SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

☒
☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934

~~Pennsylvania~~	~~23-2679963~~
Pennsylvania		23-2679963
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

100 Deerfield Lane,

Suite 300, ~~Malvern, Pennsylvania~~

Malvern,

Pennsylvania

19355

(Address of principal executive offices)

(Zip Code)


Title of Each Class	Trading Symbol	Name Of Each Exchange On Which Registered
Common Stock, no par value	CTLP	The NASDAQ Stock Market LLC

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 ☒☑ No ◻

☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate ~~Web site,~~website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒☑ No ◻

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

Large accelerated filer

◻

☐

Accelerated filer

☒

☑

Non-accelerated filer ~~(Do not check if a smaller reporting company)~~

◻

☐

Smaller reporting company

◻

☐

Emerging growth company

◻

☐

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 pursuant to Section 13(a) of the Exchange Act. ◻

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ◻☐ No ☒

☑

As of ~~February 2, 2018~~April 30, 2021 there were ~~53,623,143~~71,111,313 outstanding shares of Common Stock, no par ~~value, outstanding.~~

value.

~~USA TECHNOLOGIES, INC.~~

Cantaloupe, Inc.

Part I. Financial Information

Item 1. Consolidated Financial Statements

~~USA Technologies,~~

Condensed Consolidated Balance Sheets

December 31,

June 30,
($ in thousands, except shares)

2017

2017

(unaudited)

(audited)
Assets

Current assets:

Cash and cash equivalents

$
15,386

$
12,745
Accounts receivable, less allowance of $3,740 and $3,149, respectively

15,472

7,193
Finance receivables, less allowance of $49 and $19, respectively

5,517

11,010
Inventory

11,215

4,586
Prepaid expenses and other current assets

1,971

968
Total current assets

49,561

36,502

Non-current assets:

Finance receivables, less current portion

11,215

8,607
Other assets

1,120

687
Property and equipment, net

12,622

12,111
Deferred income taxes

14,774

27,670
Intangibles, net

30,910

622
Goodwill

64,449

11,492
Total non-current assets

135,090

61,189

Total assets

$
184,651

$
97,691

Liabilities and shareholders’ equity

Current liabilities:

Accounts payable

$
23,775

$
16,054
Accrued expenses

6,798

4,130
Line of credit, net

—

7,036
Capital lease obligations and current obligations under long-term debt

5,121

3,230
Income taxes payable

6

10
Deferred revenue

595

—
Deferred gain from sale-leaseback transactions

198

239
Total current liabilities

36,493

30,699

Long-term liabilities:

Revolving credit facility

10,000

—
Capital lease obligations and long-term debt, less current portion

23,874

1,061
Accrued expenses, less current portion

65

53
Deferred gain from sale-leaseback transactions, less current portion

49

100
Total long-term liabilities

33,988

1,214

Total liabilities

$
70,481

$
31,913

Commitments and contingencies (Note 13)

Shareholders’ equity:

Preferred stock, no par value, 1,800,000 shares authorized, no shares issued

—

—
Series A convertible preferred stock, 900,000 shares authorized, 445,063 issued and outstanding, with liquidation preferences of $19,109 and $18,775 at December 31, 2017 and June 30, 2017, respectively

3,138

3,138
Common stock, no par value, 640,000,000 shares authorized, 53,619,898 and 40,331,645 shares issued and outstanding at December 31, 2017 and June 30, 2017, respectively

307,053

245,999
Accumulated deficit

(196,021)

(183,359)
Total shareholders’ equity

114,170

65,778
Total liabilities and shareholders’ equity

$
184,651

$
97,691
(Unaudited)


($ in thousands, except share data)	March 31, 2021		June 30, 2020

Assets
Current assets:
Cash and cash equivalents	$	88,562	$	31,713
Accounts receivable, net	23,124		17,273
Finance receivables, net	7,050		7,468
Inventory, net	6,064		9,128
Prepaid expenses and other current assets	2,977		1,782
Total current assets	127,777		67,364

Non-current assets:
Finance receivables due after one year	11,123		11,213
Property and equipment, net	5,598		7,872
Operating lease right-of-use assets	4,570		5,603
Intangibles, net	20,747		23,033
Goodwill	63,945		63,945
Other assets	2,148		1,993
Total non-current assets	108,131		113,659

Total assets	$	235,908	$	181,023

Liabilities, convertible preferred stock and shareholders’ equity
Current liabilities:
Accounts payable	$	34,761	$	27,058
Accrued expenses	28,676		30,265
Current obligations under long-term debt	3,746		3,328
Deferred revenue	1,670		1,698
Total current liabilities	68,853		62,349

Long-term liabilities:
Deferred income taxes	153		137
Long-term debt, less current portion	13,798		12,435
Operating lease liabilities, non-current	3,947		4,749
Total long-term liabilities	17,898		17,321

Total liabilities	86,751		79,670
Commitments and contingencies (Note 13)	0		0
Convertible preferred stock:
Series A convertible preferred stock, 900,000 shares authorized, 445,063 issued and outstanding, with liquidation preferences of $21,446 and $20,779 at March 31, 2021 and June 30, 2020, respectively	3,138		3,138
Shareholders’ equity:
Preferred stock, 0 par value, 1,800,000 shares authorized	0		0
Common stock, 0 par value, 640,000,000 shares authorized, 71,081,313 and 65,196,882 shares issued and outstanding at March 31, 2021 and June 30, 2020, respectively	460,059		401,240
Accumulated deficit	(314,040)		(303,025)
Total shareholders’ equity	146,019		98,215
Total liabilities, convertible preferred stock and shareholders’ equity	$	235,908	$	181,023

See accompanying notes.

Condensed Consolidated Statements of Operations

See accompanying notes.

Condensed Consolidated ~~Statement~~Statements of Shareholders’ Equity

~~(Unaudited)~~

Series A

Convertible

Preferred Stock

Common Stock

Accumulated

($ in thousands, except shares)

Shares

Amount

Shares

Amount

Deficit

Total
Balance, June 30, 2017

445,063

$
3,138

40,331,645

$
245,999

$
(183,359)

$
65,778
Issuance of common stock in relation to public offering, net of offering costs incurred of $3,237 (a)

—


—

9,583,332


39,888


—


39,888
Issuance of common stock as merger consideration(b)

—

—

3,423,367

19,810

—

19,810
Stock based compensation

—


—

281,554


1,356


—


1,356
Excess tax benefit from stock plans(c)

—


—

—


—


67


67
Net loss

—


—

—


—


(12,729)


(12,729)
Balance, December 31, 2017

445,063

$
3,138

53,619,898

$
307,053

$
(196,021)

$
114,170

^(a)

~~Refer to Note 12 regarding the public offering issued during July 2017.~~

^(b)

~~Refer to Note 3 regarding the business acquisition executed during November 2017.~~

(Unaudited)

^(c)

~~Refer to Note 2 regarding the adoption of ASU 2016-09.~~

Nine Month Period Ended March 31, 2021


	Common Stock			Accumulated Deficit		Total
($ in thousands, except share data)	Shares	Amount
Balance, June 30, 2020	65,196,882	$	401,240	$	(303,025)	$	98,215
Impact of adoption of ASC 326	—	—		348		348
Stock based compensation	56,083	1,502		—		1,502
Net loss	—	—		(6,613)		(6,613)
Balance, September 30, 2020	65,252,965	402,742		(309,290)		93,452
Stock based compensation	32,709	1,691		—		1,691
Net loss	—	—		(2,902)		(2,902)
Balance, December 31, 2020	65,285,674	404,433		(312,192)		92,241
Issuance of common stock in relation to private placement, net of offering costs incurred of $2,598	5,730,000	52,410		—		52,410
Exercise of warrants	12,154	—		—		—
Stock based compensation	53,485	3,216		—		3,216
Net loss	—	—		(1,848)		(1,848)
Balance, March 31, 2021	71,081,313	$	460,059	$	(314,040)	$	146,019

Nine Month Period Ended March 31, 2020


	Common Stock			Accumulated Deficit		Total
($ in thousands, except share data)	Shares	Amount
Balance, June 30, 2019	60,008,481	$	376,853	$	(262,430)	$	114,423
Stock based compensation	—	290		—		290
Net loss	—	—		(11,508)		(11,508)
Balance, September 30, 2019	60,008,481	377,143		(273,938)		103,205
Issuance of common stock in relation to private placement, net of offering costs incurred of $1,102	3,800,000	16,777		—		16,777
Stock based compensation	362,941	1,742		—		1,742
Net loss	—	—		(8,378)		(8,378)
Balance, December 31, 2019	64,171,422	395,662		(282,316)		113,346
Stock based compensation	277,535	382		—		382
Net loss	—	—		(9,295)		(9,295)
Balance, March 31, 2020	64,448,957	$	396,044	$	(291,611)	$	104,433

See accompanying notes.

Condensed Consolidated Statements of Cash Flows

Six months ended

December 31,
($ in thousands)

2017

2016
OPERATING ACTIVITIES:

Net loss

$
(12,729)

$
(2,231)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Non-cash stock based compensation

1,356

445
Gain on disposal of property and equipment

(83)

(31)
Non-cash interest and amortization of debt discount

86

26
Bad debt expense

291

450
Depreciation and amortization

3,476

2,564
Change in fair value of warrant liabilities

-

1,490
Excess tax benefits

67

-
Deferred income taxes, net

8,537

(115)
Recognition of deferred gain from sale-leaseback transactions

(93)

(430)
Changes in operating assets and liabilities:

Accounts receivable

(5,290)

(2,347)
Finance receivables

7,958

2,119
Inventory

(5,822)

(2,689)
Prepaid expenses and other current assets

(606)

(542)
Accounts payable and accrued expenses

6,950

(3,840)
Income taxes payable

40

(12)
Net cash provided by (used in) operating activities

4,138

(5,143)

INVESTING ACTIVITIES:

Purchase of property and equipment, including rentals

(1,767)

(1,944)
Proceeds from sale of property and equipment, including rentals

157

61
Cash used for Cantaloupe acquisition

(65,181)

-
Net cash used in investing activities

(66,791)

(1,883)

FINANCING ACTIVITIES:

Cash used in retirement of common stock

-

(31)
Proceeds from exercise of common stock warrants

-

6,193
Payment of debt issuance costs

(445)

-
Proceeds from issuance of long-term debt

25,100

-
Proceeds from revolving credit facility

10,000

-
Issuance of common stock in public offering, net

39,888

-
Repayment of capital lease obligations and long-term debt

(9,249)

(374)
Net cash provided by financing activities

65,294

5,788

Net increase (decrease) in cash and cash equivalents

2,641

(1,238)
Cash and cash equivalents at beginning of year

12,745

19,272
Cash and cash equivalents at end of period

$
15,386

$
18,034

Supplemental disclosures of cash flow information:

Interest paid in cash

$
557

$
469
Income taxes paid in cash (refund), net

$
-

$
-
Supplemental disclosures of noncash financing and investing activities:

Equity issued in connection with Cantaloupe Acquisition

$
19,810

$
-
Equipment and software acquired under capital lease

$
227

$
272


	Nine months ended
	March 31,
($ in thousands)	2021		2020
Cash flows from operating activities:
Net loss	$	(11,363)	$	(29,181)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Stock based compensation	6,366		2,453
Amortization of debt discount and issuance costs	2,696		1,040
Provision for expected losses	459		1,400
Provision for inventory reserve	768		(434)
Depreciation and amortization included in operating expenses	3,111		3,209
Depreciation included in cost of sales for rental equipment	1,055		1,984
Change in fair value of derivative	0		(1,070)
Property and equipment write-off	1,658		0
Other	1,192		1,501
Changes in operating assets and liabilities:
Accounts receivable	(5,204)		2,088
Finance receivables	(252)		(113)
Inventory	2,297		2,204
Prepaid expenses and other assets	(1,343)		(1,045)
Accounts payable and accrued expenses	7,218		(500)
Operating lease liabilities	(795)		(1,102)
Deferred revenue	(28)		(60)
Net cash provided by (used in) operating activities	7,835		(17,626)

Cash flows from investing activities:
Purchase of property and equipment	(1,281)		(1,711)
Proceeds from sale of property and equipment	12		33
Net cash used in investing activities	(1,269)		(1,678)

Cash flows from financing activities:
Proceeds from long-term debt issuance by Antara, net of issuance costs paid to Antara	0		14,248
Payment of third-party debt issuance costs	0		(1,980)
Proceeds from (repayments of) Revolving Credit Facility	0		(10,000)
Proceeds from long-term debt issuance by JPMorgan Chase Bank, N.A., net of debt issuance costs	14,550		0
Repayment of long-term debt	(15,554)		(2,413)
Proceeds from equity issuance by Antara, net of issuance costs paid to Antara	0		17,879
Proceeds from private placement	55,008		0
Payment of equity issuance costs	(2,598)		0
Proceeds from exercise of common stock options	77		0
Payment of Antara prepayment penalty and commitment termination fee	(1,200)		0
Net cash used provided by financing activities	50,283		17,734

Net increase (decrease) in cash and cash equivalents	56,849		(1,570)
Cash and cash equivalents at beginning of year	31,713		27,464
Cash and cash equivalents at end of period	$	88,562	$	25,894

Supplemental disclosures of cash flow information:
Interest paid in cash	$	804	$	940

See accompanying notes.

Condensed Notes to Consolidated Financial Statements

On March 29, 2021, USA Technologies, Inc. filed Articles of Amendment to its Amended and Restated Articles of Incorporation with the Pennsylvania Department of State to effect a change of the Company’s name from “USA Technologies, Inc.” to “Cantaloupe, Inc.,” effective as of April 15, 2021. On April 19, 2021, the Company’s common stock, no par value per share (the ~~“Company”~~“Common Stock”), ~~“We”, “USAT”,~~began trading on the NASDAQ Global Select Market under the ticker symbol “CTLP” and the Company’s Series A Convertible Preferred Stock, no par value per share, began trading on the OTC Markets’ Pink Open Market under the trading symbol, “CTLPP”.

Cantaloupe, Inc. (“Cantaloupe” or ~~“Our”~~the “Company”) was incorporated in the Commonwealth of Pennsylvania in January 1992. We are a ~~provider of technology-enabled~~software and payments company that provides end-to-end technology solutions for the unattended retail market. Cantaloupe is transforming the unattended retail community by offering one integrated solution for payments processing, logistics, and ~~value-added services that facilitate electronic payment transactions and~~back-office management. The Company’s enterprise-wide platform is designed to increase consumer engagement ~~services primarily within the unattended Point of Sale (“POS”) market. We are a leading provider in the small ticket, beverage~~ and ~~food vending industry~~sales revenue through digital payments, digital advertising and are expanding our solutions and services to other unattended market segments, such as amusement, commercial laundry, kiosk and others. Since our founding, we have designed and marketed systems and solutions that facilitate electronic payment options, as well as telemetry Internet of Things (“IoT”) and machine-to-machine (“M2M”) services, which include the ability to remotely monitor,customer loyalty programs, while providing retailers with control and ~~report on~~visibility over their operations and inventory. As a result, customers ranging from vending machine companies to operators of micro-markets, gas and car charging stations, laundromats, metered parking terminals, kiosks, amusements and more, can run their businesses more proactively, predictably, and competitively.

The coronavirus (COVID-19) was first identified in China in December 2019, and subsequently declared a global pandemic in March 2020 by the ~~results~~World Health Organization. COVID-19 containment measures began in parts of the United States in March 2020 resulting in forced closure of non-essential businesses and social distancing protocols. As a result, COVID-19 has impacted our business, significantly reducing foot traffic to distributed assets containing our electronic payment ~~solutions. Historically, these~~solutions and reducing discretionary spending by consumers. The Company did not observe meaningful reductions in processing volume until middle of March 2020, when average daily processing volume decreased approximately 40%. By middle of April 2020, processing volumes began to recover and have improved through March 2021 and we are now approaching pre-pandemic levels of volumes. Continued COVID-19 recurrences could result in further reductions in foot traffic to distributed assets ~~have relied on cash~~containing our electronic payment solutions and reduced discretionary spending by consumers.

In response to the outbreak and business disruption, we implemented liquidity conservation and cost savings initiatives that included: a 20% salary reduction for the senior leadership team through December 2020; deferral of all cash-based director fees until calendar year 2021; a temporary furlough of approximately 10% of our employee base; negotiations with and concessions from vendors in regard to cost reductions and/or payment deferrals; an increased collection effort to reduce outstanding accounts receivables; and various supply chain/inventory improvements. During the summer of 2020 as restrictions lifted, our offices were opened with strict guidelines for social distancing and with adherence to state and local mandates. All of our furloughed employees returned to work by June 26, 2020. Most of our employees continue to work remotely as of March 31, 2021. To date, our supply chain network has not been significantly disrupted and we are continuously monitoring for the impact from COVID-19. In addition, the Company received loan proceeds from the Paycheck Protection Program in the ~~form~~fourth quarter of ~~coins or bills, whereas, our systems allow them~~fiscal year 2020. See Note 8 for additional information.

We continue to ~~accept cashless payments such as through~~monitor the ~~use~~continuously evolving situation and follow guidance from federal, state and local public health authorities. Given the continued uncertainty of ~~credit or debit cards or other emerging contactless forms, such as mobile payment. The connection to~~ the ~~ePort Connect Platform also enables consumer loyalty programs, national rewards programs and digital content, including advertisements and product information to be delivered at the point of sale.~~

~~On November 9, 2017,~~situation, the Company ~~acquired all~~cannot, at this time, reasonably estimate the longer-term repercussions of COVID-19 on our financial condition, results of operations or cash flows in the ~~outstanding equity interests of Cantaloupe Systems, Inc. (“Cantaloupe”), pursuant to~~future. If the ~~Agreement and Plan of Merger (“Merger Agreement”). Cantaloupe~~pandemic is not substantially contained in the near future, COVID-19 may have a premier provider of cloud and mobile solutions for vending, micro markets, and office coffee service. The acquisition expanded the Company’s existing platform to become an end-to-end enterprise platform integrating Cantaloupe’s Seed Cloud which provides cloud and mobile solutions for dynamic route scheduling, automated pre-kitting, responsive merchandising, inventory management, warehouse and accounting management,material adverse impact on our revenue growth as well as ~~cashless vending. The combined companies complete~~our overall profitability in fiscal year 2021, and may lead to higher sales-related, inventory-related, and operating reserves. As of March 31, 2021, we have evaluated the ~~value chain~~potential impact of the COVID-19 outbreak on our financial statements, including, but not limited to, the impairment of goodwill and intangible assets, impairment of long-lived assets including operating lease right-of-use assets, property and equipment and allowance for ~~customers by providing both top-line revenue generating services~~doubtful accounts for accounts and finance receivables. We have concluded that there are no material impairments as ~~well~~a result of our evaluation. Where applicable, we have incorporated judgments and estimates of the expected impact of COVID-19 in the preparation of the financial statements based on information currently available. These judgments and estimates may change, as ~~bottom line business efficiency services to help operators~~new events develop and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known.

BASIS OF PRESENTATION AND PREPARATION

The accompanying unaudited condensed consolidated financial statements of ~~USA Technologies, Inc.~~the Company 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 U.S. generally accepted accounting principles for complete financial statements and therefore should be read in conjunction with the Company’s June 30, 2020 Annual Report on Form ~~10-K for the year ended June 30, 2017.~~10-K. 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 and ~~six~~nine months ended ~~December~~March 31, ~~2017~~2021 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, ~~2018.~~2021. Actual results could differ from estimates. The balance sheet at June 30, ~~2017~~2020 has been derived from the audited consolidated financial statements at that date, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

~~BASIS OF PRESENTATION~~

~~Certain reclassifications~~

The Company operates as 1 operating segment because its chief operating decision maker, who is the Chief Executive Officer, reviews its financial information on a consolidated basis for purposes of making decisions regarding allocating resources and assessing performance.

As part of the Company’s financial statement close process for the quarter ended March 31, 2021, management identified a net adjustment totaling $1.3 million relating primarily to prior ~~year’s data have been made~~year activity. The error relates to ~~conform to current year’s presentation. As disclosed in Note 3,~~ the Company incurred integration and acquisition expenses during the current period and deemed it appropriate to have such costs individually captioned within the statement of operations. Accordingly, the Company retrospectively reclassified integration and acquisition costs incurred in the corresponding periods from the previous fiscal year to conform to the current period’s presentation.

