indicating that the decline is temporary in nature (e.g.,
strong operating performance of investee, historical volatility of investee,
etc.).
17
FORWARD LOOKING STATEMENTS
This Form 10-QSB contains certain forward looking statements regarding,
among other things, the anticipated financial and operating results of the
Company. For this purpose, forward looking statements are any statements
contained herein that are not statements of historical fact and include, but are
not limited to, those preceded by or that include the words, "believes,"
"expects," "anticipates," or similar expressions. Those statements are subject
to known and unknown risks, uncertainties and other factors that could cause the
actual results to differ materially from those contemplated by the statements.
The forward looking information is based on various factors and was derived
using numerous assumptions. Important factors that could cause the Company's
actual results to differ materially from those projected, include, for example
(i) the ability of the Company to generate sufficient sales to generate
operating profits, or to sell products at a profit, (ii) the ability of the
Company to raise funds in the future through sales of securities, including but
not limited to the exercise of outstanding options and warrants, (iii) whether
the Company is able to enter into binding agreements with third parties to
assist in product or network development, (iv) the ability of the Company to
commercialize its developmental products, or if actually commercialized, to
obtain commercial acceptance thereof, (v) the ability of the Company to compete
with its competitors to obtain market share, (vi) the ability of the Company to
obtain sufficient funds through operations or otherwise to repay its debt
obligations, including but not limited to Senior Notes, or to fund development
and marketing of its products (vii) the ability of the Company to obtain
approval of its pending patent applications, or (viii) the ability of the
Company to satisfy its trade obligations included in accounts payable and
accrued liabilities. Although the Company believes that the forward looking
statements contained herein are reasonable, it can give no assurance that the
Company's expectations will be met.
RESULTS OF OPERATIONS
For the three months ended December 31, 2003 versus the three months ended
- --------------------------------------------------------------------------------
December 31, 2002
- -----------------
The three month period ended December 31, 2003 resulted in a net
operating loss of $3,737,624 (approximately $1.3 million non-cash) compared to a
net loss of $3,630,997 (approximately $1.7 million non-cash) for the comparable
quarter in the prior fiscal year.
Revenues for the three month period ended December 31, 2003 increased
to $1,914,586 from $774,647 during the same period in the prior fiscal year, an
increase of $1,139,939 or 147%. This increase was primarily attributed to sales
of the Company's energy conservation equipment for the three months ended
December 31, 2003, as such revenues did not exist in the corresponding quarter
of the prior fiscal year since the acquisition of Bayview occurred in July 2003.
Revenues are discussed in more detail as follows:
18
Equipment sales: Revenues from equipment sales increased to $1,425,176
from $384,459 in the corresponding quarter of the prior fiscal year, an increase
of $1,040,717 or 271%. This increase is mainly due to sales of the Company's
energy conservation equipment of approximately $1,162,000 for the three months
ended December 31, 2003, as such revenues did not exist in the corresponding
quarter of the prior year, since the acquisition of Bayview occurred in July
2003. The increase from energy conservation equipment sales was offset by a
decrease in Business Center equipment sales of approximately $86,000 due to a
lower average selling price per Business Center. The average selling price per
business center decreased as a result of the popularity of the Company's newly
introduced, lower priced Space Saver product.
License and transaction fees: Revenues from license and transaction
fees decreased $47,455 or 15% from $314,612 to $267,157 for the three months
ended December 31, 2002 and 2003, respectively. This decrease was due to a
decrease in fees earned from the Kodak Vending Placement Agreement of
approximately $59,000 as a result of the wind down of the contract, offset by an
increase in fees of approximately $12,000 as a result of an increase in the
number of the Company's e-Port and TransAct units connected to the Company's
network.
Product sales and other: Revenues from product sales and other
increased to $222,253 from $75,576, an increase of $146,677 or 194% over the
same period of the prior fiscal year. This increase was due to $200,000 recorded
for the three months ended December 31, 2003 related to the Strategic Alliance
Agreement executed in October 2003 between the Company and Conopco, Inc dba
Unilever Home & Personal Care North America. This was offset by a decrease in
camera and film sales from Company owned vending machines of approximately
$56,000 as a result of the wind down of the Kodak Vending Placement Agreement.
Cost of sales consisted of equipment, product and labor costs of
approximately $615,000 and $242,000 for the three months ended December 31, 2003
and 2002, respectively, an increase of $373,000; software development
amortization of approximately $333,000 and $292,000 for the three months ended
December 31, 2003 and 2002, respectively, an increase of $41,000; and network
and transaction related costs of $135,000 and $139,000 for the three months
ended December 31, 2003 and 2002, respectively, a decrease of $4,000. The
increase in total cost of sales to $1,083,419 from $671,940 in the same period
prior fiscal year, an increase of $411,479 or 61%, was principally attributable
to the increase in equipment sales.
Gross profit for the three months ended December 31, 2003 was $831,167,
compared to gross profit of $102,707 in the same period in the prior fiscal
year. The increase of $728,460 or 709% was primarily due to the addition of our
higher margin, energy conservation equipment sales that were not present in the
same period in the prior fiscal year.
Total operating expenses for the three months ended December 31, 2003
was $3,982,817, an increase of $1,528,152 or 62% over the same period from the
prior fiscal year. The components of operating expenses (General and
administrative, Compensation, Depreciation and amortization and Loss on debt
modification) and the causes of this significant increase are explained further
below:
19
General and administrative expenses increased from $1,368,373 for the
three months ended December 31, 2002 to $1,780,242 for the three months ended
December 31, 2003, an increase of $411,869 or 30%. This increase is due to
increases in overall general and administrative expenses of approximately
$369,000 related to the acquired energy conservation operation, as such expenses
did not exist in the comparable period last fiscal year, an increase of $89,000
in consulting and temporary services, primarily for network services and a
$41,000 increase in utility expenses. These increases were offset by decreases
in expenses related to professional fees of $130,000, primarily related to
promotion and public relations.
Compensation expense increased to $1,740,012 for the three months ended
December 31, 2003, a $901,299 or 107% increase over the comparable period last
fiscal year. This increase is due to approximately $641,000 increase in bonus
expenses, primarily to the Company's executive officers and approximately
$205,000 of additional compensation, including sales commissions, related to the
acquired energy conservation operations in July 2003, as such expenses did not
exist in the comparable period last fiscal year.
Depreciation and amortization expense for the three months ended
December 31, 2003 was $420,945, compared to $247,579 for the same period in the
prior fiscal year, a $173,366 or 70% increase. This increase was attributable to
amortization expense of intangible assets of $236,000 and depreciation expense
of fixed assets of $30,000 acquired from Bayview in July 2003. These increases
were offset by a decrease of $93,000 of depreciation expense in this quarter
compared to the same period last fiscal year, due to assets reaching the end of
their estimated useful life after December 31, 2002 but prior to the quarter
ended December 31, 2003.
The Company incurred a charge this quarter relating to the modification
of debt terms for certain of the 2003 and 2004 Senior Notes in the amount of
$41,618. There was no such comparable charge in the same quarter of the prior
year. This charge relates to the unamortized debt discount remaining for the
Senior Notes maturing in December 2003 and December 2004 whose conversion and
maturity terms were modified. The Company offered these note modifications to
the Note holders, and recognized the related non-cash charge to operations in
order to manage short-term cash flows.
In the three months ended December 31, 2003, a gain of $515,844 was
recorded relating to the termination of the Kodak Vending Placement Agreement.
This gain is comprised of the payment from Kodak of approximately $675,000 plus
the cancellation of Stitch's obligation to the supplier of the vending machines
of approximately $124,000 reduced by a write down of the carrying value of
vending machines of approximately $283,000 to their realizable value of $300 per
vending machine. To the extent any costs are incurred by Stitch to fulfill its
obligations under the settlement agreement, these costs will be recorded as
incurred, as any additional costs cannot be reasonably estimated at this time.
Total interest expense decreased from $1,283,302 to $1,113,905 for the
three months ended December 31, 2002 and 2003, respectively, a decrease of
$169,397 or 13%. This decrease was primarily due to lower principal balances on
the Company's 12% Senior Notes as the result of conversions of the Senior Notes
into shares of the Company's Common Stock. At the time of conversion, the note
holder is issued shares equivalent to the conversion rate on the Senior Note,
any unamortized debt discount on the note is accelerated and charged to interest
expense and future interest on the converted note ceases to accrue. Therefore,
interest expense and debt discount amortization for the three months ended
December 31, 2003 decreased from the comparable period last fiscal year.
20
For the six months ended December 31, 2003 versus the six months ended December
- --------------------------------------------------------------------------------
31, 2002
- --------
The six month period ended December 31, 2003 resulted in a net
operating loss of $13,040,708 (approximately $8.8 million non-cash) compared to
a net loss of $7,205,215 (approximately $3.1 million non-cash) for the
comparable period in the prior fiscal year.
Revenues for the six month period ended December 31, 2003 increased to
$3,595,194 from $1,509,092 during the same period in the prior fiscal year, an
increase of $2,086,102 or 138%. This increase was primarily attributed to sales
of the Company's energy conservation equipment for the six months ended December
31, 2003, as such revenues did not exist in the corresponding period of the
prior fiscal year since the acquisition of Bayview occurred in July 2003.
Revenues are discussed in more detail as follows:
Equipment sales: Revenues from equipment sales increased to $2,711,654
from $572,947 in the corresponding period of the prior fiscal year, an increase
of $2,138,707 or 373%. This increase is mainly due to sales of the Company's
energy conservation equipment of approximately $2,107,383. During the period,
the Company fulfilled purchase orders for its energy conservation equipment from
customers such as food and drug retailer, Albertsons, automotive parts retailer,
AutoZone, and Texas energy utility company, Austin Energy. Revenue from the
sales of the Company's e-Port device increased to approximately $264,000 for the
six months ended December 31, 2003, an increase of $136,000 or 106%, from
$128,000 for the six months ended December 31, 2002. During the period, the
Company fulfilled purchase orders for its e-Port device from customers such as
vending management company, International Vending Management (IVM), and food
service and vending company, Canteen. The increases from energy conservation
equipment and e-Port sales was offset by a slight decrease in Business Center
equipment sales of approximately $76,000 due to a lower average selling price
per business center. The average selling price per business center decreased as
a result of the popularity of the Company's newly introduced, lower priced Space
Saver product.
