UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
1O-Q
(Mark
One)
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended September 30,
2008
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF
1934
|
For the
transition period from ____________________ to
_____________________
Commission
file number 001-33365
USA
Technologies, Inc.
(Exact
name of registrant as specified in its charter)
|
Pennsylvania
|
23-2679963
|
|
(State
or other jurisdiction of incorporation)
|
(I.R.S.
employer Identification
No.)
|
|
100 Deerfield Lane, Suite 140, Malvern,
Pennsylvania
|
19355
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(610)
989-0340
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has 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 o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer”, and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).Yes o No x
As
October 17, 2008, there were 15,267,060 shares of Common Stock, no par value,
outstanding.
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PAGE
NO.
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||||
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Part I - Financial
Information
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||||
| Item |
1.
|
Condensed
Financial Statements (Unaudited)
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||
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3
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||||
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4
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||||
|
5
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||||
|
6
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||||
|
7
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||||
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2.
|
15
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|||
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3.
|
20
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|||
|
4T.
|
20
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|||
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Part II - Other Information
|
||||
| Item |
2.
|
20
|
||
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3.
|
21
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|||
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6.
|
21
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|||
|
22
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||||
Consolidated
Balance Sheets
|
September 30,
2008
|
June 30,
2008
|
|||||||
|
(Unaudited)
|
||||||||
|
Assets
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 7,967,980 | $ | 9,970,691 | ||||
|
Available-for-sale
securities
|
1,425,000 | - | ||||||
|
Accounts
receivable, less allowance for uncollectible accounts of
approximately $114,000 at September 30, 2008 and $215,000 at June 30,
2008
|
1,102,050 | 3,483,666 | ||||||
|
Finance
receivables
|
365,092 | 399,427 | ||||||
|
Inventory,
net
|
1,983,262 | 2,299,002 | ||||||
|
Prepaid
expenses and other current assets
|
972,860 | 802,223 | ||||||
|
Total
current assets
|
13,816,244 | 16,955,009 | ||||||
|
Available-for-sale
securities
|
5,450,000 | 6,875,000 | ||||||
|
Finance
receivables, less current portion
|
337,933 | 424,336 | ||||||
|
Property
and equipment, net
|
1,864,516 | 2,024,842 | ||||||
|
Intangibles,
net
|
5,620,853 | 5,885,432 | ||||||
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Goodwill
|
7,663,208 | 7,663,208 | ||||||
|
Other
assets
|
219,618 | 227,824 | ||||||
|
Total
assets
|
$ | 34,972,372 | $ | 40,055,651 | ||||
|
Liabilities
and shareholders’ equity
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 2,605,374 | $ | 4,005,549 | ||||
|
Accrued
expenses
|
2,324,306 | 2,506,035 | ||||||
|
Current
obligations under long-term debt
|
507,472 | 526,348 | ||||||
|
Total
current liabilities
|
5,437,152 | 7,037,932 | ||||||
|
Long-term
debt, less current portion
|
353,059 | 441,170 | ||||||
|
Total
liabilities
|
5,790,211 | 7,479,102 | ||||||
|
Commitments
and contingencies (Note 6)
|
||||||||
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Shareholders’
equity:
|
||||||||
|
Preferred
stock, no par value:
|
||||||||
|
Authorized
shares- 1,800,000
|
||||||||
|
Series
A convertible preferred- Authorized shares-900,000;
|
||||||||
|
Issued
and outstanding shares- 520,392 as of September 30, 2008 and as of June
30, 2008 (liquidation preference of $15,367,514 and $14,977,220,
respectively)
|
3,686,218 | 3,686,218 | ||||||
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Common
stock, no par value:
|
||||||||
|
Authorized
shares- 640,000,000;
|
||||||||
|
Issued
and outstanding shares- 15,238,350 at September 30, 2008 and 15,155,270 at
June 30, 2008
|
194,192,611 | 193,733,104 | ||||||
|
Accumulated
deficit
|
(168,696,668 | ) | (164,842,773 | ) | ||||
|
Total
shareholders’ equity
|
29,182,161 | 32,576,549 | ||||||
|
Total
liabilities and shareholders’ equity
|
$ | 34,972,372 | $ | 40,055,651 | ||||
|
See
accompanying notes.
|
||||||||
Consolidated
Statements of Operations
(Unaudited)
|
Three
months ended
September 30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Revenues:
|
||||||||
|
Equipment
sales
|
$ | 2,038,915 | $ | 2,650,264 | ||||
|
License
and transaction fees
|
1,355,964 | 705,392 | ||||||
|
Total
revenues
|
3,394,879 | 3,355,656 | ||||||
|
Cost
of equipment
|
1,433,844 | 2,272,492 | ||||||
|
Cost
of services
|
1,057,626 | 563,988 | ||||||
|
Cost
of sales
|
2,491,470 | 2,836,480 | ||||||
|
Gross
profit
|
903,409 | 519,176 | ||||||
|
Operating
expenses:
|
||||||||
|
Selling,
general and administrative
|
4,439,533 | 5,392,034 | ||||||
|
Depreciation
and amortization
|
418,779 | 500,627 | ||||||
|
Total
operating expenses
|
4,858,312 | 5,892,661 | ||||||
|
Operating
loss
|
(3,954,903 | ) | (5,373,485 | ) | ||||
|
Other
income (expense):
|
||||||||
|
Interest
income
|
127,966 | 148,892 | ||||||
|
Interest
expense
|
(26,958 | ) | (38,396 | ) | ||||
|
Total
other income (expense)
|
101,008 | 110,496 | ||||||
|
Net
loss
|
(3,853,895 | ) | (5,262,989 | ) | ||||
|
Cumulative
preferred dividends
|
(390,294 | ) | (390,294 | ) | ||||
|
Loss
applicable to common shares
|
$ | (4,244,189 | ) | $ | (5,653,283 | ) | ||
|
Loss
per common share (basic and diluted)
|
$ | (0.28 | ) | $ | (0.47 | ) | ||
|
Weighted
average number of common shares outstanding (basic and
diluted)
|
15,169,216 | 12,031,530 | ||||||
|
See
accompanying notes.