~~2. ACCOUNTING POLICIES~~

~~RECENT ACCOUNTING PRONOUNCEMENTS~~

~~Accounting pronouncements adopted in fiscal year 2018~~

In January 2017, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update No. 2017-04 ("ASU 2017-04"), which eliminates Step 2 from the goodwill impairment test. Under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not ~~exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on~~derecognizing the carrying amount of the underlying assets for three finance receivables agreements that are classified as sales-type leases.

The Company analyzed the potential impact of the error in accordance with the appropriate guidance, from both a qualitative and quantitative perspective, and concluded that the error was not material to any individual interim or annual prior periods. Accordingly, during the three months ended March 31, 2021, the Company recorded $1.7 million in additional Cost of equipment sales offset by $0.4 million reversal of previously recognized depreciation expense resulting in a net carrying value reduction of $1.3 million of Property and equipment.

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting pronouncements adopted

ASC Topic 326 - Credit Losses

On July 1, 2020, we adopted Topic 326, Financial Instruments-Credit Losses, which was primarily introduced under Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments – Measurement of Credit Losses on Financial Instruments”. Topic 326 introduces a new credit loss impairment methodology for financial assets measured at amortized cost, requiring recognition of the full lifetime expected credit losses upon initial recognition of the financial asset and each reporting ~~unit when measuring~~period, replacing current GAAP, which generally requires that a loss be incurred before it is recognized. The expected credit loss model is based on historical experience, current conditions, and reasonable and supportable economic forecasts of collectability.

The Company adopted Topic 326 on July 1, 2020 using the ~~goodwill impairment~~modified retrospective approach through an adjustment to retained earnings, and began calculating our allowance for accounts and finance receivables under an expected loss ~~if applicable. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We early adopted ASU 2017-04 for impairment tests~~model rather than an incurred loss model. The comparative information has not been restated and continues to be ~~performed~~reported under the accounting standards in effect for those periods.

We estimate our allowances using an aging analysis of the receivables balances, primarily based on ~~testing dates after~~historical loss experience, as there have been no significant changes in the mix or risk characteristics of the receivable revenue streams used to calculate historical loss rates. We also take into consideration that receivables for monthly service fees that are collected as part of the flow of funds from our transaction processing service have a lower risk profile than receivables for equipment and service fees billed under the Company’s standard payment terms of 30 to 60 days from invoice issuance, and adjust our aging analysis to incorporate those risk assessments. Current conditions are analyzed at each measurement date as we reassess whether our receivables continue to exhibit similar risk characteristics as the prior measurement date, and determine if the reserve calculation needs to be adjusted for new developments, such as a customer’s inability to meet its financial obligations. Lastly, we also factor reasonable and supportable economic expectations into our allowance estimate for the asset’s entire expected life, which is generally less than one year for accounts receivable and five years for finance receivables.

The adoption of this pronouncement resulted in a net increase of $0.3 million in retained earnings, with an offsetting adjustment to the allowance for doubtful accounts and finance receivables as of July 1, ~~2017, which did not impact our consolidated financial statements.~~

2020.

The following table represents a rollforward of the allowance for doubtful accounts for accounts and finance receivables for the nine months ending March 31, 2021:


	Nine Months Ended March 31, 2021
($ in thousands)	Accounts receivable		Finance receivable

Beginning balance of allowance at June 30, 2020, prior to adopting ASC 326	$	7,676	$	150
Impact of adoption of ASC 326	(757)		409
Provision for expected losses	936		350
Write-offs	(827)		0
Balance at March 31, 2021	$	7,028	$	909

ASU 2018-15 - Intangibles—Goodwill and Other (Topic 350): Internal-Use Software

In ~~March 2016,~~August 2018, the FASB issued ASU No. ~~2016-09, Compensation - Stock Compensation~~2018-15, “Intangibles—Goodwill and Other (Topic ~~718), Improvements to Employee Share-Based Payment Accounting, which modifies~~350): Internal-Use Software.” This standard aligns the ~~accounting~~requirements for ~~certain aspects of share-based payments to employees. The new guidance requires excess tax benefits and tax deficiencies to be recorded~~capitalizing implementation costs incurred in the income statement when stock awards vest or are settled. In addition, cash flows related to excess tax benefits are to be separately classified as an operating activity apart from other income tax cash flows. The standard also allows the Company to repurchase more of an employee’s vested shares for tax withholding purposes without triggering liability accounting, and clarifiesa cloud computing arrangement that ~~all cash payments made to tax authorities on an employee’s behalf for withheld shares should be presented as~~is a ~~financing activity on the statement of cash flows. The Company adopted this standard as of July 1, 2017.~~

~~The primary impact of adoption was the recognition of excess tax benefits in the Company's provision for income taxes which is applied prospectively starting July 1, 2017 in accordance~~service contract with the ~~guidance. Adoption of the new standard resulted in the recognition of $16 thousand of excess tax benefits in the Company's provision~~requirements for income taxes for the six months ended December 31, 2017. Through June 30, 2017 excess tax benefits were reflected as a reduction of deferred tax assets via reducing actual operating loss carryforwards because such benefits had not reduced income taxes payable. Under the new standard the treatment of excess tax benefits changed and the cumulative excess tax benefits as of June 30, 2017 amountingcapitalizing implementation costs incurred to ~~$67 thousand were credited to accumulated deficit.~~

develop or obtain internal-use software. The adoption of this ASU ~~No. 2016-09~~on July 1, 2020 did not have a material impact on our ~~statement of cash flows for the three and six months ended December 31, 2016.~~

condensed consolidated financial statements.

Accounting pronouncements to be ~~adopted.~~

adopted

The Company is evaluating whether the effects of the following recent accounting pronouncements, or any other recently issued but not yet effective accounting standards, will have a material effect on the Company’s condensed consolidated financial position, results of operations or cash flows.

ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606) (“the New Standard”).” This ASU was amended by ASU No. 2015-14, issued in August 2015, which deferred the original effective date by one year. The new guidance provides a single model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. The new standard also requires expanded qualitative and quantitative disclosures about the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers. The ASU is now effective for fiscal years, and interim reporting periods within those years, beginning with the year ending June 30, 2019.

The Company’s project plan includes a three-phase approach to implementing this standard update. The Company is currently evaluating the impact of the potential changes identified by its initial phase one assessment work which included internal surveys of the business, holding revenue recognition workshops with sales and business unit finance leadership, and reviewing a representative sample of revenue arrangements across the business to initially identify a set of applicable qualitative revenue recognition changes related to the new standard update. During the quarter, the Company completed an acquisition of Cantaloupe and has commenced the phase one assessment of the recently acquired business.

The objectives for the second phase of the project will be to establish and document key accounting policies and assess disclosures, business process and control impacts resulting from the New Standard. New policies and procedures identified during phase two will be applied to both historical Company revenue streams and those of the recently acquired business to ensure compliance with the New Standard. Lastly, the objectives of phase three will comprise effectively implementing the new standard update and embedding the new accounting treatment into the Company’s business processes and controls to support the financial reporting requirements. Phase three is expected to be completed in the fourth quarter of fiscal year 2018.

The Company is still evaluating the impact that the New Standard will have on the Company’s consolidated financial statements and will be unable to quantify its impact until the third phase of the project has been completed. The standard is expected to impact the Company’s revenue recognition processes, primarily in the areas of the allocation of contract revenues. An entity can elect to apply the guidance under one of the following two methods: (i) retrospectively to each prior reporting period presented – referred to as the full retrospective method; or (ii) retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application in retained earnings – referred to as the modified retrospective method. The method of adoption has not yet been determined and is not expected to be finalized until the second phase of the project plan has been completed.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The company is the lessee under various agreements which are accounted for as operating leases. This amendment will be effective for the Company beginning with the year ending June 30, 2020, including interim periods within those fiscal years. Early application is permitted.

~~In June 2016,~~ December 2019, the FASB issued ASU No. ~~2016-13, “Financial Instruments – Credit Losses~~2019-12, “Income Taxes (Topic ~~326).~~740): Simplifying the Accounting for Income Taxes.” ~~The new guidance introduces the~~ASU 2019-12 is intended to simplify accounting for ~~estimated credit losses pertaining~~income taxes by removing certain exceptions to ~~certain types of financial instruments, including but not limited~~the general principles in Topic 740 and amends existing guidance to ~~trade and lease receivables. This pronouncement will be~~improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, ~~2019. Early adoption~~2020 and interim periods within those fiscal years. The Company does not expect the changes to have a material impact on its financial statements.

ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This standard provides practical expedients for contract modifications with the transition from reference rates, such as LIBOR, that are expected to be discontinued. This guidance is ~~permitted~~applicable for the Company's revolving credit facility and secured term facility with JPMorgan Chase Bank, N.A., which uses LIBOR as a reference rate. In addition, the facility provides for an alternative rate of interest if LIBOR is discontinued. The Company will continue to evaluate ASU 2020-04 to determine the timing and extent to which we will apply the provided accounting relief.

ASU 2020-10, Codification Improvements

In October 2020, the FASB issued ASU 2020-10, “Codification Improvements.” The purpose of the ASU is to update a variety of ASC Topics to make conforming amendments, clarifications to guidance, simplifications to wording or structure of guidance, and other minor improvements. The ASU is effective for fiscal years beginning after December 15, ~~2018.~~

~~In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments.”~~2020 with early application permitted. The new guidance makes eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. This pronouncement will be effective for the Company beginning with the year ending June 30, 2019, and interim periods within that fiscal year. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The new guidance requires adoption on a retrospective basis unless it is ~~impracticable to apply, in which case the company would be required to apply the amendments prospectively as of the earliest date practicable. Upon adoption, the~~ Company does not ~~anticipate significant~~expect the changes ~~to the Company's existing accounting policies or presentation of the Statement of Cash Flows.~~

~~In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805), Clarifying the Definition of a Business.”~~ ASU 2017-01 provides guidance in ascertaining whether a collection of assets and activities is considered a business. Adoption of the amendment will be applied prospectively effective for annual periods beginning after December 15, 2017 with early adoption permissible for specific transactions. Adoption is not expected to have a material ~~effect~~impact on ~~the Company’s consolidated~~its financial statements.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation – Stock Compensation (Topic 718), Scope of Modification Accounting.” The standard provides guidance about which changes to the terms or conditions of a share-based payment award require modification accounting, which may result in a different fair value for the award. This ASU is effective for annual periods and interim periods beginning after December 15, 2017, with early adoption permissible. The guidance is required to be applied prospectively to awards modified on or after the effective date. Historically, modifications to our share-based payment awards have been limited. As such, we do not expect the application of this standard to have a material effect on our results of operations or financial position.

The Company determines if an arrangement is a lease at inception. The Company has operating leases for office space, warehouses, automobiles and office equipment. The exercise of lease renewal options is at the ~~Company acquired all~~Company’s sole discretion. When deemed reasonably certain of exercise, the renewal options are included in the determination of the ~~outstanding equity interests~~lease term. The Company’s lease agreements do not contain any material variable lease payments, material residual value guarantees or any material restrictive covenants.

Right-of-Use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date of ~~Cantaloupe pursuant~~the lease based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate, which is the collateralized rate of interest that we would pay to borrow over a similar term an amount equal to the ~~Merger Agreement,~~lease payments, based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives received. The Company also has lease agreements with lease and non-lease components. The Company elected the practical expedient related to treating lease and non-lease components as a single lease component for ~~approximately $85.0 million in aggregate consideration, net of cash acquired. Cantaloupe is a premier provider of cloud and mobile solutions for vending, micro markets, and office coffee service.~~

The acquisition expanded the Company’s existing platform to become an end-to-end enterprise platform integrating Cantaloupe’s Seed Cloud which provides cloud and mobile solutions for dynamic route scheduling, automated pre-kitting, responsive merchandising, inventory management, warehouse and accounting management,all leases as well as ~~cashless vending. In addition~~electing a policy exclusion permitting leases with an original lease term of less than one year to ~~new technology~~be excluded from the ROU assets and ~~services, due~~lease liabilities. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

At March 31, 2021, the Company has the following balances recorded in the balance sheet related to ~~Cantaloupe’s existing customer base,~~its lease arrangements:


($ in thousands)	Balance Sheet Classification	As of March 31, 2021		As of June 30, 2020


Assets:	Operating lease right-of-use assets	$	4,570	$	5,603

Liabilities:
Current	Accrued expenses	$	1,139	$	1,075
Long-term	Operating lease liabilities, non-current	3,947		4,749
Total lease liabilities		$	5,086	$	5,824


($ in thousands)	Three months ended March 31, 2021	Three months ended March 31, 2020

Operating lease costs*	471	515

* Includes short-term lease and variable lease costs, which are not material.


($ in thousands)	Nine months ended March 31, 2021	Nine months ended March 31, 2020

Operating lease costs*	1,535	1,970


($ in thousands)	Nine months ended March 31, 2021		Nine months ended March 31, 2020

Supplemental cash flow information:
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,155	$	1,350

Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations:
Operating lease liabilities	$	0	$	3,384


	Nine months ended March 31, 2021
Weighted-average remaining lease term (years):
Operating leases	4.56

Weighted-average discount rate:
Operating leases	6.9	%

Maturities of lease liabilities by fiscal year for our leases are as follows:


($ in thousands)	Operating Leases
Remainder of 2021	$	360
2022	1,460
2023	1,492
2024	1,029
2025	707
Thereafter	893
Total lease payments	$	5,941
Less: Imputed interest	(855)
Present value of lease liabilities	$	5,086

The Company offers its customers financing for the ~~acquisition expands~~lease of our point of sale ("POS") electronic payment devices. We account for these transactions as sales-type leases. Our sales-type leases generally have a non-cancellable term of 60 months. Certain leases contain an end-of-term purchase option that is generally insignificant and is reasonably certain to be exercised by the ~~Company’s footprint into new global markets.~~

lessee. Leases that do not meet the criteria for sales-type lease accounting are accounted for as operating leases, which are typically our JumpStart program leases, which are agreements for renting POS electronic payment devices. JumpStart terms are typically 36 months and are cancellable with 30 to 60 days' written notice.

The ~~preliminary fair value~~Company treats lease and non-lease components as a single component for those leases where the timing and pattern of transfer for the non-lease component and associated lease component are the same and the stand-alone lease component would be classified as an operating lease if accounted for separately. The combined component is then accounted for under Topic 606, Revenue from Contracts with Customers or Topic 842 depending on the predominant characteristic of the ~~purchase price~~combined component, which was Topic 606 for the Company's operating leases. All QuickStart leases are sales-type and do not qualify for the election.

Lessor consideration ~~consisted~~is allocated between lease components and the non-lease components using the requirements under Topic 606. Revenue from sales-type leases is recognized upon shipment to the customer and the interest portion is deferred and recognized as earned. The revenues related to the sales-type leases are included in Equipment sales in the Condensed

Table of ~~the following:~~


~~($ in thousands)~~
~~Cash consideration, net of cash acquired~~ ~~(1)~~	$	~~(65,181)~~
~~USAT shares issued as stock consideration~~ ~~(2)~~		~~(19,810)~~
~~Total consideration~~	$	~~(84,991)~~

Contents

~~(1)~~

~~The Cash Consideration is subject to certain post-closing adjustments, including with respect to the Company’s net working capital, as set forth in the Merger Agreement.~~

~~(2)~~

~~Represents the stock consideration amount pursuant to the terms~~Consolidated Statements of Operations and conditions of the Merger Agreement equal to the 3,423,367 USAT Shares issued by the Company, multiplied by the fair market value per share of the USAT common stock, as determined by the Merger Agreement. Pursuant to an Escrow Agreement, 1,496,707 of the USAT Shares, with a value of $8.7 million as determined under the Merger Agreement, were not delivered to the former stockholders or warrant holders of Cantaloupe but are to be held in escrow for a minimum of fifteen months following the acquisition as partial security for certain indemnification obligations of the former stockholders and warrant holders of Cantaloupe under the Merger Agreement.

~~The Company financed~~ a portion of the ~~purchase price~~lease payments as interest income. Revenue from operating leases is recognized ratably over the applicable service period with ~~proceeds from a $25.0 million term loan (“Term Loan”)~~service fee revenue related to the leases included in License and $10.0 million of borrowings under a line of credit (“Revolving Credit Facility”), provided by JPMorgan Chase Bank, N.A., for an aggregate principal amount of $35.0 million. Refer to Note 9 for additional details.

~~The acquisition of Cantaloupe was accounted for as a business combination using the acquisition method. Under the acquisition method of accounting, the assets acquired and liabilities assumed~~transaction fees in the Condensed Consolidated Statements of Operations.

Property and equipment used for the operating lease rental program consisted of the following:


($ in thousands)	March 31, 2021		June 30, 2020
Cost	$	30,483	32,445
Accumulated depreciation	(27,975)		(27,745)
Net	$	2,508	$	4,700

The Company’s net investment in sales-type leases (carrying value of lease receivables) and the future minimum amounts to be collected on these lease receivables as of March 31, 2021 are disclosed within Note 5 - Finance Receivables.

4. REVENUE

Disaggregated Revenue

Based on similar operational and economic characteristics, the Company’s revenue from contracts with customers is disaggregated by License and transaction ~~were recorded at~~fees and Equipment sales, as reported in the ~~date~~Company’s Condensed Consolidated Statements of ~~acquisition at their respective fair values using assumptions that are subject to change.~~Operations. The Company ~~has~~believes these revenue categories depict how the nature, amount, timing, and uncertainty of its revenue and cash flows are influenced by economic factors, and also represent the level at which management makes operating decisions and assesses financial performance.

Transaction Price Allocated to Future Performance Obligations

In determining the transaction price allocated to unsatisfied performance obligations, we do not ~~finalized its valuation~~include non-recurring charges. Further, we apply the practical expedient to not consider arrangements with an original expected duration of ~~certain assets~~one year or less, which are primarily month-to-month rental agreements. The majority of our contracts have a contractual term of between 36 and ~~liabilities recorded in connection with this transaction. Thus, the estimated measurements recorded to date are subject to change~~60 months based on implied and ~~any changes will be recorded as adjustments to the fair value of those assets and liabilities and residual~~explicit termination penalties. These amounts will be ~~allocated~~converted into revenue in future periods as work is performed, primarily based on the services provided or at delivery and acceptance of products, depending on the applicable accounting method for the services or products being delivered.

The following table reflects the estimated fees to ~~goodwill. The final valuation adjustments may also require adjustment~~be recognized in the future related to performance obligations that are unsatisfied at the ~~consolidated statements~~end of ~~operations and cash flows. The final determination of these fair values will be completed as soon as possible but no later than one year from~~ the ~~acquisition date.~~

period:


($ in thousands)	As of March 31, 2021

Remainder of 2021	$	3,064
2022	11,581
2023	9,788
2024	5,731
2025 and thereafter	3,460
Total	$	33,624

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Contract Liabilities

The ~~following table summarizes~~Company’s contract liability (i.e., deferred revenue) balances are as follows:


	Three months ended March 31,		Three months ended March 31,
($ in thousands)	2021		2020

Deferred revenue, beginning of the period	$	1,648	$	1,629
Deferred revenue, end of the period	1,670		1,621
Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period	$	97	$	120


	Nine months ended March 31,		Nine months ended March 31,
($ in thousands)	2021		2020

Deferred revenue, beginning of the period	$	1,698	$	1,681
Deferred revenue, end of the period	1,670		1,621
Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period	$	274	$	467

The change in the ~~fair value~~contract liability balances period-over-period is primarily the result of ~~total consideration transferred~~timing difference between the Company’s satisfaction of a performance obligation and payment from the customer.

Contract Costs

At March 31, 2021, the Company had net capitalized costs to obtain contracts of $0.4 million included in Prepaid expenses and other current assets and $1.9 million included in Other noncurrent assets on the ~~holders~~Condensed Consolidated Balance Sheet. At June 30, 2020, the Company had net capitalized costs to obtain contracts of $0.4 million included in Prepaid expenses and other current assets and $1.8 million included in Other noncurrent assets on the Condensed Consolidated Balance Sheet. None of these capitalized contract costs were impaired. During the three and nine months ended March 31, 2021, amortization of capitalized contract costs was $0.2 million and $0.4 million. During the three and nine months ended March 31, 2020, amortization of capitalized contract costs was $0.1 million and $0.4 million.