License and transaction fees: Revenues from license and transaction
fees decreased $70,459 or 11% from $657,265 to $586,806 for the six months ended
December 31, 2002 and 2003, respectively. This decrease was due to a decrease in
fees earned from the Kodak Vending Placement Agreement of approximately $94,000
as a result of the wind down of the contract, offset by an increase in fees of
approximately $24,000 as a result of an increase in the number of the Company's
e-Port and TransAct units connected to the Company's network.
Product sales and other: Revenues from product sales and other
increased to $296,734 from $278,880, an increase of $17,854 or 6% over the same
period of the prior fiscal year. This increase was due to $200,000 recorded in
the quarter ended December 31, 2003 related to the Strategic Alliance Agreement
executed in October 2003 between the Company and Conopco, Inc dba Unilever Home
& Personal Care North America. This increase was offset by a decrease in camera
and film sales from Company owned vending machines of approximately $182,000 as
a result of the wind down of the Kodak Vending Placement Agreement.
21
Cost of sales consisted of equipment, product and labor costs of
approximately $1,213,000 and $451,000 for the six months ended December 31, 2003
and 2002, respectively, an increase of $762,000; software development
amortization of approximately $666,000 and $583,000 for the six months ended
December 31, 2003 and 2002, respectively, an increase of $83,000; and network
and transaction related costs of $287,000 and $306,000 for the six months ended
December 31, 2003 and 2002, respectively, a decrease of $19,000. The increase in
total cost of sales to $2,165,582 from $1,339,400 in the same period prior
fiscal year, an increase of $826,182 or 62%, was primarily attributable to the
increase in equipment sales.
Gross profit for the six months ended December 31, 2003 was $1,429,612,
compared to gross profit of $169,692 in the same period in the prior fiscal
year. The increase of $1,259,920 or 742% was primarily due to the addition of
our higher margin, energy conservation equipment sales that were not present in
the same period in the prior fiscal year.
Total operating expenses for the six months ended December 31, 2003 was
$11,860,040, an increase of $6,670,194 or 129% over the same period from the
prior fiscal year. The components of operating expenses (General and
administrative, Compensation, Depreciation and amortization and Loss on debt
modification) and the causes of this significant increase in each category are
explained further below:
General and administrative expenses increased from $3,010,751 for the
six months ended December 31, 2002 to $3,282,011 for the six months ended
December 31, 2003, an increase of $271,260 or 9%. This increase is due to
increases in overall general and administrative expenses of approximately
$731,000 related to the acquired energy conservation operation, as such expenses
did not exist in the comparable period last fiscal year. This increase was
offset by decreases of $240,000 related to professional fees, primarily related
to promotion and public relations, $140,000 of utility expenses and $120,000 in
consulting and temporary services, primarily for network services.
Compensation expense increased to $7,443,210 for the six months ended
December 31, 2003, a $5,758,778 or 342% increase over the comparable period last
fiscal year. This increase is primarily due to the issuance of 10,500,000 shares
of Common Stock to the Company's Chief Executive Officer in connection with the
amendment of his employment agreement. This was a one-time, non-cash payment
valued at $4,620,000 representing 80% of the total increase. Other components of
this increase were due to approximately $711,000 increase in bonus expenses,
primarily to the Company's executive officers and approximately $412,000 of
additional compensation, including sales commissions, related to the acquired
energy conservation operations in July 2003, as such expenses did not exist in
the comparable period last fiscal year.
Depreciation and amortization expense for the six months ended December
31, 2003 was $815,904, compared to $494,663 for the same period in the prior
fiscal year, a $321,241 or 65% increase. This increase was attributable to
amortization expense of intangible assets of $444,000 and depreciation expense
of fixed assets of $60,000 acquired from Bayview in July 2003. These increases
were offset by a decrease of $183,000 of depreciation expense during the current
six month compared to the same period last fiscal year, due to assets reaching
the end of their estimated useful life after December 31, 2002.
22
The Company incurred a charge during the six months ended December 31,
2003 relating to the modification of debt terms for certain of the 1999 and 2000
Senior Notes in the amount of $318,915. There was no such comparable charge in
the same period of the prior year. This charge relates to the unamortized debt
discount remaining for the Senior Notes maturing in December 2003 and December
2004 whose conversion and maturity terms were modified. The Company offered
these note modifications to the Note holders, and recognized the related
non-cash charge to operations in order to manage short-term cash flows.
In the six months ended December 31, 2003, a gain of $515,844 was
recorded relating to the termination the Kodak Vending Placement Agreement. This
gain is comprised of the payment from Kodak of approximately $675,000 plus the
cancellation of Stitch's obligation to the supplier of the vending machines of
approximately $124,000 less a write down of the carrying value of vending
machines of approximately $283,000 to their realizable value of $300 per vending
machine. To the extent any costs are incurred by Stitch to fulfill its
obligations under the settlement agreement, these costs will be recorded as
incurred, as any additional costs cannot be reasonably estimated at this time.
Total interest expense increased from $2,192,298 to $3,177,301 for the
six months ended December 31, 2002 and 2003, respectively, an increase of
$985,003 or 45%. This increase was primarily attributable to charges incurred
due to the acceleration of unamortized debt discount and other issuance costs on
the 12% Senior Notes that were converted into Common Stock during the six month
period.
PLAN OF OPERATIONS
With the acquisition of Bayview on July 11, 2003, the Company now
designs and manufactures patented energy conservation devices for equipment such
as laser printers, monitors, office peripherals, refrigerated vending machines
and glass front merchandisers (referred to as slide or visi coolers). These
energy conservation devices reduce power consumption of various types of
equipment by allowing the equipment to operate in power saving mode when full
power mode is not necessary. These devices, which include the VendingMiser,
CoolerMiser, SnackMiser, MonitorMiser and LaserMiser can use activity,
occupancy, temperature, timing or other various methods to determine which mode
the equipment should be in. Route to market for the energy conservation devices
is much the same as the Company's e-Port technology, with the notable addition
of governmental and utility rebate and give-away programs, where by part or all
of the cost of the energy management device is covered by government funds
allocated to energy conservation projects.
In October 2003, the Company signed a strategic alliance agreement with
Conopco, Inc. dba Unilever Home & Personal Care North America to be the
exclusive provider of laundry detergent for the e-Suds program to be used in
colleges and universities located in the United States. Per the terms of the
agreement, the Company agrees to be a reseller of Unilever Products that are
dispensed through the USA e-Suds System and the Company will also receive fees
from Unilever based on the number of injections of Unilever Products through the
USA e-Suds System.
23
In December 2003, the parties to the Kodak Vending Placement Agreement
agreed to the termination of the contract effective December 31, 2003. The
settlement resulted in the termination of the vending agreement pursuant to
which the Company will receive a payment from Kodak of approximately $675,000
(received in January 2004) and payments equal to $300 per vending machine, due
from the supplier of the vending machines, as the machines are pulled from
service at the supplier's sole cost and expense. Upon receipt of the $300 per
vending machine, title to the vending machine will transfer from Stitch to the
supplier. The settlement agreement provides that all machines are to be pulled
from service no later than mid calendar year 2004. In addition, the supplier
agreed to cancel an obligation for the purchase of vending machines owed by
Stitch in the approximate amount of $124,000.
The vending machines were used as collateral to secure a bank facility
used to purchase the machines under which $516,009 was outstanding as of
December 31, 2003. Final payment of the debt will occur no later than the time
Stitch transfers title of the machines to the supplier.
Although revenues of the Company will be reduced as a result of vending
contract termination, because the Kodak program is and has been operating at a
loss, the termination of the program would eliminate these ongoing losses.
Revenues related to the Kodak program through the fiscal year ended June 30,
2003 were approximately $1,092,000 and approximately $144,000 and $352,000 for
the three and six months ended December 31, 2003, respectively.
In October 2002, the Company signed a Strategic Alliance Agreement with
ZiLOG Corporation, a semiconductor company, which is a supplier of
microprocessors to the retail point of sale industry. The agreement allows the
Company's proprietary network software (USALive) to be embedded on a chip
produced by ZiLOG. The Company will license its software to the purchaser and
will be entitled to receive a fee for this license. A second revenue stream
could be generated from purchasers who buy the retail point of sales terminals
and begin to use them, if they elect to use the USA network embedded on the
chip. To date, no products have been available for commercial use and
accordingly, no revenues have been generated.
In laundry, American Sales Inc. (ASI) has signed a five-year agreement
to purchase units of Stitch's e-Suds laundry solution for their university
locations in the Midwest, with initial installations to begin in the fall of
2003. In October 2003, the Company installed a system at ASI's facilities for
final testing. To date, the system has not completed final testing, and the
Company anticipates unit sales to begin during the fourth quarter of fiscal year
2004.
24
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended December 31, 2003, net cash of $5,484,151 was
used by operating activities, primarily due to the net loss of $13,040,708
offset by non-cash charges aggregating to $8,805,187 for transactions involving
issuing Common Stock for services and in connection with the amendment to the
CEO's employment agreement, depreciation and amortization of assets,
amortization of debt discount, loss on debt modifications relating to the Senior
Notes and interest expense relating to the Senior Notes paid through the
issuance of Common Stock and Common Stock Warrants, offset by a gain on the sale
of investment and gain on the termination of a contract. In addition, the
Company's net operating assets increased by $1,248,630 (primarily inventory and
accounts receivable), a substantial portion of which relates to the addition of
the energy conservation equipment line from the Bayview acquisition.
For the six months ended December 31, 2003, net cash used in investing
activities was $562,089, comprised of the cash component of the investment in
Bayview, purchases of property and equipment and the proceeds received from the
sale of a portion of the investment in the Jubilee Trust.
Proceeds from financing activities for the six months ended December
31, 2003 provided the funds necessary to support cash used in operating and
investing activities. Proceeds of $6,576,218 were realized from several private
placement offerings of Common Stock, the exercise of Common Stock Warrants and
collection of Common Stock subscriptions receivable. Payments of long-term debt
and capital leases totaled $392,629.
Long-term debt obligations of the Company as of December 31, 2003 were
as follows:
Bank facility $ 516,009
Working capital loans 96,765
Other, including capital lease obligations 49,885
----------
662,659
Less current portion 639,611
----------
$ 23,048
==========
The bank facility (the Facility) was utilized to fund the purchase of
vending machines placed at locations where Kodak film products are sold.