|
||||||||
Consolidated
Statement of Shareholders’ Equity
(Unaudited)
|
Series
A
Convertible
Preferred
Stock
|
Common
Stock
|
Accumulated
Deficit
|
Total
|
|||||||||||||
|
Balance,
June 30, 2008
|
$ | 3,686,218 | $ | 193,733,104 | $ | (164,842,773 | ) | $ | 32,576,549 | |||||||
|
Retirement
of 7,300 shares of common stock
|
- | (29,200 | ) | - | (29,200 | ) | ||||||||||
|
Issuance
of 18,380 fully-vested shares of common stock to employees and vesting of
shares granted under the 2007-A Stock Compensation Plan
|
- | 152,557 | - | 152,557 | ||||||||||||
|
Issuance
of 72,000 fully-vested shares of common stock to officers and vesting of
shares granted under the 2008 Stock Incentive Plan
|
- | 336,150 | - | 336,150 | ||||||||||||
|
Net
loss
|
- | - | (3,853,895 | ) | (3,853,895 | ) | ||||||||||
|
Balance,
September 30, 2008
|
$ | 3,686,218 | $ | 194,192,611 | $ | (168,696,668 | ) | $ | 29,182,161 | |||||||
|
See
accompanying notes.
|
||||||||||||||||
Consolidated
Statements of Cash Flows
(Unaudited)
|
Three
months ended
September 30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Operating
activities
|
||||||||
|
Net
loss
|
$ | (3,853,895 | ) | $ | (5,262,989 | ) | ||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
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Charges
incurred in connection with the vesting and issuance of common stock for
employee and officer compensation
|
488,707 | 95,924 | ||||||
|
Charges
incurred in connection with stock options
|
- | 30,277 | ||||||
|
Charges
incurred in connection with the Long-term Equity Incentive
Program
|
197,423 | 1,491,431 | ||||||
|
Bad
debt (recovery) expense
|
(5,068 | ) | 5,012 | |||||
|
Amortization
|
264,579 | 309,150 | ||||||
|
Depreciation,
$20,721 of which is allocated to cost of services for the three months
ended September 30, 2008
|
174,921 | 191,477 | ||||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Accounts
receivable
|
2,386,684 | (870,572 | ) | |||||
|
Finance
receivables
|
120,738 | (168,520 | ) | |||||
|
Inventory
|
315,740 | 378,550 | ||||||
|
Prepaid
expenses and other assets
|
(71,633 | ) | (215,128 | ) | ||||
|
Accounts
payable
|
(1,400,175 | ) | (960,709 | ) | ||||
|
Accrued
expenses
|
(379,152 | ) | 37,564 | |||||
|
Net
cash used in operating activities
|
(1,761,131 | ) | (4,938,533 | ) | ||||
|
Investing
activities
|
||||||||
|
Purchase
of property and equipment, net
|
(14,595 | ) | (95,356 | ) | ||||
|
Net
cash used in investing activities
|
(14,595 | ) | (95,356 | ) | ||||
|
Financing
activities
|
||||||||
|
Net
proceeds from the issuance (retirement) of common stock
|
(29,200 | ) | 3,651,620 | |||||
|
Proceeds
from the issuance of long-term debt
|
- | 239,740 | ||||||
|
Repayment
of long-term debt
|
(197,785 | ) | (78,074 | ) | ||||
|
Net
cash provided by (used in) financing activities
|
(226,985 | ) | 3,813,286 | |||||
|
Net
decrease in cash and cash equivalents
|
(2,002,711 | ) | (1,220,603 | ) | ||||
|
Cash
and cash equivalents at beginning of period
|
9,970,691 | 5,163,844 | ||||||
|
Cash
and cash equivalents at end of period
|
$ | 7,967,980 | $ | 3,943,241 | ||||
|
Supplemental
disclosures of cash flow information:
|
||||||||
|
Prepaid
insurance financed with long-term debt
|
$ | 90,798 | $ | - | ||||
|
Cash
paid for interest
|
$ | 29,511 | $ | 52,970 | ||||
|
Equipment
acquired under capital lease
|
$ | - | $ | 63,925 | ||||
|
See
accompanying notes.
|
||||||||
Notes to
Consolidated Financial Statements
1. Accounting
Policies
Business
USA
Technologies, Inc. (the “Company”, “We” or “Our”) was incorporated in the
Commonwealth of Pennsylvania in January 1992. The Company is a leading supplier
of cashless payment, remote management, reporting and energy management
solutions serving the unattended Point of Sale market. Our networked devices and
associated services enable the owners and operators of everyday, stand-alone,
distributed assets, such as vending machines, kiosks, personal computers,
photocopiers, and laundry equipment, the ability to offer their customers
cashless payment options, as well as remotely monitor, control and report on the
results of these distributed assets. As part of out Intelligent Vending®
solution, our Company also manufactures and sells energy management products
which reduce the electrical power consumption of vending related equipment, such
as refrigerated vending machines and glass front coolers, thus reducing the
electrical energy costs associated with operating this equipment.