5. FINANCE RECEIVABLES

The Company's finance receivables consist of financed devices under the QuickStart program and devices contractually associated with the Seed platform. Predominately all of the ~~outstanding equity interests~~Company’s finance receivables agreements are classified as non-cancellable sixty-month sales-type leases. As of ~~Cantaloupe at the acquisition date of November 9, 2017:~~

Cantaloupe
($ in thousands)

Systems, Inc.
Accounts receivable

$
3,232
Finance receivables, current portion

1,640
Inventory

782
Prepaid expense and other current assets

682
Finance receivables, less current portion

3,483
Other assets

50
Property and equipment

1,573
Intangibles

30,800
Goodwill

52,957
Total assets acquired

95,199
Accounts payable

(1,591)
Accrued expenses

(1,832)
Deferred revenue

(626)
Capital lease obligations and current obligations under long-term debt

(666)
Capital lease obligations and long-term debt, less current portion

(1,134)
Deferred income tax liabilities

(4,359)
Total net assets acquired

$
84,991

~~Amounts allocated to intangible assets included $18.9 million related to customer relationships, $10.3 million related to developed technology,~~March 31, 2021 and ~~$1.6 million related to trade names. The fair value~~June 30, 2020, finance receivables consist of the ~~acquired customer relationships was determined using the excess earnings method. The fair value of both the acquired developed technology and the acquired trade names was determined using the relief~~following:


($ in thousands)	March 31, 2021		June 30, 2020
Current finance receivables, net	$	7,050	$	7,468
Finance receivables due after one year, net	11,123		11,213
Total finance receivables, net of allowance of $909 and $150, respectively	$	18,173	$	18,681

We collect lease payments from ~~royalty method. The estimated useful life~~customers primarily as part of the ~~acquired intangible assets ranged~~flow of funds from 6our transaction processing service. Balances are considered past due if customers do not have sufficient transaction revenue to ~~18 years, with a weighted average estimated useful life of 13 years. The related amortization will be recorded on a straight-line basis.~~

~~Goodwill of $53.0 million arising from~~cover the ~~acquisition includes~~monthly lease payment by the ~~expected synergies between Cantaloupe and the Company, the value~~end of the ~~employee workforce,~~monthly billing period. The Company routinely monitors customer payment performance and ~~intangible assets that do not qualify for separate recognition at~~uses prior payment performance as a measure to assess the ~~time of acquisition. The goodwill, which is not deductible for income tax purposes, was assigned to the Company’s only reporting unit.~~

The amount of Cantaloupe revenues included in the Company’s Consolidated Statements of Operations for both the three and six months ended December 31, 2017 is $4.7 million. The amount of Cantaloupe earnings included in the Company’s Consolidated Statements of Operations for both the three and six months ended December 31, 2017 is $1.8 million, which was primarily driven by an income tax benefit of $1.7 million.

~~As a result~~capability of the ~~acquisition~~customer to repay contractual obligations of ~~Cantaloupe,~~ the ~~Company incurred the following integration and acquisition costs and other one-time charges~~lease agreements as scheduled. On an as-needed basis, qualitative information may be taken into consideration if new information arises related to the ~~acquisition in~~customer’s ability to repay the ~~three~~lease.

Credit risk for these receivables is continuously monitored by management and ~~six months ended December 31, 2017:~~

Three months ended

Six months ended
($ in thousands)

December 31, 2017

December 31, 2017
Cost of equipment

Acquired inventory fair market value step-up

$
23

$
23
Operating expenses

Integration and acquisition costs

3,335

4,097
Interest expense

Write-off of deferred financing costs

55

55
Total integration and acquisition-related costs

$
3,413

$
4,175

reflected within the allowance for finance receivables by aggregating leases with similar risk characteristics into pools that are collectively assessed. Because the Company’s lease contracts generally have similar terms, customer characteristics around transaction processing volume and sales were used to disaggregate the leases. Our key credit quality indicator is the amount of transaction revenue we process for

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~~Supplemental disclosure~~each customer relative to their lease payment due, as we consider this customer characteristic to be the strongest predictor of ~~pro forma information~~

the risk of customer default. Customers with low processing volume or with transaction sales that are insufficient to cover the lease payment are considered to be at a higher risk of customer default.

Customers are pooled based on their ratio of gross sales to required monthly lease obligations. We categorize outstanding receivables into two categories: high ratio customers (customers who have adequate transaction processing volumes to cover monthly fees) and low ratio customers (customers that do not consistently have adequate transaction processing volumes to cover monthly fees). Using these two categories, we performed an analysis of historical write-offs to calculate reserve percentages by aging buckets for each category of customer.

At March 31, 2021, the gross lease receivable by current payment performance on a contractual basis and year of origination consisted of the following:


	Leases by Origination
($ in thousands)	Up to 1 Year Ago		Between 1 and 2 Years Ago		Between 2 and 3 Years Ago		Between 3 and 4 Years Ago		Between 4 and 5 Years Ago		More than 5 Years Ago		Total
Current	$	4,353	$	4,980	$	5,257	$	1,669	$	1,381	$	56	$	17,696
30 days and under	14		31		84		17		5		1		152
31-60 days	25		89		113		41		4		1		273
61-90 days	8		30		78		8		2		2		128
Greater than 90 days	37		67		595		78		29		27		833
Total finance receivables	$	4,437	$	5,197	$	6,127	$	1,813	$	1,421	$	87	$	19,082

At June 30, 2020, the gross lease receivable by current payment performance on a contractual basis and year of origination consisted of the following:


	Leases by Origination
($ in thousands)	Up to 1 Year Ago		Between 1 and 2 Years Ago		Between 2 and 3 Years Ago		Between 3 and 4 Years Ago		Between 4 and 5 Years Ago		More than 5 Years Ago		Total
Current	$	4,950	$	4,406	$	4,811	$	2,730	$	555	$	22	$	17,474
30 days and under	40		66		121		28		11		1		267
31-60 days	13		15		13		0		0		0		41
61-90 days	10		44		62		19		3		0		138
Greater than 90 days	22		263		537		67		14		8		911
Total finance receivables	$	5,035	$	4,794	$	5,544	$	2,844	$	583	$	31	$	18,831

At March 31, 2021, credit quality indicators by year of origination consisted of the following:


	Leases by Origination
($ in thousands)	Up to 1 Year Ago		Between 1 and 2 Years Ago		Between 2 and 3 Years Ago		Between 3 and 4 Years Ago		Between 4 and 5 Years Ago		More than 5 Years Ago		Total
High ratio customers	$	4,095	$	4,851	$	5,102	$	1,437	$	1,294	$	40	$	16,819
Low ratio customers	342		346		1,025		376		127		47		2,263
Total finance receivables	$	4,437	$	5,197	$	6,127	$	1,813	$	1,421	$	87	$	19,082

The following ~~supplemental unaudited pro forma information presents~~table represents a rollforward of the ~~combined results~~allowance for finance receivables for the nine months ending March 31, 2021 and 2020:

Table of ~~USAT and Cantaloupe as if the acquisition of Cantaloupe occurred~~Contents


	Nine months ended March 31,		Nine months ended March 31,
($ in thousands)	2021		2020

Balance at June 30	$	150	$	606
Impact of adoption of ASC 326*	409		—
Provision for expected losses	350		101
Write-offs	0		(5)
Balance at March 31	$	909	$	702

* The Company adopted ASC 326 on July 1, ~~2016. This supplemental pro forma information has been prepared for comparative purposes and does not purport~~2020.

Cash to be ~~indicative of what would have occurred had the acquisition been made~~collected on ~~July 1, 2016, nor are they indicative of any future results.~~

~~The pro forma results include adjustments~~our performing finance receivables due for ~~the preliminary purchase accounting impact~~each of the ~~Cantaloupe acquisition (including, but not limited to, amortization associated with~~fiscal years are as follows:


($ in thousands)
2021	$	6,209
2022	6,086
2023	4,841
2024	3,399
2025	1,707
Thereafter	379
Total amounts to be collected	22,621
Less: interest	(3,539)
Less: allowance for receivables	(909)
Total finance receivables	$	18,173

6. LOSS PER SHARE

The calculation of basic and diluted loss per share are presented below:


	Three months ended March 31,
($ in thousands, except per share data)	2021		2020

Numerator for basic and diluted loss per share
Net loss	$	(1,848)	$	(9,295)
Preferred dividends	(334)		(334)
Net loss applicable to common shareholders	(2,182)		(9,629)

Denominator for basic loss per share - Weighted average shares outstanding	67,112,511		64,096,778
Effect of dilutive potential common shares	0		0
Denominator for diluted loss per share - Adjusted weighted average shares outstanding	67,112,511		64,096,778

Basic loss per share	$	(0.03)	$	(0.15)
Diluted loss per share	$	(0.03)	$	(0.15)

Table of Contents


	Nine months ended March 31,
($ in thousands, except per share data)	2021		2020

Numerator for basic and diluted loss per share
Net loss	$	(11,363)	$	(29,181)
Preferred dividends	(668)		(668)
Net loss applicable to common shareholders	(12,031)		(29,849)

Denominator for basic loss per share - Weighted average shares outstanding	65,617,458		62,591,947
Effect of dilutive potential common shares	0		0
Denominator for diluted loss per share - Adjusted weighted average shares outstanding	65,617,458		62,591,947

Basic loss per share	$	(0.18)	$	(0.48)
Diluted loss per share	$	(0.18)	$	(0.48)

Anti-dilutive shares excluded from the ~~acquired intangible assets, and the interest expense and amortization~~calculation of ~~deferred financing fees associated with the Term Loan and Revolving Credit Facility that~~diluted loss per share were used to finance a portion of the purchase price, along with the related tax impacts) and the alignment of accounting policies. Other material non-recurring adjustments are reflected in the pro forma and described below:

Three months ended December 31,

Six months ended December 31,
(In thousands, except per share data)

2017

2016

2017

2016
Revenues

$
34,772

$
27,521

$
67,642

$
54,704
Net loss attributable to USAT

(10,632)

(428)

(10,552)

(5,458)
Net loss attributable to USAT common shares

$
(10,632)

$
(428)

$
(10,886)

$
(5,792)
Net loss per share - basic and diluted

(0.20)

(0.01)

(0.20)

(0.11)
Weighted average number of common shares outstanding - basic and diluted

53,619,921

53,315,633

53,584,368

52,369,824

~~The supplemental unaudited pro forma earnings~~4,099,170 for the three and ~~six~~nine months ended ~~December~~March 31, ~~2017 were adjusted to exclude $3.3 million~~2021 and ~~$4.1 million of integration and acquisition costs, respectively.~~

~~The supplemental unaudited pro forma earnings~~1,625,414 for ~~the six months ended December 31, 2016 were adjusted to include $4.1 million of integration and acquisition costs.~~

~~4. FINANCE RECEIVABLES~~

~~Finance receivables consist of the following:~~

December 31,

June 30,
($ in thousands)

2017

2017
Total finance receivables

$
16,732

$
19,617
Less current portion

5,517

11,010
Non-current portion of finance receivables

$
11,215

$
8,607

The Company accounts for their finance receivables using delinquency and nonaccrual data as key performance indicators. The Company classified $407 thousand and $102 thousand as outstanding and nonperforming as of December 31, 2017 and June 30, 2017, respectively. The Company expects to collect on their outstanding finance receivables, less any portion currently reserved, without the contracting of third parties. At December 31, 2017 and June 30, 2017, credit quality indicators consisted of the following:

December 31,

June 30,
($ in thousands)

2017

2017
Performing

$
16,325

$
19,515
Nonperforming

407

102
Total

$
16,732

$
19,617

~~Table of Contents~~

~~Age Analysis of Past Due Finance Receivables~~

~~As of December 31, 2017~~

30 and Under

31 – 60

61 – 90

Greater than

Total

Total

Days Past

Days Past

Days Past

90 Days Past

Non-

Finance
($ in thousands)

Due

Due

Due

Due

Performing

Performing

Receivables
QuickStart Leases

$
40

$
85

$
162

$
120

$
407

$
16,325

$
16,732

~~Age Analysis of Past Due Finance Receivables~~

~~As of June 30, 2017~~

~~5. INVENTORY~~

~~Inventory, net of reserves, was $11.~~2 million and $4.6 million as of December 31, 2017 and June 30, 2017, respectively. Inventory consists of finished goods. The Company's inventories are valued at the lower of cost or net realizable value.

~~The Company establishes allowances for obsolescence of inventory based upon quality considerations and assumptions about future demand and market conditions.~~

~~The fair value of Cantaloupe inventories acquired included a fair market value step-up of $23 thousand. In~~ the three and ~~six~~nine months ended ~~December~~March 31, ~~2017, the Company recognized the $23 thousand fair market value step-up as a component of cost of equipment, as the inventory acquired was sold to the Company’s customers.~~

~~6. EARNINGS PER SHARE~~

~~The calculation of basic earnings per share (“EPS”) and diluted EPS are presented below:~~

Three months ended December 31,

2017

2016

Net Loss

Shares

Per-Share

Net Income

Shares

Per-Share

(Numerator)

(Denominator)

Amount

(Numerator)

(Denominator)

Amount
Net (loss) income from continuing operations

$
(12,516)

$
233

Less: Preferred stock dividends

-

-

Basic EPS

Net (loss) income available to common shareholders

(12,516)

52,150,106

$
(0.24)

233

40,308,934

$
0.01

Effect of Dilutive Securities

Incremental shares

-

-
(a)

-

421,778

Diluted EPS

Net (loss) income available to common shareholders plus assumed conversions

$
(12,516)

52,150,106

$
(0.24)

$
233

40,730,712

$
0.01

2020.

~~Table of Contents~~

Six months ended December 31,

2017

2016

Net Loss

Shares

Per-Share

Net Loss

Shares

Per-Share

(Numerator)

(Denominator)

Amount

(Numerator)

(Denominator)

Amount
Net loss from continuing operations

$
(12,729)

$
(2,231)

Less: Preferred stock dividends

(334)

(334)

Basic EPS

Net loss available to common shareholders

(13,063)

49,861,735

$
(0.26)

(2,565)

39,398,469

$
(0.07)

Effect of Dilutive Securities

Incremental shares

-

-
(a)

-

-
(a)

Diluted EPS

Net loss available to common shareholders plus assumed conversions

$
(13,063)

49,861,735

$
(0.26)

$
(2,565)

39,398,469

$
(0.07)

~~645,417, 581,621, and 851,407 shares were excluded for the three and six months ended December 31, 2017 and six months ended December 31, 2016, respectively, as the effects would be anti-dilutive.~~

The changes in the average number of shares that were anti-dilutive in the three and six months ended December 31, 2017 compared to the same period last year, were due to warrants exercised in connection with our common stock during September 2016.

7. GOODWILL AND INTANGIBLES

Intangible asset balances and goodwill consisted of the following:

As of December 31, 2017

Accumulated

Amortization
($ in thousands)

Gross

Amortization

Net

Period
Intangible assets:

Non-compete agreements

2

(2)

—

2 years
Brand and tradenames

1,695

(96)

1,599

3 - 7 years
Developed technology

10,939

(499)

10,440

5 - 6 years
Customer relationships

19,049

(178)

18,871

10 - 18 years
Total intangible assets

$
31,685

$
(775)

$
30,910

Goodwill

64,449

—

64,449

Indefinite

Total intangible assets & goodwill

$
96,134

(775)

$
95,359


	As of March 31, 2021
($ in thousands)	Gross		Accumulated Amortization		Net		Amortization Period
Intangible assets:
Brand and tradenames	$	1,735	$	(876)	$	859	3 - 7 years
Developed technology	10,939		(6,461)		4,478		5 - 6 years
Customer relationships	19,049		(3,639)		15,410		10 - 18 years
Total intangible assets	$	31,723	$	(10,976)	$	20,747

Goodwill	63,945		—		63,945		Indefinite


	As of June 30, 2020
($ in thousands)	Gross		Accumulated Amortization		Net		Amortization Period
Intangible assets:
Brand and tradenames	1,695		(699)		996		3 - 7 years
Developed technology	10,939		(5,110)		5,829		5 - 6 years
Customer relationships	19,049		(2,841)		16,208		10 - 18 years
Total intangible assets	$	31,683	$	(8,650)	$	23,033

Goodwill	63,945		—		63,945		Indefinite

~~Table of Contents~~

As of June 30, 2017

Accumulated

Amortization
($ in thousands)

Gross

Amortization

Net

Period
Intangible assets:

Non-compete agreements

2

(2)

—

2 years
Brand

95

(48)

47

3 years
Developed technology

639

(191)

448

5 years
Customer relationships

149

(22)

127

10 years
Total intangible assets

$
885

$
(263)

$
622

Goodwill

11,492

—

11,492

Indefinite

Total intangible assets & goodwill

$
12,377

(263)

$
12,114

For the three and ~~six~~nine months ended ~~December~~March 31, ~~2017,~~2021 and 2020, there was ~~$472 thousand~~$0.8 million and ~~$516 thousand~~$2.4 million in amortization expense related to intangible assets, respectively, ~~as compared to~~that was recognized.

The Company performs an annual goodwill impairment test on April 1 and more frequently if events and circumstances indicate that the asset might be impaired. The Company has determined that there is a single reporting unit for purposes of testing goodwill for impairment. During the three and ~~six~~nine months ended March 31, 2021, the Company did not recognize any impairment charges related to goodwill.

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8. DEBT AND OTHER FINANCING ARRANGEMENTS

The Company's debt and other financing arrangements as of March 31, 2021 and June 30, 2020 consisted of the following:


	As of March 31,		As of June 30,
($ in thousands)	2021		2020

2020 Antara Term Facility	$	0	$	15,000
2021 JPMorgan Credit Facility	14,625		0
PPP and other loans	3,180		3,358
Less: unamortized issuance costs and debt discount	(261)		(2,595)
Total	17,544		15,763
Less: debt and other financing arrangements, current	(3,746)		(3,328)
Debt and other financing arrangements, noncurrent	$	13,798	$	12,435

Details of interest expense presented on the Condensed Consolidated Statements of Operations are as follows:


	Three months ended				Nine months ended
	March 31,				March 31,
($ in thousands)	2021		2020		2021		2020
2020 Antara Term Facility	$	0	$	542	$	2,779	$	921
2021 JPMorgan Credit Facility	301		0		776		0
2018 JPMorgan Revolving Credit Facility	0		0		0		303
2018 JPMorgan Term Loan	0		0		0		160
Other	(213)		141		415		597
Total interest expense	$	88	$	683	$	3,970	$	1,981

JPMorgan Chase Bank Credit Agreement

On August 14, 2020, the Company repaid all amounts outstanding under the $30.0 million senior secured term loan facility (“2020 Antara Term Facility”) with Antara Capital Master Fund LP (“Antara”) and entered into a credit agreement (the “2021 JPMorgan Credit Agreement”) with JPMorgan Chase Bank, N.A (“JPMorgan”).

The 2021 JPMorgan Credit Agreement provides for a $5 million secured revolving credit facility (the “2021 JPMorgan Revolving Facility”) and a $15 million secured term facility (the “2021 JPMorgan Secured Term Facility” and together with the 2021 JPMorgan Revolving Facility, the “2021 JPMorgan Credit Facility”), which includes an uncommitted expansion feature that allows the Company to increase the total revolving commitments and/or add new tranches of term loans in an aggregate amount not to exceed $5 million. In connection with the consummation of the 2021 JPMorgan Credit Agreement, the Company repaid all amounts outstanding under the 2020 Antara Term Facility. The Company recognized $2.8 million of interest expense related to the 2020 Antara Term Facility during the fiscal quarter ended September 30, 2020, including the recognition of $2.6 million of unamortized issuance costs and debt discount as interest expense, reflecting the difference between the carrying value of the 2020 Antara Term Facility and the amount due upon repayment.