Borrowings were made from time to time under the Facility, with repayment
schedules set at the time of each borrowing, including equal monthly payments
over 36 months and an interest rate based upon 495 basis points over the three
year U.S. Treasury Notes. The Company granted the bank a security interest in
the vending machines. Repayment of principal is also insured by a Surety Bond
issued by a third-party insurer in exchange for an initial fee paid by the
Company. Final maturity, scheduled to extend into the fiscal year ending June
30, 2005, is anticipated to occur during the year ending June 30, 2004 due to
the termination of the vending placement agreement and the removal from service
and sale of the vending machines used as collateral for the bank facility. As
described above, the debt, with a balance outstanding at December 31, 2003 of
$516,009, will be repaid no later than the time Stitch returns the vending
machines to the supplier.
25
In connection with the Stitch acquisition, the Company assumed
long-term debt which included a vending equipment borrowing facility and working
capital loans. These loans are secured by certain assets of Stitch and bear
interest at 6.75% per annum, payable on July 8, 2002. During fiscal year 2003
the bank extended the due date on these loans on several occasions under
forbearance agreements. On November 6, 2003, the Company reached an agreement
with the bank to make monthly installments that will repay the remaining balance
by October 2004.
The Company has incurred losses since inception. For the six months
ended December 31, 2003, the net loss was $13,040,708 of which $8,805,187
related to non-cash charges. Cumulative losses through December 31, 2003
amounted to approximately $92 million. The Company has continued to raise
capital through equity and debt offerings to fund operations.
The impact of the Bayview acquisition on cash flow for the six months
ended December 31, 2003 was a net cash outflow of approximately $1.2 million -
$500,000 of cash used in operations and $728,000 invested in operating assets
and liabilities in connection with the purchase. The structure of the
acquisition of the energy conservation equipment line from Bayview did not
include acquiring the working capital required to support the business. The six
months' operating cash flows reflected an investment for this working capital.
During the year ended June 30, 2003, cash used in operating activities
was approximately $750,000 per month. For the six months ended December 31, 2003
cash used in operating activities, was approximately $915,000 per month.
Operating cash flows during the six months ended December 31, 2003 was impacted
by increases in inventory and accounts receivable that were disproportionate to
the increase in revenues by approximately $600,000. The period also absorbed
costs for cash bonuses of approximately $600,000, primarily to the Company's
executive officers. The Company believes it can improve its management of
working capital, primarily related to accounts receivables, and operating costs
to reduce cash used in operating activities to approximately $700,000 per month.
Using that as a basis for estimating capital requirements for the next twelve
months, along with requirements for capital expenditures and repayment of
long-term debt, the Company's cash needs would approximate $9.4 million from
January 1, 2004 through December 31, 2004.
This estimate does not consider the positive impact the Company expects
to achieve from the Bayview acquisition during the remainder of the year and the
incremental revenues from the Company's other products and services. The energy
conservation equipment line acquired from Bayview is expected to generate
revenues of $5 million during the fiscal 2004 year and produce operating cash
flow of approximately $1.5 million during the remainder of the year. As the
Bayview acquisition only occured in July 2003, we do not have historical
experience with this operation as integrated into the Company's operations and,
therefore, the achievement of the positive cash flow impact is not certain at
this stage of integration and operation. However, deficits in consolidated
operating cash flows are still anticipated for the remainder of fiscal year
2004.
As of December 31, 2003, the Company had $2.5 million of cash and cash
equivalents, primarily as a result of proceeds from several private placements
of Common Stock entered into during the three months ended September 30, 2003.
In September 2003, the Company also sold 700,000 shares of its investment in the
Jubilee Trust generating net proceeds of $395,000 and could sell a substantial
portion of the remaining Jubilee shares during fiscal year 2004 creating
additional cash of approximately $1 million based on the investment's current
quoted market price.
26
As of December 31, 2003, there were 44,591,785 fully vested warrants to
purchase Common Stock at exercise prices ranging from $0.067 to $1.25 per share.
There are 39,251,092 warrants that are "in the money", with exercise prices
below $0.11 per share. The potential exercise of these "in the money" warrants
could provide $3,460,260 of additional proceeds to the Company. Subsequent to
December 31, 2003, 5,215,370 warrants were exercised, generating $465,070 of
proceeds to the Company. However, future exercises of warrants is uncertain and
the Company does not expect to rely on the proceeds from the potential exercise
of warrants to meet its capital requirements through the end the of 2004 fiscal
year.
Based on current revenue and operating levels, cash on hand of $2.5
million, proceeds received from the exercise of warrants subsequent to December
31, 2003 of $465,070, as well as working capital management initiatives and the
potential proceeds, at current market prices, generated from the sale of the
Jubilee shares, the Company believes it will have sufficient funds to meet its
requirements for the remainder of the 2004 fiscal year (through June 30, 2004).
However, if revenues remain at current levels during the next twelve months,
additional capital of at least $5.5 million will be required to meet cash flow
needs during this period from July 1, 2004 and through December 31, 2004
considering the assumptions described above of approximately $9.4 million cash
need, cash on hand of $2.5 million and $1 million of additional cash from the
sale of its investment in Jubilee, based on current market prices and proceeds
of $0.5 million from warrant exercises subsequent to December 31, 2003. The
Company intends to meet this capital requirement by raising additional funds
through the sale its securities, and given the Company's current product
offerings and the markets it is addressing, the Company believes the capital
markets should be available to raise sufficient capital to fund its operating
needs. However, if revenues increase significantly over this period, cash
generated from such improved operations and additional proceeds from the
potential exercise of "in the money" warrants could meet a substantial portion
of these capital requirements.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
The principal executive officer and principal financial officer have
evaluated the Company's disclosure controls and procedures as of December 31,
2003. Based on this evaluation, they conclude that the disclosure controls and
procedures effectively ensure that the information required to be disclosed in
the Company's filings and submissions under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms.
27
(b) Changes in internal controls.
There have been no changes during the quarter ended December 31, 2003
in the Company's internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect, internal control over
financial reporting.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
In December 2003, the Company agreed to issue 488,577 shares of Common
Stock and Common Stock Warrants to purchase up to 488,577 shares to holders of
its Convertible Senior Notes who elected to receive these securities in lieu of
the cash interest payment due for the quarter ended December 31, 2003. The
shares were purchased at the rate of $0.20 per share and the warrants are
exercisable at $0.20 per share at any time through June 30, 2004. The Company
has agreed to use its best efforts to register these shares and the shares
underlying the warrants under the Act for resale through June 30, 2004. The
securities were offered and sold under the exemption from registration set forth
in Rule 506 promulgated under Section 4(2) of the Act. All of the note holders
are accredited investors and there was no general solicitation or advertising.
During the quarter ended December 31, 2003, 31 holders of $350,000
principal amount of the Senior Notes that matured in December 2003 elected to
extend these notes until December 31, 2006 and to have the conversion rate
reduced from $1.25 per share to $0.20 per share. The note exchange was exempt
from the registration requirements of the Act pursuant to Section 3(a)(9)
thereof.
During the quarter ended December 31, 2003, 24 holders of $127,357
principal amount of the Senior Notes maturing in December 2004 elected to extend
these notes until December 31, 2007 and to have the conversion rate reduced from
$0.40 per share to $0.20 per share. The note exchange was exempt from the
registration requirements of the Act pursuant to Section 3(a)(9) thereof.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3.1.19 Nineteenth Amendment to Articles of Incorporation of
USA filed January 16, 2004.
3.1.20 Amended and Restated Articles of Incorporation of USA
filed January 26, 2004.
10.1.1 First Amendment to Employment and Non-Competition
Agreement between USA and Adele Hepburn dated as of February
4, 2004.
10.4.3 Fourth Amendment to Employment and Non-Competition
Agreement between USA and H. Brock Kolls dated April 15, 2002.
28
10.9.4 Fourth Amendment to Employment and Non-Competition
Agreement between USA and Stephen P. Herbert dated February 4,
2004.
10.21.6 Sixth Amendment to Employment and Non-Competition
Agreement between USA and George R. Jensen, Jr. dated February
4, 2004.
10.6 Termination Agreement dated December 31, 2003 by and
between Eastman Kodak Company, Maytag Corporation,
Dixie-Narco, Inc. and Stitch Networks Corporation.
31.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certifications by Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
On October 3, 2003, the Company filed a Form 8-K to report on
Items 5 and 7(c) the sale of 20,000,000 shares of Common
Stock, with the form of Stock Purchase Agreement and a Press
Release attached as exhibits thereto.
29
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
USA TECHNOLOGIES, INC.
Date: February 12, 2004 / s / George R. Jensen, Jr.
-----------------------------------------
George R. Jensen, Jr., Chairman,
Chief Executive Officer
Date: February 12, 2004 / s / David M. DeMedio
-----------------------------------------
David M. DeMedio, Chief Financial Officer
30
EXHIBIT 3.1.19
- -------------------------------------------------------------------------------
PENNSYLVANIA DEPARTMENT OF STATE
CORPORATION BUREAU
- -------------------------------------------------------------------------------
Articles of Amendment-Domestic Corporation
(15 Pa.C.S.)
X Business Corporation (ss 1915)
- --------------- -----
2072587 ----- Nonprofit Corporation (ss 5915)
- ---------------
- ------------------------------------- DOCUMENT WILL BE RETURNED TO THE
Name NAME AND ADDRESS YOU ENTER TO
THE LEFT.
- -------------------------------------
Address <---------
- -------------------------------------
City State Zip Code
- -------------------------------------
- --------------------------------------------------------------------------------
Fee: $70 ------------------------------------------------
........... Filed in the Department of State on
-------------
------------------------------------------------
Secretary of the Commonwealth
------------------------------------------------
In compliance with the requirements of the applicable provisions (relating
to articles of amendment), the undersigned, desiring to amend its articles,
hereby states that:
- -------------------------------------------------------------------------------
1. The Name of the corporation is:
USA TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) name of its commercial registered office provider and
the county of venue is: (the Department is hereby authorized to correct the
following information to conform to the records of the Department)
(a) Number and Street City State Zip County
100 DEERFIELD LANE, SUITE 140 MALVERN PA 19355 CHESTER
- --------------------------------------------------------------------------------
(b) Name of Commercial Registered Office Provider County
- --------------------------------------------------------------------------------
c/o
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. The statute by or under which it was incorporated: BUSINESS CORPORATION LAW
OF 1988
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. The date of its incorporation: JANUARY 16, 1992
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. Check, and if appropriate complete, one of the following:
X The amendment shall be effective upon filing these Articles of Amendment in
the Department of State
__ The amendment shall be effective on: at
--------------- ---------------
Date Hour
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. check one of the following :
X The amendment was adopted by shareholders pursuant to 15 Pa.C.S. ss 1914(a)
and (b) or ss 5914(a).
