REGISTRATION NO. 333-219201        

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

USA TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

100 Deerfield Lane, Suite 300

Malvern, Pennsylvania 19355

(610) 989-0340

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive officers)

Stephen P. Herbert

Chief Executive Officer

USA Technologies, Inc.

100 Deerfield Lane, Suite 300

Malvern, Pennsylvania 19355

(610) 989-0340

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

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If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act.  ☐

 

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CALCULATION OF REGISTRATION FEE

(3)

$4,636 of the registration fee has been previously paid in connection with the initial filing of this registration statement.

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The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

The information in this preliminary prospectus is not complete and may be changed.  We may not sell these securities nor may offers to buy these securities be accepted until the registration statement filed with the Securities and Exchange Commission becomes effective.  This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

 

$35,000,000

Common Stock

 

 

USA TECHNOLOGIES, INC.

We are offering 7,070,707 shares of our common stock, assuming a public offering price of $4.95, the last reported sale price of our common stock on The NASDAQ Global Market on July 13, 2017, with an aggregate market value of approximately $35,000,000. Our common stock is quoted on The NASDAQ Global Market under the symbol “USAT.”

Investing in our common stock involves risks.  You should read the section entitled “Risk Factors,” beginning on page 9 of this prospectus, and all other information included in this prospectus in connection with an investment in our common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

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(1)	See the section entitled "Underwriting," beginning on page 82 of this prospectus, for additional information regarding underwriting compensation.

We have granted the underwriters an option to buy up to an additional 1,060,606 shares of common stock to cover over-allotments, assuming a public offering price of $4.95, the last reported sale price of our common stock on The NASDAQ Global Market on July 13, 2017, with an aggregate market value of approximately $5,250,000. The underwriters may exercise this option at any time during the 30-day period from the date of this prospectus.

The underwriters are offering the shares of common stock for sale on a firm commitment basis. The underwriters expect to deliver the shares of common stock to the purchasers on or about            , 2017.

 

Craig-Hallum Capital Group
	Northland Capital Markets
		Barrington Research

 

 

TABLE OF CONTENTS

 

You should rely only on the information contained in this prospectus and any free writing prospectus prepared by or on behalf of us or to which we have referred you. We have not, and the underwriters have not, authorized anyone to provide you with information that is different. We are offering to sell shares of our common stock, and seeking offers to buy shares of our common stock, only in jurisdictions where offers and sales are permitted. The information in this prospectus is complete and accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock.

This prospectus and any related free writing prospectus, if any, do not constitute an offer to sell or the solicitation of an offer to buy any securities other than the registered securities to which they relate, nor do this prospectus or any related free writing prospectus, if any, constitute an offer to sell or the solicitation of an offer to buy securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. You should not assume that the information contained in this prospectus, or any related free writing prospectus is accurate on any date subsequent to the date set forth on the front of the document, even though this prospectus or any related free writing prospectus is delivered or the applicable securities are sold on a later date.

 

 

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Corporate Information

We were incorporated in the Commonwealth of Pennsylvania in 1992. Our principal executive offices are located at 100 Deerfield Lane, Suite 300, Malvern, Pennsylvania 19355, and our phone number is (610) 989-0340. Additional information regarding our company, including our audited financial statements and description of our business, is contained in this prospectus. See “Where You Can Find More Information.” Our web site is www.usatech.com. Information on our website is not incorporated in this prospectus and is not a part of this prospectus.

                                                                 

 

                                                           

Summary Financial Data and Other Data

 

The following tables summarize our financial data and should be read together with the sections in this prospectus entitled “Selected Consolidated Financial Data and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

We have derived the summary condensed consolidated statement of operations data for the years ended June 30, 2016 and 2015 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the summary consolidated statement of operations data for the nine months ended March 31, 2017 and the summary condensed consolidated balance sheet data as of March 31, 2017 from our unaudited interim consolidated financial statements included elsewhere in this prospectus.

 

We have prepared the unaudited interim consolidated financial statements on the same basis as the audited consolidated financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair statement of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that should be expected in the future, and interim results are not necessarily indicative of the results that should be expected for the full year or any other period.