The 2021 JPMorgan Credit Facility has a three year maturity, with interest determined, at the Company’s option, on a base rate of LIBOR or Prime Rate plus an applicable spread tied to the Company’s total leverage ratio and having ranges between 2.75% and 3.75% for Prime rate loans and between 3.75% and 4.75% for LIBOR rate loans. In the event of default, the interest rate may be increased by 2.00%. The 2021 JPMorgan Credit Facility will also carry a commitment fee of 0.50% per annum on the unused portion. From August 14, 2020 through March 2, 2021, the applicable interest rate was Prime Rate plus 3.75%. On March 2, 2021, the Company entered into an amendment (the “First Amendment”) to the 2021 JPMorgan Credit Facility lowering the interest rate charged to the Company. In conjunction with the First Amendment, the Company elected to convert its loans to a Eurodollar borrowing which is subject to a LIBOR based interest rate. As of March 31, 2021, the applicable interest rate for the 2021 JPMorgan Secured Term Facility is a base rate of 0.75% and a spread of 4.25% for a total applicable interest rate of 5%.

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Principal payments are due in quarterly installments of $187,500 beginning December 31, 2020 through September 30, 2022 for a total annual repayment of $750,000 and total repayment over the period of $1,500,000. Beginning December 31, 2022 through June 30, 2023, principal payments are due in quarterly installments of $375,000 for a total repayment over the period of $1,125,000. The remaining unpaid principal amounts are due at the maturity date of the 2021 JPMorgan Credit Facility.

The Company’s obligations under the 2021 JPMorgan Credit Facility are secured by first priority security interests in substantially all of the assets of the Company. The 2021 JPMorgan Credit Agreement includes customary representations, warranties and covenants, and acceleration, indemnity and events of default provisions, including a financial covenant requiring the Company to maintain an adjusted quick ratio of not less than 2.75 to 1.00 beginning January 1, 2021 not less than 3.00 to 1.00 beginning April 1, 2021, and a financial covenant requiring the Company to maintain, as of the end of each of its fiscal quarters commencing with the fiscal quarter ended December 31, ~~2016, for which there~~2021, a total leverage ratio of not greater than 3.00 to 1.00. The Company was ~~$43 thousand and $87 thousand~~ in ~~amortization expense related to intangible assets, respectively.~~

~~8. LINE OF CREDIT~~

~~During the fiscal year ended June 30, 2016,~~compliance with its financial covenants as of March 31, 2021.

Term Facility with Antara

On October 9, 2019, the Company entered into a ~~Loan and Security Agreement and other ancillary documents (as amended,~~commitment letter with Antara, pursuant to which Antara committed to extend to the ~~“Heritage Loan Documents”) with Heritage Bank of Commerce (“Heritage Bank”), providing for~~Company a $30.0 million senior secured asset-based revolving line of credit in an amount of up to $12.0 million (the “Heritage Line of Credit”) at an interest rate calculated based on the Federal Reserves’ Prime plus 2.25%. The Heritage Line of Credit and the Company’s obligations under the Heritage Loan Documents were secured by substantially all of the Company’s assets, including its intellectual property.

~~During March 2017,~~term loan facility. On October 31, 2019, the Company entered into a Financing Agreement with Antara to draw $15.0 million on the ~~third amendment with Heritage Bank that extended~~2020 Antara Term Facility and agreed to draw an additional $15.0 million at any time between July 31, 2020 and April 30, 2021, subject to the ~~maturity date~~terms of the ~~Heritage Line~~Financing Agreement. If the Company failed to make the subsequent draw on the 2020 Antara Term Facility by April 30, 2021, the Company would pay Antara a commitment termination fee equal to 3% of the subsequent draw commitment. The outstanding amount of the draws under the 2020 Antara Term Facility bore interest at 9.75% per annum, payable monthly in arrears. The proceeds of the initial draw were used to repay the outstanding balance of the 2018 JPMorgan Revolving Credit ~~from March 29, 2017~~Facility (as defined below) due to JPMorgan in the amount of $10.1 million, including accrued interest, and to pay transaction expenses. The Company would also incur a prepayment premium of 5% of the principal balance if prepaid on or prior to December 31, 2020.

On October 9, 2019, the Company also sold shares of the Company’s common stock to Antara at a price below market value. Since the 2020 Antara Term Facility and equity issuance were negotiated in contemplation of each other and executed within a short period of time, the Company evaluated the debt and equity financing as a combined arrangement, and estimated the fair values of the debt and equity components to allocate the proceeds, net of the registration rights agreement liability on a relative fair value basis between the debt and equity components. The non-lender fees incurred to establish the debt and equity financing arrangement were allocated to the debt and equity components on a relative fair value basis and capitalized on the Company’s balance sheet, of which $0.9 million was allocated to debt issuance costs and $0.1 million was allocated to debt commitment fees. The 2020 Antara Term Facility agreement also contained a mandatory prepayment feature that was determined to be an embedded derivative, requiring bifurcation and fair value recognition for the derivative liability. The allocation of the proceeds to the debt component and the bifurcation of the embedded derivative liability resulted in a $2.1 million debt discount, which was de-recognized during the three months ended September 30, ~~2018.~~

2020.

On ~~November 9, 2017,~~August 14, 2020, the Company ~~paid~~repaid all amounts ~~due in respect of principal, interest, and fees, and satisfied all of its obligations~~outstanding under the ~~Loan~~2020 Antara Term Facility and ~~Security Agreement dated as of March 29, 2016, as amended, and ancillary agreements by and between~~entered into the ~~Company and Heritage Bank of Commerce.~~2021 JPMorgan Credit Agreement. The Company recorded a ~~charge of $55 thousand to write-off any remaining deferred financing costs related to the Heritage Line of Credit to interest expense~~liability for the ~~three~~commitment termination fee and ~~six~~prepayment premium for $1.2 million as of June 30, 2020, which was paid during the three months ended December 31, 2017. Pursuant to such payment, all commitments of Heritage Bank of Commerce were terminated, and the Heritage Loan and Security Agreement was terminated. As such, there was no outstanding balance on the Heritage Line of Credit at December 31, 2017.

~~9. DEBT~~

September 30, 2020.

Revolving Credit Facility and Term Loan

with JPMorgan

On November 9, 2017, in connection with ~~the~~an acquisition, ~~of Cantaloupe,~~ the Company entered into a five year credit agreement among the Company, as the borrower, its subsidiaries, as guarantors, and JPMorgan, ~~Chase Bank, N.A.,~~ as the lender and administrative agent for the lender, ~~(the “Lender”),~~ pursuant to which ~~the Lender~~JPMorgan (i) made a $25 million term loan (“2018 JPMorgan Term ~~Loan~~Loan”) to the Company and (ii) provided the Company with ~~the~~a line of credit (“2018 JPMorgan Revolving Credit ~~Facility~~Facility”) under which the Company may borrow revolving credit loans in an aggregate principal amount not to exceed $12.5 million at any time.

~~The proceeds of the Term Loan and borrowings~~All advances under the Revolving Credit Facility, in an aggregate principal amount equal to $35.0 million, were used by the Company to finance a portion of the purchase price for the acquisition of Cantaloupe ($27.8 million) and repay existing indebtedness to Heritage Bank of Commerce ($7.2 million). Future borrowings under the Revolving Credit Facility may be used by the Company for working capital and general corporate purposes of the Company and its subsidiaries. The principal amount of the Term Loan is payable quarterly beginning on December 31, 2017, and the Term Loan, all advances under the2018 JPMorgan Revolving Credit Facility and all other obligations ~~must~~were required to be paid in full at maturity on November 9, 2022.

~~Table of Contents~~

Loans under the five year credit agreement bear interest, at the Company's option, by reference to a base rate or a rate based on LIBOR, in either case, plus an applicable margin determined quarterly based on the Company's Total Leverage Ratio as of the last day of each fiscal quarter. The applicable interest rate on the loans for the ~~three and six months~~year to date ended ~~December~~October 31, ~~2017 is~~2019 was LIBOR plus 4%. ~~The~~On September 30, 2019, the Company prepaid the remaining principal balance of the 2018 JPMorgan Term Loan, and on October 31, 2019, the Company repaid the outstanding balance on the 2018 JPMorgan Revolving Credit ~~Facility contain customary representations~~Facility.

Other Borrowings

In the fourth quarter of fiscal year 2020, we received loan proceeds of approximately $3.1 million (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and ~~warranties and affirmative and negative covenants and require~~Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). We used the PPP Loan in accordance with the provisions

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of the CARES Act. The loan bears a fixed interest rate of 1% over a two-year term from the approval date of April 28, 2020. The application for these funds required the Company to, ~~maintain~~in good faith, certify that the economic uncertainty caused by COVID-19 made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a ~~minimum quarterly Total Leverage Ratio~~manner that is not significantly detrimental to the business. The receipt of these funds, and ~~Fixed Charge Coverage Ratio.~~

the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on our future adherence to the forgiveness criteria. As of ~~December~~March 31, ~~2017,~~2021, the ~~outstanding balances~~Company has filed the application for loan forgiveness with the lending institution through which the PPP Loan was originated.

9. ACCRUED EXPENSES

Accrued expenses consisted of the following as of March 31, 2021 and June 30, 2020:


	As of March 31,		As of June 30,
($ in thousands)	2021		2020

Accrued sales tax	$	20,571	$	20,036
Accrued compensation and related sales commissions	4,203		2,757
Operating lease liabilities, current	1,139		1,075
Accrued professional fees	1,424		924
Income taxes payable	165		123
Accrued other taxes and filing fees	386		220
Accrued other, including settlement of shareholder class action lawsuit	788		5,130
Total accrued expenses	$	28,676	$	30,265

10. FAIR VALUE MEASUREMENTS

The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

Level 1 ‑ Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 ‑ Inputs are other than quoted prices included within Level 1 that are observable for the ~~Revolving Credit~~asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 ‑ Inputs are unobservable and reflect the Company’s assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available.

Financial assets and liabilities are initially recorded at fair value. The carrying amounts of certain of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued expenses, are carried at cost which approximates fair value due to the short-term maturity of these instruments and are Level 1 assets or liabilities of the fair value hierarchy. We have not identified material impacts from COVID-19 on the fair value of our financial assets and liabilities.

The Company’s obligations under its long-term debt agreements are carried at amortized cost, which approximates their fair value as of March 31, 2021. The fair value of the Company’s obligations under its long-term debt agreements with JPMorgan were considered Level 2 liabilities of the fair value hierarchy because these instruments have interest rates that reset frequently. The fair value of the Company's obligations under its long-term debt agreements with Antara as of June 30, 2020 was

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approximately $15.8 million and considered a Level 3 liability of the fair value hierarchy because this instrument used significant unobservable inputs consistent with those used in determining the embedded derivative liability values, as discussed below.

As discussed in Note 8, the Company’s 2020 Antara Term Facility agreement contained a mandatory prepayment feature that was determined to be an embedded derivative, requiring bifurcation and fair value recognition. For the year ended June 30, 2020, the Company’s embedded derivative liability was measured at fair value using a probability-weighted discounted cash flow model including assumptions for (1) management's estimates of the probability and timing of future cash flows and related events; (2) the Company's risk-adjusted discount rate that includes a company-specific risk premium; and (3) the Company's cost of debt; and was classified as a Level 3 liability of the fair value hierarchy and included as a component of Accrued expenses on the consolidated balance sheets as of June 30, 2020. The Company paid the prepayment premium on the 2020 Antara Term Facility and derecognized the ~~Term Loan~~embedded derivative liability during the three months ended September 30, 2020.

11. INCOME TAXES

On December 21, 2020, Congress approved the Consolidated Appropriations Act, 2021 (the “Appropriations Act”), which was signed into law by the President on December 27, 2020. The Appropriations Act funds the federal government to the end of the fiscal year and provides further COVID-19 economic relief. Some of the business provisions included in the Appropriations Act are additional Paycheck Protection Program ("PPP") loans, clarification of the deductibility of business expenses that were ~~$10.0 million~~paid for with PPP funds, expansion of the employee retention credit, and ~~$24.6 million, respectively.~~

~~Other Long-Term Borrowings~~

temporary full deduction for business expenses for food and beverages provided by a restaurant. The Appropriations Act did not have a material impact on the Company’s income taxes. The Company ~~periodically enters into capital lease obligations~~will continue to ~~finance network servers, computers, office furniture~~monitor for additional legislation related to COVID-19 and ~~equipment related support for use in~~ its ~~daily~~impact on our results of operations. ~~During~~

For the ~~six~~three months ended ~~December~~March 31, ~~2017,~~2021, the Company recorded an income tax provision of $44 thousand. For the nine months ended March 31, 2021, the Company recorded an income tax provision of $133 thousand. As of March 31, 2021, the Company reviewed the existing deferred tax assets and continues to record a full valuation against its deferred tax assets. The income tax provisions primarily relate to the Company's uncertain tax positions, as well as state income and franchise taxes. As of March 31, 2021, the Company had a total unrecognized income tax benefit of $0.2 million. The provision is based upon actual loss before income taxes for the nine months ended March 31, 2021, as the use of an estimated annual effective income tax rate does not provide a reliable estimate of the income tax provision. The Company will continue to monitor the status of the COVID-19 pandemic and its impact on our results of operations.

For the three months ended March 31, 2020, the Company recorded an income tax benefit of $85 thousand. For the nine months ended March 31, 2020, an income tax provision of $46 thousand was recorded. As of March 31, 2020, the Company recorded a full valuation against its deferred tax assets. The income tax provision primarily relates to the Company’s uncertain tax positions, as well as state income and franchise taxes. As of March 31, 2020, the Company had a total unrecognized income tax benefit of $0.2 million. The provision is based upon actual loss before income taxes for the nine months ended March 31, 2020, as the use of an estimated annual effective income tax rate does not provide a reliable estimate of the income tax provision.

12. EQUITY

PRIVATE PLACEMENT

On February 24, 2021, the Company entered into ~~capital lease obligations totaling $227 thousand, comprised~~separate subscription agreements in identical form and substance (the “Subscription Agreements”) with institutional accredited investors (the “Purchasers”) relating to a private placement (the “Private Placement”) with respect to the sale of ~~monthly installments~~an aggregate of ~~$7 thousand due within three years. The value of the acquired equipment is included in property and equipment and depreciated accordingly.~~

In connection with the acquisition of Cantaloupe, the Company assumed debt of $1.8 million. At December 31, 2017, the debt is comprised of $550 thousand of promissory notes bearing an interest rate of a 5% and maturing on April 5, 2020 with principal and interest payments due monthly, $830 thousand of promissory notes bearing an interest rate of 10% and maturing on September 30, 2021 with principal and interest payments due quarterly, and $356 thousand of promissory notes bearing an interest rate of 12% and maturing on December 15, 2019 with principal and interest payments due quarterly.

~~10. FAIR VALUE OF FINANCIAL INSTRUMENTS~~

~~As of December 31, 2017, the Company held no level 1, level 2, or level 3 financial instruments.~~

As of June 30, 2016, 2.2 million warrants with a fair value of $3.7 million comprised the Company’s Level 3 financial instruments. The Level 3 financial instruments consisted of common stock warrants issued by the Company in March 2011 to purchase5,730,000 shares of the Company’s common stock. The ~~Level 3 financial instruments included features requiring liability treatment~~Private Placement closed on March 4, 2021 and the Company received aggregate gross proceeds of approximately $55 million based on the offering price of $9.60 per share (the “Purchase Price”). The Company incurred $2.6 million in direct and incremental issuance costs relating to the Private Placement that were accounted as a reduction in the proceeds of the ~~warrants,~~stock. The syndicate for the Private Placement included affiliates of Hudson Executive Capital LP (“Hudson Executive”), a greater than 10% shareholder and a related party of the Company. Affiliates of Hudson Executive purchased 975,000 of the shares sold in the Private Placement for the same purchase price and on the same terms as the other purchasers.

Table of Contents

Pursuant to the Subscription Agreements, the Company agreed to file a registration statement with the fair value of the common stock based on valuations performed by an independent third-party valuation firm. The fair value was determined using proprietary valuation models using the quality of the underlying securities of the warrants, restrictions on the warrants and security underlying the warrants, time restrictions and precedent sale transactions completed in the secondary market or in other private transactions. During the three months ended September 30, 2016, all of the aforementioned warrants were exercised resulting in a $5.2 million reclassification to Common Stock and the net difference of $1.5 million was recorded as a loss on fair value associated with the warrant liability.

~~11. INCOME TAXES~~

On December 22, 2017, the “Tax Cuts and Jobs Act” (the “Act”) was signed into law. Substantially all of the provisions of the Act are effective for taxable years beginning after December 31, 2017. The Act includes significant changes to the Internal Revenue Code of 1986 (as amended, the “Code”), including amendments which significantly change the taxation of individuals, and business entities. The Act contains numerous provisions impacting the Company, the most significant of which reduces the Federal corporate statutory tax rate from 34% to 21%.

~~The staff of the US~~U.S. Securities and Exchange Commission ~~(“SEC”) has recognized~~covering the ~~complexity of reflecting the impacts~~resale of the ~~Act,~~Shares within 45 days following the date of the Subscription Agreements and to cause the registration statement to become effective within 60 days following the filing deadline. On April 5, 2021, the Company filed the registration statement with the U.S. Securities and Exchange Commission and, on December 22, 2017 issued guidance in Staff Accounting Bulletin 118 (“SAB 118”), which clarifies accounting for income taxes under ASC 740 if information is not yet available or complete and provides for up to a one year period in which to completeApril 14, 2021, the required analyses and accounting (the measurement period). SAB 118 describes three scenarios (or “buckets”) associated with a company’s status of accounting for income tax reform: (1) a company is complete with its accounting for certain effects of tax reform, (2) a company is able to determine a reasonable estimate for certain effects of tax reform and records that estimate as a provisional amount, or (3) a company is not able to determine a reasonable estimate and therefore continues to apply ASC 740, based on the provisions of the tax laws that were in effect immediately prior to the Act being enacted.

registration statement was declared effective.

WARRANTS

~~Table of Contents~~

The ~~various provisions under the Act deemed most relevant to the~~ Company ~~have been considered in preparation of its financial statements~~had 23,978 warrants outstanding as of December 31, 2017. To the extent that clarifications or interpretations materialize in the future that would impact upon the effects of the Act incorporated into the December 31, 2017 financial statements, those effects will be reflected in the future as or if they materialize.

~~For the three~~2020 and six months ended December 31, 2017, the Company recorded income tax provisions of $9,073 thousand and $8,605 thousand, respectively, (substantially all deferred income taxes) which include a charge of $6,592 thousand related to the Act. These provisions are based upon income (loss) before income taxes using an estimated negative annual effective income tax rate of 49.20%, which is primarily driven by the impact of permanent differences. The tax rate reduction related to the Act was treated as a discrete item in the tax provisions for the three and six months ended December 31, 2017.

The accounting for deferred income taxes in the acquisition of Cantaloupe did not consider the potential effects of IRS Code Section 382 relating to the limitation on use of operating loss carryforwards created by Cantaloupe for its changes in ownership because the analysis required for such determination has not yet been completed. If upon completion of such analysis there are limitations on the use of operating loss carryforwards created by Cantaloupe totaling approximately $13,271 thousand, the potential effect would be to record a valuation allowance in the opening balance sheet, as well as a tax benefit to reverse the provision recorded during the three months ended December 31, 2017 related to the rate reduction of the deferred tax assets acquired.

For the three and six months ended December 31, 2016, income tax benefits of $0 and $115 thousand, respectively, (substantially all deferred income taxes) were recorded. The benefits are based upon income (loss) before income taxes using an estimated annual effective income tax rate of 30% for the fiscal year ended June 30, ~~2017. However, such benefits actually calculated have been limited to $115 thousand pending the materialization~~2020, all of ~~additional income before income taxes resulting in~~which were exercisable at $5.00 per share and with an ~~increase~~expiration date of $30 thousand in valuation allowances for the calculated additional benefits. The benefits for the six months ended December 31, 2016 were reduced by a provision for the tax effect of the change in the fair value of warrant liabilities which was treated discretely. All of thoseMarch 29, 2021. These warrants were exercised asin March 2021 and 12,154 shares were issued pursuant to a cashless exercise option election made by the holder.