__ The amendment was adopted by the board of directors pursuant to 15 Pa.C.S.
ss 1914(c) or ss 5914(b)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. Check , and if appropriate, complete on of the following:
__ The amendment adopted by the corporation, set forth in full, is as follows.
X The amendment adopted by the corporation, is set forth in full in Exhibit A
attached hereto and made a part hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. Check if the amendment restated the Article:
__ The restated Article of Incorporation supersede the original articles and
all amendments thereto.
-------------------------------------------
IN TESTIMONY WHEREOF, the undersigned
has caused this Application for
Registration to be signed by a duly
authorized officer thereof this
16th day of January 2004
------ --------------
USA TECHNOLOGIES, INC.
--------------------------------------------
Name of Corporation Limited Partnership
/s/ George R. Jensen, Jr.
--------------------------------------------
George R. Jensen, Signature
Chief Executive Officer
--------------------------------------------
Title
EXHIBIT A
TO THE
ARTICLES OF AMENDEMNT TO THE
ARTICLES OF INCORPORATION
OF
TECHNOLOGIES, INC.
Paragraph (A) Classes of stock of Article 4 of the Articles of
Incorporation of the Company shall be amended and restated to read in full as
follows:
"A) Classes of stock. The aggregated number
of shares which the corporation shall have
authority to issue is 476,800,000 shares,
consisting of 475,000,000 shares of Common
Stock, without par value, and 1,800,000
shares of Series Preferred Stock, without
par value."
EXHIBIT 3.1.20
- -------------------------------------------------------------------------------
PENNSYLVANIA DEPARTMENT OF STATE
CORPORATION BUREAU
- -------------------------------------------------------------------------------
Articles of Amendment-Domestic Corporation
(15 Pa.C.S.)
X Business Corporation (ss 1915)
- --------------- -----
2072587 ----- Nonprofit Corporation (ss 5915)
- ---------------
- ------------------------------------- DOCUMENT WILL BE RETURNED TO THE
Name NAME AND ADDRESS YOU ENTER TO
DOUGLAS M. LURIO, ESQUIRE THE LEFT.
- -------------------------------------
Address <---------
2005 MARKET STREET, SUITE 2340
- -------------------------------------
City State Zip Code
PHILADELPHIA PA 19103
- -------------------------------------
- --------------------------------------------------------------------------------
Fee: $70 ------------------------------------------------
........... Filed in the Department of State on
-------------
------------------------------------------------
Secretary of the Commonwealth
------------------------------------------------
In compliance with the requirements of the applicable provisions (relating
to articles of amendment), the undersigned, desiring to amend its articles,
hereby states that:
- -------------------------------------------------------------------------------
1. The Name of the corporation is:
USA TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) name of its commercial registered office provider and
the county of venue is: (the Department is hereby authorized to correct the
following information to conform to the records of the Department)
(a) Number and Street City State Zip County
100 DEERFIELD LANE, SUITE 140 MALVERN PA 19355 CHESTER
- --------------------------------------------------------------------------------
(b) Name of Commercial Registered Office Provider County
- --------------------------------------------------------------------------------
c/o
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. The statute by or under which it was incorporated: BUSINESS CORPORATION LAW
OF 1988
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. The date of its incorporation: JANUARY 16, 1992
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. Check, and if appropriate complete, one of the following:
X The amendment shall be effective upon filing these Articles of Amendment in
the Department of State
__ The amendment shall be effective on: at
--------------- ---------------
Date Hour
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. check one of the following :
__ The amendment was adopted by shareholders pursuant to 15 Pa.C.S. ss 1914(a)
and (b) or ss 5914(a).
X The amendment was adopted by the board of directors pursuant to 15 Pa.C.S.
ss 1914(c) or ss 5914(b)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. Check , and if appropriate, complete on of the following:
__ The amendment adopted by the corporation, set forth in full, is as follows.
X The amendment adopted by the corporation, is set forth in full in Exhibit A
attached hereto and made a part hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. Check if the amendment restated the Article:
X The restated Article of Incorporation supersede the original articles and
all amendments thereto.
-------------------------------------------
IN TESTIMONY WHEREOF, the undersigned
has caused this Application for
Registration to be signed by a duly
authorized officer thereof this
23rd day of January 2004
------ --------------
USA TECHNOLOGIES, INC.
--------------------------------------------
Name of Corporation Limited Partnership
/s/ George R. Jensen, Jr.
--------------------------------------------
George R. Jensen, Signature
Chief Executive Officer
--------------------------------------------
Title
EXHIBIT A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
1. The name of the corporation is USA TECHNOLOGIES, INC.
2. The address of the corporation's current registered office in the
Commonwealth is 100 Deerfield Lane, Suite 140, Malvern, PA 19355,
Montgomery County.
3. The corporation is incorporated under the Business Corporation Law of
1988.
4. Capital Stock.
(A) Classes of Stock. The aggregate number of shares which the
corporation shall have authority to issue is 476,800,000 shares, consisting of
475,000,000 shares of Common Stock, without par value, and 1,800,000 shares of
Series Preferred Stock, without par value.
(B) Rights, Preferences and Restrictions of Series Preferred Stock.
The Series Preferred Stock authorized by these Articles may be issued from time
to time in one or more series. The Board of Directors of the corporation shall
have the full authority permitted by law to establish one or more series and the
number of shares constituting each such series and to fix by resolution full,
limited, multiple or fractional, or no voting rights, and such designations,
preferences, qualifications, privileges, limitations, restrictions, options,
conversion rights and other special or relative rights of any series of the
Series Preferred Stock that may be desired. Excluding the Series A Preferred
Stock referred to hereinafter and subject to the limitation on the total number
of shares of Series Preferred Stock which the corporation has authority to issue
hereunder, the Board of Directors is also authorized to increase or decrease the
number of shares of any series, subsequent to the issue of that series, but not
below the number of shares of such series then outstanding. In case the number
of shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
(C) Designation of Series A Convertible Preferred Stock. There is
hereby established a series of the Series Preferred Stock designated "Series A
Convertible Preferred Stock" (herein referred to as "Series A Preferred Stock"),
consisting of 900,000 shares, having the relative rights, designations,
preferences, qualifications, privileges, limitations, and restrictions
applicable thereto as follows:
1. Dividend Provisions.
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive dividends, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividend (payable
other than in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock of this corporation) on the Common Stock of this
corporation, at the rate of $1.50 per share per annum, payable when, as and if
declared by the Board of Directors. Such dividends shall be cumulative, but
accumulations of dividends shall not bear interest.
(b) No deposit, payment, or distribution of any kind shall be
made in or to any purchase or redemption requirement applicable to any class or
series of junior shares unless all accumulations of dividends earned on the
Series A Preferred Stock as of the last day of the most recently ended year
shall have been paid. So long as any Series A Preferred Stock shall remain
outstanding, no dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive directly
or indirectly, additional shares of Common Stock of this corporation) or other
distribution (except in junior shares) shall be paid or made on the Common Stock
of the corporation or on other junior shares of the corporation and no share of
Common Stock or other junior shares shall be purchased or otherwise acquired by
the corporation or any subsidiary of the corporation other than upon exercise of
the corporation's rights under any restricted stock purchase agreement or by
exchange therefor of junior shares or out of the proceeds of the substantially
concurrent sale of junior shares, unless (whether or not there shall be funds
legally available therefor) all accumulations of dividends earned on the Series
A Preferred Stock as of the last day of the most recently ended year shall have
been paid. The term "junior shares" shall mean any class or series of stock
junior to the Series A Preferred Stock as to dividends and the distribution of
assets upon liquidation, dissolution, bankruptcy, reorganization or other
insolvency proceeding, and upon the winding up of the corporation.
2
Subject to the above limitations, dividends may be paid on the Common
Stock or any other junior shares out of any funds legally available for such
purpose when and as declared by the Board of Directors.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of the corporation, either voluntary or involuntary, the holders of Series A
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets of this corporation to the holders of Common
Stock by reason of their ownership thereof, an amount per share equal to the sum
of (i) $10.00 for each outstanding share of Series A Preferred Stock and (ii)
all accumulations of unpaid dividends on each share of Series A Preferred Stock
(such amount being referred to herein as the "Premium"). If upon the occurrence
of such event, the assets and funds thus distributed among the holders of the
Series A Preferred Stock shall be insufficient to permit the payment to such
holders of the full aforesaid preferential amounts, then the entire assets and
funds of the corporation legally available for distribution shall be distributed
ratably among the holders of the Series A Preferred Stock in proportion to the
amount of such stock owned by each such holder.
(b) After the distribution described in subsection (a) has
been paid, and subject to any distributions to be made to any holders of junior
shares, the remaining assets of the corporation available for distribution to
shareholders shall be distributed among the holders of Common Stock pro rata
based on the number of shares of Common Stock held by each such holder.
(c) A consolidation or merger of this corporation with or into
any other corporation or corporations, or a sale, conveyance or disposition of
all or substantially all of the assets of this corporation or the effectuation
by the corporation of a transaction or series of related transactions in which
more than 50% of the voting power of the corporation is disposed of, shall be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 2, if the holders of at least 60% of the outstanding Series A Preferred
Stock elect to have such transaction treated as a liquidation.
3. Conversion. The holders of the Series A Preferred Stock shall
have conversion rights as follows:
(a) Conversion Rights.
3
(i) Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of this corporation or any transfer agent
for the Series A Preferred Stock, into such number of fully paid and no
assessable shares of Common Stock as is determined by dividing $1.00 (provided,
however, that such number shall be $1.20 rather than $1.00 for each share of
Series A Preferred Stock converted into shares of Common Stock during the period
of time from March 24, 1997 through December 31, 1997) by the Conversion Price
at the time in effect for such share. The initial Conversion Price per share for
shares of Series A Preferred Stock shall be $.10; provided, however, that the
Conversion Price for the Series A Preferred Stock (the "Conversion Price") shall
be subject to adjustment as set forth in Subsection 3(c).