 

		Nine Months Ended March 31, 2017				As of and for the Year ended June 30,
($ in thousands, except per share data and as otherwise noted)						2016				2015
OPERATIONS DATA:
Revenues		$	69,804			$	77,408			$	58,077
Operating income (loss)		$	(297	)		$	(1,467	)		$	(240	)
Net Income (loss)		$	(2,095	)		$	(6,806	)		$	(1,089	)
Cumulative preferred dividends			(668	)			(668	)			(668	)
Net income (loss) applicable to common shares		$	(2,763	)		$	(7,474	)		$	(1,757	)
Net earnings (loss) per common share - basic and diluted (1)		$	(0.07	)		$	(0.21	)		$	(0.05	)
Cash dividends per common share			-				-				-
BALANCE SHEET DATA:
Total assets		$	88,992			$	84,833			$	75,134
Long-term debt		$	1,239			$	1,576			$	1,854
Shareholders’ equity		$	64,999			$	55,025			$	53,311
CASH FLOW DATA:
Net cash provided by (used in) operating activities		$	(4,295	)		$	6,468			$	(1,698	)
Net cash provided by (used in) investing activities			(2,713	)			(5,772	)			3,354
Net cash provided by (used in) financing activities			5,516				7,202				646
Net increase (decrease) in cash and cash equivalents			(1,492	)			7,898				2,302
Cash and cash equivalents at beginning of period			19,272				11,374				9,072
Cash and cash equivalents at end of period		$	17,780			$	19,272			$	11,374
CONNECTIONS AND TRANSACTION DATA (UNAUDITED):
Net New Connections #			75,000				96,000				67,000
Total Connections #			504,000				429,000				333,000
New Customers Added #			1,350				1,450				2,300
Total Customers #			12,400				11,050				9,600
Total Number of Transactions (millions)			300.2				315.8				216.6
Transaction Volume (millions) #			577.3				584.4				388.9

 

(1)	See note 2 to our consolidated financial statements appearing elsewhere in this prospectus for a description of the method used to calculate basic and diluted net income (loss) per share of common stock.

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At March 31, 2017, we had net working capital of $11.9 million. We had net cash provided by operating activities of $6.5 million, $(1.7) million and $7.1 million for the fiscal years ended June 30, 2016, 2015 and 2014, respectively. Although we believe that we have adequate existing resources to provide for our funding requirements over the next 12 months, there can be no assurances that we will be able to continue to generate sufficient funds thereafter. Unless we maintain or grow our current level of operations, we may need additional funds to continue these operations. We may also need additional capital to update our technology or respond to unusual or unanticipated non-operational events. Should the financing that we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences could have a material adverse effect on our business, operating results, financial condition and prospects.

Our future operating results may fluctuate.

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our ability to establish or maintain effective relationships with significant partners and suppliers on acceptable terms;

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the amount of debit or credit card interchange rates that are charged by Visa and MasterCard;

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the fees that we charge our customers for processing services;

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the successful operation of our network;

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the commercial success of our customers, which could be affected by such factors as general economic conditions;

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the level of product and price competition;

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the timing and cost of, and our ability to develop and successfully commercialize, new or enhanced products and services;

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activities of, and acquisitions or announcements by, competitors;

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the impact from any impairment of inventory, goodwill, fixed assets or intangibles;

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the impact of any changes of valuation allowance on deferred tax assets;

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the ability to increase the number of customer connections to our network;

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marketing programs which delay realization by us of monthly service fees on our new connections;

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the material breach of security of any of the Company’s systems or third party systems utilized by the Company; and

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the anticipation of and response to technological changes.

There can be no assurances that demand for our products will be sufficient to enable us to generate sufficient revenue or become profitable on a sustainable basis. Likewise, no assurance can be given that we will be able to have a sufficient number of ePorts® connected to our network or sell or lease equipment utilizing our network to enough locations to achieve significant revenues. Alternatively, the locations which utilize the network may not be successful locations and our revenues would be adversely affected. We may lose locations utilizing our products to competitors, or may not be able to install our products at competitors’ locations, or may not obtain future locations which would be obtained by our competitors. In addition, there can be no assurance that our products could evolve or be improved to meet the future needs of the marketplace. In any such event, we may not be able to achieve our growth plans, including anticipated connections and revenue growth.

We may be required to incur further debt to meet future capital requirements of our business. Should we be required to incur additional debt, the restrictions imposed by the terms of such debt could adversely affect our financial condition and our ability to respond to changes in our business.