As of ~~September 30, 2016.~~

~~12. EQUITY~~

~~On July 25, 2017,~~March 31, 2021, the Company closed its underwritten public offering of 9,583,332 shares of its common stock at a public offering price of $4.50 per share. The foregoing included the full exercise of the underwriters' option to purchase 1,249,999 additional shares from the Company. The gross proceeds to the Company from the offering, before deducting underwriting discounts and commissions and other offering expenses, was approximately $43.1 million.

On November 6, 2017, the Company entered into a Merger Agreement with Cantaloupe for cash and 3,423,367 shares of the company’s stock valued at $19.8 million. Refer to Footnote 3 for details on the Merger Agreement.

does 0t have any warrants outstanding.

~~Table of Contents~~

~~WARRANTS~~

During the three and six months ended December 31, 2017, no warrants were exercised as compared to the three and six months ended December 31, 2016 where 2.4 million warrants were exercised at $2.6058 per share, yielding proceeds of $6.2 million. The following table summarizes warrant activity for the three and six months ended December 31, 2017 and 2016:

Three months ended

Six months ended

December 31,

December 31,


2017

2016

2017

2016
Beginning balance

23,978

68,978

23,978

2,445,653
Issued

—

—

—

—
Exercised

—

(24,733)

—

(2,401,408)
Expired

—

—

—

—
Cancelled

—

(20,267)

—

(20,267)
Ending balance

23,978

23,978

23,978

23,978

STOCK OPTIONS

The Company estimates the grant date fair value of the stock options with service conditions (i.e., a condition that requires an employee to render services to the Company for a stated period of time to vest) it grants using a Black-Scholes valuation model. The Company’s assumption for expected volatility is based on its historical volatility data related to market trading of its own common stock. The Company ~~bases its assumptions for~~uses the simplified method to determine expected term, as the Company does not have adequate historical exercise and forfeiture behavior on which to base the expected life ~~of the new stock option grants on the life of the option granted, and if relevant, its analysis of the historical exercise patterns of its stock options.~~assumption. The dividend yield assumption is based on dividends expected to be paid over the expected life of the stock option. The risk-free interest rate assumption is determined by using the U.S. Treasury rates of the same period as the expected option term of each stock option.

In July 2017, 135,000 stock options were granted for 11 employees vesting 1/3 on July 26, 2018, 1/3 on July 26, 2019 and 1/3 on July 26, 2020 expiring if not exercised prior to July 26, 2022. The options are intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended.

In August 2017, the Company awarded stock options to its Chief Executive Officer (CEO) and Chief Financial Officer (CFO) to purchase up to 19,047 and 25,000 shares respectively of common stock at an exercise price of $5.25 per share. The CEO options vest on August 16, 2018, expiring if not exercised prior to August 16, 2024. The CFO options vest 1/3 on August 16, 2018, 1/3 on August 16, 2019 and 1/3 on August 16, 2020, expiring if not exercised prior to August 16, 2024. The CEO options are intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended, and the CFO options are non-qualified stock options.

The fair value of all options granted during the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2021 and ~~2016~~2020 was determined using the following ~~weighted average assumptions:~~

assumptions and includes only options with an established grant date under ASC 718:


	Six months ended
	December 31,					Nine months ended March 31,
	2017		2016			2021			2020
Expected volatility (percent)		50.21 - 50.89		50.00	Expected volatility (percent)	76.2% - 77.3%			74.6% - 90.1%
Expected life (years)		4.0 - 4.5		4.0
Expected dividends		—		—
Weighted average expected life (years)					Weighted average expected life (years)	4.5			3.5 - 4.5
Dividend yield (percent)					Dividend yield (percent)	0.0		%	0.0		%
Risk-free interest rate (percent)		1.64 - 1.72		1.06	Risk-free interest rate (percent)	0.2% - 0.4%			1.4% - 1.6%
Number of options granted		179,047		20,080	Number of options granted	660,000			340,760
Weighted average exercise price	$	5.66	$	4.98	Weighted average exercise price	$	8.03		$	6.85
Weighted average grant date fair value	$	2.42	$	1.98	Weighted average grant date fair value	$	4.72		$	6.84

Stock based compensation related to ~~all~~ stock options with an established grant date for the ~~six~~three and nine months ended March 31, 2021 was $1.3 million and $3.8 million, respectively, and for the three and nine months ended March 31, 2020 was $0.1 million

and $1.5 million, respectively.

Performance based awards

The Company has awarded stock options to certain executives which vest each year over a three to four year period. These stock options are also subject to the achievement of performance goals to be established by the Company's Board for each fiscal year. Because the performance conditions of those stock options granted had not yet been established as of December 31, ~~2017~~2020, a measurement date under ASC 718, Compensation - Stock Compensation, had not yet been established for those stock options and ~~2016~~compensation cost was ~~$276 thousand~~not measured and ~~$95 thousand, respectively.~~

recorded.

~~COMMON STOCK~~

~~On July 1, 2017, $90 thousand~~the Board of Directors established the performance metrics as a price target for the trading price of the Company’s common stock ~~grants were awarded to~~in each ~~non-employee Director based on~~applicable fiscal year. The price target is achieved if the average closing price of the ~~Company’s Common Stock~~common stock during any consecutive 30-trading-day period during the applicable fiscal year meets or exceeds: (i) $10.50 in the case of fiscal year 2021; (ii) $13.50 in the case of fiscal year 2022; (iii) $16.50 in the case of fiscal year 2023; and (iv) $19.50 in the case of fiscal year 2024. If at least 80% of the performance goals for an applicable fiscal year are achieved, the Compensation Committee may determine that the portion of the option eligible to vest based on ~~June 8, 2017 (the date for which the stock grants were initially approved), for a total of 98,184 shares. The shares~~such fiscal year’s performance will vest ~~ratably~~ on a ~~monthly basis over~~prorated basis. In so determining, the ~~two~~Compensation Committee will consider the Company’s

performance relative to its market competitors and any other considerations deemed relevant by the Compensation Committee. The Compensation Committee’s guideline is generally that for every percentage point the achieved price falls below the price target, the percentage of the performance options eligible to vest in respect of the applicable fiscal year should be reduced by 2%, but the Compensation Committee may vary this formula in its sole discretion.

For these performance based awards that provide discretion to the Compensation Committee, a mutual understanding of the key terms and conditions between the Company and the employees have not yet been met and a "Grant Date" as defined in ASC Topic 718 Compensation — Stock Compensation, has not been established. When the service period ~~following July 1, 2017.~~begins prior to the grant date, the Company begins recognizing compensation cost before there is a grant date. The Company estimates the award's fair value at each reporting period for these equity classified awards, until the grant date, utilizing a Monte Carlo simulation valuation model. The total expense recognized for the three and nine months ended March 31, 2021 for these ~~grants~~awards was $0.8 million.

Two employees of Hudson Executive, a greater than 10% shareholder and a related party of the Company, entered into consulting agreements with the Company in August and September of 2020, respectively, under which the consultants are to provide financial and strategic analysis and advisory services to the Company's CEO through July 31, 2021. As consideration for the ~~six months ending December 31, 2017 was $315 thousand.~~

~~During~~services, in March 2021 the ~~six~~consultants were granted a total of 80,000 restricted stock units. The total expense recognized for the three and nine months ended ~~December~~March 31, ~~2017,~~2021 for these agreements was $0.8 million. These restricted stock units had fully vested as of March 31, 2021.

There were no significant new common stock awards granted (excluding the consulting agreements described separately above) during the three and nine months ended March 31, 2021. The total expense recognized (excluding the consulting agreements described separately above) for common stock awards for the three and nine months ended March 31, 2021 was $0.3 million and $0.9 million respectively, and for the three and nine months ended March 31, 2020 was $0.4 million and 0.9 million respectively.

We are a party to litigation and other proceedings that arise in the ordinary course of our business. These types of matters could result in fines, penalties, compensatory or treble damages or non-monetary sanctions or relief. In accordance with the accounting guidance for contingencies, we reserve for litigation claims and assessments asserted or threatened against us when a loss is probable and the amount of the loss can be reasonably estimated. We cannot predict the outcome of legal or other proceedings with certainty.

Eastern District of Pennsylvania Consolidated Shareholder Class Actions

As previously reported, on September 11, 2018, Stéphane Gouet filed a putative class action complaint against the Company, ~~awarded an aggregate of 177,363 shares to its~~Stephen P. Herbert, the then-current Chief Executive Officer, and Priyanka Singh, the then-current Chief Financial Officer, ~~and Chief Services Officer under~~in the United States District Court for the District of New Jersey. The class was defined as purchasers of the Company’s securities from November 9, 2017 through September 11, 2018. The complaint alleged that the Company disclosed on September 11, 2018 that it was unable to timely file its Annual Report on Form 10-K for the fiscal year ~~2017 long term stock incentive plan and an aggregate of 6,007 shares to two non-employee Directors in satisfaction of board fees.~~

~~LONG TERM INCENTIVE PLANS~~

The Board approved the Fiscal Year 2018 Long-Term Stock Incentive Plan (the “2018 LTI Stock Plan”) which provides that executive officers would be awarded shares of common stock of the Company in the event that certain metrics relating to the Company’s 2018 fiscal year would result in specified ranges of year-over-year percentage growth. The metrics are total number of connections as ofended June 30, 2018 (the “2018 Form 10-K”), and that the Audit Committee of the Company’s Board of Directors was in the process of conducting an internal investigation of current and prior period matters relating to certain of the Company’s contractual arrangements, including the accounting treatment, financial reporting and internal controls related to such arrangements. The complaint alleged that the defendants disseminated false statements and failed to disclose material facts, and engaged in practices that operated as ~~compared to total number~~a fraud or deceit upon Gouet and others similarly situated in connection with their purchases of ~~connections as of June 30, 2017 (40% weighting) and adjusted EBITDA earned~~the Company’s securities during the ~~2018 fiscal year as compared to the adjusted EBITDA earned during the 2017 fiscal year (60% weighting). If none~~proposed class period. The complaint alleged violations of Sections 10(b) and 20(a) of the ~~minimum threshold year-over-year percentage target goals are achieved,~~Securities Exchange Act of 1934 (the “1934 Act”) and Rule 10b-5 promulgated thereunder.

Two additional class action complaints, containing substantially the ~~executive officers would not~~same factual allegations and legal claims, were filed against the Company, Herbert and Singh in the United States District Court for the District of New Jersey. On September 13, 2018, David Gray filed a putative class action complaint, and on October 3, 2018, Anthony E. Phillips filed a putative class action complaint. Subsequently, multiple shareholders moved to be ~~awarded any shares. If all of~~appointed lead plaintiff, and on December 19, 2018, the ~~year-over-year percentage target goals are achieved,~~Court consolidated the executive officers would be awarded shares having the following value: Chief Executive Officer - $840,000 (160% of base salary), Chief Financial Officer - $300,000 (100% of base salary), Chief Services Officer - $275,000 (100% of base salary)three actions, appointed a lead plaintiff (the “Lead Plaintiff”), and ~~Chief Product Officer - $280,000 (100% of base salary and subject to pro ration). If all of~~appointed lead counsel for the maximum distinguished year over year percentage target goals are achieved, the executive officers would be awarded shares having the following value: Chief Executive Officer - $1,260,000 (240% of base salary), Chief Financial Officer - $450,000 (150% of base salary), Chief Services Officer - $412,500 (150% of base salary), and Chief Product Officer - $420,000 (150% of base salary and subject to pro ration)consolidated actions (the “Consolidated Action”). Assuming the minimum threshold year-over-year percentage target goal would be achieved for a particular metric, the number of shares to be awarded for that metric would be determined on a pro rata basis, provided that the award would not exceed the maximum distinguished award for that metric. The shares awarded under the 2018 LTI Stock Plan would vest as follows: one-third at the time of issuance; one-third on June 30, 2019; and one-third on June 30, 2020.

The Company had long-term stock incentive plans (“LTI”) in prior fiscal years for its then executive officers. Stock based compensation related to the LTI plans was as follows in the three and six months ended December 31, 2017 and 2016:

Three months ended

Six months ended

December 31,

December 31,
($ in thousands, except per share data)

2017

2016

2017

2016
FY18 LTI Plan

$
273

$
—

$
489

$
—
FY17 LTI Plan

64

85

128

155
FY16 LTI Plan

9

23

19

50
FY15 LTI Plan

—

3

—

3
Total

$
346

$
111

$
636

$
208

~~13. COMMITMENTS AND CONTINGENCIES~~

During the current fiscal year, the Company expanded the leased space for its headquarters in Malvern, Pennsylvania to a total of 23,138 square feet. The company’s monthly base rent now is approximately $47 thousand with a lease expiration date of November 30, 2023.

Through the Cantaloupe acquisition, the Company absorbed a noncancelable operating lease pertaining to Cantaloupe’s headquarters based in San Francisco, California. The leased premise consists of approximately 8,400 square feet and calls for rental payments of approximately $46 thousand due each month through its January 31, 2020 expiration date.

On February 28, 2019, the Court approved a Stipulation agreed to ~~time,~~by the parties in the Consolidated Action for the filing of an amended complaint within fourteen days after the Company ~~is involved~~filed its 2018 Form 10-K. On January 22, 2019, the Company and Herbert filed a motion to transfer the Consolidated Action to the United States District Court for the Eastern District of Pennsylvania. On February 5, 2019, the Lead Plaintiff filed its opposition to the Motion to Transfer. On August 12, 2019, the University of Puerto Rico Retirement System (“UPR”) filed a putative class action complaint in ~~various legal proceedings arising during~~ the ~~normal course~~United States District Court for the District of ~~business. In~~New Jersey against the ~~opinion~~Company, Herbert, Singh, the Company’s Directors at the relevant time (Steven D. Barnhart, Joel Books, Robert L. Metzger, Albin F. Moschner, William J. Reilly and William J. Schoch) (the “Independent Directors”), and the investment banking firms who acted as underwriters for the May 2018 follow-on public offering of the Company (the “Public Offering”): William Blair & Company; LLC; Craig-Hallum Capital Group, LLC; Northland Securities, Inc.; and Barrington Research Associates, Inc. (the “Underwriters”). The class was defined as purchasers of the Company’s ~~management, these proceedings will not have a material adverse effect~~shares pursuant to the registration statement and prospectus issued in connection with the Public Offering. Plaintiff sought to recover damages caused by Defendants’ alleged violations of the Securities Act of 1933 (as amended, the “1933 Act”), and specifically Sections 11, 12 and 15 thereof. The complaint generally sought compensatory damages, rescissory damages and attorneys’ fees and costs. The UPR complaint was consolidated into the Consolidated Action and the UPR docket was closed.

On September 30, 2019, the Court granted the motion to transfer and transferred the Consolidated Action to the United States District Court for the Eastern District of Pennsylvania, Docket No. 19-cv-04565. On November 20, 2019, Plaintiff filed an amended complaint that asserted claims under both the 1933 Act and the 1934 Act. Defendants filed motions to dismiss on February 3, 2020. Before briefing on the motions was completed, the parties participated in a private mediation on February 27, 2020, which ultimately resulted in a settlement. On May 29, 2020, the plaintiffs filed documents with the Court seeking preliminary approval of the settlement, with the defendants supporting approval of the settlement. On June 9, 2020, the Court granted preliminary approval of the settlement and issued a scheduling order for further action on the settlement. The settlement provides for a payment of $15.3 million that includes all administrative costs and plaintiffs’ attorneys’ fees and expenses. The Company’s insurance carriers paid approximately $12.7 million towards the settlement and the Company paid approximately $2.6 million towards the settlement. The settlement payments were deposited into an escrow account in July 2020. Only one putative class member submitted an objection to the settlement. On October 30, 2020, the Court held a hearing on the motion for final settlement approval and granted approval. Under the settlement, payment of plaintiffs’ counsel’s fees and expenses may be distributed within three business days of approval (subject to being returned if the settlement is reversed based on any appeal). Thirty days after the judgment, the remaining funds from the escrow account were released to the plaintiffs pursuant to the settlement. The deadline for filing an appeal has passed, so this case has been fully and finally resolved.

Chester County, Pennsylvania Class Action

As previously reported, a putative shareholder class action complaint was filed against the Company, its chief executive officer and chief financial ~~position, results~~officer at the relevant time, its directors at the relevant time, and the Underwriters, in the Court of ~~operations~~Common Pleas, Chester County, Pennsylvania, Docket No. 2019-04821-MJ (the “State Securities Class Action”). The complaint alleged violations of the 1933 Act. As also previously reported, on September 20, 2019 the Court granted the defendants’ Petition for Stay and stayed the Chester County action until the Consolidated Action reaches a final disposition. On October 18, 2019, plaintiff filed an appeal to the Pennsylvania Superior Court from the Order granting defendants’ Petition for Stay, Docket No. 3100 EDA 2019. On December 6, 2019, the Pennsylvania Superior Court issued an Order stating that the Stay Order does not appear to be final or ~~cash flows.~~

~~14. SUBSEQUENT EVENTS~~

otherwise appealable and directed plaintiff to show cause as to the basis of the Pennsylvania Superior Court’s jurisdiction. The plaintiff filed a Response to the Order to Show Cause on December 16, 2019, and the defendants filed an Application to Quash Appeal on December 26, 2019. On February 20, 2020, the Pennsylvania Superior Court quashed the appeal. This action has remained stayed pending final disposition of the Consolidated Action. After the final resolution of the Consolidated Action plaintiffs' counsel agreed that the State Securities Class Action could not proceed in light of the releases provided by the final judgment in the federal action. On February 17, 2021, the parties filed a joint motion seeking approval from the Court to allow plaintiff to discontinue the State Securities Class Action with prejudice. On March 10, 2021, the Court held a hearing on the motion and granted the relief requested. On March 19, 2021, plaintiff filed a praecipe to discontinue and end the action. This case has been fully and finally resolved.

Department of Justice Subpoena

As previously reported, in the third quarter of fiscal year 2020, the Company responded to a subpoena received from the U.S. Department of Justice that sought records regarding Company activities that occurred during prior financial reporting periods, including restatements. The Company is cooperating fully with the agency’s queries.

Other Shareholder Demand Letters

By letter dated October 12, 2018, Peter D’Arcy, a purported shareholder of the Company, demanded that the Board of Directors investigate, remedy and commence proceedings against certain of the Company’s former officers and directors for breach of fiduciary duties. The letter alleged the officers and directors made false and misleading statements that failed to disclose that the Company’s accounting treatment, financial reporting and internal controls related to certain of the Company’s contractual agreements would result in an internal investigation and would delay the Company’s filing of its 2018 Form 10-K, and that the Company failed to maintain adequate internal controls. By letter dated October 18, 2018, Chiu Jen-Ting, a purported shareholder of the Company, demanded that the Board of Directors investigate, remedy and commence proceedings against certain of the Company’s former officers and directors for breach of fiduciary duties in connection with issues similar to those asserted by Mr. D’Arcy. By letter dated August 2, 2019, Stan Emanuel, a purported shareholder of the Company, demanded that the Board of Directors investigate, remedy and commence proceedings against certain of the Company’s former officers and directors for breach of fiduciary duties in connection with issues similar to those asserted by Mr. D’Arcy. In accordance with Pennsylvania law, the Board of Directors formed a special litigation committee (the “SLC”), currently consisting of Lisa P. Baird, Douglas L. Braunstein and Michael K. Passilla, in order to, among other things, investigate and evaluate the demand letters. The SLC and its counsel investigated the matters raised in these letters. During the second fiscal quarter of 2021, the Company reached a settlement in principle with these shareholders. The settlement consists of a payment of $500,000 in attorneys' fees to the shareholders’ counsel and adoption of various corporate governance reforms.

On February 16, 2021, the Court of Common Pleas of Chester County, Pennsylvania entered an order preliminarily approving the settlement and providing for notice to shareholders of the Company. As contemplated by the settlement agreement and ordered by the Court in the preliminary approval order, the Company gave notice to shareholders of the action (as filed in our Current Report on Form 8-K filed with the SEC on February 17, 2021), their right and timing to assert objections, and of the release of claims that would be effectuated if the settlement was finally approved. The Company also delivered the attorneys’ fees under the agreement to plaintiffs’ counsel to be held in escrow pending final approval of the settlement.

On March 25, 2021, the Court, having received no objections, granted the motion for final approval and entered final judgment. This case has been fully and finally resolved.