(ii) Upon conversion of any Series A Preferred Stock,
any accrued but unpaid dividends on such Series A Preferred Stock may at the
option of the holder of such Series A Preferred Stock be converted into fully
paid and nonassessable shares of Common Stock at the price of $1.00 per share of
Common Stock; provided, however, that during the period of time from March 24,
1997 through December 31, 1997, the price shall be $.83 for each share of Common
Stock. The price at which shares of Common Stock may be acquired pursuant to
this subparagraph (ii) shall be appropriately increased or decreased from time
to time to reflect any split, subdivision or combination of the issues and
outstanding Common Stock as the case may be.
(b) Mechanics of Conversion. Before any holder of Series A
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the corporation or of any transfer agent for the
Series A Preferred Stock, and shall give written notice by mail, postage
prepaid, to the corporation at its principal corporate office, of the election
to convert the same and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued. The
corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A Preferred Stock, or to the nominee or nominees
4
of such holder, a certificate or certificates for the number of whole shares of
Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series A Preferred Stock
to be converted, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock as of such date. If
the conversion is in connection with an underwritten offer of securities
registered pursuant to the Securities Act of 1933, the conversion may at the
option of any holder tendering Series A Preferred Stock for conversion, be
conditioned upon the closing with the underwriter of the sale of the securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock issuable upon such conversion of the Series A Preferred Stock shall
not be deemed to have converted such Series A Preferred Stock until immediately
prior to the closing of the sale of such securities.
(c) Conversion Price Adjustments of Preferred Stock. The
Conversion Price shall be subject to adjustment from time to time as follows:
(i) (A) If the corporation shall issue any Additional
Stock (as defined below) for a consideration per share less than the Conversion
Price in effect immediately prior to the issuance of such Additional Stock, the
Conversion Price in effect immediately prior to each such issuance shall
forthwith (except as otherwise provided in this clause (i)) be adjusted to a
price for such series determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of shares of Common
Stock which the aggregate consideration received by the corporation for all such
Additional Stock so issued would purchase at such Conversion Price in effect
immediately prior to the issuance of such Additional Stock, and the denominator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of shares of such Additional Stock; provided
that, for the purpose of this subsection 3(c)(i)(A), all shares of Common Stock
(except as otherwise provided in this clause (i)) issuable upon conversion of
all outstanding shares of Series A Preferred Stock shall be deemed to be
outstanding, and immediately after any shares of Additional Stock are deemed to
be issued pursuant to subsection 3(c)(i)(E), such shares of Additional Stock
shall be deemed to be outstanding.
(B) No adjustment of the Conversion Price for the
Series A Preferred Stock shall be made in an amount less than one cent per
share, provided that any adjustments which are not required to be made by reason
of this sentence shall be carried forward and shall be either taken into account
in any subsequent adjustment made prior to 3 years from the date of the event
giving rise to the adjustment being carried forward, or, if no such adjustment
5
is made, shall be made at the end of 3 years from the date of the event giving
rise to the adjustment being carried forward. Except to the limited extent
provided for in subsections (E)(3) and (E)(4), no adjustment of such Conversion
Price pursuant to this subsection 3(c)(i) shall have the effect of increasing
the Conversion Price above the Conversion Price in effect immediately prior to
such adjustment.
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any discounts, commissions or other expenses allowed, paid or
incurred by the corporation for any underwriting or otherwise in connection with
the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as reasonably determined
by the Board of Directors, irrespective of any accounting treatment.
(E) In the case of the issuance of options to
purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities (which are
not excluded from the definition of Additional Stock), the following provisions
shall apply:
1. The aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in subsections 3(c)(i)(C) and(c)(i)(D)), if
any, received by the corporation upon the issuance of such options or rights
plus the minimum purchase price provided in such options or rights for the
Common Stock covered thereby.
2. The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such options or rights were
issued and for a consideration equal to the consideration, if any, received by
6
the corporation for any such securities and related options or rights (excluding
any cash received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the corporation upon the
conversion or exchange of such securities or the exercise of any related options
or rights (the consideration in each case to be determined in the manner
provided in subsections 3(c)(i)(C) and (c)(i)(D).
3. In the event of any change in the number
of shares of Common Stock deliverable or any increase in the consideration
payable to the corporation upon exercise of such options or rights or upon
conversion of or in exchange for such convertible or exchangeable securities,
including, but not limited to, a change resulting from the antidilution
provisions thereof, the Conversion Price of the Series A Preferred Stock
obtained with respect to the adjustment which was made upon the issuance of such
options, rights or securities, and any subsequent adjustments based thereon,
shall be recomputed to reflect such change, but no further adjustment shall be
made for the actual issuance of Common Stock or any payment of such
consideration upon the exercise of any such options or rights or the conversion
or exchange of such securities.
4. Upon the expiration of any such options
or rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series A Preferred Stock obtained with
respect to the adjustment which was made upon the issuance of such options,
rights or securities or options or rights related to such securities, and any
subsequent adjustments based thereon, shall be recomputed to reflect the
issuance of only the number of shares of Common Stock actually issued upon the
exercise of such options or rights, upon the conversion or exchange of such
securities or upon the exercise of the options or rights related to such
securities.
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection (3)(c)(i)(E)) by
this corporation after October 1, 1992 (the "Purchase Date") other than
(A) Common Stock issued pursuant to a transaction
described in subsection 3(c)(iii) hereof,
(B) shares of Common Stock issuable or issued (or
deemed to have been issued pursuant to subsection 3(c)(i)(E)) after the Purchase
Date to employees, officers, directors, or consultants of this corporation
7
directly or pursuant to a stock option plan or restricted stock plan approved by
the shareholders and directors of this corporation, or
(C) Common Stock issued or issuable upon conversion
of the Series A Preferred Stock.
(iii) In the event the corporation should at any time or from
time to time after the Purchase Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of common stock or the
determination of holders of common stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of common stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series A Preferred stock shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
such series shall be increased in proportion to such increase of outstanding
shares determined in accordance with subsection 3(c )(i)(E).
(iv) If the number of shares of common stock outstanding at
any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then following the record date of such
combination, the Conversion Price for the series A Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.
(c) Other Distributions. In the event the corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by the corporation or other persons, assets (excluding cash dividends) or
options or rights not referred to in subsection 3(c)(i), then, in each such case
for the purpose of this subsection 3(d), the holders of the Series A Preferred
Stock shall be entitled to a proportionate share of any such distribution as
though they were the holders of the number of shares of Common Stock of the
corporation into which their shares of Series A Preferred Stock are convertible
8
as of the record date fixed for the determination of the holders of Common Stock
of the corporation entitled to receive such distribution.
(d) Recapitalizations. If at any time or from time to time there shall
be a recapitalization of the Common stock (other than a subdivision, combination
or merger or sale of assets transaction provided for elsewhere in this Section
3) provision shall be made so that the holders of the Series A Preferred Stock
shall thereafter be entitled to receive upon conversion of the Series A
Preferred Stock the number of shares of stock or other securities or property of
the corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3 with respect to the rights of the holders of the Series A
Preferred Stock after the recapitalization to the end that the provisions of
this Section 3 (including adjustment of the Conversion Price then in effect and
the number of shares purchasable upon conversion of the Series A Preferred
Stock) shall be applicable after that event as nearly equivalent as may be
practicable.
(e) No Impairment. The corporation will not, by amendment of its
Articles or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series A Preferred Stock against impairment.
(f) No Fractional Shares; Certificate as to Adjustments.
(i) No fractional shares shall be issued upon conversion of
the Series A Preferred Stock, and the number of shares of Common Stock to be
issued shall be rounded to the nearest whole share. Whether or not fractional
shares are issuable upon such conversion shall be determined on the basis of the
total number of shares of Series A Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.
9
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Series A Preferred Stock pursuant to this Section 3, the
corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price at the time in effect, and (C) the number
of shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of a share of Series A Preferred
Stock.
(g) Notices of Record Date. In the event of any taking by the
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock or any class of
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A Preferred Stock, at least 20
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
(h) Reservation of Stock Issuable Upon Conversion. This corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the Series A Preferred Stock such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, in addition to such other remedies as shall be available to the
holder of such Preferred Stock, this corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes.
(i) Notices. Any notice required by the provisions of this Section 3 to
be given to the holders of shares of Series A Preferred Stock shall be deemed
10
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books of this corporation.
4. Voting Rights. The holder of each share of Series A
Preferred Stock shall have the right to one vote for each share of Common Stock
into which such Series A Preferred Stock could then be converted (with any
fractional share determined on an aggregate conversion basis being rounded to
the nearest whole share), and with respect to such vote, such holder shall have
full voting rights and powers equal to the voting rights and powers of the
holders of Common Stock, and shall be entitled, notwithstanding any provision
hereof, to notice of any shareholders' meeting in accordance with the by-laws of
this corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock have the
right to vote.
5. Status of Converted Stock. In the event any shares of
Series A Preferred Stock shall be converted pursuant to Section 3 hereof, the
shares so converted shall be cancelled and shall not be reissuable by the
corporation, and the Articles of this corporation shall be appropriately amended
to affect the corresponding reduction in the corporation's authorized capital
stock.
6. Optional Redemption. The Series A Preferred Stock may be
called for redemption and redeemed at the option of the corporation by
resolution of the Board of Directors, in whole at any time or in part at any
time or from time to time, but in no event earlier than January 1, 1998, upon
notice given to the record holders of any such shares, by the payment therefor
of $11.00 per share of such Series A Preferred Stock, plus an amount equal to
the accrued and unpaid cumulative dividends thereon to the date fixed by the
Board of Directors as the redemption date. The record holders of any such shares
to be redeemed pursuant to this subsection (C)6 may convert each such share (as
well as any accrued and unpaid cumulative dividends thereon) pursuant to
subsection (C)3 Conversion of Article 4 of the Articles of Incorporation at any
time prior to the date of such redemption.
(D) Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
11
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to liquidation,
upon the liquidation, dissolution or winding up of the corporation, the assets
of the corporation shall be distributed to the holders of Common Stock.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock shall have
the right to one vote, and shall be entitled to notice of any shareholders'
meeting in accordance with the by-laws of this corporation, and shall be
entitled to vote upon such other matters and in such manner as may be provided
by law.
5. The date of its incorporation is January 16, 1992.
6. The shareholders of the corporation shall not have the right to
cumulate their votes for the election of the directors of the corporation.
12
Exhibit 10.1.1
FIRST AMENDMENT TO EMPLOYMENT AND
NON-COMPETITION AGREEMENT
This First Amendment is made as of the 4th day of February 2004, by and
between ADELE HEPBURN ("Hepburn"), and USA TECHNOLOGIES, INC., a Pennsylvania
corporation ("USA").
