UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~December~~March 31, ~~2017~~

2022

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

For the transition period from _________ to

_________

Commission file number 001-33365

Cantaloupe, Inc.

~~USA Technologies, Inc.~~

(Exact name of registrant as specified in its charter)

~~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)

(610) 989-0340

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


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

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, 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 29, 2022 there were ~~53,623,143~~71,111,008 outstanding shares of Common Stock, no par ~~value, outstanding.~~

value.

Table of Contents

~~USA TECHNOLOGIES, INC.~~

Cantaloupe, Inc.

TABLE OF CONTENTS


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	37 32

Item 4.	Controls and Procedures	37 33

Part II - Other Information

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3.	Defaults Upon Senior Securities	38

Item 4.	Mine Safety Disclosures	38

Item 5.	Other Information	38

Item 6.	Exhibits	38 33

	Signatures	40 34

Table of Contents

Part I. Financial Information

Item 1. Consolidated Financial Statements

~~USA Technologies,~~

Cantaloupe, Inc.

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


($ in thousands, except share data)	March 31, 2022 (Unaudited)		June 30, 2021

Assets
Current assets:
Cash and cash equivalents	$	75,086	$	88,136
Accounts receivable, net	29,802		27,470
Finance receivables, net	6,586		7,967
Inventory, net	13,650		5,292
Prepaid expenses and other current assets	3,737		2,414
Total current assets	128,861		131,279

Non-current assets:
Finance receivables due after one year, net	13,214		11,632
Property and equipment, net	11,284		5,570
Operating lease assets	2,661		3,049
Intangibles, net	18,777		19,992
Goodwill	66,656		63,945
Other assets	2,792		2,205
Total non-current assets	115,384		106,393

Total assets	$	244,245	$	237,672

Liabilities, convertible preferred stock and shareholders’ equity
Current liabilities:
Accounts payable	$	37,552	$	36,775
Accrued expenses	26,603		26,460
Current obligations under long-term debt	771		675
Deferred revenue	1,970		1,763
Total current liabilities	66,896		65,673

Long-term liabilities:
Deferred income taxes	195		179
Long-term debt, less current portion	14,010		13,644
Operating lease liabilities, non-current	2,763		3,645
Total long-term liabilities	16,968		17,468

Total liabilities	83,864		83,141
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 $22,113 and $21,447 at March 31, 2022 and June 30, 2021, respectively	3,138		3,138
Shareholders’ equity:
Preferred stock, no par value, 1,800,000 shares authorized	—		—
Common stock, no par value, 640,000,000 shares authorized, 71,097,674 and 71,258,047 shares issued and outstanding at March 31, 2022 and June 30, 2021, respectively	468,248		462,775
Accumulated deficit	(311,005)		(311,382)
Total shareholders’ equity	157,243		151,393
Total liabilities, convertible preferred stock and shareholders’ equity	$	244,245	$	237,672

See accompanying notes.

Table of Contents

~~USA Technologies,~~Cantaloupe, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)


	Three months ended				Six months ended					Three months ended				Nine months ended
	December 31,				December 31,					March 31,				March 31,
($ in thousands, except shares and per share data)	2017		2016		2017		2016
($ in thousands, except per share data)									($ in thousands, except per share data)	2022		2021		2022		2021
Revenues:									Revenues:
License and transaction fees	$	22,853	$	16,639	$	42,797	$	33,004
Subscription and transaction fees									Subscription and transaction fees	$	42,143	$	34,686	$	123,956	$	101,008
Equipment sales		9,653		5,117		15,326		10,340	Equipment sales	8,157		8,074		23,215		16,913
Total revenues		32,506		21,756		58,123		43,344	Total revenues	50,300		42,760		147,171		117,921

Costs of sales:									Costs of sales:
Cost of services		14,362		11,389		27,688		22,632
Cost of equipment		8,943		4,033		14,033		8,211
Cost of subscription and transaction fees									Cost of subscription and transaction fees	25,291		20,463		76,234		60,415
Cost of equipment sales									Cost of equipment sales	8,809		9,593		23,871		18,262
Total costs of sales		23,305		15,422		41,721		30,843	Total costs of sales	34,100		30,056		100,105		78,677

Gross profit		9,201		6,334		16,402		12,501	Gross profit	16,200		12,704		47,066		39,244

Operating expenses:									Operating expenses:
Selling, general and administrative		8,329		5,785		15,075		12,593
Integration and acquisition costs		3,335		8		4,097		109
Sales and marketing									Sales and marketing	1,937		1,754		6,021		4,873
Technology and product development									Technology and product development	5,532		4,425		16,701		11,422
General and administrative									General and administrative	6,788		7,552		21,724		28,076
Depreciation and amortization		737		307		982		515	Depreciation and amortization	1,062		991		3,197		3,111
Total operating expenses		12,401		6,100		20,154		13,217	Total operating expenses	15,319		14,722		47,643		47,482

Operating (loss) income		(3,200)		234		(3,752)		(716)
Operating income (loss)									Operating income (loss)	881		(2,018)		(577)		(8,238)

Other income (expense):									Other income (expense):
Interest income		251		200		331		273	Interest income	445		302		1,363		978
Interest expense		(494)		(201)		(703)		(413)	Interest expense	852		(88)		(100)		(3,970)
Change in fair value of warrant liabilities		-		-		-		(1,490)
Total other expense, net		(243)		(1)		(372)		(1,630)
Other income (expense)									Other income (expense)	(7)		—		(83)		—
Total other income (expense), net									Total other income (expense), net	1,290		214		1,180		(2,992)

(Loss) income before income taxes		(3,443)		233		(4,124)		(2,346)
(Provision) benefit for income taxes		(9,073)		-		(8,605)		115
Income (loss) before income taxes									Income (loss) before income taxes	2,171		(1,804)		603		(11,230)
Provision for income taxes									Provision for income taxes	(35)		(44)		(226)		(133)

Net (loss) income		(12,516)		233		(12,729)		(2,231)
Net income (loss)									Net income (loss)	2,136		(1,848)		377		(11,363)
Preferred dividends		-		-		(334)		(334)	Preferred dividends	(334)		(334)		(668)		(668)
Net (loss) income applicable to common shares	$	(12,516)	$	233	$	(13,063)	$	(2,565)
Net (loss) income per common share
Net income (loss) applicable to common shares									Net income (loss) applicable to common shares	$	1,802	$	(2,182)	$	(291)	$	(12,031)

Net earnings (loss) per common share									Net earnings (loss) per common share
Basic and diluted									Basic and diluted	$	0.03	$	(0.03)	$0.00		$	(0.18)

Weighted average number of common shares outstanding used to compute net income (loss) per share applicable to common shares									Weighted average number of common shares outstanding used to compute net income (loss) per share applicable to common shares
Basic		(0.24)		0.01		(0.26)		(0.07)	Basic	71,083,044		67,112,511		71,076,022		65,617,458
Diluted		(0.24)		0.01		(0.26)		(0.07)	Diluted	71,486,718		67,112,511		71,076,022		65,617,458
Weighted average number of common shares outstanding
Basic		52,150,106		40,308,934		49,861,735		39,398,469
Diluted		52,150,106		40,730,712		49,861,735		39,398,469

See accompanying notes.

Table of Contents

~~USA Technologies,~~Cantaloupe, Inc.

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, 2022


	Common Stock			Accumulated Deficit		Total
($ in thousands, except share data)	Shares	Amount
Balance, June 30, 2021	71,258,047	$	462,775	$	(311,382)	$	151,393
Stock-based compensation and exercises (net)	20,958	1,762		—		1,762
Retirement of common stock	(319,823)	—		—		—
Net loss	—	—		(1,291)		(1,291)
Balance, September 30, 2021	70,959,182	464,537		(312,673)		151,864
Stock-based compensation and exercises (net)	28,316	1,453		—		1,453
Net loss	—	—		(468)		(468)
Balance, December 31, 2021	70,987,498	465,990		(313,141)		152,849
Stock-based compensation and exercises (net)	110,176	2,258		—		2,258
Net income	—	—		2,136		2,136
Balance, March 31, 2022	71,097,674	$	468,248	$	(311,005)	$	157,243

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 and exercises (net)	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 and exercises (net)	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 and exercises (net)	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

See accompanying notes.