The Company has ~~evaluated subsequent events that occurred through the date~~entered into various operating lease obligations. See Note 3 for additional information.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the condensed consolidated financial statements.

Forward-Looking Statements

This Form 10-Q contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things, the anticipated financial and operating results of Cantaloupe, Inc. (“Cantaloupe” or the ~~Company.~~“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, “estimate,” “could,” “should,” “would,” “likely,” “may,” “will,” “plan,” “intend,” “believes,” “expects,” “anticipates,” “projected,” 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:

~~general economic, market or business conditions unrelated to our operating performance;~~

~~the ability of the Company to raise funds in the future through sales of securities or debt financing in order to sustain its operations if an unexpected or unusual event would occur;~~

~~the ability of the Company to compete with its competitors to obtain market share;~~

~~whether the Company’s current or future customers purchase, lease, rent or utilize ePort devices or our other products in the future at levels currently anticipated by our Company;~~

whether the Company’s customers continue to utilize the Company’s transaction processing and related services, as our customer agreements are generally cancelable by the customer on thirty to sixty days’ notice;

~~the ability of the Company to satisfy its trade obligations included in accounts payable and accrued expenses;~~

~~the ability of the Company to sell to third party lenders all or a portion of our finance receivables;~~

~~the ability of a sufficient number of our customers to utilize third party financing companies under our QuickStart program in order to improve our net cash used by operating activities;~~

~~the incurrence by us of any unanticipated or unusual non-operating expenses which would require us to divert our cash resources from achieving our business plan;~~

~~the ability of the Company to predict or estimate its future quarterly or annual revenues and expenses given the developing and unpredictable market for its products;~~

~~the ability of the Company to retain key customers from whom a significant portion of its revenues are derived;~~

~~the ability of a key customer to reduce or delay purchasing products from the Company;~~

~~the ability of the Company to obtain widespread commercial acceptance of its products and service offerings such as ePort QuickConnect, mobile payment and loyalty programs;~~

•general economic, market or business conditions unrelated to our operating performance, including the impact of the coronavirus disease 2019 (COVID-19) pandemic on the Company's operations, financial condition, and the demand for the Company’s products and services;

•failure to comply with the financial covenants of our credit agreement with JPMorgan Chase Bank, N.A. entered into on August 14, 2020, as amended;

•the ability of the Company to raise funds in the future through sales of securities or debt financing in order to sustain its operations in the normal course of business or if an unexpected or unusual event would occur;

•the ability of the Company to compete with its competitors to obtain market share;

•whether the Company’s current or future customers purchase, lease, rent or utilize ePort devices, Seed’s software solutions or our other products in the future at levels currently anticipated by our Company;

•whether the Company’s customers continue to utilize the Company’s transaction processing and related services, as our customer agreements are generally cancellable by the customer on thirty to sixty days’ notice;

•the ability of the Company to satisfy its trade obligations included in accounts payable and accrued expenses;

•the incurrence by us of any unanticipated or unusual non-operating expenses which would require us to divert our cash resources from achieving our business plan;

•the ability of the Company to retain key customers from whom a significant portion of its revenue is derived;

•the ability of a key customer to reduce or delay purchasing products from the Company;

•the ability of the Company to obtain widespread commercial acceptance of its products and service offerings such as ePort QuickConnect, mobile payment and loyalty programs;

•whether any patents issued to the Company will provide the Company with any competitive advantages or adequate protection for its products, or would be challenged, invalidated or circumvented by others;

•the ability of the Company to operate without infringing the intellectual property rights of others;

•the ability of the Company to maintain the resilience of our electronic platforms, soundness of our business continuity and disaster recovery plans and to avoid unauthorized hacking or credit card fraud;

•whether we will experience material weaknesses in our internal controls over financial reporting in the future, and are not able to accurately or timely report our financial condition or results of operations;

•whether our suppliers would increase their prices, reduce their output or change their terms of sale; and

•the risks associated with the currently pending investigation, potential litigation or possible regulatory action arising from the internal investigation conducted by the Audit Committee in fiscal year 2019 and its findings (the “2019 Investigation”), from the failure to timely file our periodic reports with the Securities and Exchange Commission, from the restatement of the affected financial statements, from allegations related to the registration statement for the follow-on public offering, or from potential litigation from the subpoena the Company received from the U.S. Department of Justice.

whether any patents issued to the Company will provide the Company with any competitive advantages or adequate protection for its products, or would be challenged, invalidated or circumvented by others;

~~the ability of the Company to operate without infringing the intellectual property rights of others;~~

~~the ability of our products and services to avoid unauthorized hacking or credit card fraud;~~

whether we experience material weaknesses in our internal controls over financial reporting in the future, and are not able to accurately or timely report our financial condition or results of operations;

~~whether our suppliers would increase their prices, reduce their output or change their terms of sale; and~~

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

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Actual results or business conditions may differ materially from those projected or suggested in forward-looking statements as a result of various factors including, but not limited to, those described ~~above.~~above, or those discussed under Item 1A. “Risk Factors” in our Quarterly Reports on Form 10-Q for the fiscal quarters ended September 30, 2020 and December 31, 2020 and in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 (“2020 Form 10-K”). We cannot assure you that we have identified all the factors that create uncertainties. Moreover, new risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. Readers should not place undue reliance on forward-looking statements.

Any forward-looking statement made by us in this Form 10-Q speaks only as of the date of this Form 10-Q. Unless required by law, we undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.

OVERVIEW OF THE COMPANY

On March 29, 2021, USA Technologies, Inc. ~~was incorporated in~~filed Articles of Amendment to its Amended and Restated Articles of Incorporation with the ~~Commonwealth~~Pennsylvania Department of ~~Pennsylvania in January 1992. We are~~State to effect a ~~provider~~change of ~~technology-enabled~~the Company’s name from “USA Technologies, Inc.” to “Cantaloupe, Inc.,” effective as of April 15, 2021. On April 19, 2021, the Company’s common stock, no par value per share (the “Common Stock”), began trading on the NASDAQ Global Select Market under the ticker symbol “CTLP” and the Company’s Series A Convertible Preferred Stock, no par value per share, began trading on the OTC Markets’ Pink Open Market under the trading symbol, “CTLPP”.

Cantaloupe, Inc. (“Cantaloupe” or the “Company”) is a software and payments company that provides end-to-end technology solutions for the unattended retail market. Cantaloupe is transforming the unattended retail community by offering one integrated solution for payments processing, logistics, and ~~value-added services that facilitate electronic payment transactions and~~back-office management. The Company’s enterprise-wide platform is designed to increase consumer engagement ~~services primarily within~~and sales revenue through digital payments, digital advertising and customer loyalty programs, while providing retailers with control and visibility over their operations and inventory. As a result, customers ranging from vending machine companies to operators of micro-markets, gas and car charging stations, laundromats, metered parking terminals, kiosks, amusements and more, can run their businesses more proactively, predictably, and competitively.

We have evolved from unlocking the potential of cashless payments in vending to transforming into the first platform as a service (PaaS) to power unattended retail operations, from hardware to software for a variety of brands. Today, the unattended ~~Point of Sale (“POS”) market. We are~~retail experience is constantly expanding into new markets and enables brands and merchants to work in new ways. Cantaloupe’s mission is to deliver the best operational and payments platform for unattended retail that is quick to implement, easy to integrate, flexible to operate, and provides valuable, real-time customer insights and a ~~leading provider in~~rapid return on investment. The Company’s PaaS is transforming the ~~small ticket, beverage~~unattended retail community by offering one cohesive, integrated solution for payments processing, logistics, and ~~food vending industry~~back-office management. It is intended to increase consumer engagement and ~~are expanding our solutions~~sales revenue through contactless payments, digital advertising and services to other unattended market segments, such as amusement, commercial laundry, kiosk and others. Since our founding, we have designed and marketed systems and solutions that facilitate electronic payment options, as well as telemetry Internet of Things (“IoT”) and machine-to-machine (“M2M”) services, which include the ability to remotely monitor,customer loyalty programs, while providing retailers with control and report on the results of distributed assets containing our electronic payment solutions. Historically, these distributed assets have relied on cash for payment in the form of coins or bills, whereas, our systems allow them to accept cashless payments such as through the use of credit or debit cards or other emerging contactless forms, such as mobile payment.

visibility over their operations and inventory.

The recent acquisition of Cantaloupe expanded the Company’s existing platform to become an end-to-end enterprise platform integrating Cantaloupe’s Seed Cloud which provides cloud and mobile solutions for dynamic route scheduling, automated pre-kitting, responsive merchandising, inventory management, warehouse and accounting management, as well as cashless vending. The combined companies complete the value chain for customers by providing both top-line revenue generating services as well as bottom line business efficiency services to help operators of unattended retail machines run their business better. The combination also marries the data-rich Seed system with USAT’s consumer benefits, providing operators with valuable consumer data that results in customized experiences. In addition to new technology and services, due to Cantaloupe’s existing customer base, the acquisition expands the Company’s footprint into new global markets.

Company's fiscal year ends June 30. The Company generates revenue in multiple ways. During the three and ~~six~~nine months ended ~~December~~March 31, ~~2017,~~2021, we derived ~~70.3%~~approximately 81% and ~~73.6%~~86%, respectively of our ~~revenues~~revenue from recurring license and transaction fees related to our ePort Connect service ~~or Seed Cloud solution~~ and ~~29.7%~~approximately 19% and ~~26.4%~~14%, respectively, of our revenue from equipment ~~sales, respectively. Connections to~~sales. Active Devices on our service ~~stem from the~~include point of sale ~~or lease of our POS~~("POS") electronic payment devices, or certified payment software, or the servicing of similar third-party installed POS terminals. ~~Connections to~~Devices utilizing the ePort Connect service ~~or Seed Cloud solution~~ are the most

significant ~~driver~~drivers of the Company’s ~~revenues,~~revenue, particularly the recurring ~~revenues~~revenue from license and transaction fees. Customers can obtain POS electronic payment devices from us in the following ways:

~~Purchasing devices directly from the Company or one of its authorized resellers;~~

•Purchasing devices directly from the Company or one of its authorized resellers;

Financing devices under the Company’s QuickStart Program, which are non-cancellable sixty month sales-type leases, through an unrelated equipment financing company, if available, or directly from the Company; and

•Financing devices under the Company’s QuickStart Program, which are non-cancellable sixty-month sales-type leases, through an unrelated equipment financing company, if available, or directly from the Company; and

~~Renting devices under the Company’s JumpStart Program or Cantaloupe’s rental program, which are cancellable month-to-month operating leases.~~

•Renting devices under the Company’s JumpStart Program, which are cancellable month-to-month operating leases.

As of ~~December~~March 31, ~~2017,~~2021, highlights of the Company ~~include:~~

are below:

~~Over 150 employees, primarily located in our corporate headquarters in Malvern, Pennsylvania and a newly acquired Cantaloupe office location in San Francisco, California.~~

• 18,763 Active Customers and 1.1 million Active Devices to our service;

~~Over 15,000 customers and 900,000 connections to our services, including approximately 1,400 customers and 270,000 connections related to the acquisition of Cantaloupe;~~

•Three direct sales teams at the national, regional, and local customer-level and a growing number of original equipment manufacturers and national distribution partners;

~~Three direct sales teams at the national, regional, and local customer-level and a growing number of OEMs and national distribution partners;~~

•Awarded a patent by the United States Patent and Trademark Office (USPTO), titled “Method and System of Personal Vending”;

~~85 United States and foreign patents are in force;~~

•Raised $55 million of aggregate gross proceeds from institutional accredited investors through a private placement transaction;

~~The Company’s fiscal year ends June 30~~th~~; and~~

•Continued strong progress towards achieving completion of the rebrand of the Company from USA Technologies to Cantaloupe;

~~The Company has traded on the NASDAQ under the symbol “USAT” since 2007.~~

•Continued promotional upgrade program for 2G and 3G devices to 4G LTE;

•Upgraded and expanded the ePort product family to accept EMV contact and contactless payments;

•Launched next generation of Seed Cashless+;

•Announced eCommerce integration for office coffee service ("OCS") and Delivery Services; and

•Released UR Tech Insiders podcast with Discover on the importance of EMV acceptance in the self-service market.

As of March 31, 2021, we have over 160 employees and offices in Malvern, Pennsylvania, Denver, Colorado, and Atlanta, Georgia.

The coronavirus (COVID-19) was first identified in China in December 2019, and subsequently declared a global pandemic in March 2020 by the World Health Organization. COVID-19 containment measures began in parts of the United States in March 2020 resulting in forced closure of non-essential businesses and social distancing protocols. As a result, COVID-19 has impacted our business, significantly reducing foot traffic to distributed assets containing our electronic payment solutions and reducing discretionary spending by consumers. The Company ~~has net deferred tax~~did not observe meaningful reductions in processing volume until middle of March 2020, when average daily processing volume decreased approximately 40%. By middle of April 2020, processing volumes began to recover and have improved through March 2021 and we are now approaching pre-pandemic levels of volumes. Continued COVID-19 recurrences could result in further reductions in foot traffic to distributed assets containing our electronic payment solutions and reduced discretionary spending by consumers.

In response to the outbreak and business disruption, first and foremost, we prioritized the health and safety of our employees while continuing to diligently serve our customers. An internal task force was created at the start of the pandemic to develop measures to protect the business in light of the volatility and uncertainty caused by the COVID-19 pandemic. This included such aspects as ensuring the safety of our employees and our community by implementing work from home policies, conserving liquidity, evaluating cost saving actions, partnering with customers to position Cantaloupe for renewed growth post crisis, and temporarily pausing plans for international expansion. The liquidity conservation and cost savings initiatives included: a 20% salary reduction for the senior leadership team through December 2020; deferral of all cash-based director fees until calendar year 2021; a temporary furlough of approximately ~~$14.8 million predominantly resulting~~10% of our employee base; negotiations with and concessions from ~~a series~~vendors in regard to cost reductions and/or payment deferrals; an increased collection effort to reduce outstanding accounts receivables; and various supply chain/inventory improvements. During the summer of ~~operating loss carry forwards that may be available~~2020 as restrictions lifted, our offices were opened with strict guidelines for social distancing and with adherence to ~~offset future taxable income.~~

~~CRITICAL ACCOUNTING POLICIES~~

~~Our consolidated financial statements~~state and local mandates. All of our furloughed employees returned to work by June 26, 2020. Most of our employees continue to work remotely as of March 31, 2021. To date, our supply chain network has not been significantly disrupted and we are prepared applying certain critical accounting policies. The Securities and Exchange Commission (“SEC”) defines “critical accounting policies” as those that require application of management’s most difficult, subjective, or complex judgments. Critical accounting policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variations and may significantly affect our reported results and financial positioncontinuously monitoring for the ~~period~~impact from COVID-19. In addition, the Company received loan proceeds from the Paycheck Protection Program in the fourth quarter of fiscal year 2020. See Note 8 for additional information.

We continue to monitor the continuously evolving situation and follow guidance from federal, state and local public health authorities. Given the continued uncertainty of the situation, the Company cannot, at this time, reasonably estimate the longer-

term repercussions of COVID-19 on our financial condition, results of operations or cash flows in the future. If the pandemic is not substantially contained in the near future, ~~periods. Changes in underlying factors, assumptions, or estimates in any of these areas could~~COVID-19 may have a material adverse impact on our ~~future financial condition~~revenue growth as well as our overall profitability in fiscal year 2021, and ~~results~~may lead to higher sales-related, inventory-related, and operating reserves. As of ~~operations. Our~~March 31, 2021, we have evaluated the potential impact of the COVID-19 outbreak on our financial statements, are prepared in accordance with U.S. GAAP, and they conform to general practices in our industry. We apply critical accounting policies consistently from period to period and intend that any change in methodology occur in an appropriate manner. Accounting policies currently deemed critical are listed below:

~~Revenue Recognition~~

Revenue from the sale or QuickStart lease of equipment is recognized on the terms of free-on-board shipping point. Activation fee revenue, if applicable, is recognized when the Company’s cashless payment device is initially activated for use on the Company network. Transaction processing revenue is recognized upon the usage of the Company’s cashless payment and control network. License fees for accessincluding, but not limited to, the ~~Company’s devices~~impairment of goodwill and ~~network services are recognized on a monthly basis. In all cases, revenue is only recognized when persuasive evidence~~intangible assets, impairment of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed and determinable, and collection of the resulting receivable is reasonably assured. The Company estimates an allowance for product returns at the date of sale and license and transaction fee refunds on a monthly basis.

ePort hardware is available to customers under the QuickStart program pursuant to which the customer would enter into a five-year non-cancelable lease with either the Company or a third-party financing company for the devices. The Company utilizes its best estimate of selling price when calculating the revenue to be recorded under these leases. The QuickStart

contracts qualify for sales type lease accounting. Accordingly, the Company recognizes a portion of lease payments as interest income. At the end of the lease period, the customer would have the option to purchase the device at its residual value.

~~Long Lived Assets~~

~~In accordance with ASC 360, “Impairment or Disposal of Long-Lived Assets”, the Company reviews its definite lived~~ long-lived assets ~~whenever events or changes in circumstances indicate that the carrying amount of such~~including operating lease right-of-use 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 ASC 360 are met, definite lived long-lived assets are reported as held for sale, depreciationproperty and ~~amortization cease,~~equipment and ~~the 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 ASC 350, “Intangibles – Goodwill and Other”. Under ASC 350, goodwill is not amortized to earnings, but instead is subject to periodic testing for impairment. 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.

Company intangible assets include non-compete agreements, brand, developed technology, and customer relationships. They are carried at cost less accumulated amortization, which is calculated on a straight-line basis over their estimated economic life. The Company reviews intangibles, subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

~~Allowance for Doubtful Accounts~~

~~The Company maintains an~~ allowance for doubtful accounts for ~~estimated losses resulting from~~accounts and finance receivables. We have concluded that there are no material impairments as a result of our evaluation. Where applicable, we have incorporated judgments and estimates of the ~~inability~~expected impact of ~~its customers to make required payments, including from a shortfall~~COVID-19 in the ~~customer transaction fund flow from which the Company would normally collect amounts due.~~

~~The allowance is determined through an analysis of various factors including the aging~~preparation of the accounts receivable, the strength of the relationship with the customer, the capacity of the customer transaction fund flow to satisfy the amount due from the customer, an assessment of collection costsfinancial statements based on information currently available. These judgments and ~~other factors. The allowance for doubtful accounts receivable~~estimates may change, as new events develop and additional information is ~~management’s best estimate as of the respective reporting date. The Company writes off accounts receivable against the allowance when management determines the balance is uncollectible~~obtained, and ~~the Company ceases collection efforts. Management believes that the allowance recorded is adequate to provide for its estimated credit losses.~~

~~Valuation Allowance~~

~~The Company follows the provisions of FASB ASC 740, Accounting for Uncertainty in Income Taxes,~~ ~~which~~ ~~provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions~~are recognized in the consolidated financial ~~statements. Tax positions must meet a “more-likely-than-not” recognition threshold at~~statements as soon as they become known.

~~TRENDING~~
Financial Summary
Three months ended March 31, Percent
Change
($ in thousands, except per share data) 2021 2020
Revenue $ 42,760 $ 43,098 (0.8) %
Cost of sales 30,056 32,100 (6.4) %
Gross profit 12,704 10,998 15.5 %
Operating expenses 14,722 21,176 (30.5) %
Operating loss (2,018) (10,178) (80.2) %
Other expense, net 214 798 (73.2) %
Provision for income taxes (44) 85 (151.8) %
Net loss (1,848) (9,295) (80.1) %
Net loss per common share - diluted (0.03) (0.15) (80.0) %
Adjusted EBITDA (a)
$ 2,191 $ (3,876) 156.5 %

(a) Adjusted EBITDA is a non-GAAP measurement. See Reconciliations of Non-GAAP Measures for a reconciliation of Adjusted EBITDA to net loss.

Revenue. Total revenue decreased slightly by $0.3 million for the three months ended March 31, 2021 compared to the same period in 2020. The level of revenue earned between our various product and services revenue streams (License and transaction fees and Equipment sales) continue to be consistent across the same periods in both years and we are approaching pre-pandemic (COVID-19) levels of processing volumes as of March 31, 2021 as businesses, schools and other organizations across the country continue to re-open.