Background
USA and Hepburn entered into an Employment And Non-Competition
Agreement dated as of January 1, 1993 (the "Agreement"). As more fully set forth
herein, the parties desire to amend the Agreement in certain respects.
Agreement
NOW, THEREFORE, in consideration of the covenants set forth herein, and
intending to be legally bound hereby, the parties agree as follows:
1. Amendment. Paragraph A of Section 2. Compensation and Benefits of
the Agreement is hereby deleted and the following new paragraph A is hereby
substituted in its place:
A. In consideration of her services
rendered, commencing July 1, 2003, USA shall pay to
Hepburn a base salary of $130,000 per year during the
Employment Period, subject to any withholding
required by law. Hepburn's base salary may be
increased from time to time in the discretion of the
Board of Directors.
2. Modification. Except as otherwise specifically set forth in
Paragraph 1, the Agreement shall not be amended or modified in any respect
whatsoever and shall continue in full force and effect.
3. Capitalized Terms. Except as specifically provided otherwise herein,
all capitalized terms used herein shall have the meanings ascribed to them in
the Agreement.
4. Original Part. The amendments to the Agreement made in Paragraph 1
hereof shall be effective from and after July 1, 2003.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment on the day and year first above written. USA TECHNOLOGIES, INC.
By: /s/ Stephen P. Herbert
--------------------------
Stephen P. Herbert,
President
/s/ Adele Hepburn
--------------------------
ADELE HEPBURN
Exhibit 10.4.3
FOURTH AMENDMENT TO EMPLOYMENT AND
NON-COMPETITION AGREEMENT
This Fourth Amendment is made as of the 15th day of April 2002, by and
between HAVEN BROCK KOLLS, JR. ("Kolls"), and USA TECHNOLOGIES, INC., a
Pennsylvania corporation ("USA").
Background
USA and Kolls entered into an Employment And Non-Competition Agreement
dated May 1, 1994, a First Amendment thereto dated May 1, 1995, a Second
Amendment thereto dated March 20, 1996, and a Third Amendment thereto dated
February 22, 2000 (collectively, the "Agreement"). As more fully set forth
herein, the parties desire to amend the Agreement in certain respects.
Agreement
NOW, THEREFORE, in consideration of the covenants set forth herein, and
intending to be legally bound hereby, the parties agree as follows:
1. Amendments.
A. Subparagraph (a) of Section 1. Employment of the Agreement is hereby
deleted and the following new subparagraph (a) is hereby substituted in its
place:
(a) USA shall employ Kolls as Senior Vice
President, Research & Development, commencing on the
date hereof and continuing through June 30, 2004 (the
"Employment Period") and Kolls hereby accepts such
employment. Unless terminated by either party hereto
upon at least 60-days notice prior to end of the
original Employment Period ending June 30, 2004, or
prior to the end of any one year extension of the
Employment Period, the Employment Period shall not be
terminated and shall automatically continue in full
force and effect for consecutive one year periods.
B. Subparagraph (a) of Section 2. Compensation and Benefits of the
Agreement is hereby deleted and the following new subparagraph (a) is hereby
substituted in its place:
(a) In consideration of his services
rendered, commencing April 15, 2002, USA shall pay to
Kolls a base salary of $150,000 per year during the
Employment Period, subject to any withholding
required by law. Kolls"s base salary may be increased
from time to time in the discretion of the Board of
Directors.
C. The following new subparagraphs (v), (vi) and (vii) are added to
Subparagraph (b) of Section 2. Compensation and Benefits of the Agreement:
(v) On April 15, 2002, USA shall issue to Kolls 200,000 shares of fully vested
Common Stock as a bonus. Kolls acknowledges that the Common Stock has not been
registered under the Act or under any state securities law, and the Common Stock
can not be sold or transferred unless such Common Stock has been registered
under the Act or such state securities laws, or unless USA has received an
opinion of its counsel that such registration is not required. Notwithstanding
the foregoing, USA shall at its cost and expense prepare and file a registration
statement with the Securities and Exchange Commission covering these shares for
resale under the Act, and shall use its best efforts to have such registration
statement declared effective and to remain current and effective. These shares
shall represent the shares underlying the options to purchase up to 200,000
shares at $.40 per share which were granted to Kolls by USA in November 2001
(and which became vested in March 2002). These options shall be canceled upon
the issuance to Kolls by USA of the shares without any payment by Kolls to USA.
(vi) USA shall pay to Kolls the sum of $50,000 in cash in order to reimburse
Kolls for the income tax payable by him as a result of the shares of Common
Stock delivered to him as a bonus during the 2001 calendar year. These monies
shall be paid to Kolls as follows: up to fifty percent on April 15, 2002, with
the balance to be paid in six equal consecutive monthly installments commencing
May 2002. In the alternative, and in lieu of any cash payment, Kolls may elect
to receive shares of Common Stock or other securities of USA having a value
equal to such cash payment.
(vii) Effective April 15, 2002, USA shall issue to Kolls fully vested options to
purchase up to 50,000 shares of Common Stock. Each option shall be exercisable
at $.40 per share. The options shall be exercisable at any time on or before
April 15, 2005 and shall have a cashless exercise feature. Kolls acknowledges
that all of the foregoing options are non-qualified stock options and not part
of a qualified stock option plan and do not constitute incentive stock options
as such term is defined under Section 422 of the Internal Revenue Code of 1986,
as amended, and are not part of an employee stock purchase plan as defined in
Section 423 thereunder. Kolls acknowledges that neither the options nor the
Common Stock underlying the options has been registered under the Act or under
any state securities law, and can not be sold or transferred unless such options
or Common Stock has been registered under the Act or such state securities laws,
or unless USA has received an opinion of its counsel that such registration is
not required. Notwithstanding the foregoing, USA shall at its cost and expense
prepare and file a registration statement with the Securities and Exchange
Commission covering the shares of Common Stock underlying the options for resale
under the Act, and shall use its best efforts to have such registration
statement declared effective and to remain current and effective.
IN WITNESS WHEREOF, the parties hereto have executed this Fourth
Amendment as of the day and year first above written.
USA TECHNOLOGIES, INC.
By: /s/ Stephen P. Herbert
--------------------------
Stephen P. Herbert,
President
/s/ Haven Brock Kolls, Jr.
--------------------------
HAVEN BROCK KOLLS, JR.
Exhibit 10.6
TERMINATION AGREEMENT
This Termination Agreement (this "Agreement") is made this 31st day of
December, 2003, by and between Eastman Kodak Company, a New Jersey corporation
("Kodak"), Maytag Corporation, a Delaware corporation ("Maytag"), Dixie-Narco,
Inc., a Delaware corporation, and wholly-owned subsidiary of Maytag Holdings,
Inc, which is a wholly-owned subsidiary of Maytag ("Dixie"), and Stitch Networks
Corporation, a Delaware corporation, which is a wholly-owned subsidiary of USA
Technologies, Inc. and successor in interest to e-Vend.net Corporation
("Stitch").
BACKGROUND
Kodak, Maytag, Dixie, and Stitch are parties to that certain Vending
Placement, Supply and Distribution Agreement dated December 1, 2000, the First
Amendment thereto dated as of December 18, 2000, and the Second Amendment
thereto dated as of June 20, 2001 (collectively, "Vending Agreement";
capitalized terms used without definition herein shall have the meanings
assigned to them in the Vending Agreement). Pursuant to the Vending Agreement,
the parties formed a strategic alliance to market and execute a large scale,
national vending program under which Stitch purchased all of its requirements of
Kodak consumer cameras and film from Kodak, and distributed and sold the Kodak
merchandise solely from vending machines purchased from Dixie. As more fully set
forth herein, the parties desire to terminate the Vending Agreement.
AGREEMENT
NOW THEREFORE, intending to be legally bound hereby, the parties hereto
agree as follows:
1. Termination. Subject to the terms and conditions set forth below,
the parties hereby terminate the Vending Agreement as of the date hereof. From
and after the date hereof, the Vending Agreement shall have no further force or
effect whatsoever and shall be null and void, other than any provisions of the
Vending Agreement which survive expiration or termination pursuant to Section 34
of the Vending Agreement or pursuant to the terms of this Agreement.
2. Kodak Payment. On the date hereof, Kodak has delivered to USA
Technologies, Inc. ("USA") the sum of $736,399 (the "Kodak Payment") and Stitch
hereby acknowledges that it has authorized USA to receive such sum on Stitch's
behalf. The Kodak Payment consists of a cash payment by Kodak to USA in the
amount of $674,649 and a credit of $61,750 representing the amount owed by
Stitch to Kodak in connection with payments made by Kodak to Stitch for removal
of Vending Machines. Stitch hereby represents and warrants that the Kodak
Payment represents payment in full by Kodak of all of the amounts due to U.S.
Bancorp Leasing & Financial by Stitch under Master Agreement dated May 22, 2001
by and between U.S. Bancorp and Stitch (the "Master Agreement") and that the
2
funds borrowed by Stitch under the Master Agreement were used by Stitch to fund
the purchase from Dixie of the Vending Machines covered by the Vending
Agreement. The parties agree that the payment by Kodak of the Kodak Payment is
in full and final resolution of all payments due by Kodak and that no further
sums are or will be owed, either under the Master Agreement, the Vending
Agreement or the Termination Agreement.
3. Maytag, Dixie and Stitch Actions.
A. As of the date hereof, the vending machines covered by the
Vending Agreement ("Vending Machines") are located at the 284 locations
identified in Exhibit "A" attached hereto ("Locations"). Maytag and Dixie shall
use their reasonable best efforts to remove all of the Vending Machines from the
Locations within 180 days from the date hereof at their sole cost and expense
and shall purchase each Vending Machine from Stitch as described in Paragraph C
below. For each of those nineteen (19) Locations designated as legend type "C"
in Exhibit "A" whose Customer Agreements (as defined in Paragraph E below) do
not terminate within ninety (90) days of the date hereof, Stitch shall use its
best efforts to negotiate at its sole cost and expense the early termination of
the Customer Agreement during such ninety (90) day period. If any such Customer
Agreement is
3
not so terminated by March 31, 2004, then Maytag and Dixie shall not be required
to remove such Vending Machine from the Location, and in such event, Stitch
shall, at its sole cost and expense, remove any such Vending Machine from the
Location upon termination of the related Customer Agreement.