Table of Contents

~~USA Technologies,~~Cantaloupe, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

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)	2022		2021
Cash flows from operating activities:
Net income (loss)	$	377	$	(11,363)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Stock based compensation	4,624		6,366
Amortization of debt issuance costs and discounts	68		2,696
Provision for expected losses	2,519		1,286
Provision for inventory reserve	334		768
Depreciation and amortization included in operating expenses	3,197		3,111
Depreciation included in costs of sales for rental equipment	738		1,055
Property and equipment write-off	—		1,658
Other	402		1,192
Changes in operating assets and liabilities:
Accounts receivable	(4,415)		(6,031)
Finance receivables	(627)		(252)
Inventory	(8,691)		2,297
Prepaid expenses and other assets	(1,909)		(1,343)
Accounts payable and accrued expenses	(206)		7,218
Operating lease liabilities	(547)		(795)
Deferred revenue	207		(28)
Net cash (used in) provided by operating activities	(3,929)		7,835

Cash flows from investing activities:
Cash paid for acquisition	(2,966)		—
Purchase of property and equipment	(7,198)		(1,281)
Proceeds from sale of property and equipment	—		12
Net cash used in investing activities	(10,164)		(1,269)

Cash flows from financing activities:


Proceeds from debt facilities, net of issuance costs	738		14,550
Repayment of debt facilities	(437)		(15,554)

Proceeds from private placement	—		55,008
Payment of equity issuance costs	—		(2,598)
Proceeds from exercise of common stock options	849		77
Payment of third-party debt issuance costs	(107)		—
Payment of Antara prepayment penalty and commitment termination fee	—		(1,200)
Net cash provided by financing activities	1,043		50,283

Net (decrease) increase in cash and cash equivalents	(13,050)		56,849
Cash and cash equivalents at beginning of year	88,136		31,713
Cash and cash equivalents at end of period	$	75,086	$	88,562

Supplemental disclosures of cash flow information:
Interest paid in cash	$	542	$	804

See accompanying notes.

Table of Contents

~~USA Technologies,~~Cantaloupe, Inc.

Condensed Notes to Consolidated Financial Statements

(Unaudited)

1. BUSINESS

Cantaloupe, Inc. (“Cantaloupe” or the “Company”), previously known as USA Technologies, Inc., is organized under the laws of the Commonwealth of Pennsylvania. 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”, or “Our”) was incorporated in~~began trading on the ~~Commonwealth of Pennsylvania in January 1992. We are~~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 is a ~~provider of technology-enabled~~digital payments and software services company that provides end-to-end technology solutions ~~and value-added services that facilitate electronic payment transactions and consumer engagement services primarily within~~for the unattended ~~Point of Sale (“POS”)~~retail market. We are transforming the unattended retail world by offering a leading provider in the small ticket, beverage and food vending industry 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,solution for payments processing, as well as ~~telemetry Internet of Things (“IoT”)~~one that handles inventory management, pre-kitting, route logistics, warehouse and ~~machine-to-machine (“M2M”) services, which include the ability~~back-office management. Our enterprise-wide platform is designed to ~~remotely monitor,~~increase consumer engagement and sales revenue through digital payments, digital advertising and 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, car wash and electric vehicle charging stations, commercial laundry, kiosks, amusements and more, can run their businesses more proactively, predictably, and competitively.

COVID-19 Update

The Company, its employees, and its customers operate in geographic locations in which its business operations and financial performance continues to be affected by the ~~results of~~COVID-19 pandemic. While businesses, schools and other organizations re-open, which has led to increased foot-traffic to distributed assets containing our electronic payment ~~solutions. Historically, these distributed assets~~solutions, the emergence of new strains and variants and resurgence of the virus, such as the recent outbreak of the Omicron variant, have ~~relied on cash for payment~~and may in the ~~form of coins or bills, whereas,~~future lead to additional shutdowns and closures that impact our ~~systems allow them~~operations and financial results. Such impacts to ~~accept cashless payments such as through the use of credit or debit cards or other emerging contactless forms, such as mobile payment. The connection~~our financial statements include, but not limited to, the ~~ePort Connect Platform also enables consumer loyalty programs, national rewards programs~~impairment of goodwill and ~~digital content,~~intangible assets, impairment of long-lived assets including ~~advertisements~~operating lease assets, property and ~~product information to be delivered at the point~~equipment and allowance for doubtful accounts for accounts and finance receivables. We have concluded that there are no material impairments as a result of ~~sale.~~

~~On November 9, 2017, the Company acquired all~~our evaluation. Where applicable, we have incorporated judgments and estimates of the ~~outstanding equity interests~~expected impact of ~~Cantaloupe Systems, Inc. (“Cantaloupe”), pursuant to~~COVID-19 in the ~~Agreement~~preparation of the financial statements based on information currently available. These judgments and ~~Plan~~estimates may change, as new events develop and additional information is obtained, and are recognized in the condensed consolidated financial statements as soon as they become known.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of ~~Merger (“Merger Agreement”). Cantaloupe is a premier provider of cloud~~Presentation 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, 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.

~~INTERIM FINANCIAL INFORMATION~~

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, 2021 Annual Report on Form ~~10-K for the year ended June 30, 2017.~~10-K.

All intercompany transactions and balances have been eliminated in consolidation. 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~~2022 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, ~~2018.~~2022. Actual results could differ from estimates. The balance sheet at June 30, ~~2017~~2021 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 of~~ prior ~~year’s data~~period amounts have been ~~made~~reclassified to conform towith current ~~year’s~~year presentation. ~~As disclosed~~

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.

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Condensed Consolidated Statement of Operations: operating expenses presentation

Beginning in ~~Note 3,~~the first quarter of fiscal year 2022, the Company ~~incurred integration~~revised its presentation of operating expenses within its Condensed Consolidated Statement of Operations by disaggregating the previously disclosed Selling, general, and ~~acquisition~~administrative costs into Sales and marketing, Technology and product development, and General and administrative costs. The updated presentation is intended to provide additional transparency to the readers of the financial statements and better align the Company’s financial performance with how management views and monitors business operations and makes strategic decisions. Prior period amounts for fiscal year 2021 have been reclassified to conform with current year presentation.

Below is a brief description of the various categories within Operating expenses:

•Sales and marketing: Sales and marketing expenses ~~during~~consist primarily of our sales and marketing team personnel costs which include non-capitalized wages, bonuses, stock-based compensation, sales commissions, severance costs, benefits, and employer taxes. In addition, this category includes fees paid for advertising, trade shows and external consultants who assist in outreach initiatives designed to build brand awareness and showcase the ~~current period~~value of our products and ~~deemed it appropriate~~services to ~~have such~~our opportunity markets.

•Technology and product development: Technology and product development expenses consist primarily of our technology and product team personnel costs ~~individually captioned within the statement~~and fees paid to external consultants relating to innovating and maintaining our portfolio of ~~operations. Accordingly, the Company retrospectively reclassified integration~~products and ~~acquisition~~services and strengthening our network environment and platform. These costs include but are not limited to engineering, platform and software development, fees for software licenses, contract labor and other technology and product related items.

•General, and administrative: General and administrative expenses consist primarily of our customer support, business operations, finance, legal, human resources and other administrative personnel costs and fees paid to external consultants for these respective departments. In addition, this category includes rent and occupancy costs and other miscellaneous costs incurred in the ~~corresponding periods from~~course of operating the ~~previous fiscal year to conform~~business.

•Depreciation and amortization: No changes made to the ~~current period’s presentation.~~

accounting policies or previously reported amounts included within the Company’s June 30, 2021 Annual Report on Form 10-K for this category. Depreciation expense on our property and equipment, excluding property and equipment used for rentals, and amortization expense on our intangible assets are included within the Depreciation and amortization caption in the Consolidated Statements of Operations.

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~~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 the carrying amount of the reporting unit when measuring the goodwill impairment 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 to be performed on testing dates after July 1, 2017, whichThe presentation changes described above did not impact total operating expenses, operating loss, net loss or net loss per common share.

Below are excerpts from the Condensed Consolidated Statement of Operations for each quarter of fiscal year 2021 before and after the revisions:


Revised presentation:	Three months ended								Year ended June 30, 2021
($ in thousands)	September 30, 2020		December 31, 2020		March 31, 2021		June 30, 2021
Sales and marketing	$	1,599	$	1,520	$	1,754	$	2,062	$	6,935
Technology and product development	3,214		3,783		4,425		4,513		15,935
General and administrative	11,997		8,528		7,552		7,677		35,754
Depreciation and amortization	1,068		1,052		991		996		4,107
Total operating expenses	$	17,878	$	14,883	$	14,722	$	15,248	$	62,731


As previously reported:	Three months ended								Year ended June 30, 2021
($ in thousands)	September 30, 2020		December 31, 2020		March 31, 2021		June 30, 2021
Selling, general, and administrative	$	16,810	$	13,831	$	13,731	$	14,252	$	58,624
Depreciation and amortization	1,068		1,052		991		996		4,107
Total operating expenses	$	17,878	$	14,883	$	14,722	$	15,248	$	62,731

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Condensed Consolidated Statement of Operations: updated caption

Beginning in the first quarter of fiscal year 2022, the Company revised the previously reported revenue caption of License and transaction fees to Subscription and transaction fees within its Condensed Consolidated Statement of Operations to provide a more accurate description of the revenue stream and align with commonly used terminology by industry participants. No changes were made to the revenue recognition accounting policies or previously reported amounts included within the Company’s June 30, 2021 Annual Report on Form 10-K.