Interim
Financial Information
The
accompanying unaudited consolidated financial statements of USA Technologies,
Inc. have been prepared in accordance with U.S. generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements and therefore should be read in conjunction with the Company’s Annual
Report on Form 10-K for the year ended June 30, 2008. In the opinion of
management, all adjustments considered necessary for a fair presentation,
consisting of normal recurring adjustments, have been included. Operating
results for the three-month period ended September 30, 2008 are not necessarily
indicative of the results that may be expected for the year ending June 30,
2009. The balance sheet at June 30, 2008 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by U.S. generally accepted accounting principles for
complete financial statements.
The
Company has incurred losses from its inception through June 30, 2008 and losses
have continued through September 2008 and are expected to continue during fiscal
year 2009. The Company's ability to meet its future obligations is dependent
upon the success of its products and services in the marketplace and the
available capital resources. Until the Company's products and services can
generate sufficient operating revenues, the Company will be required to use its
cash and cash equivalents on hand as discussed below, as well as raise capital
to meet its cash flow requirements including the issuance of Common Stock and
the exercise of outstanding Common Stock warrants.
USA
Technologies, Inc.
Notes to
Consolidated Financial Statements
1. Accounting
Policies (Continued)
Consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Stitch Networks Corporation
("Stitch") and USAT Capital Corp LLC (“USAT Capital”). All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Use
of Estimates
The
preparation of the consolidated financial statements in conformity with U.S.
generally accepted accounting principles 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.
Reclassification
Certain
amounts in the prior period financial statements have been reclassified to
conform to the current period presentation.
Cash
Equivalents
Cash
equivalents represent all highly liquid investments with original maturities of
three months or less. Cash equivalents are comprised of certificates of deposit
and a money market fund. The Company maintains its cash in bank deposit
accounts, which may exceed federally insured limits at times.
Available-for-sale
Securities
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.
As of
September 30, 2008 and June 30, 2008, available-for-sales securities consisted
of $6,875,000 par value of auction rate securities (“ARS”) that were purchased
during January 2008. At September 30, 2008, the Company classified $1,425,000 of
the ARS as current assets due to the redemption of the securities at par by the
issuer on October 22, 2008.
USA
Technologies, Inc.
Notes to
Consolidated Financial Statements
1. Accounting
Policies (Continued)
The
Company’s ARS are long-term variable rate securities whose dividend rates are
reset every seven days through a “dutch auction” conducted by investment banks.
The Company has the option to participate in the auction and sell the ARS to
prospective buyers at par value. The Company’s ARS are all AAA or Aaa rated, and
represent preferred stock of closed-end investment funds. The Company’s ARS have
no fixed maturity dates.
Until
February 2008, the auction process had allowed investors to obtain liquidity if
so desired by selling the securities at their par values on the weekly auction
date. However, beginning the week of February 11, 2008, the auctions for the
Company’s ARS failed as a result of negative overall market conditions, meaning
there were not enough buyers to purchase the amount of securities available for
sale at auction. The result of a failed auction, which does not signify a
default by the issuer, is that the ARS continue to pay dividends in accordance
with their terms, but the Company is not able to liquidate any of these
securities until these securities are redeemed by the issuer, or until there is
a successful auction, or until such time as other markets for these investments
develop.
In
addition, on August 21, 2008, the broker-dealer who sold the Company the ARS
announced a settlement with state regulators and an agreement in principle with
the Securities and Exchange Commission pursuant to which, among other things,
the broker-dealer will purchase all of the Company’s remaining ARS at par upon
the Company’s request at any time from January 2, 2009 through January 15, 2010.
The Company continues to believe that the par value represents the fair value of
these investments. As such, there was no unrealized loss recorded as of
September 30, 2008 in connection with these investments.
Inventory
Inventory
consists of finished goods and packaging materials. The Company's inventory is
stated at the lower of cost (average cost basis) or market.
USA
Technologies, Inc.
Notes to
Consolidated Financial Statements
1. Accounting
Policies (Continued)
Income
Taxes
No
provision for income taxes has been made in the three months ended September 30,
2008 and 2007 given the Company’s losses in 2008 and 2007 and available net
operating loss carryforwards. A benefit has not been recorded as the
realization of the net operating losses is not assured and the timing in which
the Company can utilize its net operating loss carryforwards in any year or in
total may be limited by provisions of the Internal Revenue Code regarding
changes in ownership of corporations.
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 potential common
shares. 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 during the periods presented because the assumed
exercise of these securities would be anti-dilutive.
Shared-Based
Payment
The
Company applies FAS123(R) “Share-Based Payment” which requires the measurement
of the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. There were no
common stock options granted during the three months ended September 30, 2008.