B. Stitch shall be responsible for accurately informing Maytag and
Dixie of the location of each Vending Machine and will work with Maytag and
Dixie to the extent reasonably necessary in order to co-ordinate the removal by
Maytag and Dixie of each Vending Machine from each Location. If the Vending
Machine is not located at the place Stitch indicates, then Maytag and Dixie
shall be reimbursed by Stitch for all of its expenses in attempting to remove
the Vending Machine. If Stitch does not reimburse Dixie within thirty (30) days
of notice of any such expenses, Dixie shall have no further obligation to remove
any Vending Machines under this Agreement, and in such event, Stitch shall, at
its sole cost and expense, remove any remaining Vending Machines from the
Locations upon termination of the related Customer Agreement. Dixie's and
Maytag's obligation to remove the Vending Machines in this paragraph does not
begin until Stitch confirms in writing that Dixie has authority to remove the
Vending Machine and provides a name and address and phone number of the vendor.
4
C. Within 15 days after the end of each calendar month, Maytag and
Dixie shall deliver to Stitch the sum of Three Hundred Dollars ($300) for each
and every Vending Machine removed by Dixie and Maytag from the Locations at any
time during the immediately preceding calendar month. Upon receipt of payment by
Stitch for a Vending Machine, the title to the Vending Machine shall pass from
Stitch to Maytag and Dixie, and Stitch shall thereafter upon request execute and
deliver any and all documents required to confirm such title in Maytag or Dixie.
Stitch shall not be responsible for the condition of the Vending Machines and
Maytag and Dixie agree to accept the Vending Machines in their "as is"
condition. Any and all product contained in the Vending Machine shall be removed
by Stitch prior to removal of each Vending Machine from the Location and shall
remain the property of Stitch.
D. The amount of $123,716 currently due from Stitch to Dixie and
which was incurred in connection with the purchase of Vending Machines is hereby
canceled and forgiven by Maytag and Dixie and no further sums are due in
connection therewith by Stitch.
5
E. Stitch hereby represents and warrants to Kodak, Maytag and Dixie
that: (i) each of Locations has entered into a placement agreement with Stitch
covering the installation, maintenance and use of the Vending Machines
("Customer Agreements"); (ii) each of the Customer Agreements authorizes Stitch
to remove the Vending Machine from the Locations; and (iii) except for the 38
locations designated as legend type "B" or "C" on Exhibit "A", all of these
Customer Agreements automatically terminate upon the termination of the Vending
Agreement.
F. Stitch hereby agrees to indemnify Maytag, Dixie and Kodak against
any claims by any person related to the removal of any Vending Machine from any
Location in accordance with the terms of this Agreement, including, without
limitation, any claim that such removal constitutes a breach of any Customer
Agreement. Such indemnification shall include reasonable attorneys fees whether
incurred in a third-party action or in an action to enforce this Agreement.
4. Kodak Release.
A. Kodak fully, irrevocably and forever releases and discharges each
of Maytag, Dixie-Narco, and Stitch, and each of their respective present and
former officers, directors, employees, representatives, affiliates,
subsidiaries,
6
successors, assigns, and agents of any of them, in their individual and official
capacities (collectively referred to herein as the "Kodak Released Parties"), of
and from any and all claims, demands, causes of action, complaints, suits, sums
of money, compensation, commissions, fees, wages, income, damages, and
liabilities whatsoever, whether contingent or fixed, matured or unmatured,
vested or unvested, existing or hereafter accruing, known or unknown, and
whether based upon statute, federal or state law, contract, tort, common law, or
any other legal or equitable theory, which Kodak ever had, now has, or may or
can hereafter have, against the Kodak Released Parties for, based upon, by
reason of, or arising out of the Vending Agreement; provided, however, that the
foregoing release shall not apply with respect to any breaches by Maytag,
Dixie-Narco, and Stitch of any of their respective representations, warranties,
covenants and agreements under this Agreement or under the Vending Agreement
which survive termination pursuant to the terms of this Agreement.
B. Kodak represents and warrants to each of Maytag, Dixie-Narco, and
Stitch that it has not sold, assigned, transferred, conveyed or otherwise
disposed of any claim, demand or cause of action relating to any matter covered
by this Section 4.
7
5. Maytag Release.
A. Maytag and Dixie-Narco, jointly and severally, hereby fully,
irrevocably and forever releases and discharges each of Kodak and Stitch, and
each of their respective present and former officers, directors, employees,
representatives, affiliates, subsidiaries, successors, assigns, and agents of
any of them, in their individual and official capacities (collectively referred
to herein as the "Maytag Released Parties"), of and from any and all claims,
demands, causes of action, complaints, suits, sums of money, compensation,
commissions, fees, wages, income, damages, and liabilities whatsoever, whether
contingent or fixed, matured or unmatured, vested or unvested, existing or
hereafter accruing, known or unknown, and whether based upon statute, federal or
state law, contract, tort, common law, or any other legal or equitable theory,
which Maytag or Dixie ever had, now has, or may or can hereafter have, against
the Maytag Released Parties for, based upon, by reason of, or arising out of the
Vending Agreement; provided, however, that the foregoing release shall not apply
with respect to any breaches by Kodak and Stitch of any of their respective
representations, warranties, covenants and agreements under this Agreement or
under the Vending Agreement which survive termination pursuant to the terms of
this Agreement.
8
B. Each of Maytag and Dixie-Narco represents and warrants to each of
Kodak and Stitch that neither of them has sold, assigned, transferred, conveyed
or otherwise disposed of any claim, demand or cause of action relating to any
matter covered by this Section 5.
6. Stitch Release.
A. Stitch fully, irrevocably and forever releases and discharges
each of Kodak, Maytag, and Dixie-Narco, and each of their respective present and
former officers, directors, employees, representatives, affiliates,
subsidiaries, successors, assigns, and agents of any of them, in their
individual and official capacities (collectively referred to herein as the
"Stitch Released Parties"), of and from any and all claims, demands, causes of
action, complaints, suits, sums of money, compensation, commissions, fees,
wages, income, damages, and liabilities whatsoever, whether contingent or fixed,
matured or unmatured, vested or unvested, existing or hereafter accruing, known
or unknown, and whether based upon statute, federal or state law, contract,
tort, common law, or any other legal or equitable theory, which Stitch ever had,
now has, or may or can hereafter have, against the Stitch Released Parties for,
based upon, by reason of, or arising out of the Vending Agreement; provided,
however, that the foregoing release shall not apply with respect to any breaches
by Kodak, Maytag, and Dixie-Narco of any of their respective representations,
warranties, covenants and agreements under this Agreement or under the Vending
Agreement which survive termination pursuant to the terms of this Agreement.
9
B. Stitch represents and warrants to each of Kodak, Maytag, and
Dixie-Narco that it has not sold, assigned, transferred, conveyed or otherwise
disposed of any claim, demand or cause of action relating to any matter covered
by this Section 6.
C. Stitch represents and warrants to each of Kodak, Maytag, and
Dixie-Narco that it is the successor in interest to e-Vend.net Corporation and
has full authority to enter into and perform this Agreement.
D. During period beginning of the date hereof and ending on the
Final Removal Date (as defined in paragraph E below), Stitch shall use its best
efforts to continue to provide, or cause to be provided, stocking services for
Kodak Merchandise with respect to each Vending Machine until such Vending
Machine is removed from its Location.
E. As of the date the last Vending Machine is removed from its
Location by Stitch (the "Final Removal Date"), all unused Kodak Merchandise in
Stitch's inventory as of such date may be returned to Kodak in accordance with
Kodak's standard return procedures as stated in Sections 11.3 through 11.5 of
the Vending Agreement. All Kodak trademark and other Kodak identification must
be removed from each Vending Machine as of the date such Vending Machine is
removed from its Location.
10
F. Kodak and Stitch agree that Section 9.2 of the Vending Agreement
shall apply with respect the period beginning on the date hereof and ending on
the Final Removal Date. Stitch shall continue to deliver to Kodak a
Reconciliation Statement (as defined in Section 9.2 of the Vending Agreement)
with respect to each month closing in such period; provided, however, that if
the Final Removal Date is not the last day of a month then Stitch shall also
deliver to Kodak within thirty (30) days of the Final Removal Date a
Reconciliation Statement with respect to the period beginning on the first day
of such month and ending on the Final Removal Date. Kodak and Stitch further
agree that (i) in the event the e-Vend Purchase Price exceeds the Dealer Cost,
e-Vend shall forward to Kodak with the related Reconciliation Statement a check
in an amount equal to the amount by which the e-Vend Purchase Price exceeds the
Dealer Cost and (ii) in the event the Dealer Cost exceeds the e-Vend Purchase
Price, Kodak shall forward to e-Vend a check in an amount equal to the amount of
the excess.
7. Entire Agreement. This Agreement constitutes the entire
understanding and agreement between the parties hereto with respect to the
transactions contemplated herein, supersedes all prior and contemporaneous
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, and there have been no warranties, representations or
promises, written or oral, made by any of the parties hereto except as expressly
set forth herein. The titles and captions of the Sections of this Agreement are
for the convenience of the parties only, and shall not affect, enlarge, or
modify the terms and conditions of this Agreement, and shall not be considered
in any manner whatsoever in the interpretation, intent, or meaning of this
Agreement.
11
8. Binding Agreement. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, as well as their respective heirs, personal
representatives, successors and assigns.
9. Waiver, Modification, etc.. Any party to this Agreement may waive
any of the terms or conditions of this Agreement or agree to an amendment or
modification to this Agreement by an agreement in writing executed in the same
manner (but not necessarily by the same persons) as this Agreement. No amendment
or modification of this Agreement shall be binding unless in writing executed by
the party amending or waiving such term or condition of this Agreement. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall any waiver constitute a continuing waiver unless otherwise expressly
provided.
10. Notice. Any notice or other communications required or permitted
hereunder shall be sufficiently given if sent by certified mail, return receipt
requested, postage prepaid, addressed as follows:
12
If to Stitch:
Stitch Networks Corporation
100 Deerfield Lane, Suite 140
Malvern, PA 19355
Attn. Stephen P. Herbert,
President
If to Kodak:
Eastman Kodak Company
3003 Summit Boulevard, Suite 1100
Atlanta, GA 30319
Attn. Alex Hodges, Director of Capture Marketing
with a copy to:
Eastman Kodak Company
343 State Street
Rochester, NY 14650-0207
Attn. Legal Department
If to Maytag or Dixie-Narco:
Maytag Corporation Law Department
403 W. 4th Street North
Newton, Iowa 50208
Attn: General Counsel
11. Governing Law. This Agreement shall be construed in accordance with
and shall be governed by the laws of the State of New York without regard to any
conflicts of law rules which would require the application of the laws of any
other jurisdiction.