Recently Adopted Accounting Pronouncements

Measurement of Credit Losses on Financial Statements

The Company adopted "Financial Instruments - Credit Losses" (Topic 326) on July 1, 2020 using the modified retrospective approach through an adjustment to retained earnings, and began calculating our allowance for accounts and finance receivables under an expected loss model rather than an incurred loss model.

The following table represents a roll forward of the allowance for doubtful accounts for accounts and finance receivables for the

three and nine months ending March 31, 2022:


	Three months ended March 31,
	2022				2021
($ in thousands)	Accounts Receivable		Finance Receivable		Accounts Receivable		Finance Receivable
Balance, beginning of period	$	7,161	$	1,062	$	7,855	$	909
Provision for expected losses	981		225		—		—
Write-offs	(1,022)		(138)		(827)		—
Balance, end of period	$	7,120	$	1,149	$	7,028	$	909


	Nine months ended March 31,
	2022				2021
($ in thousands)	Accounts Receivable		Finance Receivable		Accounts Receivable		Finance Receivable
Balance, beginning of period	$	6,614	$	1,109	$	7,676	$	150
Impact of adoption of ASC 326*	—		—		(757)		409
Provision for expected losses	2,094		425		936		350
Write-offs	$	(1,588)	$	(385)	$	(827)	$	—
Balance, end of period	$	7,120	$	1,149	$	7,028	$	909

* The Company adopted ASC 326 on July 1, 2020.

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

On July 1, 2021, the Company adopted ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12 is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. The adoption of this accounting standard did not materially impact the Company’s condensed consolidated financial statements.

~~In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment~~

Accounting which modifies the accounting for certain aspects of share-based payments to employees. The new guidance requires excess tax benefits and tax deficiencies to be recorded 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 clarifies that all cash payments made to tax authorities on an employee’s behalf for withheld shares should be presented as 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 with the guidance. Adoption of the new standard resulted in the recognition of $16 thousand of excess tax benefits in the Company's provision 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 amounting to $67 thousand were credited to accumulated deficit.

~~The adoption of ASU No. 2016-09 did not impact our statement of cash flows for the three and six months ended December 31, 2016.~~

~~Accounting pronouncements to be adopted.~~

Pronouncements To Be 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.

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Reference Rate Reform

In ~~May 2014,~~March 2020 and January 2021, the FASB issued ASU ~~2014-09, “Revenue from Contracts with Customers (Topic 606) (“~~2020-04, “Facilitation of the ~~New Standard”).~~Effects of Reference Rate Reform on Financial Reporting” ~~This~~and ASU ~~was amended by ASU No. 2015-14, issued~~2021-01, “Reference Rate Reform: Scope”, respectively. Together, the ASUs provide temporary optional expedients and exceptions for applying U.S. GAAP guidance on contract modifications and hedging relationships that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. These optional expedients and exceptions are effective beginning March 12, 2020 through December 31, 2022 and adoption is permitted at any time 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.~~period. The Company is currently evaluating and assessing 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.

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~~The objectives for the second phase of the project will be to establish and document key~~these 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~~standards will have on ~~the Company’s~~its condensed consolidated financial statements and related disclosures and if it 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.

these optional standards.

Lessor Classification

In ~~February 2016,~~July 2021, the FASB issued ASU ~~2016-02, "Leases (Topic 842)." ASU 2016-02~~2021-05, “Lessors – Certain Leases with Variable Lease Payments” which requires ~~that a lessee recognize the assets and liabilities that arise from~~lessors to classify leases as operating ~~leases. A lessee should recognize in the statement of financial position a liability to make~~leases if they have variable lease payments ~~(the lease liability)~~that do not depend on an index or rate 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~~would have selling losses if they were classified as sales-type or ~~less, a lessee~~direct financing leases. ASU 2021-05 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,~~ the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326).” The new guidance introduces the accounting for estimated credit losses pertaining to certain types of financial instruments, including but not limited to, trade and lease receivables. This pronouncement will be effective for fiscal years beginning after December 15, ~~2019. Early~~2021, and interim periods within those fiscal years. We plan to adopt this pronouncement for our fiscal year beginning July 1, 2022. The Company has evaluated the impact of this accounting standard and does not expect there to be a material effect at adoption ofto our condensed consolidated financial statements.

Accounting for Debt and Equity Instruments

In August 2020, the ~~guidance~~FASB issued ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” which simplifies accounting for convertible instruments and the derivatives scope exception for contracts in an entity's own equity and improves and amends the related earnings per share ("EPS") guidance. ASU 2020-06 is ~~permitted~~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.” 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, 2019,2021, and interim periods within ~~that~~those 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 theyears. We plan to adopt this pronouncement for our fiscal year ~~that includes that interim period. An entity that elects early adoption must adopt all~~beginning July 1, 2022. The Company has evaluated the impact 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~~this accounting standard and does not ~~anticipate significant changes~~expect there 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 ~~on the Company’s~~at adoption to our condensed consolidated financial statements.

~~In May 2017,~~

3. LEASES

Lessee Accounting

The Company has operating leases for office space, warehouses, and office equipment. At March 31, 2022, the ~~FASB issued ASU No. 2017-09, “Compensation – Stock Compensation (Topic 718), Scope~~Company had the following balances recorded in the balance sheet related to its lease arrangements:


($ in thousands)	Balance Sheet Classification	As of March 31, 2022		As of June 30, 2021


Assets:	Operating lease assets	$	2,661	$	3,049

Liabilities:
Current	Accrued expenses	1,501		1,166
Long-term	Operating lease liabilities, non-current	2,763		3,645
Total lease liabilities		$	4,264	$	4,811

Components of ~~Modification Accounting.” The standard provides guidance about~~lease cost are as follows:


($ in thousands)	Three months ended March 31, 2022		Three months ended March 31, 2021

Operating lease costs*	$	462	$	471

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($ in thousands)	Nine months ended March 31, 2022	Nine months ended March 31, 2021

Operating lease costs*	1,347	1,535

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

Supplemental cash flow information and non-cash activity related to ~~the terms or conditions~~our leases are as follows:


($ in thousands)	Nine months ended March 31, 2022		Nine months ended March 31, 2021

Supplemental cash flow information:
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,257	$	1,155

Non-cash activity:
Lease assets obtained in exchange for new operating lease liabilities	$	471	$	—

Maturities of ~~a share-based payment award require modification accounting, which may result in a different fair value~~lease liabilities by fiscal year for our leases are as follows:


($ in thousands)	Operating Leases
Remainder of 2022	$	430
2023	1,758
2024	1,029
2025	707
2026	628
Thereafter	265
Total lease payments	4,817
Less: Imputed interest	(553)
Present value of lease liabilities	$	4,264

Lessor Accounting

Property and equipment used for the ~~award. This ASU is effective for annual periods~~operating lease rental program consisted of the following:


($ in thousands)	March 31, 2022		June 30, 2021
Cost	$	22,516	$	26,753
Accumulated depreciation	(20,627)		(24,487)
Net	$	1,889	$	2,266

The Company’s net investment in sales-type leases (carrying value of lease receivables) and ~~interim periods beginning after December 15, 2017, with early adoption permissible. The guidance is required~~the future minimum amounts to be ~~applied prospectively~~collected on these lease receivables as of March 31, 2022 are disclosed within Note 6 - Finance Receivables.

4. REVENUE

Disaggregated Revenue

Beginning in the first quarter of fiscal year 2022, the Company disaggregated Subscription and transaction fees presented on the Condensed Consolidated Statement of Operations to ~~awards modified~~Transaction fees and Subscription fees categories (described below) as this additional disclosure provides greater visibility into the Company's revenue streams and better aligns the Company’s financial performance including how management views and monitors business operations and makes strategic decisions.

•Transaction fees: The Company charges its customers a transaction fee generally calculated as a percentage rate on ~~or after~~volumes processed through our payment devices.

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•Subscription fees: Subscription fees are primarily comprised of the ~~effective date. Historically, modifications~~monthly service fee charged to our ~~share-based~~customers for our cashless payment ~~awards have been limited. As such, we do not expect the application of this standard to have a material effect on~~services, service fees originated through our ~~results of operations or financial position.~~

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~~3. ACQUISITION OF CANTALOUPE SYSTEMS, INC.~~

On November 9, 2017, the Company acquired all of the outstanding equity interests of Cantaloupe pursuant to the Merger Agreement, for approximately $85.0 million in aggregate consideration, net of cash acquired. Cantaloupe is a premier provider of cloudrental program 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,~~software services that include inventory management, route logistics optimization, warehouse and accounting management, and responsive merchandising.