The Company recorded stock compensation expense of $488,707 and $95,924 related
to Common Stock grants and the vesting of shares previously granted to
employees, excluding the Long-term Equity Incentive Program, and $0 and $30,277
related to the vesting of Common Stock options during the three months ended
September 30, 2008 and 2007, respectively. The Company recorded stock
compensation expense of $197,423 and $1,491,431 related to the vesting of shares
under the Long-term Equity Incentive Program during the three months ended
September 30, 2008 and 2007, respectively.
USA
Technologies, Inc.
Notes to
Consolidated Financial Statements
2. Accrued
Expenses
Accrued
expenses consist of the following:
|
September 30
2008
|
June 30
2008
|
|||||||
|
(unaudited)
|
||||||||
|
Accrued
share-based payment liability
|
$ | 952,912 | $ | 755,489 | ||||
|
Accrued
compensation and related sales commissions
|
594,286 | 640,726 | ||||||
|
Accrued
taxes and filing fees
|
232,837 | 417,848 | ||||||
|
Accrued
other
|
221,685 | 226,427 | ||||||
|
Accrued
professional fees
|
162,091 | 265,557 | ||||||
|
Advanced
customer billings
|
160,495 | 199,988 | ||||||
| $ | 2,324,306 | $ | 2,506,035 | |||||
3. Long-Term
Debt
Long-term
debt consists of the following:
|
September 30
2008
|
June 30
2008
|
|||||||
|
(unaudited)
|
||||||||
|
Capital
lease obligations
|
$ | 457,930 | $ | 561,286 | ||||
|
Loan
agreements
|
402,601 | 406,232 | ||||||
| 860,531 | 967,518 | |||||||
|
Less
current portion
|
507,472 | 526,348 | ||||||
| $ | 353,059 | $ | 441,170 | |||||
As of
September 30, 2008, $202,328 and $110,874 of the current and long-term Finance
Receivables, respectively, are collateral for the outstanding balances of loans,
of which $198,890 and $35,644 is classified as current and long-term debt,
respectively.
4. Common
Stock
During
July of fiscal year 2009, the Company purchased 7,300 shares of its Common Stock
on the open market at a price of $4.00 per share for a total of $29,200 and then
retired the Common Shares.
USA
Technologies, Inc.
Notes to
Consolidated Financial Statements
4. Common
Stock (Continued)
As was
the case in fiscal year 2007 for the Long-Term Equity Incentive Program (the
“Program”), during the 2008 fiscal year a portion of the e-Port units sold
consisted of units pertaining to the MasterCard PayPass seeding program with
reduced selling prices resulting in reduced gross profit and EBITDA. As a
result, during September 2008, the Compensation Committee recommended to the
Board of Directors that the selling price of all the e-Ports sold during fiscal
year 2008 as part of the seeding program be “normalized” to the current retail
price. This normalization resulted in increased gross profit and EBITDA for the
e-Port units sold in the MasterCard PayPass seeding program. The Board of
Directors approved the recommendation of the Compensation Committee on September
3, 2008.
As a
result of the normalization, a lower than target hurdle was met for gross profit
(85%), resulting in the issuance to the executive officers of a total of 191,729
shares under the Plan for the 2008 fiscal year rather than a total of 126,973
shares prior to the normalization. The specific allocation of the shares among
the executive officers was as follows: Mr. Jensen-134,820 shares; Mr. Herbert-
40,553 shares; and Mr. DeMedio- 16,356 shares. As a result, the vesting of the
additional 64,756 shares resulted in compensation expense of $287,517 and a
corresponding amount recorded to the accrued share-based liability on September
3, 2008, when the market value of the Company’s Common Stock was $4.44 per
share. On September 30, 2008, as the Company’s share price was $4.14, the total
share-based payment liability related to fiscal year 2008 was $794,333. The
Company will continue to remeasure this share-based liability until final
settlement with changes in the fair value being charged to compensation expense.
Final settlement will occur upon the exercise or lapse of the cancellation
provision on December 30, 2008 and the fair value of the remaining shares will
be charged to Common Stock. During the three months ended September 30, 2008,
the Company recorded stock compensation expense of $38,844 related to the
Program for fiscal year 2008, $268,284 of which relates to the additional 64,756
shares awarded, offset by a reduction of $229,440 related to the change in the
fair value of the original award.
During
September 2008, Mr. Jensen and the Company entered into an amendment to his
employment agreement pursuant to which the term of Mr. Jensen’s employment with
the Company was extended from June 30, 2009 until June 30, 2011, and his annual
base salary was increased to $365,000 effective October 1, 2008. In addition,
Mr. Jensen was also granted 110,000 shares of Common Stock under the 2008 Stock
Incentive Plan valued at $4.44 per share which vest as follows: 36,000 on
September 15, 2008; 37,000 on January 15, 2009; and 37,000 on June 30,
2009.
During
September 2008, Mr. Herbert and the Company entered into an amendment to his
employment agreement pursuant to which the term of Mr. Herbert’s employment with
the Company was extended from June 30, 2009 until June 30, 2011, and his annual
base salary was increased to $320,000 effective October 1, 2008. In addition,
Mr. Herbert was also granted 85,000 shares of Common Stock under the 2008 Stock
Incentive Plan valued at $4.44 per share which vest as follows: 28,000 on
September 15, 2008; 28,000 on January 15, 2009; and 29,000 on June 30,
2009.