Cost of sales. Cost of sales decreased $2.0 million for the three months ended March 31, 2021 compared to the same period in 2020. The change was driven primarily by a $1.8 million decrease in cost of license and transaction fees due to a decrease in network service fees and lower transaction volumes. See “Revenue and Gross Profit” below for a discussion on the significant changes in the cost of sales.

Operating expenses. Operating expenses decreased by $6.5 million for the three months ended March 31, 2021 from the comparable prior period. See “Operating Expenses” below for a discussion of the significant changes in our operating expenses.


Financial Summary
	Nine months ended March 31,				Percent Change
($ in thousands, except per share data)	2021		2020
Revenue	$	117,921	$	130,508	(9.6)	%
Cost of sales	78,677		95,332		(17.5)	%
Gross profit	39,244		35,176		11.6	%
Operating expenses	47,482		64,388		(26.3)	%
Operating loss	(8,238)		(29,212)		(71.8)	%
Other expense, net	(2,992)		77		NM
Provision for income taxes	(133)		(46)		189.1	%
Net loss	(11,363)		(29,181)		(61.1)	%
Net loss per common share - diluted	(0.18)		(0.48)		(62.5)	%
Adjusted EBITDA (a)	$	2,627	$	(7,617)	134.5	%

NM — not meaningful

(a) Adjusted EBITDA is a non-GAAP measurement. See Reconciliations of Non-GAAP Measures for a reconciliation of Adjusted EBITDA to net loss.

Revenue. Total revenue decreased $12.6 million for the nine months ended March 31, 2021 compared to the same period in 2020. Approximately $8.3 million of the decrease relates to fewer equipment shipments in the year-to-date as compared to the prior year-to-date driven primarily as customers continue to focus on liquidity during the COVID-19 pandemic with many committing to 4G device upgrades but holding off on delivery until closer to the discontinuation of 3G network support in 2022. Additionally, $4.3 million of the decrease relates to lower transaction volumes due to the impacts of COVID-19 in the current year-to-date compared to the prior year-to-date.

Cost of sales. Cost of sales decreased $16.7 million for the nine months ended March 31, 2021 compared to the same period in 2020. The change was driven by a $10.2 million decrease in cost of equipment sales, including a $5.5 million sale of equipment to a strategic partner in the prior year period, and a $6.5 million decrease in cost of license and transaction fees due to a

decrease in network service fees and lower transaction volumes. See “Revenue and Gross Profit” below for a discussion on the significant changes in the cost of sales.

Operating expenses. Operating expenses decreased $16.9 million for the nine months ended March 31, 2021 from the comparable prior period. See “Operating Expenses” below for a discussion of the significant changes in our operating expenses.

The following ~~tables show~~table shows certain financial and non-financial data that management believes give readers insight into certain trends and relationships about the Company’s financial performance.

~~Five Quarter Select Key Performance Indicators including Connections~~

As of and for the three months ended

December 31,

September 30,

June 30,

March 31,

December 31,

2017

2017

2017

2017

2016
Connections:

Gross new connections

317,000

28,000

70,000

40,000

25,000
% from existing customer base

44%

82%

93%

88%

80%
Net new connections (a)

311,000

26,000

64,000

35,000

21,000
Total connections

905,000

594,000

568,000

504,000

469,000

Customers:

New customers added (a)

1,800

550

300

500

500
Total customers

15,050

13,250

12,700

12,400

11,900

Volumes:

Total number of transactions (millions)

144.8

121.1

114.8

104.9

100.1
Total volume (millions)

$
272.7

$
239.2

$
225.6

$
202.5

$
191.5

Financing structure of connections:

JumpStart

0.4%

4.1%

3.3%

8.6%

6.8%
QuickStart & all others (b)

99.6%

95.9%

96.7%

91.4%

93.2%
Total

100.0%

100.0%

100.0%

100.0%

100.0%

~~Activity for the three months ended December 31, 2017 includes net new connections and new customers related to the acquisition of Cantaloupe of approximately 270,000 and 1,400, respectively.~~

We believe the metrics (Active Devices, Active Customers, Total Number of Transactions and Total Dollar Volume of Transactions) are useful in allowing management and readers to evaluate our strategy of driving growth in devices and transactions and the Financing Structure of Devices metric is useful in allowing management and readers to evaluate the growth of our QuickStart program and direct sales compared to the JumpStart program.

~~Includes credit sales with standard trade receivable terms.~~

~~Highlights~~

Active Devices

Active Devices is defined as a device that has communicated with us or has had a transaction in the last 12 months. Included in the number of ~~USAT’s connections~~Active Devices are devices that communicate through other devices that communicate or transact with us. A self-service retail location that utilizes an ePort cashless payment device as well as Seed management services constitutes only one device.

Active Customers

The Company defines Active Customers as all customers with at least one active device.

Total Number Of Transactions and Total Dollar Volume of Transactions

Transactions are defined as electronic payment transactions that are processed by our technology-enabled solutions. Management uses Total Number and Dollar Volume of transactions to evaluate the effectiveness of our new customer strategy and ability to leverage existing customers and partners.

Financing Structure of Devices

The Financing Structure of Devices is determined by identifying the gross new devices during the quarter and determining which devices were due to devices financed by the JumpStart program compared to devices financed by the QuickStart program or purchased outright. We monitor this metric as we are able to increase cash collections from direct sales to customers or under QuickStart sales by utilizing lease companies, which improves cash provided by operating activities.

Table of Contents


	As of and for the three months ended
	March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020		March 31, 2020
Devices:
Active Devices (a) (thousands)	1,085		1,083		1,083		1,079		1,054

Customers:
Active Customers	18,763		18,304		17,760		17,249		16,808

Volumes:
Total Number of Transactions (millions)	213.4		211.8		201.9		167.7		237.3
Total Dollar Volume of Transactions (millions)	412.7		422.6		406.3		329.1		462.7

Financing structure of Devices:
JumpStart	2.1	%	4.3	%	3.0	%	6.2	%	1.4	%
QuickStart & all others (b)	97.9	%	95.7	%	97.0	%	93.8	%	98.6	%
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

a) We have revised the previously disclosed Active Devices (in thousands) amounts of 1,155 (December 31, 2020), 1,134 (September 30, 2020), 1,118

(June 30, 2020) and 1,103 (March 31, 2020) in the December 31, 2020 Quarterly Report on Form 10-Q to the amounts included in the above table as we

have refined our methodology of tracking and reporting Active Devices.

b) Includes credit sales with standard trade receivable terms.

Highlights for the quarter ended March 31, 2021 include:

•1.08 million Active Devices compared to the same quarter last year of 1.05 million, an increase of approximately 30 thousand Active Devices, or 3%;

•18,763 Active Customers to our service compared to the same quarter last year of 16,808, an increase of 1,955 Active Customers, or 12%.

•Volumes for the quarter ended March 31, 2021 remain consistent with the prior quarter ended December 31, ~~2017 include:~~

~~270,000 net new connections related to the acquisition of Cantaloupe;~~

2020, but are 11% lower compared to the average processing volumes for the quarter ended March 31, 2020 due to the impact of COVID-19. See "COVID-19 Update" in Management’s Discussion and Analysis of Financial Condition and Results of Operations above for additional information.

~~41,000 additional net new connections during the quarter; and~~

~~905,000 total connections to our service compared to the same quarter last year of approximately 469,000 total connections to our service, an increase of 436,000 connections, or 93%.~~

Network Incident

In September 2020, the Company experienced a network incident on its ePort transaction processing platform, resulting in certain devices being unable to process payment transactions during the outage. The Company has remediated the incident. For the six month period ending December 31, 2020, we accrued approximately $2 million of costs associated with the event. As of March 31, 2021, we have finalized the economic impact of the network incident with the vast majority of our customers. We estimate the final impact of the incident to be approximately $1.6 million, of which $1.2 million has been settled resulting in an outstanding accrual amount of $0.4 million as of March 31, 2021.

Table of Contents

Three Months Ended ~~December~~March 31, ~~2017~~2021 Compared to Three Months Ended ~~December~~March 31, ~~2016~~

2020

Revenue and Gross Profit


	For the three months ended December 31,				Percent		Three months ended March 31,						Percent Change
($ in thousands)	2017		2016		Change	($ in thousands)	2021			2020
Revenues:
Revenue:						Revenue:
License and transaction fees	$	22,853	$	16,639	37.3%	License and transaction fees	$	34,686		$	34,961		(0.8)	%
Equipment sales		9,653		5,117	88.6%	Equipment sales	8,074			8,137			(0.8)	%
Total revenues		32,506		21,756	49.4%
Total revenue						Total revenue	42,760			43,098			(0.8)	%

Costs of sales:
Cost of services		14,362		11,389	26.1%
Cost of equipment		8,943		4,033	121.7%
Total costs of sales		23,305		15,422	51.1%
Cost of sales:						Cost of sales:
Cost of license and transaction fees						Cost of license and transaction fees	20,463			22,244			(8.0)	%
Cost of equipment sales						Cost of equipment sales	9,593			9,856			(2.7)	%
Total cost of sales						Total cost of sales	30,056			32,100			(6.4)	%

Gross profit:						Gross profit:
License and transaction fees		8,491		5,250	61.7%	License and transaction fees	14,223			12,717			11.8	%
Equipment sales		710		1,084	(34.5%)	Equipment sales	(1,519)			(1,719)			11.6	%
Total gross profit	$	9,201	$	6,334	45.3%	Total gross profit	$	12,704		$	10,998		15.5	%

Gross margin:						Gross margin:
License and transaction fees						License and transaction fees	41.0		%	36.4		%
Equipment sales						Equipment sales	(18.8)		%	(21.1)		%
Total gross margin						Total gross margin	29.7		%	25.5		%

Revenue. Total revenue ~~increased $10.7~~decreased slightly by $0.3 million for the three months ended ~~December~~March 31, ~~2017~~2021 compared to the same period in ~~2016.~~2020. The ~~growth in total~~level of revenue ~~resulted from a $6.2 million increase in license~~earned between our various product and services revenue streams (License and transaction ~~fee revenue~~fees and Equipment sales) continue to be consistent across the same periods in both years and we are approaching pre-pandemic (COVID-19) levels of processing volumes as of March 31, 2021 as businesses, schools and other organizations across the country continue to re-open.

Cost of sales. Cost of sales decreased $2.0 million for the ~~quarter~~three months ended ~~December~~March 31, ~~2017~~2021 compared to the same period in ~~2016,~~2020. The change was driven primarily by a $1.8 million decrease in cost of license and transaction fees due to a ~~$4.5 million increase~~decrease in ~~equipment revenue~~network service fees and lower transaction volumes.

Gross margin. Total gross margin increased from 25.5% for the three months ended ~~December~~March 31, ~~2017 compared~~2020 to 29.7% for the ~~same period last year, both~~three months ended March 31, 2021. The change was driven primarily by ~~an increase~~a reduction in ~~connections~~cost of license and ~~the Cantaloupe acquisition.~~

~~Cost of sales.~~ ~~Cost of sales increased~~transaction fees due to a decrease in network service fees and lower transaction volumes.


	Three months ended March 31,				Percent Change
Category ($ in thousands)	2021		2020
Selling, general and administrative expenses	$	13,731	$	15,888	(13.6)	%
Investigation, proxy solicitation and restatement expenses	—		4,181		NM
Depreciation and amortization	991		1,107		(10.5)	%
Total operating expenses	$	14,722	$	21,176	(30.5)	%

NM — not meaningful

Total operating expenses. Total operating expenses decreased by ~~$7.9~~$6.5 million for the three months ended ~~December~~March 31, 2017 compared to the same period last year. The increase was driven by a $3.0 million increase in cost of services and a $4.9 million increase in cost of equipment sales, both driven by an increase in connections and the Cantaloupe acquisition.

~~Gross margin~~. The overall gross margin decreased 0.8% from 29.1% for the three months ended December 31, 2016 to 28.3% for the three months ended December 31, 2017. The decrease in the equipment margin, from 21.2% for the three months ended December 31, 2016 to 7.4% for the three months ended December 31, 2017, reflected our strategy of using equipment sales as an enabler for driving long-term, higher margin license and transaction fees. This decrease was partially offset by an increase in the license fee and transaction margin from 31.6% for the three months ended December 31, 2016 to 37.2% for the three months ended December 31, 2017, which was driven by the impact of the Cantaloupe acquisition.

~~Operational Expenses~~

For the three months ended December 31,

Percent
Category ($ in thousands)

2017

2016

Change
Selling, general and administrative expenses

$
8,329

$
5,785

44.0%
Integration and acquisition costs

3,335

8

41,587.5%
Depreciation and amortization

737

307

140.1%
Total operating expenses

$
12,401

$
6,100

103.3%

~~Selling, general and administrative expenses.~~ ~~Selling~~, ~~general and administrative expenses increased approximately $2.5 million for the three months ended December 31, 2017,~~2021, as compared to the same period in ~~2016.~~2020. This change was primarily driven by ~~an increase~~a reduction in ~~selling,~~professional fees incurred by the Company relating to the investigation and the restatements of previously filed financial statements, a decrease in usage of external legal and accounting professional services firms and a decrease in legal contingency reserves and other accruals.

Selling, general and administrative ~~costs incurred related to Cantaloupe as well as an increase in sales~~expenses. Selling, general and ~~marketing related consulting~~administrative expenses ~~as we continue to increase our market share in the cashless-transaction vending industry.~~

~~Integration and acquisition costs. Integration and acquisition costs increased $3.3~~decreased approximately $2.2 million for the three months ended ~~December~~March 31, ~~2017~~2021, as compared to the same period in ~~2016, due to the costs~~2020. This change was primarily driven by a $4.3 million decrease in legal contingency reserves and other accruals, $0.6 million decrease in lower compensation expense, $0.5 million of lower travel expenses as a result of COVID-19 offset by an increase of $2.8 million in stock compensation expense.

Investigation, proxy solicitation and restatement expenses. Investigation, proxy solicitation and restatement expenses were incurred in fiscal year 2020 in connection with the ~~acquisition~~

previously filed financial statements, bank consents, the remediation of ~~Cantaloupe, partially offset by $8 thousand of acquisition costs incurred~~deficiencies in our internal control over financial reporting, the ~~second quarter of~~proxy solicitation, and professional services fees to assist with accounting and compliance activities in fiscal year ~~2017 pertaining to~~2020 following the ~~acquisition~~filing of ~~VendScreen, Inc. (“VendScreen”).~~

the 2019 Form 10-K.

Depreciation and amortization. Depreciation and amortization ~~expenses increased approximately $0.4~~expense was consistent with the same period in 2020.


	Three months ended March 31,				Percent Change
($ in thousands)	2021		2020
Other income (expense):
Interest income	$	302	$	411	(26.5)	%
Interest expense	(88)		(683)		(87.1)	%
Change in fair value of derivative	—		1,070		NM
Total other income (expense), net	$	214	$	798	(73.2)	%

NM — not meaningful

Other income (expense), net. Other income (expense), net decreased $0.6 million for the three months ended ~~December~~March 31, ~~2017 primarily due to the amortization of intangible assets recognized in connection with the Cantaloupe acquisition.~~

~~Other Expense, net~~

For the three months ended December 31,

Percent
($ in thousands)

2017

2016

Change
Other income (expense):

Interest income

$
251

$
200

25.5%
Interest expense

(494)

(201)

145.8%
Total other expense, net

$
(243)

$
(1)

24200.0%

~~Other expense, net. Other expense, net increased $242 thousand for the three months ended December 31, 2017~~2021 as compared to the same period in ~~2016.~~2020. The ~~increase~~change was primarily ~~driven by the interest incurred in connection with the Term Loan and Revolving Credit Facility utilized to fund a portion of the acquisition of Cantaloupe.~~

~~Income Taxes~~

For the three months ended December 31,

Percent
($ in thousands)

2017

2016

Change
Provision for income taxes

$
(9,073)

$
-

100%

~~Income taxes. For the three months ended December 31, 2017, an income tax provision of 9,073 thousand (substantially all deferred income taxes) was recorded which includes a charge of $6,592 thousand~~ related to the recent enactment of the U.S. Tax Cuts and Jobs Act. The tax provision is based upon income (loss) before income taxes using an estimated negative annual effective income tax rate of 49.20%, which is primarily driven by the impact of permanent differences. The tax rate reduction related to tax reform was treated as a ~~discrete item in the tax provision for the three months ended December 31, 2017.~~

For the three months ended December 31, 2016, no adjustment for the income tax benefit (provision) (substantially all deferred income taxes) was recorded based upon loss before benefit for income taxes using an estimated annual effective income tax rate of 30.0% for the fiscal year ended June 30, 2017 net of a provision for the tax effect of the$1.1 million change in the fair value of ~~warrant liabilities which~~the Company’s embedded derivative related to the 2020 Antara Term Facility that was ~~treated discretely.~~

~~Reconciliation~~bifurcated and recognized at fair value as of ~~Net (Loss) Income to Adjusted EBITDA:~~

For the three months ended December 31,
($ in thousands)

2017

2016
Net (loss) income

$
(12,516)

$
233
Less interest income

(251)

(200)
Plus interest expense

494

201
Plus income tax provision

9,073

—
Plus depreciation expense

1,512

1,220
Plus amortization expense

472

43
EBITDA

(1,216)

1,497

Plus stock-based compensation

780

233
Plus integration and acquisition costs and inventory step-up

3,358

8
Adjustments to EBITDA

4,138

241
Adjusted EBITDA

$
2,922

$
1,738

March 31, 2020. The embedded derivative was derecognized when the outstanding loan was repaid in August 2020 and was not outstanding as of March 31, 2021. The above change of $1.1 million in the fair value of derivative was offset by a $0.5 million interest expense reduction on an accrual resulting in the net decrease of $0.6 million in Other income (expense).

~~As used herein, Adjusted EBITDA represents net (loss) income before interest income, interest expense, income tax provision (benefit)~~Nine Months Ended March 31, 2021 Compared to Nine Months Ended March 31, 2020


	Nine months ended March 31,						Percent Change
($ in thousands)	2021			2020
Revenue:
License and transaction fees	$	101,008		$	105,324		(4.1)	%
Equipment sales	16,913			25,184			(32.8)	%
Total revenue	117,921			130,508			(9.6)	%

Cost of sales:
Cost of license and transaction fees	60,415			66,912			(9.7)	%
Cost of equipment sales	18,262			28,420			(35.7)	%
Total cost of sales	78,677			95,332			(17.5)	%

Gross profit:
License and transaction fees	40,593			38,412			5.7	%
Equipment sales	(1,349)			(3,236)			58.3	%
Total gross profit	$	39,244		$	35,176		11.6	%

Gross margin:
License and transaction fees	40.2		%	36.5		%
Equipment sales	(8.0)		%	(12.8)		%
Total gross margin	33.3		%	27.0		%

Gross margin. Total gross margin increased from 27.0% for the nine months ended March 31, 2020 to 33.3% for the nine months ended March 31, 2021. The change was driven primarily by a reduction in cost of license and transaction fees due to a decrease in network service fees and lower transaction volumes and a decrease in cost of equipment sales.


	Nine months ended March 31,				Percent Change
Category ($ in thousands)	2021		2020
Selling, general and administrative expenses	$	44,371	$	47,230	(6.1)	%
Investigation, proxy solicitation and restatement expenses	—		13,949		NM
Depreciation and amortization	3,111		3,209		(3.1)	%
Total operating expenses	$	47,482	$	64,388	(26.3)	%

NM — not meaningful

Total operating expenses. Total operating expenses decreased $16.9 million for the nine months ended March 31, 2021, as compared to the same period in 2020. This change was primarily driven by a reduction in professional fees incurred by the Company relating to the investigation and the restatements of previously filed financial statements, a decrease in usage of external legal and accounting professional services firms and a decrease in legal contingency reserves and other accruals.

Selling, general and administrative expenses. Selling, ~~depreciation, amortization, stock-based~~general and administrative expenses decreased approximately $2.9 million for the nine months ended March 31, 2021, as compared to the same period in 2020. This change was primarily driven by $4.3 million decrease in legal contingency reserves and other accruals, $1.5 million of lower travel expenses as a result of COVID-19, $0.7 million decrease in lower compensation expense offset by an increase of $3.9 million in stock compensation expense.