Based on similar operational characteristics, the Company's revenue is disaggregated as ~~well~~follows:


	Three months ended March 31,				Nine months ended March 31,
($ in thousands)	2022		2021		2022		2021
Transaction fees	$	27,509	$	21,002	$	80,704	$	61,133
Subscription fees	14,634		13,684		43,252		39,875
Subscription and transaction fees	42,143		34,686		123,956		101,008
Equipment sales	8,157		8,074		23,215		16,913
Total revenues	$	50,300	$	42,760	$	147,171	$	117,921

Disaggregation of revenues for the previously reported quarters for fiscal year-ended June 30, 2021 utilizing the above described methodology is presented as ~~cashless vending.~~ follows:


	Three months ended								Year ended June 30, 2021
($ in thousands)	September 30, 2020		December 31, 2020		March 31, 2021		June 30, 2021
Transaction fees	$	19,677	$	20,454	$	21,002	$	24,365	$	85,498
Subscription fees	13,431		12,760		13,684		13,869		53,744
Subscription and transaction fees	33,108		33,214		34,686		38,234		139,242
Equipment sales	3,769		5,071		8,074		10,783		27,697
Total revenues	$	36,877	$	38,285	$	42,760	$	49,017	$	166,939

Transaction Price Allocated to Future Performance Obligations

In ~~addition~~determining the transaction price allocated to ~~new technology~~future performance obligations, we do not include non-recurring charges. Further, we apply the practical expedient to not consider arrangements with an original expected duration of 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 60 months based on implied and explicit termination penalties. These amounts will be converted into revenue in future periods as work is performed, primarily based on the services ~~due~~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 ~~Cantaloupe’s existing customer base,~~be recognized in the future related to performance obligations that are unsatisfied at the end of the period:


($ in thousands)	As of March 31, 2022

2022	$	3,677
2023	13,562
2024	9,434
2025	5,737
2026	3,837
Thereafter	1,223
Total	$	37,470

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Contract Liabilities

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


	Three months ended March 31,		Three months ended March 31,
($ in thousands)	2022		2021

Deferred revenue, beginning of the period	$	1,745	$	1,648
Deferred revenue, end of the period	1,970		1,670
Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period	87		97


	Nine months ended March 31,		Nine months ended March 31,
($ in thousands)	2022		2021

Deferred revenue, beginning of the period	$	1,763	$	1,698
Deferred revenue, end of the period	1,970		1,670
Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period	301		274

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

Contract Costs

At March 31, 2022, the Company had net capitalized costs to obtain contracts of $0.4 million included in Prepaid expenses and other current assets and $2.1 million included in Other noncurrent assets on the Condensed Consolidated Balance Sheet. At June 30, 2021, the Company had net capitalized costs to obtain contracts of $0.4 million included in Prepaid expenses and other current assets and $2.0 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, 2022, amortization of capitalized contract costs was $0.2 million and $0.5 million. During the three and nine months ended March 31, 2021, amortization of capitalized contract costs was $0.2 million and $0.4 million.

5. ACQUISITION

In August 2021, we completed the acquisition ~~expands the Company’s footprint into new global markets.~~

~~The preliminary fair value~~ of ~~the purchase price consideration consisted~~certain assets and liabilities 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)~~

~~(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 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 with proceeds from a $25.0 million term loan~~Delicious Nutritious LLC, doing business as Yoke Payments (“~~Term Loan”) and $10.0 million of borrowings under a line of credit (“Revolving Credit Facility”~~Yoke”), ~~provided by JPMorgan Chase Bank, N.A., for an aggregate principal amount of $35.0 million. Refer to Note 9 for additional details.~~

a micro market payments company. The acquisition of ~~Cantaloupe~~Yoke was accounted for as a business combination using the acquisition ~~method. Under the acquisition~~ method of accounting which includes the results of operations of the acquired business from the date of acquisition. The purchase price of the acquired company is allocated between tangible and intangible assets acquired and liabilities assumed from the acquired business based on their estimated fair values using primarily Level 3 inputs under ASC Topic 820, Fair Value Measurement, with the residual of the purchase price recorded as goodwill.

Through the acquisition, Yoke’s point of sale platform will now extend its offering to provide self-checkout while seamlessly integrating with Cantaloupe’s inventory management and payment processing platforms. We plan to differentiate ourselves by providing a single platform to manage consumer and operational aspects of micro markets, while also integrating multiple service providers for flexibility and ultimate ease to our customers.

The consideration transferred for the acquisition includes payments of $3 million in cash at the close of the transaction ~~were recorded at~~and $1 million in deferred cash payment due on or before July 30, 2022 based on the achievement of certain sales growth targets. As of the date of the acquisition ~~at their respective fair values using assumptions that are subject~~and as of March 31, 2022, we expect to ~~change. The Company has not finalized its valuation~~pay the entire deferred cash payment and we have accrued a contingent consideration liability of ~~certain assets and liabilities recorded~~$1 million which is included within Accrued expenses in our Condensed Consolidated Balance Sheet.

Additionally in connection with ~~this transaction. Thus,~~ the ~~estimated measurements recorded to date are subject to change and any changes~~acquisition, the Company will ~~be recorded as adjustments~~issue common stock to the ~~fair value~~former owners of ~~those assets~~Yoke based on the achievement of certain sales growth targets for software licenses through July 31, 2024 and ~~liabilities and residual amounts will be allocated to goodwill. The final valuation adjustments may also require adjustment to~~continued employment as of the ~~consolidated statements 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.~~

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respective measurement dates. The accounting treatment for these awards in the context of the business combination is to recognize the awards as a post-combination expense and were not included in the purchase price. We will begin recognizing compensation expense for these awards over the requisite service period when it becomes probable that the performance condition would be satisfied pursuant to ASC 718. At each reporting date, we assess the probability of achieving the sales targets and fulfilling the performance condition. As of March 31, 2022, we determined that it is not probable that the performance condition would be satisfied and, accordingly, have not recognized compensation expense related to these awards for the nine months ended March 31, 2022.

The following table summarizes the ~~fair value of~~ total consideration ~~transferred to the holders of all of the outstanding equity interests of Cantaloupe~~paid for Yoke, total net assets acquired, identifiable assets and goodwill recognized at the acquisition ~~date of November 9, 2017:~~

date:

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


($ in thousands)	Amount
Consideration
Cash	$	2,966
Contingent consideration arrangement	1,000
Fair value of total consideration transferred	3,966

Recognized amounts of identifiable assets
Total net assets acquired	21
Identifiable intangible assets	1,235
Total identifiable net assets	1,256

Goodwill	$	2,710

Amounts allocated to identifiable intangible assets included ~~$18.9~~$0.9 million related to developed technology, $0.3 million related to customer relationships, ~~$10.3~~and $0.1 million related to other intangible assets. The fair value of the acquired developed technology ~~and $1.6 million related to trade names.~~was determined using a multi-period excess earnings method. The fair value of the acquired customer relationships was determined using the ~~excess earnings method. The fair~~with-and-without method which estimates the value ~~of both the acquired developed technology and the acquired trade names was determined~~ using the ~~relief from royalty method.~~cash flow impact in a scenario where the customer relationships are not in place. The ~~estimated useful life of the acquired~~recognized intangible assets ~~ranged from 6 to 18 years, with a weighted average estimated useful life of 13 years. The related amortization~~ will be ~~recorded~~amortized on a straight-line ~~basis.~~

basis over the estimated useful lives of the respective assets.

Goodwill of ~~$53.0~~$2.7 million arising from the acquisition includes the expected synergies between ~~Cantaloupe~~Yoke and the Company ~~the value of the employee workforce,~~ and intangible assets that do not qualify for separate recognition at 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 of the acquisition of Cantaloupe, the Company incurred the following integration and acquisition costs and other one-time charges related to the acquisition in the three 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

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~~Supplemental disclosure of pro forma information~~

The following supplemental unaudited pro forma information presents the combined results of USAT and Cantaloupe as if the acquisition of Cantaloupe occurred on July 1, 2016. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the acquisition been made on July 1, 2016, nor are they indicative of any future results.

The pro forma results include adjustments for the preliminary purchase accounting impact of the Cantaloupe acquisition (including, but not limited to, amortization associated with the acquired intangible assets, and the interest expense and amortization of deferred financing fees associated with the Term Loan and Revolving Credit Facility that were used to finance a portionabove allocation of the purchase price ~~along~~is provisional and is still subject to change within the measurement period. The final allocation of the purchase price is expected to be completed as soon as practicable, but no later than one year from the date of the acquisition. Pro forma financial information of the acquisition is not presented due to the immaterial impact of the financial results of Yoke in the Company's Consolidated Financial Statements.

6. 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 Company’s finance receivables agreements are classified as non-cancellable sixty-month sales-type leases. As of March 31, 2022 and June 30, 2021, finance receivables consist of the following:


($ in thousands)	March 31, 2022		June 30, 2021
Current finance receivables, net	$	6,586	$	7,967
Finance receivables due after one year, net	13,214		11,632
Total finance receivables, net of allowance of $1,149 and $1,109, respectively	$	19,800	$	19,599

We collect lease payments from customers primarily as part of the flow of funds from our transaction processing service. Balances are considered past due if customers do not have sufficient transaction revenue to cover the monthly lease payment by

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the end of the monthly billing period. The Company routinely monitors customer payment performance and uses prior payment performance as a measure to assess the capability of the customer to repay contractual obligations of the lease agreements as scheduled. On an as-needed basis, qualitative information may be taken into consideration if new information arises related ~~tax impacts)~~to the customer’s ability to repay the lease.