USA
Technologies, Inc.
Notes to
Consolidated Financial Statements
4. Common
Stock (Continued)
During
September 2008, Mr. DeMedio and the Company entered into an amendment to his
employment agreement pursuant to which he was granted 25,000 shares of Common
Stock under the 2008 Stock Incentive Plan valued at $4.44 per share which vest
as follows: 8,000 on September 15, 2008; 8,000 on January 15, 2009; and 9,000 on
June 30, 2009.
In
conjunction with the Plan award for fiscal year 2009, the Company recorded
compensation expense of $158,579 and a corresponding amount to the short-term
accrued shared-based payment liability during the three months ended September
30, 2008. This amount was based on management’s estimate of the probability of
meeting the target goals and fair value of the Company’s stock of $4.14 at the
end of the reporting period, September 30, 2008. Management will update this
estimate and remeasure the short-term share-based payment liability at the end
of each reporting period until settlement. The final measurement and charge to
compensation expense will be determined on the date of settlement.
5. Common
Stock Warrants
As of
September 30, 2008, there were 1,591,735 Common Stock warrants outstanding, all
of which were exercisable at exercise prices ranging from $6.40 to $20 per
share.
6. Commitments
and Contingencies
Various
legal actions and claims occurring in the normal course of business are pending
or may be instituted or asserted in the future against the Company. The Company
does not believe that the resolution of these matters will have a material
effect on the financial position or results of operations of the
Company.
In
September 2007 and provided that the manufacturer can produce a lower cost
e-Port for the Company, the Company had committed to purchase approximately
$3,600,000 of inventory from a third party contract manufacturer over an
eighteen month period. As of September 30, 2008, the Company had not yet
purchased any inventory under this commitment, however it is highly likely that
the Company will be required to do so as it is highly likely that the
manufacturer will meet its commitment to produce a lower cost
e-Port.
7.
Subsequent Events
On
October 1, 2008, the Company and First Data Merchant Services Corporation, a
wholly-owned subsidiary of First Data Corporation ("First Data"), entered into a
three year Joint Marketing Agreement. Pursuant to the Joint Marketing Agreement,
the Company and First Data agreed to jointly market and sell to vending
operators and soft drink bottlers in the United States a prepaid vending
solution which utilizes the Company’s e-Port device and First Data’s GO-Tag
contactless payment presentation device. The Joint Marketing Agreement
contemplates the sale to customers of up to 100,000 e-Ports and up to 25 million
GO-Tags over the three year term of the agreement. The Company would sell the
e-Ports to the customers at retail pricing. The e-Ports would accept credit
cards, debit cards, and contactless cards as well as First Data’s
GO-Tag.
USA
Technologies, Inc.
Notes to
Consolidated Financial Statements
7.
Subsequent Events (Continued)
At the
time of entering into the Joint Marketing Agreement, the Company issued First
Data performance-based warrants to purchase up to 1,500,000 shares of Common
Stock. First Data would have the right to purchase 500,000 of such shares within
two years of issuance at $5.25 per share (the "A Warrants"), and 1,000,000 of
such shares within three years of issuance at $6.00 per share (the "B
Warrants"). The A Warrants are only exercisable by First Data if a minimum of
20,000 e-Ports are sold to a customer pursuant to the Joint Marketing Agreement
prior to the expiration of the A Warrants. The B Warrants are only exercisable
by First Data if the A Warrants become exercisable and if a minimum of 15,000
additional e-Ports are sold to a customer pursuant to the Joint Marketing
Agreement following the date on which the A Warrants become exercisable and
prior to the expiration of the B Warrants.
The Joint
Marketing Agreement provides that First Data has the pre-emptive right for a
period of three years to purchase that number of securities being offered for
sale by the Company during such three year period in order to maintain its
pro-rata portion of the Common Stock of the Company following the issuance of
any securities to be sold by the Company in any such subsequent securities
offering.
As a
result of the issuance of warrants to First Data, the exercise price of the
warrants held by S.A.C. Capital Associates, LLC (“S.A.C.”) has been
automatically reduced to $5.90 per share from $6.40 per share, and the number of
shares underlying these warrants has been automatically increased to 903,955
from 833,333, as required by the terms of the Securities Purchase Agreement with
S.A.C. dated March 14, 2007.
During
October of fiscal year 2009, the Company purchased 61,244 shares of its Common
Stock on the open market at prices ranging from $2.85 to $4.00 per share for a
total of $182,895. The Company also purchased 500 shares of its Preferred Stock
on the open market at a price of $9.00 per share for a total of
$4,500.
Forward
Looking Statements
This Form
10-Q 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, (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 or to fund
development and marketing of its products, (vii) the ability of the Company to
obtain approval of its pending patent applications or the risk that its
technologies would infringe patents owned by others, (viii) the ability of the
Company to satisfy its trade obligations included in accounts payable and
accrued liabilities, (ix) the ability of the Company to predict or estimate its
future quarterly or annual revenues given the developing and unpredictable
market for its products and the lack of established revenues, (x) the ability of
the Company to retain key customers as a significant portion of its revenues is
derived from a limited number of key customers, and (xi) the ability of a key
customer to reduce or delay purchasing products from the Company. 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
Three
months ended September 30, 2008
Revenues
for the three months ended September 30, 2008 were $3,394,879 compared to
$3,355,656 for the corresponding three-month period in the previous fiscal year.