 

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we may be sensitive to fluctuations in interest rates if any of our debt obligations are subject to variable interest rates; and

 

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our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired.

 

We cannot assure you that our leverage and such restrictions will not materially and adversely affect our ability to finance our future operations or capital needs or to engage in other business activities. In addition, we cannot assure you that additional financing will be available when required or, if available, will be on terms satisfactory to us.

 

Our bank borrowing agreement contains restrictions which may limit our flexibility in operating and growing our business.

 

Our bank borrowing agreement contains covenants regarding our maintenance of a minimum quarterly adjusted EBITDA as defined in our loan agreement and certain numbers of connections. Our loan agreement also includes covenants that limit our ability to engage in specified types of transactions, including among other things:

·

incur additional indebtedness or issue equity;

·

pay dividends on, repurchase or make distributions in respect of our common stock;

·

make certain investments (including acquisitions) and distributions;

·

sell certain assets;

·

create liens;

·

consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;

·

enter into certain transactions with respect to our affiliates;

·

ability to enter into business combinations; and

·

certain other financial and non-financial covenants.

 

We were in compliance with these covenants as of March 31, 2017. Failure to be in compliance with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all or a portion of our outstanding indebtedness, which would have a material adverse effect on our business, financial condition and results of operations.

 

The loss of one or more of our key customers could significantly reduce our revenues, results of operations, and net income.

 

We have derived, and believe we may continue to derive, a significant portion of our revenues from one large customer or a limited number of large customers. Customer concentrations for the years ended June 30, 2016, 2015 and 2014 were as follows:

 

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The operation of our wireless networked devices depends upon the capacity, reliability and security of services provided to us by our wireless telecommunication services providers, AT&T Mobility and Verizon Wireless. We have no control over the operation, quality or maintenance of these services or whether the vendor will improve or reduce its services or continue to provide services that are essential to our business. In addition, subject to our existing contracts with them, our wireless telecommunication services providers may increase their prices, which would increase our costs. If our wireless telecommunication services providers were to cease to provide essential services or to significantly increase prices, we could be required to find alternative vendors for these services. With a limited number of vendors, we could experience significant delays in obtaining new or replacement services, which could lead to slowdowns or failures of our network. In addition, we may have to replace our existing ePort® devices that are already installed in the marketplace and which are utilizing the existing vendor’s services. This could significantly harm our reputation and could cause us to lose customers and revenues.

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We are, among other things, subject to banking regulations and credit card association regulations. Failure to comply with these regulations may result in the suspension of our business, the limitation, suspension or termination of service, and/or the imposition of fines that could have an adverse effect on our financial condition. Additionally, changes to legal rules and regulations, or interpretation or enforcement thereof, could have a negative financial effect on us or our product offerings. To the extent this occurs, we could be subject to additional technical, contractual or other requirements as a condition of our continuing to conduct our payment processing business. These requirements could cause us to incur additional costs, which could be significant, or to lose revenues to the extent we do not comply with these requirements.

New legislation could be enacted regulating the basis upon which interchange rates are charged for debit or credit card transactions, which could increase the debit or credit card interchange fees charged by bankcard networks. An example of such legislation is the so-called “Durbin Amendment,” to the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010. The Durbin Amendment regulates the basis upon which interchange rates for debit card transactions are made to ensure that interchange rates are “reasonable and proportionate to costs.” Pursuant to regulations that were promulgated by the Federal Reserve, Visa and MasterCard have significantly increased their interchange fees for small ticket debit card transactions.

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For the Company to successfully compete and grow, it must retain, recruit and develop the necessary personnel who can provide the needed expertise required in its business. In addition, the Company must develop its personnel to provide succession plans capable of maintaining continuity in the midst of the inevitable unpredictability of human capital. However, the market for qualified personnel is competitive and the Company may not succeed in recruiting additional personnel or may fail to effectively replace current personnel who depart with qualified or effective successors. The Company’s effort to retain and develop personnel may also result in significant additional expenses. The Company cannot assure that key personnel, including executive officers, will continue to be employed or that it will be able to attract and retain qualified personnel in the future. Failure to retain or attract key personnel could have a material adverse effect on the Company.

We incur chargeback liability when our customers refuse or cannot reimburse chargebacks resolved in favor of consumers. Any increase in chargebacks not paid by our customers may adversely affect our results of operations, financial condition and cash flows.