Credit risk for these receivables is continuously monitored by management and reflected within the ~~alignment~~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 ~~accounting policies. Other material non-recurring adjustments~~transaction revenue we process for each customer relative to their lease payment due, as we consider this customer characteristic to be the strongest predictor of the risk of customer default. Customers with low processing volume or with transaction sales that are ~~reflected in~~insufficient to cover the ~~pro forma~~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 sufficient to cover monthly fees) and ~~described~~low ratio customers (customers that do not consistently have adequate transaction processing volumes sufficient 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, 2022, 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	$	7,194	$	3,186	$	4,241	$	3,321	$	986	$	198	$	19,126
30 days and under	32		15		41		28		5		—		121
31-60 days	81		34		59		41		10		2		227
61-90 days	62		26		46		32		6		2		174
Greater than 90 days	533		213		237		255		47		16		1,301
Total finance receivables	$	7,902	$	3,474	$	4,624	$	3,677	$	1,054	$	218	$	20,949

At June 30, 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	$	6,736	$	3,970	$	3,942	$	3,081	$	1,358	$	31	$	19,118
30 days and under	19		67		90		93		11		1		281
31-60 days	4		9		22		2		1		—		38
61-90 days	10		42		66		54		10		—		182
Greater than 90 days	46		69		490		419		54		11		1,089
Total finance receivables	$	6,815	$	4,157	$	4,610	$	3,649	$	1,434	$	43	$	20,708

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At March 31, 2022, 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	$	7,190	$	3,122	$	4,207	$	3,182	$	918	$	199	$	18,818
Low ratio customers	712		352		417		495		136		19		2,131
Total finance receivables	$	7,902	$	3,474	$	4,624	$	3,677	$	1,054	$	218	$	20,949

At June 30, 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	$	6,415	$	3,824	$	3,793	$	2,920	$	1,290	$	24	$	18,266
Low ratio customers	400		333		817		729		144		19		2,442
Total finance receivables	$	6,815	$	4,157	$	4,610	$	3,649	$	1,434	$	43	$	20,708

The following table represents a rollforward of the allowance for finance receivables for the nine months ending March 31, 2022 and 2021:


	Nine months ended March 31,
($ in thousands)	2022		2021

Balance at June 30	$	1,109	$	150
Impact of adoption of ASC 326*	—		409
Provision for expected losses	425		350
Write-offs	(385)		—
Balance at March 31	$	1,149	$	909

* The Company adopted Financial Instruments - Credit Losses (Topic 326) on July 1, 2020.

Cash to be collected on our performing finance receivables due for each of the fiscal years are as follows:


($ in thousands)
2022	$	2,829
2023	6,881
2024	5,874
2025	4,440
2026	2,552
Thereafter	728
Total amounts to be collected	23,304
Less: interest	(2,355)
Less: allowance for receivables	(1,149)
Total finance receivables	$	19,800

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7. EARNINGS (LOSS) PER SHARE CALCULATION

Basic earnings (loss) per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share, applicable only to periods ended with reported income, is computed by dividing net income by the weighted average number of common shares outstanding during the period plus the dilutive effect of outstanding stock options and restricted stock-based awards using the treasury stock method. The calculation of basic and diluted earnings (loss) per share is presented 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


	Three months ended March 31,
($ in thousands, except per share data)	2022		2021

Numerator for basic and diluted loss per share
Net earnings (loss)	$	2,136	$	(1,848)
Preferred dividends	(334)		(334)
Net earnings (loss) applicable to common shareholders	1,802		(2,182)

Denominator for basic loss per share - Weighted average shares outstanding	71,083,044		67,112,511
Effect of dilutive potential common shares	403,674		—
Denominator for diluted loss per share - Adjusted weighted average shares outstanding	71,486,718		67,112,511

Basic and diluted earnings (loss) per share	$	0.03	$	(0.03)

~~The supplemental unaudited pro forma earnings~~


	Nine months ended March 31,
($ in thousands, except per share data)	2022		2021

Numerator for basic and diluted loss per share
Net loss	$	377	$	(11,363)
Preferred dividends	(668)		(668)
Net loss applicable to common shareholders	(291)		(12,031)

Denominator for basic loss per share - Weighted average shares outstanding	71,076,022		65,617,458
Effect of dilutive potential common shares	—		—
Denominator for diluted loss per share - Adjusted weighted average shares outstanding	71,076,022		65,617,458

Basic and diluted loss per share	$0.00		$	(0.18)

Potentially anti-dilutive shares excluded from the calculation of diluted loss per share were approximately 5 million for the three and ~~six~~nine months ended ~~December~~March 31, ~~2017 were adjusted to exclude $3.3~~2022 and approximately 4 million ~~and $4.1 million of integration and acquisition costs, respectively.~~

~~The supplemental unaudited pro forma earnings~~ 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

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~~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

2021.

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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.

7.8. 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, 2022
($ in thousands)	Gross		Accumulated Amortization		Net		Amortization Period
Intangible assets:
Brand and tradenames	$	1,705	$	(1,058)	$	647	1 - 7 years
Developed technology	11,819		(8,288)		3,531		5 - 6 years
Customer relationships	19,339		(4,740)		14,599		5 - 18 years
Total intangible assets	$	32,863	$	(14,086)	$	18,777

Goodwill	66,656		—		66,656		Indefinite


	As of June 30, 2021
($ in thousands)	Gross		Accumulated Amortization		Net		Amortization Period
Intangible assets:
Brand and tradenames	1,640		(840)		800		3 - 7 years
Developed technology	10,939		(6,890)		4,049		5 - 6 years
Customer relationships	19,049		(3,906)		15,143		10 - 18 years
Total intangible assets	$	31,628	$	(11,636)	$	19,992

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~~During the three and ~~six~~nine months ended ~~December~~March 31, ~~2017,~~2022, there was ~~$472 thousand~~$0.8 million and ~~$516 thousand~~$2.5 million in amortization expense related to intangible assets, respectively, that was recognized. The Company recognized $2.7 million in goodwill and $1.2 million in newly acquired intangible assets in association with the Yoke acquisition as ~~compared to~~referenced in Note 5- Acquisition.

During the three and ~~six~~nine months ended ~~December~~March 31, ~~2016, for which~~2021, there was ~~$43 thousand~~$0.8 million and ~~$87 thousand~~$2.4 million for each respective period in amortization expense related to intangible assets ~~respectively.~~

~~8. LINE OF CREDIT~~

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 ~~fiscal year~~three and nine months ended March 31, 2022 and March 31, 2021, the Company did not recognize any impairment charges related to goodwill.

9. DEBT AND OTHER FINANCING ARRANGEMENTS

The Company's debt and other financing arrangements as of March 31, 2022 and June 30, ~~2016,~~2021 consisted of the following:


	As of March 31,		As of June 30,
($ in thousands)	2022		2021

JPMorgan Credit Facility*	$	15,000	$	14,437
Other obligations	65		113
Less: unamortized issuance costs and debt discount	(284)		(231)
Total	14,781		14,319
Less: debt and other financing arrangements, current	(771)		(675)
Debt and other financing arrangements, noncurrent	$	14,010	$	13,644

* See discussion below on amendment to the JPMorgan Credit Facility.

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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)	2022		2021		2022		2021
JPMorgan Credit Facility*	$	221	$	301	$	679	$	776
Interest expense related to change in sales tax reserve	(1,074)		(178)		(582)		511
Other interest expense	1		(35)		3		(96)
2020 Antara Term Facility	—		—		—		2,779
Total interest expense	$	(852)	$	88	$	100	$	3,970

* See discussion below on amendment to JPMorgan Credit Facility.

JPMorgan Chase Bank Credit Facility

JP Morgan Credit Agreement dated August 14, 2020 and amendment dated March 2, 2021

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 with JPMorgan Chase Bank, N.A.(the “2021 JPMorgan Credit Agreement”).

The 2021 JPMorgan Credit Agreement provided 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, as amended, the “2021 JPMorgan Credit Facility”), which included an uncommitted expansion feature that allowed 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.

The 2021 JPMorgan Credit Facility had 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 carries 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 December 31, 2021, the total applicable interest rate for the 2021 JPMorgan Secured Term Facility was 5%.

The Company’s obligations under the 2021 JPMorgan Credit Facility were secured by first priority security interests in substantially all of the assets of the Company. The 2021 JPMorgan Credit Agreement included 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, and 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, 2021, a total leverage ratio of not greater than 3.00 to 1.00.