This $39,223 or 1% increase was due to a decrease in equipment sales of $611,349
and an increase in license and transaction fees of $650,572. The decrease in
equipment sales was due to a decrease in sales of approximately $517,000 in
e-Port vending equipment sales, primarily related to the significant number of
e-Port units installed in the prior period under the November 2007 agreement
with MasterCard Worldwide as compared to sales during the current period, a
decrease in sales of approximately $122,000 in energy conservation equipment,
and a slight increase in other equipment sales of approximately $28,000. The
increase in license and transaction fees was due to the increase in the number
of e-Port units on our USALive® network, primarily as a result of the recurring
revenues being generated by the e-Port units deployed in the prior fiscal year
under the MasterCard PayPass Participation Agreement entered into by the
Company, Coca-Cola Enterprises and MasterCard Worldwide (the “CCE/MasterCard
Agreement”), as well as first time volume purchases following the MasterCard
seeding initiative.
In
regards to license fees, as of September 30, 2008, the Company had approximately
42,000 devices connected to our USALive® network as compared to approximately
24,000 devices as of September 30, 2007.
In
regards to transaction fees, during the quarter ended September 30, 2008, the
Company processed approximately 4.7 million transactions totaling over $11.6
million as compared to approximately 1.8 million transactions totaling over $7.3
million during the quarter ended September 30, 2007, an increase of 161% in
transaction volume and 59% in dollars processed.
Cost of
sales for the period consisted of equipment costs of $1,433,844 and network and
transaction services related costs of $1,057,626. The decrease in total cost of
sales of $345,010 or 12% over the same period in the prior year was due to a
decrease in equipment costs of $838,648 and an increase in network and
transaction services related costs of $493,638.
Gross
profit for the three months ended September 30, 2008 was $903,409, compared to a
gross profit of $519,176 for the corresponding three-month period in the
previous fiscal year. This $384,233 or 74% increase is primarily due to an
increase in the profit margins of both the energy equipment sales as well as the
e-Port vending equipment sales as a result of producing the products at a lower
cost as well as selling both of the products at higher average sales
prices.
Selling,
general and administrative expense of $4,439,533 decreased by $952,501 or 18%
primarily due to a decrease in compensation expense of approximately $980,000,
and a decrease in professional and consulting services of approximately $44,000,
offset by an increase in product development costs of approximately $80,000. The
overall decrease was due to focused cost reduction measures taken by the Company
during the third and fourth quarters of fiscal year 2008.
Compensation
expense decreased by approximately $980,000 primarily due to a decrease of
approximately $1.3 million in non-cash charges related to the Long-Term Equity
Incentive Program for fiscal year 2008 as compared to 2007, offset by an
increase in salaries expense of approximately $286,000 for non-cash charges for
restricted stock granted to officers and an increase in benefit expenses of
approximately $29,000.
Depreciation
and amortization expense of $418,779 decreased by $81,848 or 16% primarily due
to completion of amortization of a non-compete agreement during the current
quarter.
The
quarter ended September 30, 2008 resulted in a net loss of $3,853,895
(approximately $1.1 million of non-cash charges) compared to a net loss of
$5,262,989 (approximately $2.1 million of non-cash charges) for the quarter
ended September 30, 2007.
Three
months ended September 30, 2007
Revenues
for the three months ended September 30, 2007 were $3,355,656 compared to
$2,008,897 for the corresponding three-month period in the previous fiscal year.
This $1,346,759 or 67% increase was primarily due to an increase in equipment
sales of approximately $979,000 and license and transaction fees of
approximately $367,000. The increase in equipment sales was due to an increase
in sales of approximately $1,109,000 in e-Port vending equipment sales,
primarily related to the CCE/MasterCard Agreement, offset by a decrease of
approximately $131,000 in business center sales. The increase in
license and transaction fees was due to the increase in the number of e-Port
units on our USALive® network, primarily as a result of the CCE/MasterCard
Agreement.
In
regards to license fees, as of September 30, 2007, the Company had approximately
19,000 devices connected to our USALive® network as compared to approximately
9,000 devices as of September 30, 2006. During the month of October 2007, the
Company added approximately 5,000 devices for a total of approximately 24,000
connected devices as of October 30, 2007.
In
regards to transaction fees, during the quarter ended September 30, 2007, the
Company processed approximately 1.8 million transactions totaling over $7.3
million as compared to approximately 650 thousand transactions totaling over
$4.3 million during the quarter ended September 30, 2006, an increase of 177% in
transaction volume and 70% in dollars processed.
Cost of
equipment for the period was $2,272,492, compared to $1,131,159 for the
corresponding period in the prior fiscal year. The increase of $1,141,333 was
primarily due to an increase in vending equipment sales relating primarily to
our seeding initiative under the CCE/MasterCard Agreement.
Cost of
services for the period was $563,988, compared to $262,202 for the corresponding
period in the prior fiscal year. The increase of $301,786 was primarily due to
the increase in the number of e-Ports connected to our USALive network relating
primarily to our seeding initiative under the CCE/MasterCard
Agreement.