Investigation, proxy solicitation and ~~non-recurring integration~~restatement expenses. Investigation, proxy solicitation and ~~acquisition costs that~~restatement expenses were incurred in fiscal year 2020 in connection with the ~~acquisition~~2019 Investigation and the restatements of ~~Cantaloupe, including~~previously filed financial statements, bank consents, the remediation of deficiencies in our internal control over financial reporting, the proxy solicitation, and professional services fees to assist with accounting and compliance activities in fiscal year 2020 following the filing of the 2019 Form 10-K.

Depreciation and amortization. Depreciation and amortization expense was consistent with the same period in 2020.


	Nine months ended March 31,				Percent Change
($ in thousands)	2021		2020
Other income (expense):
Interest income	$	978	$	988	(1.0)	%
Interest expense	(3,970)		(1,981)		100.4	%
Change in fair value of derivative	—		1,070		(100.0)	%
Total other income (expense), net	$	(2,992)	$	77	NM

NM — not meaningful

Other income (expense), net. Other income (expense), net decreased approximately $3.1 million for the nine months ended March 31, 2021 as compared to the same period in 2020. This change was primarily related to the recognition of the remaining balance of unamortized issuance costs and debt discount related to the senior secured term loan facility with Antara Capital Master Fund LP of $2.6 million into interest expense, related to the repayment of all amounts outstanding under the 2020 Antara Term Facility and a ~~charge for inventory~~$1 million change in the fair value ~~step-up, in the current fiscal year and the acquisition~~ of the ~~VendScreen business~~Company's embedded derivative related to the ~~previous fiscal year. We have excluded the non-cash expense, stock-based compensation, as it does not reflect the cash-based operations of the Company. We have excluded the integration~~2020 Antara Term Facility that was bifurcated and ~~acquisition expenses incurred in connection with the Cantaloupe acquisition, including a charge for inventory~~recognized at fair value ~~step-up, during~~as of March 31, 2020. The embedded derivative was derecognized when the ~~current fiscal year~~outstanding loan was repaid in August 2020 and ~~the VendScreen transaction from the previous fiscal year in order to allow for a more accurate comparison~~was not outstanding as of ~~the financial results to historical operations, as they pertain to period operational expenses that are not a core function~~March 31, 2021.

Adjusted ~~EBITDA~~earnings before income taxes, depreciation, and amortization (“Adjusted EBITDA”) is a non-GAAP financial measure which is not required by or defined under U.S. GAAP (Generally Accepted Accounting Principles). We use these non-GAAP financial measures for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons. We believe that these non-GAAP financial measures provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to metrics used by our management in its financial and operational decision making. The presentation of this financial measure is not intended to be considered in isolation or as a substitute for the financial measures prepared and presented in accordance with U.S. GAAP, including ~~the~~our net income or net loss ~~of the Company~~ or net cash used in operating activities. Management recognizes that non-GAAP financial measures have limitations in that they do not reflect all of the items associated with ~~the Company’s~~our net income or net loss as determined in accordance with U.S. GAAP, and are not a substitute for or a measure of ~~the Company’s~~our profitability or net earnings. Adjusted EBITDA is presented because we believe it is useful to investors as a measure of comparative operating performance. Additionally, ~~the Company utilizes~~we utilize Adjusted ~~EBTIDA~~EBITDA as a metric in ~~its~~our executive officer and management incentive compensation plans.

~~Reconciliation~~

We define Adjusted ~~Operating Income:~~

Three months ended December 31,
($ in thousands)

2017

2016
Operating (loss) income

$
(3,200)

$
234
Plus integration and acquisition costs and inventory step-up

3,358

8
Plus amortization expense

472

43
Adjusted operating income

$
630

$
285

As used herein, adjusted operating income represents operating (loss) income before the non-recurring integration and acquisition costs incurred in connection with the acquisition of Cantaloupe, including a charge for inventory fair value step-up, and VendScreen transaction and amortization expenses related to our acquisition-related intangibles. We have excluded these non-recurring costs and amortization expenses in order to allow for a more accurate comparison of the financial results to historical operations and we believe such a comparison is useful to investorsEBITDA as a measure of comparative operating performance. This is the first financial period for which we have adjusted for the amortization expenses related to our acquisition-related intangibles, and we intend to make such adjustments for future financial periods.

~~Reconciliation of Net (Loss) Income to Non-GAAP Net Income:~~

Three months ended December 31,
($ in thousands)

2017

2016
Net (loss) income

$
(12,516)

$
233
Non-GAAP adjustments:

Non-cash portion of income tax provision (benefit)

9,073

—
Amortization expense

472

43
Stock-based compensation

780

233
Litigation related professional fees

—

—
Integration and acquisition-related costs

3,413

8
Non-GAAP net income

$
1,222

$
517

~~As used herein, non-GAAP net income represents~~U.S. GAAP net ~~(loss)~~loss before (i) interest income, ~~excluding costs or benefits relating to any non-cash portions of the Company’s~~(ii) interest expense on debt and reserves, (iii) income ~~tax benefit, adjustment for fair value of warrant liabilities,~~taxes, (iv) depreciation, (v) amortization, (vi) stock-based compensation expense, and (vii) non-recurring ~~costs~~fees and ~~expenses~~charges that were incurred in connection with the ~~acquisition~~2019 Investigation and integration of Cantaloupe, including a charge for inventory fair value step-up and write-off of deferred financing costs, during the current fiscal year and VendScreen during the prior fiscal year, and non-cash expenses for equity awards under our equity incentive plans. This is the first financial ~~period for which we have adjusted for the non-cash expenses attributable to equity awards, and we intend to make such~~

adjustments for future financial periods. Management believes that non-GAAP net income is an important measure of USAT’s business. Non-GAAP net income is a non-GAAP financial measure which is not required by or defined under GAAP. The presentation of this financial measure is not intended to be considered in isolation or as a substitute for the financial measures prepared and presented in accordance with GAAP, including the net income or net loss of the Company or net cash provided by or (used in) operating activities. Management recognizes that non-GAAP financial measures have limitations in that they do not reflect all of the items associated with the Company’s net (loss) income as determined in accordance with GAAP, and are not a substitute for or a measure of the Company’s profitability or net earnings. Management uses the aforementioned non-GAAP measure to monitor and evaluate ongoing operating results and trends and to gain an understanding of our comparative operating performance. We believe that this non-GAAP financial measure serves as a useful metric for our management and investors because they enable a better understanding of the long-term performance of our core business and facilitate comparisons of our operating results over multiple periods, and when taken together with the corresponding GAAP financial measures and our reconciliations, enhance investors’ overall understanding of our current and future financial performance. Additionally, the Company utilizes non-GAAP net income as a metric in its executive officer and management incentive compensation plans.

~~Six Months Ended December 31, 2017 Compared to Six Months Ended December 31, 2016~~

~~Revenue and Gross Profit~~

For the six months ended December 31,

Percent
($ in thousands)

2017

2016

Change
Revenues:

License and transaction fees

$
42,797

$
33,004

29.7%
Equipment sales

15,326

10,340

48.2%
Total revenues

58,123

43,344

34.1%

Costs of sales:

Cost of services

27,688

22,632

22.3%
Cost of equipment

14,033

8,211

70.9%
Total costs of sales

41,721

30,843

35.3%

Gross profit:

License and transaction fees

15,109

10,372

45.7%
Equipment sales

1,293

2,129

(39.3%)
Total gross profit

$
16,402

$
12,501

31.2%

~~Revenue.~~ Total revenue increased $14.8 million for the six months ended December 31, 2017 compared to the same period in 2016. The growth in total revenue resulted from a $9.8 million increase in license and transaction fee revenue for the six months ended December 31, 2017 compared to the same period in 2016, and a $5.0 million increase in equipment revenue for the six months ended December 31, 2017 compared to the same period last year; both driven by an increase in connections and the Cantaloupe acquisition.

~~Cost of sales.~~ Cost of sales increased $10.9 million for the six months ended December 31, 2017 compared to the same period last year. The increase was driven by a $5.1 million increase in cost of services and a $5.8 million increase in cost of equipment sales, both arising from an increase in connections and the Cantaloupe acquisition.

~~Gross margin~~. The overall gross margin decreased 0.6% from 28.8% for the six months ended December 31, 2016 to 28.2% for the six months ended December 31, 2017. The decrease in the equipment margin, from 20.6% for the six months ended December 31, 2016 to 8.4% for the six months ended December 31, 2017 reflected our strategy of using equipment sales as an enabler for driving long-term, higher margin license and transaction fees. This decrease was partially offset by an increase in the license fee and transaction margin from 31.4% for the six months ended December 31, 2016 to 35.3% for the six months ended December 31, 2017 which was primarily driven by the impact of the Cantaloupe acquisition.


Part I - Financial Information

Item 1.	Condensed Consolidated Financial Statements ~~(unaudited)~~

	Condensed Consolidated Balance Sheets (unaudited)	3 3

	Condensed Consolidated Statements of Operations (unaudited)	4 4

	Condensed Consolidated ~~Statement~~Statements of Shareholders’ Equity (unaudited)	5 5

	Condensed Consolidated Statements of Cash Flows (unaudited)	6 6

	Notes to Consolidated Financial Statements (unaudited)	7 7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25 20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38 32

Item 4.	Controls and Procedures	38 33

Part II - Other Information

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 3.	Defaults Upon Senior Securities	40

Item 4.	Mine Safety Disclosures	40

Item 5.	Other Information	40

Item 6.	Exhibits	40 33

	Signatures	43 34


	December 31,		June 30,
($ in thousands, except shares)	2017		2017
	(unaudited)		(audited)
Assets
Current assets:
Cash and cash equivalents	$	15,386	$	12,745
Accounts receivable, less allowance of $3,740 and $3,149, respectively		15,472		7,193
Finance receivables, less allowance of $49 and $19, respectively		5,517		11,010
Inventory		11,215		4,586
Prepaid expenses and other current assets		1,971		968
Total current assets		49,561		36,502

Non-current assets:
Finance receivables, less current portion		11,215		8,607
Other assets		1,120		687
Property and equipment, net		12,622		12,111
Deferred income taxes		14,774		27,670
Intangibles, net		30,910		622
Goodwill		64,449		11,492
Total non-current assets		135,090		61,189

Total assets	$	184,651	$	97,691

Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	23,775	$	16,054
Accrued expenses		6,798		4,130
Line of credit, net		—		7,036
Capital lease obligations and current obligations under long-term debt		5,121		3,230
Income taxes payable		6		10
Deferred revenue		595		—
Deferred gain from sale-leaseback transactions		198		239
Total current liabilities		36,493		30,699

Long-term liabilities:
Revolving credit facility		10,000		—
Capital lease obligations and long-term debt, less current portion		23,874		1,061
Accrued expenses, less current portion		65		53
Deferred gain from sale-leaseback transactions, less current portion		49		100
Total long-term liabilities		33,988		1,214

Total liabilities	$	70,481	$	31,913

Commitments and contingencies (Note 13)
Shareholders’ equity:
Preferred stock, no par value, 1,800,000 shares authorized, no shares issued		—		—
Series A convertible preferred stock, 900,000 shares authorized, 445,063 issued and outstanding, with liquidation preferences of $19,109 and $18,775 at December 31, 2017 and June 30, 2017, respectively		3,138		3,138
Common stock, no par value, 640,000,000 shares authorized, 53,619,898 and 40,331,645 shares issued and outstanding at December 31, 2017 and June 30, 2017, respectively		307,053		245,999
Accumulated deficit		(196,021)		(183,359)
Total shareholders’ equity		114,170		65,778
Total liabilities and shareholders’ equity	$	184,651	$	97,691


	Series A
	Convertible
	Preferred Stock			Common Stock			Accumulated
($ in thousands, except shares)	Shares	Amount		Shares	Amount		Deficit		Total
Balance, June 30, 2017	445,063	$	3,138	40,331,645	$	245,999	$	(183,359)	$	65,778
Issuance of common stock in relation to public offering, net of offering costs incurred of $3,237 (a)	—		—	9,583,332		39,888		—		39,888
Issuance of common stock as merger consideration(b)	—		—	3,423,367		19,810		—		19,810
Stock based compensation	—		—	281,554		1,356		—		1,356
Excess tax benefit from stock plans(c)	—		—	—		—		67		67
Net loss	—		—	—		—		(12,729)		(12,729)
Balance, December 31, 2017	445,063	$	3,138	53,619,898	$	307,053	$	(196,021)	$	114,170


	Cantaloupe
($ in thousands)	Systems, Inc.
Accounts receivable	$	3,232
Finance receivables, current portion		1,640
Inventory		782
Prepaid expense and other current assets		682
Finance receivables, less current portion		3,483
Other assets		50
Property and equipment		1,573
Intangibles		30,800
Goodwill		52,957
Total assets acquired		95,199
Accounts payable		(1,591)
Accrued expenses		(1,832)
Deferred revenue		(626)
Capital lease obligations and current obligations under long-term debt		(666)
Capital lease obligations and long-term debt, less current portion		(1,134)
Deferred income tax liabilities		(4,359)
Total net assets acquired	$	84,991


	Three months ended December 31,				Six months ended December 31,
(In thousands, except per share data)	2017		2016		2017		2016
Revenues	$	34,772	$	27,521	$	67,642	$	54,704
Net loss attributable to USAT		(10,632)		(428)		(10,552)		(5,458)
Net loss attributable to USAT common shares	$	(10,632)	$	(428)	$	(10,886)	$	(5,792)
Net loss per share - basic and diluted		(0.20)		(0.01)		(0.20)		(0.11)
Weighted average number of common shares outstanding - basic and diluted		53,619,921		53,315,633		53,584,368		52,369,824


	30 and Under		31 – 60		61 – 90		Greater than		Total				Total
	Days Past		Days Past		Days Past		90 Days Past		Non-				Finance
($ in thousands)	Due		Due		Due		Due		Performing		Performing		Receivables
QuickStart Leases	$	40	$	85	$	162	$	120	$	407	$	16,325	$	16,732


	As of December 31, 2017
			Accumulated				Amortization
($ in thousands)	Gross		Amortization		Net		Period
Intangible assets:
Non-compete agreements		2		(2)		—	2 years
Brand and tradenames		1,695		(96)		1,599	3 - 7 years
Developed technology		10,939		(499)		10,440	5 - 6 years
Customer relationships		19,049		(178)		18,871	10 - 18 years
Total intangible assets	$	31,685	$	(775)	$	30,910

Goodwill		64,449		—		64,449	Indefinite

Total intangible assets & goodwill	$	96,134		(775)	$	95,359


	As of June 30, 2017
			Accumulated				Amortization
($ in thousands)	Gross		Amortization		Net		Period
Intangible assets:
Non-compete agreements		2		(2)		—	2 years
Brand		95		(48)		47	3 years
Developed technology		639		(191)		448	5 years
Customer relationships		149		(22)		127	10 years
Total intangible assets	$	885	$	(263)	$	622

Goodwill		11,492		—		11,492	Indefinite

Total intangible assets & goodwill	$	12,377		(263)	$	12,114


	As of and for the three months ended
	December 31,		September 30,		June 30,		March 31,		December 31,
	2017		2017		2017		2017		2016
Connections:
Gross new connections		317,000		28,000		70,000		40,000		25,000
% from existing customer base		44%		82%		93%		88%		80%
Net new connections (a)		311,000		26,000		64,000		35,000		21,000
Total connections		905,000		594,000		568,000		504,000		469,000

Customers:
New customers added (a)		1,800		550		300		500		500
Total customers		15,050		13,250		12,700		12,400		11,900

Volumes:
Total number of transactions (millions)		144.8		121.1		114.8		104.9		100.1
Total volume (millions)	$	272.7	$	239.2	$	225.6	$	202.5	$	191.5

Financing structure of connections:
JumpStart		0.4%		4.1%		3.3%		8.6%		6.8%
QuickStart & all others (b)		99.6%		95.9%		96.7%		91.4%		93.2%
Total		100.0%		100.0%		100.0%		100.0%		100.0%


	For the six months ended December 31,				Percent
($ in thousands)	2017		2016		Change
Revenues:
License and transaction fees	$	42,797	$	33,004	29.7%
Equipment sales		15,326		10,340	48.2%
Total revenues		58,123		43,344	34.1%

Costs of sales:
Cost of services		27,688		22,632	22.3%
Cost of equipment		14,033		8,211	70.9%
Total costs of sales		41,721		30,843	35.3%

Gross profit:
License and transaction fees		15,109		10,372	45.7%
Equipment sales		1,293		2,129	(39.3%)
Total gross profit	$	16,402	$	12,501	31.2%

~~Exhibit~~
Exhibit Number						Description

~~10.1~~ 3.1						~~Visa Small Ticket Deployment~~Amended and ~~Incentive~~Restated Articles of Incorporation, as amended through May 29, 2020 (incorporated by reference to Exhibit 3.1 to Form 8-A12B filed on November 17, 2020).

3.2						Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to Form 8-K filed on April 2 , 2021).

3.3						Amended and Restated Bylaws, as amended through May 4, 2020 (incorporated by reference to Exhibit 3.2 to Form 8-A12B filed on November 17, 2020).

4.1						Warrant dated March 29, 2016 in favor of Heritage Bank of Commerce (incorporated by reference to Exhibit 4.2 to Form 10-K filed on September 13, 2016).

10.1†						Separation and Transition Agreement, by and between Jeff Vogt and USA Technologies, Inc., dated as of ~~October 31, 2017 (Portions of this exhibit were redacted pursuant~~January 11, 2021 (incorporated by reference to ~~a confidential treatment request)~~Exhibit 10.1 to Form 8-K filed January 12, 2021).

10.2						First Amendment to Credit Agreement by and among the Company, its subsidiaries, and JPMorgan Chase Bank, N.A., dated ~~November 9, 2017 (Portions of this exhibit were redacted pursuant~~March 2, 2021 (incorporated by reference to ~~a confidential treatment request)~~Exhibit 10.1 to Form 8-K filed March 4, 2021).

10.3						~~Employment, Non-Interference, Non-Solicitation, Non-Competition and Invention Assignment~~Form of Subscription Agreement (incorporated by ~~and between the Company and Mandeep Arora dated November 9, 2017.~~reference to Exhibit 10.1 to Form 8-K filed February 25, 2021).

~~31.1~~ 31.1*						Certifications of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

~~31.2~~ 31.2*						Certifications of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

~~32.1~~ 32.1*						Certification of the Chief Executive Officer pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~32.2~~ 32.2*						Certification of the Chief Financial Officer pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101						The following financial information from our Quarterly Report on Form 10-Q for the quarter ended ~~December~~March 31, ~~2017,~~2021, filed with the SEC on ~~February 8, 2018,~~May 7, 2021, is formatted in Inline Extensible Business Reporting Language ~~(XBRL)~~(“iXBRL”): (1) the Condensed Consolidated Balance Sheets as of ~~December~~March 31, ~~2017~~2021 and June 30, ~~2017,~~2020, (2) the Condensed Consolidated Statements of Operations for the three-month and six-month periods ended ~~December~~March 31, ~~2017~~2021 and ~~2016,~~2020, (3) the Condensed Consolidated Statements of Shareholders’ Equity for the three-month and six-month ~~period~~periods ended ~~December~~March 31, ~~2017,~~2021 and 2020, (4) the Condensed Consolidated Statements of Cash Flows for the six-month ~~period~~periods ended ~~December~~March 31, ~~2017~~2021 and ~~2016,~~2020, and (5) the Notes to Consolidated Financial Statements.

101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH*						Inline XBRL Taxonomy Extension Schema


101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase

101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase

104						The cover page from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, filed with the SEC on May 7, 2021, is formatted as Inline iXBRL and contained in Exhibit 101.


						~~USA TECHNOLOGIES, INC.~~ Cantaloupe, Inc.

Date: ~~February 9, 2018~~ May 7, 2021						/s/ ~~Stephen P. Herbert~~ Sean Feeney
						~~Stephen P. Herbert,~~ Sean Feeney
						Chief Executive Officer

Date: ~~February 9, 2018~~ May 7, 2021						/s/ ~~Priyanka Singh~~ R. Wayne Jackson
						~~Priyanka Singh~~ R. Wayne Jackson
						Chief Financial Officer