JP Morgan amended and restated Credit Agreement dated March 17, 2022

On March 17, 2022, the Company entered into an amended and restated credit agreement with JPMorgan Chase Bank, N.A. which provides for a $15 million secured revolving credit facility (the “Amended Revolving Facility”) and a $25 million secured term facility (the “Amended Secured Term Facility” and together with the Amended Revolving Facility, the “Amended JPMorgan Credit Facility”), and fully replaces our previous 2021 JPMorgan Credit Facility. The Amended Secured Term Facility includes a $10 million increase from the 2021 JPMorgan Secured Term Facility which is available for a period of up to twelve months following the Closing Date.

The proceeds of the Amended JPMorgan Credit Facility may be used to refinance certain existing indebtedness of the Company and its subsidiaries, to finance the working capital needs, and for general corporate purposes (including permitted acquisitions), of the Company and its subsidiaries.

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The Amended JPMorgan Credit Facility has a four year maturity. Interest on the Amended JPMorgan Credit Facility will be based, at the Company’s option, on a base rate or SOFR plus an applicable margin tied to the Company’s total leverage ratio and having ranges of between 2.50% and 3.00% for base rate loans and between 3.50% and 4.00% for SOFR loans; provided that until June 30, 2022 the applicable margin shall be 2.75% for base rate loans and 3.75% for SOFR loans. Subject to the occurrence of a material acquisition and the Company’s total leverage ratio exceeding 3.00 to 1.00, the interest rate on the loans may increase by 0.25%. In an event of default, the interest rate may be increased by 2.00%. The Amended JPMorgan Credit Facility will also carry a commitment fee of 0.50% per annum on the unused portion. As of March 31, 2022, the total applicable interest rate for the Amended Secured Term Facility is 4.4%.

The Amended JPMorgan Credit Facility includes customary representations, warranties and covenants, and acceleration, indemnity and events of default provisions, including, among other things, two financial covenants. One financial covenant requires the Company to maintain, at all times, a total leverage ratio of not more than 3.00 to 1.00 on the last day of any fiscal quarter. The other financial covenant is conditional on a material acquisition occurring: if a material acquisition occurs, the Company is required to maintain a total leverage ratio not greater than 4.00 to 1.00 for the next four fiscal quarters following the material acquisition.

The Amended Secured Term Facility was accounted for as a modification of the 2021 JPMorgan Secured Term Facility. The previously unamortized debt issuance costs remain capitalized, the new fees paid to the creditor were capitalized, and allocated third-party costs incurred allocated to the term facility were charged to expense. We have also evaluated that the borrowing capacity of the Amended Revolving Facility is greater than the borrowing capacity of the 2021 JPMorgan Revolving Facility. The previously unamortized debt issuance costs remain capitalized, the new fees paid to the creditor and allocated third-party costs were capitalized. The Company capitalized $0.3 million of issuance costs related to the Amended JPMorgan Credit Facility during the three and nine months ended March 31, 2022.

The Company was in compliance with its financial covenants for the Amended JPMorgan Credit Facility as of March 31, 2022.

References to "JPMorgan Credit Facility" in the Condensed Consolidated Financial Statements and related notes, Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of the Form 10-Q specifically refers to the 2021 JPMorgan Credit Facility prior to March 17, 2022 and to the Amended JPMorgan Credit Facility subsequent to and as of March 17, 2022.

Term Facility with Antara

On October 9, 2019, the Company entered into a ~~Loan and Security Agreement and other ancillary documents (as amended, the “Heritage Loan Documents”)~~commitment letter with Heritage Bank of Commerce (“Heritage Bank”), providing for a 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, the Company entered into the third amendment with Heritage Bank that extended the maturity date of the Heritage Line of Credit from March 29, 2017 to September 30, 2018.~~

On November 9, 2017, the Company paid all amounts due in respect of principal, interest, and fees, and satisfied all of its obligations under the Loan and Security Agreement dated as of March 29, 2016, as amended, and ancillary agreements by and between the Company and Heritage Bank of Commerce. 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 for the three and six 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~~

~~Revolving Credit Facility and Term Loan~~

On November 9, 2017, in connection with the 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”),Antara, pursuant to which ~~the Lender (i) made a $25 million Term Loan~~Antara committed to extend to the Company ~~and (ii) provided~~a $30.0 million senior secured term loan facility ("2020 Antara Term Facility"). On October 9, 2019, the Company ~~with the Revolving Credit 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 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 the Revolving Credit Facility, and all other obligations must 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 ended December 31, 2017 is LIBOR plus 4%. The Term Loan and Revolving Credit Facility contain customary representations and warranties and affirmative and negative covenants and require the Company to maintain a minimum quarterly Total Leverage Ratio and Fixed Charge Coverage Ratio.

~~As of December 31, 2017, the outstanding balances for the Revolving Credit Facility and the Term Loan were $10.0 million and $24.6 million, respectively.~~

~~Other Long-Term Borrowings~~

The Company periodically enters into capital lease obligations to finance network servers, computers, office furniture and equipment related support for use in its daily operations. During the six months ended December 31, 2017, the Company entered into capital lease obligations totaling $227 thousand, comprised of monthly installments 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 purchasealso sold shares of the Company’s common ~~stock. The Level 3 financial instruments included features requiring liability treatment~~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 ~~warrants,~~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. 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.

On August 14, 2020, the Company repaid all amounts outstanding under the 2020 Antara Term Facility and entered into the 2021 JPMorgan Credit Agreement described above. The Company de-recognized $2.6 million of unamortized debt issuance costs and debt discount associated with the ~~fair value~~2020 Antara Team Facility during the nine months ended March 31, 2021.

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10. ACCRUED EXPENSES

Accrued expenses consisted 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~~following as of March 31, 2022 and June 30, 2021:


	As of March 31,		As of June 30,
($ in thousands)	2022		2021

Sales tax reserve	$	14,500	$	17,099
Accrued compensation and related sales commissions	3,211		4,233
Operating lease liabilities, current	1,501		1,166
Accrued professional fees	4,595		1,739
Accrued taxes and filing fees payable	959		1,450
Contingent consideration arrangement for the Yoke acquisition*	1,000		—
Other accrued expenses	837		773
Total accrued expenses	$	26,603	$	26,460

* See Note 5 - Acquisition for description 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. Duringcontingent consideration arrangement.

11. INCOME TAXES

For 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~~March 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 Securities and Exchange Commission (“SEC”) has recognized the complexity of reflecting the impacts of the Act, 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 complete 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.

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The various provisions under the Act deemed most relevant to the Company have been considered in preparation of its financial statements 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 and six months ended December 31, 2017,~~2022, the Company recorded an income tax provision of $35 thousand. For the nine months ended March 31, 2022, the Company recorded an income tax provision of $226 thousand. As of March 31, 2022, the Company reviewed the existing deferred tax assets and continues to record a full valuation against its deferred tax assets. The 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~~primarily relate to the ~~Act. These provisions are~~Company's uncertain tax positions, as well as state income and franchise taxes. As of March 31, 2022, the Company had a total unrecognized income tax benefit of $0.5 million. The provision is based upon ~~income (loss)~~actual 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~~nine months ended ~~December~~March 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 on2022, as 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 does not provide a reliable estimate of ~~30% for~~ the ~~fiscal year~~income tax provision.

For the three months ended ~~June 30, 2017. However, such benefits actually calculated have been limited~~March 31, 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 in light of the COVID-19 pandemic and recorded a full valuation against its deferred tax assets. The income tax provisions primarily relate to ~~$115 thousand pending~~ the ~~materialization~~Company's uncertain tax positions, as well as state income and franchise taxes. As of ~~additional~~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 ~~resulting in an increase of $30 thousand in valuation allowances~~ for the ~~calculated additional benefits. The benefits for the six~~nine months ended ~~December~~March 31, ~~2016 were reduced by~~2021, as the use of an estimated annual effective income tax rate does not provide a ~~provision for the tax effect~~reliable estimate of the ~~change in the fair value of warrant liabilities which was treated discretely. All of those warrants were exercised as of September 30, 2016.~~

income tax provision.

12. EQUITY

On July 25, 2017, 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.

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~~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 ofassumption and 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.~~Company accounts for forfeitures as they occur. 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

Table 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.

Contents

The fair value of options granted during the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2022 and ~~2016 was~~2021 were 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				2022			2021
Expected volatility (percent)		50.21 - 50.89		50.00	Expected volatility (percent)		73.2% - 73.6%			76.2% - 77.3%
Expected life (years)		4.0 - 4.5		4.0
Expected dividends		—		—
Weighted average expected life (years)					Weighted average expected life (years)		4.5			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)		1.0% - 1.2%			0.2% - 0.4%
Number of options granted		179,047		20,080	Number of options granted		777,000			660,000
Weighted average exercise price	$	5.66	$	4.98	Weighted average exercise price		$	9.28		$	8.03
Weighted average grant date fair value	$	2.42	$	1.98	Weighted average grant date fair value		$	5.34		$	4.72

Stock based compensation related to ~~all~~ stock options with an established grant date for the ~~six~~three and nine months ended ~~December~~March 31, ~~2017~~2022 was $0.9 million and ~~2016~~$2.3 million, respectively, and for the three and nine months March 31, 2021 was ~~$276 thousand~~$1.3 million and ~~$95 thousand,~~$3.8 million, respectively.