Gross
profit for the three months ended September 30, 2007 was $519,176, compared to
gross profit of $615,536 for the corresponding three-month period in the
previous fiscal year. This 16% decrease is primarily due to an increase in sales
of our vending products as part of a seeding program. Specifically, we lowered
the price of our e-Ports at or near cost pursuant to our seeding program under
the CCE/MasterCard Agreement that had the effect of reducing our margins.
Product pricing under this program does not reflect the Company’s current retail
pricing.
Selling,
general and administrative expense of $5,392,034 increased by $2,044,978 or 61%
primarily due to an increase in compensation expense of approximately $1,757,000
and an increase in consulting and outside service fees of approximately
$289,000. The increase in compensation expense is primarily comprised of an
increase in salaries expense of approximately $342,000 due to an increase in the
number of employees and an increase in bonus expense of approximately $1,403,000
primarily due to non-cash charges from our Long-term Equity Incentive Program.
Specifically, the Company recorded $1,170,443 in the three months ended
September 30, 2007 attributable to 139,671 of the shares earned by our executive
officers under this program on account of fiscal year 2007 as well as $320,988
attributable to the vesting of shares for the 2008 fiscal year.
Interest
expense of $38,396 decreased by $515,969 or 93% due to the repayment of all
senior notes during fiscal year 2007.
The
quarter ended September 30, 2007 resulted in a net loss of $5,262,989
(approximately $2.1 million of non-cash charges) compared to a net loss of
$3,680,314 (approximately $1.0 million of non-cash charges) for the quarter
ended September 30, 2006.
Liquidity
and Capital Resources
For the
three months ended September 30, 2008, net cash of $1,761,131 was used by
operating activities, primarily due to the net loss of $3,853,895 offset by
non-cash charges totaling $1,120,562 for transactions involving the vesting and
issuance of common stock to employees, the vesting of stock options, bad debt
expense and the depreciation and amortization of assets. In addition to these
non-cash charges, the Company’s net operating assets increased by $972,202
primarily due to an increase in prepaid expenses and decreases in accounts
payable and accrued expenses, partially offset by decreases in accounts and
finance receivables.
The
Company used $226,985 in financing activities for the three months ended
September 30, 2008 due to the repayment of $197,785 of long-term debt and the
retirement of $29,200 in Common Stock.
The
Company has incurred losses since inception. Our accumulated deficit through
September 30, 2008 is composed of cumulative losses amounting to approximately
$166,000,000 and preferred dividends converted to common stock of approximately
$2,700,000. The Company has continued to raise capital through equity offerings
to fund operations.
As of
September 30, 2008 the Company had $7,967,980 of cash and cash equivalents on
hand and $6,875,000 of available-for-sale securities, of which $1,425,000 are
classified as current assets due to their redemption by the issuer on October
22, 2008. These available-for-sale securities consist of $6,875,000 par value of
auction rate securities that were purchased during January 2008 from a
broker-dealer. On August 21, 2008 the broker-dealer who sold us the auction rate
securities announced a settlement with state regulators and an agreement in
principle with the Securities and Exchange Commission pursuant to which, among
other things, the broker-dealer will purchase all of our remaining auction rate
securities at par upon our request at any time from January 2, 2009 through
January 15, 2010. We intend to sell all of our auction rate securities to the
broker-dealer on January 2, 2009, if the securities have not already been
redeemed by the issuer.
In order
to attempt to improve our operating results, we took appropriate actions during
the third and fourth quarters of fiscal year 2008 to reduce our cash-based
selling, general and administrative expenses. These actions consisted of staff
reductions and related costs and reductions in our controllable costs. As a
result, our cash-based selling, general and administrative expenses decreased
from approximately $4,753,000 during the second quarter of fiscal year 2008 to
approximately $4,445,000 during the third quarter of fiscal year 2008,
approximately $4,000,000 during the fourth quarter of fiscal year 2008 and
further decreased to approximately $3,758,000 during the first quarter of fiscal
year 2009. The full benefit of these cash-based cost reductions is reflected
starting in the first quarter of the 2009 fiscal year. We also believe that
these cost reductions will not materially adversely affect our planned revenue
growth for the foreseeable future.
During
the 2008 fiscal year, the Company’s monthly cash requirement, including
requirements for capital expenditures and net repayments of long-term debt, was
approximately $1,200,000 per month. Assuming that the Company’s monthly cash
requirement for each of the twelve months during fiscal year 2009 is $1,200,000,
the Company’s cash requirements, including capital expenditures and repayment of
long-term debt, during fiscal year 2009 would be approximately
$14,400,000.
Funding
sources in place to meet the Company's cash requirements are comprised of
approximately $8,000,000 of cash and cash equivalents on hand and $6,875,000 of
available-for-sale securities as of September 30, 2008, for a total of
approximately $14,875,000. Based upon the assumptions described above, the
Company believes these existing sources will provide sufficient funds to meet
its cash requirements, including capital expenditures and repayment of long-term
debt, through not only July 1, 2009 (the end of our current fiscal
year plus one day) but through at least October 1, 2009.
The
Company's exposure to market risks for interest rate changes is not significant.