12. Consent to Jurisdiction. Each of the parties hereto irrevocably
consents to the jurisdiction of the state courts of New York and the United
States District Court for the Western District of New York with respect to all
matters arising from this Agreement, for that limited purpose only, and each
Party waives any objections to venue in such courts and agrees that process may
13
be served in the manner provided herein for giving of notices or otherwise as
allowed by the applicable court; provided, however, that each Party agrees not
to commence any action, suit or proceeding in state court unless the United
States District Court for the Western District of New York lacks subject matter
jurisdiction with respect to the dispute or otherwise is unable to hear the
matter.
13. Arbitration. Any dispute arising out of or relating to this
Agreement shall be settled by arbitration before a panel of three independent
and impartial arbitrators (the "Arbitration Panel") in accordance with the then
current commercial arbitration rules of the American Arbitration Association
("AAA"). Each party to this Agreement who is party to such dispute shall select
one member of the Arbitration Panel. If there are only two parties to such
dispute, the third member of the Arbitration Panel shall be jointly selected by
the other members of the Arbitration Panel. In no case shall there be any ex
parte communications between any party hereto and any member of the Arbitration
Panel regarding any dispute between the parties. The Arbitration Panel shall not
have the authority to make any ruling, finding or award that does not conform to
the terms and conditions of this Agreement. The site of any arbitration brought
14
pursuant to this Agreement shall be at a location to be mutually agreed upon by
the parties to such arbitration. All discovery activities shall be completed
within 60 days after the initial meeting of the Arbitration Panel. The award of
the Arbitration Panel shall be (i) final and binding upon the parties, (ii)
issued within 90 days after the initial meeting of the Arbitration Panel, (iii)
in writing and (iv) set forth the factual and legal bases for such award. The
Arbitration Panel is to award attorneys' fees and costs of the arbitration to
the prevailing party. Judgment on the award rendered by the Arbitration Panel
may be entered and enforced in any court having jurisdiction thereof.
14. Counterparts. This Agreement may be signed in two or more
counterparts which counterparts shall constitute a single, integrated agreement
binding upon all the signatories to such counterparts.
15. Expenses. Except as specifically provided otherwise herein, each
party hereto shall pay its own expenses arising from this Agreement and the
transactions contemplated hereby, including, without limitation, all legal and
accounting fees and disbursements; provided, however, that nothing herein shall
limit or otherwise modify any right of the parties to recover such expenses from
the other in the event any party hereto breaches this Agreement.
15
16. Further Assurances. Each of the parties hereto shall hereafter
execute and deliver such further documents and instruments and do such further
acts and things as may be required or useful to carry out the intent and purpose
of this Agreement and as are not inconsistent with the terms hereof.
17. Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
16
IN WITNESS WHEREOF, the parties hereto, have executed
and delivered this Agreement the day and year above written.
EASTMAN KODAK COMPANY
Attest: By: /s/ Gerald Quindler
- -------------------------------- ---------------------------------
Name: Gerald Quindler
-------------------------------------
Title: VP GM WW Sales & Ops
------------------------------------
MAYTAG CORPORATION
Attest: By: /s/ Roger K. Scholten
- -------------------------------- ---------------------------------
Name: Roger K. Scholten
-------------------------------------
Title: Sr. VP
------------------------------------
DIXIE-NARCO, INC.
Attest: By: /s/ Roger K. Scholten
- -------------------------------- ---------------------------------
Name: Roger K. Scholten
-------------------------------------
Title: Asst. Secretary
------------------------------------
STITCH NETWORKS CORPORATION
Attest: By: /s/ Stephen P. Herbert
- -------------------------------- ---------------------------------
Name: Stephen P. Herbert
-------------------------------------
Title: President
------------------------------------
17
Exhibit 10.9.4
FOURTH AMENDMENT TO EMPLOYMENT AND
NON-COMPETITION AND AGREEMENT
This Fourth Amendment is made on the 4th day of February 2004, by and
between STEPHEN P. HERBERT ("Herbert"), and USA TECHNOLOGIES, INC., a
Pennsylvania corporation ("USA").
Background
USA and Herbert entered into an Employment And Non-Competition
Agreement dated April 4, 1996, a First Amendment thereto dated as of February
22, 2000, a Second Amendment thereto dated April 15, 2002 and a Third Amendment
dated as of July 25, 2003 (collectively, the "Agreement"). As more fully set
forth herein, the parties desire to amend the Agreement in certain respects.
Agreement
NOW, THEREFORE, in consideration of the covenants set forth herein, and
intending to be legally bound hereby, the parties agree as follows:
1. Amendment. Subparagraph (a) of Section 2. Compensation and Benefits
of the Agreement is hereby deleted and the following new subparagraph (a) is
hereby substituted in its place:
A. In consideration of his services rendered, commencing
January 1, 2004, USA shall pay to Herbert a base salary of
$230,000 per year during the Employment Period, subject to any
withholding required by law. Herbert's base salary may be
increased from time to time in the discretion of the Board of
Directors.
2. Modification. Except as otherwise specifically set forth in
Paragraph 1, the Agreement shall not be amended or modified in any respect
whatsoever and shall continue in full force and effect.
3. Capitalized Terms. Except as specifically provided otherwise herein,
all capitalized terms used herein shall have the meanings ascribed to them in
the Agreement.
4. Effective Time. The amendments to the Agreement made in Paragraph 1
hereof shall be effective from and after January 1, 2004. IN WITNESS WHEREOF,
the parties hereto have executed this Fourth Amendment on the day and year first
above written.
USA TECHNOLOGIES, INC.
By: /s/ George R. Jensen, Jr.
-------------------------
George R. Jensen, Jr.,
Chief Executive Officer
/s/ Stephen P. Herbert
-------------------------
STEPHEN P. HERBERT
Exhibit 10.21.6
SIXTH AMENDMENT TO EMPLOYMENT AND
NON-COMPETITION AND AGREEMENT
This Sixth Amendment is made on the 4th day of February 2004, by and
between GEORGE R. JENSEN, JR. ("Jensen"), and USA TECHNOLOGIES, INC., a
Pennsylvania corporation ("USA").
Background
USA and Jensen entered into an Employment And Non-Competition Agreement
dated November 20, 1997, a First Amendment thereto dated June 17, 1999, a Second
Amendment thereto dated February 22, 2000, a Third Amendment thereto dated
January 16, 2002, a Fourth Amendment thereto dated April 15, 2002, and a Fifth
Amendment thereto dated July 16, 2003. As more fully set forth herein, the
parties desire to amend the Agreement in certain respects.
Agreement
NOW, THEREFORE, in consideration of the covenants set forth herein, and
intending to be legally bound hereby, the parties agree as follows:
1. Amendment. Subparagraph (a) of Section 2. Compensation and Benefits
is hereby deleted the following new subparagraph (a) is hereby added to Section
2 of the Agreement:
(a) In consideration of his services rendered, commencing
January 1, 2004, USA shall pay to Jensen a base salary of
$250,000 per year during the Employment Period, subject to any
withholding required by law. Jensen's base salary may be
increased from time to time in the discretion of the Board of
Directors.
2. Modification. Except as otherwise specifically set forth in
Paragraph 1, the Agreement shall not be amended or modified in any
respect whatsoever and shall continue in full force and effect.
3. Capitalized Terms. Except as specifically provided otherwise herein,
all capitalized terms used herein shall have the meanings ascribed to them in
the Agreement.
4. Effective Time. The amendments to the Agreement made in Paragraph 1
hereof shall be effective from and after January 1, 2004.
IN WITNESS WHEREOF, the parties hereto have executed this Sixth
Amendment on the day and year first above written.
/s/ George R. Jensen, Jr.
--------------------------------
GEORGE R. JENSEN, JR.
USA TECHNOLOGIES, INC.
By: /s/ Stephen P. Herbert
-----------------------------
Stephen P. Herbert,
President
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
I, George R. Jensen, Jr., Chief Executive Officer of the registrant, certify
that:
1. I have reviewed this quarterly report on Form 10-QSB of USA Technologies,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and
have:
a. Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the small business issuer, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b. Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based upon such evaluation; and
c. Disclosed in this report any change in the small business issuer's internal
control over financial reporting that occurred during the small business
issuer's most recent fiscal quarter (the small business issuer's fourth fiscal
quarter in the case of an annual report) that has materially affected or is
reasonably likely to materially affect, the small business issuer's internal
control over financial reporting; and
5. The small business issuer's other certifying officer and I have disclosed,
based on our most recent evaluation, of internal control over financial
reporting to the auditors and the audit committee of the small business issuer's
board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's internal
control over financial reporting.
Date: February 12, 2004 /s/ George R. Jensen, Jr.
------------------------------------
George R. Jensen, Jr.,
Chief Executive Officer
31
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
I, David M. DeMedio, Chief Financial Officer of the registrant, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of USA Technologies,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and
have:
a. Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the small business issuer, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b. Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based upon such evaluation; and
c. Disclosed in this report any change in the small business issuer's internal
control over financial reporting that occurred during the small business
issuer's most recent fiscal quarter (the small business issuer's fourth fiscal
quarter in the case of an annual report) that has materially affected or is
reasonably likely to materially affect, the small business issuer's internal
control over financial reporting; and
5. The small business issuer's other certifying officer and I have disclosed,
based on our most recent evaluation, of internal control over financial
reporting to the auditors and the audit committee of the small business issuer's
board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's internal
control over financial reporting.
Date: February 12, 2004 /s/David M. DeMedio
-----------------------------------
David M. DeMedio,
Chief Financial Officer
32
Exhibit 32
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the accompanying Quarterly Report of USA
Technologies, Inc., (the "Company") on Form 10-QSB for the period ended December
31, 2003 (the "Report"), I, George R. Jensen, Jr., Chief Executive Officer of
the Company, hereby certify that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ George R. Jensen, Jr.
- ------------------------
George R. Jensen, Jr.
Chief Executive Officer
33
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the accompanying Quarterly Report of USA
Technologies, Inc., (the "Company") on Form 10-QSB for the period ended December
31, 2003 (the "Report"), I, David M. DeMedio, Chief Financial Officer of the
Company, hereby certify that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ David M. DeMedio
- --------------------
David M. DeMedio
Chief Financial Officer
34