Performance based awards

~~Table~~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 ~~Contents~~

performance goals to be established by the Company's Board for each fiscal year.

~~COMMON STOCK~~

On ~~July 1, 2017, $90 thousand~~January 27, 2021, the Compensation Committee of 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, 2022 for these ~~grants~~awards was $0.1 million and $1.0 million, respectively. The total expense recognized for the ~~six months ending December 31, 2017 was $315 thousand.~~

~~During the six~~three and nine months ended ~~December~~March 31, ~~2017,~~2021 for these awards was $0.8 million.

COMMON STOCK AWARDS

Two employees of Hudson Executive Capital LP (“Hudson Executive”), a greater than 10% shareholder and a related party of the Company, ~~awarded~~entered into consulting agreements with the Company in August and September of 2020, respectively, under which the consultants provided financial and strategic analysis and advisory services to the Company's CEO through July 31, 2021. As consideration for the services, in March 2021 the consultants were granted a total of 80,000 restricted stock units. The total expense recognized for the three and nine months ended March 31, 2021 for these agreements was $0.8 million. In September 2021, the Company extended these consulting agreements through July 31, 2022 and, in connection therewith, the consultants were granted an additional 20,000 restricted stock units. On February 2, 2022, the Board of Directors of the Company appointed one of the above mentioned employees of Hudson Executive as a director of the Company, effective immediately. In connection with the appointment to the Board, the consulting agreement for that individual was terminated, effective February 2, 2022. The total expense recognized for the three and nine months ended March 31, 2022 for these consulting agreements was $36 thousand and $0.2 million, respectively.

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The total expense recognized for common stock awards (excluding the consulting agreement described separately above) for the three and nine months ended March 31, 2022 was $0.5 million and $1.3 million, respectively, and for the three and nine months ended March 31, 2021 was $0.3 million and $0.9 million, respectively.

PRIVATE PLACEMENT

On February 24, 2021, the Company entered into 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 an aggregate of 177,363 shares to its Chief Executive Officer, Chief Financial Officer and Chief Services Officer under its 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~~5,730,000 shares of the Company’s common ~~stock of~~stock. The 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 ~~the event that certain metrics~~direct and incremental issuance costs relating to the ~~Company’s 2018 fiscal year would result~~Private Placement that were accounted as a reduction in ~~specified ranges~~the proceeds of ~~year-over-year percentage growth.~~the stock. The ~~metrics are total number~~syndicate for the Private Placement included affiliates of ~~connections~~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 ~~of June 30, 2018 as compared to total number of connections as of June 30, 2017 (40% weighting) and adjusted EBITDA earned during~~ the ~~2018 fiscal year as compared~~other purchasers.

Pursuant to the ~~adjusted EBITDA earned during~~Subscription Agreements, the ~~2017 fiscal year (60% weighting). If none~~Company agreed to file a registration statement with the U.S. Securities and Exchange Commission covering the resale of the minimum threshold year-over-year percentage target goals are achieved, the executive officers would not be awarded any shares. If all of the year-over-year percentage target goals are achieved, the executive officers would be awarded shares having theShares within 45 days 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), and Chief Product Officer - $280,000 (100% of base salary and subject to pro ration). If all of 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). 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.

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From time to time, the Company is involved in various legal proceedings arising during the normal course of business. In the opinion of the Company’s management, these proceedings will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

~~14. SUBSEQUENT EVENTS~~

~~The Company has evaluated subsequent events that occurred through~~ the date of the ~~filing of this Form 10-Q. No significant events occurred subsequent~~Subscription Agreements and to cause the ~~balance sheet date and prior~~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 April 14, 2021, the registration statement was declared effective.

WARRANTS

During the nine months ended March 31, 2021, the Company had outstanding warrants of 23,978, all of which were exercisable at $5.00 per share and with an expiration date of ~~this Form 10-Q~~March 29, 2021. The warrants were exercised in March 2021 and 12,154 shares were issued pursuant to a cashless exercise option election made by the holder.

The Company had no outstanding or exercised warrants during the nine months ended March 31, 2022.

13. COMMITMENTS AND CONTINGENCIES

LITIGATION

We are a party to litigation and other proceedings that ~~would have~~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 ~~material impact~~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.

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.

Leases

The Company has entered into various operating lease obligations. See Note 3 - Leases for additional information.

Purchase Commitments

As of March 31, 2022, the Company had firm commitments to purchase inventory of approximately $21 million over the next three years.

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14. RELATED PARTY TRANSACTIONS

A member of our Board of Directors serves as a strategic advisor to a consulting firm that we utilize for payments analytics and advisory services. These services are utilized by the Company to reduce the cost of our interchange and other processing fees charged by payment processors and credit card networks. As consideration for the services, we pay the consulting firm a success fee based on the ~~Consolidated Financial Statements.~~

savings realized by the Company and a recurring monthly subscription fee for the analytics services. The total expense recognized within Cost of subscription and transaction fees for the three and nine months ended March 31, 2022 for these arrangements was $0.3 million and $1.1 million respectively.

See Note 12 - Equity for information on transactions relating to Hudson Executive.

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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 and related notes included in this Form 10-Q.

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 ~~the Company.~~Cantaloupe, Inc. (“Cantaloupe”, “Company”, "our", "us", or "we"). 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 ongoing COVID-19 pandemic, global supply chain disruptions, and inflationary pressures;

•potential mutations of COVID-19 and the efficacy of vaccines and treatment developments and their deployment;

•failure to comply with the financial covenants in the JPMorgan Credit Facility;

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

•our ability to compete with our competitors and increase market share;

•whether our 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;

•whether our 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;

•our ability to satisfy our trade obligations included in accounts payable and accrued expenses;

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

•our ability to predict or estimate our future quarterly or annual revenue and expenses given the developing and unpredictable market for our products;

•our ability to integrate acquired companies into our current products and services structure;

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

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

•our ability to obtain widespread commercial acceptance of our products and service offerings;

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

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

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

•geopolitical conflicts, such as the ongoing conflict between Russia and Ukraine;

•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;

•the ability to remain in compliance with the continued listing standards of the Nasdaq Global Select Market (“Nasdaq”) and continue to remain as a member of the US Small-Cap Russell 2000®;

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

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•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, 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 or other claims arising from these events.

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 Report on Form 10-Q for the fiscal quarter ended September 30, 2021 and in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021 (“2021 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

Cantaloupe, Inc., previously known as USA Technologies, Inc., is organized under the laws of the Commonwealth of Pennsylvania. 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 Nasdaq 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 is a digital payments and software services company that provides end-to-end technology solutions ~~and value-added services that facilitate electronic payment transactions and consumer engagement services primarily within~~for the unattended ~~Point of Sale (“POS”)~~retail market. We are transforming the unattended retail world by offering a leading provider in the small ticket, beverage and food vending industry 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,solution for payments processing, as well as ~~telemetry Internet of Things (“IoT”)~~one that handles inventory management, pre-kitting, route logistics, warehouse and ~~machine-to-machine (“M2M”) services, which include the ability~~back-office management. Our enterprise-wide platform is designed to ~~remotely monitor,~~increase consumer engagement and sales revenue through digital payments, digital advertising and 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 themvisibility over their operations and inventory. As a result, customers ranging from vending machine companies to ~~accept cashless payments such as through the use of credit or debit cards or other emerging contactless forms, such as mobile payment.~~

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~~micro-markets, car wash and electric vehicle charging stations, commercial laundry, kiosks, amusements and more, can run their ~~business better.~~ businesses more proactively, predictably, and competitively.

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~~ months ended ~~December~~March 31, ~~2017,~~2022 and March 31, 2021, we derived ~~70.3%~~approximately 84% and ~~73.6% of our revenues~~81% respectively, from ~~recurring license~~subscription and transaction fees ~~related to our ePort Connect service or Seed Cloud solution~~ and ~~29.7%~~16% and ~~26.4% of our revenue~~19%, respectively, from equipment ~~sales, respectively. Connections to~~sales. During the nine months ended March 31, 2022 and March 31, 2021, we derived approximately 84% and 86%, respectively, from subscription and transaction fees and 16% and 14%, respectively, from equipment sales.