Interest rates on its long-term debt are generally fixed and its investments in
cash equivalents is not significant. Regarding the Company’s exposure to market
risks related to available-for-sale securities, see “Available-for sale
Securities” in the Notes to Consolidated Financial Statements. Market risks
related to fluctuations of foreign currencies are not significant and the
Company has no derivative instruments.
(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 September 30,
2008. Based on this evaluation, they conclude that the disclosure
controls and procedures were effective to ensure that the information required
to be disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported,
within the time periods specified in the Commission’s rules and forms
and to ensure that information required to be disclosed by the Company in the
reports that it files or submits under the Securities Exchange Act of 1934 is
accumulated and communicated to the Company’s management, including its
principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.
(b)
Changes in internal controls.
There
have been no changes during the quarter ended September 30, 2008 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
(a) Sales
of Unregistered Securities during the Quarter ended September 30,
2008
During
the quarter ended September 30, 2008, the Company issued the following number of
shares to its executive officers under the Program on account of the 2008 fiscal
year: George R. Jensen, Jr. – 134,820 shares; Stephen P. Herbert – 40,553
shares; and David M. DeMedio – 16,356 shares. The issuance of the shares was
exempt from registration under Section 4(2) of the Act.
(b)
Issuer purchases of Equity Securities during the Quarter ended September 30,
2008
The
following table provides information relating to the Company’s purchases of its
Common Stock during the quarter ended September 30, 2008:
|
Period
|
Total
number of shares (1)
|
Average
price paid per share
|
Total
number of shares purchased as part of publicly announced plans or
programs
|
Approximate
dollar value of shares that yet may be purchased under the plans or
programs
|
||||||||||||
|
July
1 through
|
7,300 | $ | 4.00 | -- | $ | 470,800 | ||||||||||
|
July
31, 2008
|
||||||||||||||||
|
Total
|
7,300 | $ | 4.00 | -- | $ | 470,800 | ||||||||||
(1) On
July 15, 2008, the Board of Directors authorized the purchase by the Company in
the open market of up to $500,000 of Common Stock or Series A Preferred Stock
through December 31, 2008. All purchases of Common Stock must be in compliance
with the Securities and Exchange Commission’s Rule 10b-18. There were no
purchases of Series A Preferred Stock during the quarter.
There
were no defaults on any senior securities. However, on August 1, 2008, an
additional $390,294 of dividends were accrued on our cumulative Series A
Convertible Preferred Stock. The total accrued and unpaid dividends on our
Series A Convertible Preferred Stock as of September 30, 2008 are $10,163,594.
The dividend accrual dates for our Preferred Stock are February 1 and August 1.
The annual cumulative dividend on our Preferred Stock is $1.50 per
share.
|
Certifications
of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934.
|
|
Certifications
of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934.
|
|
Certifications
by the Chief Executive Officer and Chief Financial Officer pursuant to 18
USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
USA
TECHNOLOGIES, INC.
|
|
|
Date: November
4, 2008
|
/s/ George R. Jensen,
Jr.
|
|
George
R. Jensen, Jr., Chairman and
|
|
|
Chief
Executive Officer
|
|
|
Date: November
4, 2008
|
/s/ David M. DeMedio
|
|
David
M. DeMedio,
|
|
|
Chief
Financial Officer
|
22
Exhibit
31.1
CERTIFICATIONS
I, George
R. Jensen, Jr., Chief Executive Officer of the registrant, certify
that:
1. I have
reviewed this quarterly report on Form 10-Q 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 registrant as of, and
for, the periods presented in this report;
4. The
registrant'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 registrant 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 registrant, 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 registrant'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 registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal quarter that
has materially affected or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The
registrant's other certifying officer and I have disclosed, based on our most
recent evaluation, of internal control over financial reporting to the
registrant’s auditors and the audit committee of the registrant's board of
directors:
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 registrant'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 registrant's internal control over financial
reporting.
|
Date:
November 4, 2008
|
/s/ George R. Jensen, Jr.
|
|
|
George
R. Jensen, Jr.,
|
||
|
Chief
Executive Officer
|
Exhibit
31.2
CERTIFICATIONS
I, David
M. DeMedio, Chief Financial Officer of the registrant, certify
that:
1. I have
reviewed this quarterly report on Form 10-Q 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 registrant as of, and
for, the periods presented in this report;
4. The
registrant'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 registrant 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 registrant, 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 registrant'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 registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal quarter that
has materially affected or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The
registrant's other certifying officer and I have disclosed, based on our most
recent evaluation, of internal control over financial reporting to the
registrant’s auditors and the audit committee of the registrant's board of
directors:
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 registrant'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 registrant's internal control over financial
reporting.
|
Date:
November 4, 2008
|
/s/ David M. DeMedio
|
|
|
David
M. DeMedio,
|
||
|
Chief
Financial Officer
|
Exhibit
32
CERTIFICATION
PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of USA Technologies, Inc., (the "Company")
on Form 10-Q for the period ended September 30, 2008 (the "Report"), I, George
R. Jensen, Jr., Chief Executive Officer of the Company, hereby certify pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), 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
CERTIFICATION
PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of USA Technologies, Inc., (the "Company")
on Form 10-Q for the period ended September 30, 2008 (the "Report"), I, David M.
DeMedio, Chief Financial Officer of the Company, hereby certify pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), 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