In the event a dispute between a cardholder and a customer is not resolved in favor of the customer, the transaction is normally charged back to the customer and the purchase price is credited or otherwise refunded to the cardholder. If we are unable to collect such amounts from the customer's account, or if the customer refuses or is unable, due to closure, bankruptcy or other reasons, to reimburse us for a chargeback, we bear the loss for the amount of the refund paid to the cardholder. We may experience significant losses from chargebacks in the future. Any increase in chargebacks not paid by our customers could have a material adverse effect on our business, financial condition, results of operations and cash flows. We have policies to manage customer-related credit risk and attempt to mitigate such risk by monitoring transaction activity. Notwithstanding our programs and policies for managing credit risk, it is possible that a default on such obligations by one or more of our customers could have a material adverse effect on our business.

Failure to maintain effective systems of internal control over financial reporting and disclosure controls and procedures could cause a loss of confidence in our financial reporting and adversely affect the trading price of our common stock.

Effective internal control over financial reporting is necessary for us to provide accurate financial information. Section 404 of the Sarbanes-Oxley Act requires us to evaluate the effectiveness of our internal control over financial reporting as of the end of each fiscal year and to include a management report assessing the effectiveness of our internal control over financial reporting in our Annual Report on Form 10-K. We identified a material weakness in our internal controls over financial reporting as of June 30, 2016 and June 30, 2015. The significant deficiencies that when aggregated resulted in these material weaknesses were described in our Annual Report on Form 10-K for the fiscal year ended June 30, 2015 and in our Annual Report on Form 10-K for the fiscal year ended June 30, 2016 (the “2016 Form 10-K”). During our fiscal quarter ended September 30, 2016, we identified a significant deficiency related to our accounting treatment of two capital leases. During the quarter ended December 31, 2016, we identified a significant deficiency relating to our accounting treatment of advertising rebates. There can be no assurance that the remediation of the control deficiencies that gave rise to the material weakness will be effective or successful. If we fail to maintain the adequacy of our internal control, we may not be able to conclude and report that we have effective internal control over financial reporting. If we are unable to adequately maintain our internal control over financial reporting, we may not be able to accurately report our financial results, which could cause investors to lose confidence in our reported financial information, negatively affecting the trading price of our common stock, or our ability to access the capital markets.

 

As a result of the material weakness in our internal controls over financial reporting described in our 2016 Form 10-K, we concluded that our disclosure controls and procedures were not effective as of June 30, 2016, and as of September 30, 2016, December 31, 2016, and March 31, 2017. Disclosure controls and procedures are designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, are accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

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Risks Relating to the Offering

Management will have broad discretion as to the use of the proceeds from this offering, and we may not use the proceeds effectively.

 

Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. Our failure to apply these funds effectively could have a material adverse effect on our business, delay the growth of our business, and cause the price of our common stock to decline.

 

You will experience immediate and substantial dilution in the net tangible book value per share of the common stock you purchase.

 

Since the price per share of our common stock being offered is substantially higher than the net tangible book value per share of our common stock, you will suffer immediate and substantial dilution in the net tangible book value of the common stock you purchase in this offering. Based on an assumed public offering price of $4.95 per share, which is the last reported sale price of our common stock on The NASDAQ Global Market on July 13, 2017, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and based on a net tangible book value of our common stock of $1.32 per share as of March 31, 2017, if you purchase shares of common stock in this offering, you will suffer immediate and substantial dilution of $1.12 per share in the net tangible book value of common stock, assuming a public offering price of $4.95, the last reported sale price of our common stock on The NASDAQ Global Market on July 13, 2017.

 

You may experience future dilution as a result of future equity offerings.

 

In order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock at prices that may not be the same as the price per share in this offering. We cannot assure you that we will be able to sell shares or other securities in any other offering at a price per share that is equal to or greater than the price per share paid by investors in this offering, and investors purchasing shares or other securities in the future could have rights superior to existing shareholders, including investors who purchase shares of common stock in this offering. The price per share at which we sell additional shares of our common stock or securities convertible into common stock in future transactions may be higher or lower than the price per share in this offering.

 

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QUARTERLY FINANCIAL DATA

 

(1)	See note 2 to our consolidated financial statements appearing elsewhere in this prospectus for a description of the method used to calculate basic and diluted net income (loss) per share of common stock.