Active Devices (as defined below) operating on the Company’s platform and using our ~~service stem~~services include those resulting from the sale, subscription, or ~~lease~~financing of our ~~POS~~point of sale ("POS") electronic payment devices, telemetry devices or certified payment software or the servicing of similar third-party installed POS ~~terminals. Connections to the ePort Connect service~~terminals or ~~Seed Cloud solution are the most~~

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~~significant driver of the Company’s revenues, particularly the recurring revenues from license and transaction fees.~~telemetry devices. 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;~~

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.~~

As of ~~December 31, 2017, highlights~~its authorized resellers;

•Financing devices under the Company’s QuickStart Program, which are non-cancellable sixty-month sales-type leases directly from the Company; and

•Participating in a monthly bundled subscription under the Company's Cantaloupe ONE program, which are 36-month rental agreements that transition to month-to-month agreements after the initial subscription commitment period.

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Third Quarter 2022 Highlights

Highlights of the Company ~~include:~~

for the fiscal quarter ended March 31, 2022 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.~~

•22,818 Active Customers (as defined below) and 1.1 million Active Devices (as defined below) on 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;~~

•Continued success and rollout of the ePort Engage Series, with the release of the ePort Engage Combo to the market in March 2022. The ePort Engage Combo, the latest iteration of the ePort Engage series and touchscreen devices, provides customers an all-in-one card reader and telemeter; a digital touchscreen and payment platform to install directly over the existing bill acceptor.

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

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

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

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

•The Company announced the general availability of the newly enhanced Yoke Micro Market Platform upgrade that includes new features and functionality for Yoke Pay, Yoke POS, and the Yoke Portal. This next generation platform is being upgraded into all existing Yoke customer locations, along with serving as the newly available product for customers to start deploying in the market.

•Cantaloupe announced and launched a bundled subscription model, the Cantaloupe ONE Platform which provides operators the flexibility and predictability of a monthly, fixed subscription amount covering the hardware and service fees.

•The Company made progress on the partnership announced with HIVERY, a data-science company that specializes in Artificial Intelligence ("AI") technology to streamline category management for retailers in the consumer packaged goods industry.

•Entered into an amended and restated credit agreement (the "Amended JP Morgan Credit Facility") with JP Morgan Chase Bank, N.A. in March 2022 that provides for a $15 million secured revolving credit facility and a $25 million secured term facility, which replaces our previous 2021 JPMorgan Credit Facility.

As of March 31, 2022, we have over 200 employees across the United States and offices in Malvern, Pennsylvania and Atlanta, Georgia.

COVID-19 Update

The Company, its employees, and its customers operate in geographic locations in which its business operations and financial performance continues to be affected by the COVID-19 pandemic. While businesses, schools and other organizations re-open, which has ~~net deferred tax~~led to increased foot-traffic to distributed assets containing our electronic payment solutions, the emergence of ~~approximately $14.8 million predominantly resulting from a series~~new strains and variants and resurgence of ~~operating loss carry forwards~~the virus, such as the outbreak of the Omicron variant in early 2022, have and may in the future lead to additional shutdowns and closures that ~~may be available~~impact our operations and financial results. Such impacts to ~~offset future taxable income.~~

~~CRITICAL ACCOUNTING POLICIES~~

~~Our consolidated~~our financial statements 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 variationshave in the past included, and may ~~significantly affect our reported results~~in the future include the impairment of goodwill and ~~financial position for the period or in future periods. Changes in underlying factors, assumptions, or estimates in any~~intangible assets, impairment of these areas could have a material impact on our future financial condition and results of operations. 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 access to the Company’s devices and network services are recognized on a monthly basis. In all cases, revenue is only recognized when persuasive evidence 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

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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 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 for the ~~inability~~three and nine months ended March 31, 2022. Where applicable, we have incorporated judgments and estimates of ~~its customers to make required payments, including from a shortfall~~the expected impact of 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 condensed consolidated financial ~~statements. Tax positions must meet a “more-likely-than-not” recognition threshold~~statements as soon as they become known.

While we are encouraged by our strong operating and financial results, we continue to monitor the evolving situation and follow guidance from federal, state and local public health authorities. Given the potential uncertainty of the situation, the Company cannot, at this time, reasonably estimate the ~~effective date to be recognized upon the adoption~~longer-term repercussions of ~~ASC 740 and in subsequent periods.~~

~~Income taxes are computed using the asset and liability method~~COVID-19 on our financial condition, results of ~~accounting. Under the asset and liability method, a deferred tax asset~~operations or liability is recognized for estimated future tax effects attributable to temporary differences and carryforwards. The measurement of deferred income tax assets is adjusted by a valuation allowance, if necessary, to recognize future tax benefits only to the extent that, based on available evidence, it is more likely than not such benefits will be realized. The Company recognizes interest and penalties, if any, related to uncertain tax positions in selling, general and administrative expenses. No interest or penalties related to uncertain tax positions were accrued or incurred during the three and six months ended December 31, 2017 and 2016.

~~Recent Accounting Pronouncements~~

~~See Note 2 to the interim Consolidated Financial Statements for a description of recent accounting pronouncements.~~

cash flows.

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~~TRENDING~~ QUARTERLY ~~FINANCIAL DATA~~

RESULTS OF OPERATIONS

The following ~~tables show~~discussion should be read in conjunction with the condensed consolidated financial statements and related notes included in this Form 10-Q. Certain prior years' amounts have been made to conform to the current year's presentation. The changes in presentation did not affect our total revenues, total costs of sales, gross profit, total operating expenses, operating loss, net loss or net loss per common share. For further information on the presentation changes, see Item 1. Financial Statements — Note 2. Summary of Significant Accounting Policies.

The following 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) are useful in allowing management and readers to evaluate our strategy of driving growth in devices and transactions.

~~Includes credit sales~~

Active Devices

Active Devices are devices that have communicated with us or have had a transaction in the last twelve months. Included in the number of 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 monitor recovery from the COVID-19 pandemic and to evaluate the effectiveness of our new customer strategy and our ability to leverage existing customers and partners.


	As of and for the three months ended
	March 31, 2022	December 31, 2021	September 30, 2021	June 30, 2021	March 31, 2021
Devices:
Active Devices (thousands)	1,125	1,123	1,115	1,094	1,085

Customers:
Active Customers	22,818	21,315	20,738	19,834	18,763

Volumes:
Total Number of Transactions (millions)	258.6	261.7	257.9	241.6	213.4
Total Dollar Volume of Transactions (millions)	562	555.3	553.4	515.0	412.7

Highlights for the quarter ended March 31, 2022 include:

•1.12 million Active Devices compared to 1.08 million in the same quarter last year, an increase of approximately 40 thousand Active Devices, or 4%;

•22,818 Active Customers on our service compared to 18,763 in the same quarter last year, an increase of 4,055 Active Customers, or 22%; and

•Total Dollar Volumes continue to remain strong and consistent with ~~standard trade receivable terms.~~

~~Highlights of USAT’s connections for~~ the quarter ended December 31, ~~2017 include:~~

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

2021 and 36% higher compared to the average processing volumes for the quarter ended March 31, 2021. See "Revenue and Gross Profit" 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%.~~

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FINANCIAL HIGHLIGHTS

The following tables summarize our results of operations and significant changes in our financial performance for the periods presented:

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Three Months Ended ~~December~~March 31, ~~2017~~2022 Compared to Three Months Ended ~~December~~March 31, ~~2016~~

~~Revenue~~2021

Revenues 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)	2022			2021
Revenues:						Revenues:
License and transaction fees	$	22,853	$	16,639	37.3%
Subscription and transaction fees						Subscription and transaction fees	$	42,143		$	34,686		21.5	%
Equipment sales		9,653		5,117	88.6%	Equipment sales	8,157			8,074			1.0	%
Total revenues		32,506		21,756	49.4%	Total revenues	50,300			42,760			17.6	%

Costs of sales:						Costs of sales:
Cost of services		14,362		11,389	26.1%
Cost of equipment		8,943		4,033	121.7%
Cost of subscription and transaction fees						Cost of subscription and transaction fees	25,291			20,463			23.6	%
Cost of equipment sales						Cost of equipment sales	8,809			9,593			(8.2)	%
Total costs of sales		23,305		15,422	51.1%	Total costs of sales	34,100			30,056			13.5	%

Gross profit:						Gross profit:
License and transaction fees		8,491		5,250	61.7%
Subscription and transaction fees						Subscription and transaction fees	16,852			14,223			18.5	%
Equipment sales		710		1,084	(34.5%)	Equipment sales	(652)			(1,519)			(57.1)	%
Total gross profit	$	9,201	$	6,334	45.3%	Total gross profit	$	16,200		$	12,704		27.5	%

Gross margin:						Gross margin:
Subscription and transaction fees						Subscription and transaction fees	40.0		%	41.0		%
Equipment sales						Equipment sales	(8.0)		%	(18.8)		%
Total gross margin						Total gross margin	32.2		%	29.7		%

~~Revenue.~~

Revenues. Total ~~revenue~~revenues increased ~~$10.7~~by $7.5 million for the three months ended ~~December~~March 31, ~~2017~~2022 compared to the same period in ~~2016. The growth in total revenue resulted from a $6.2~~2021 substantially all of which is attributable to the $7.5 million increase in ~~license~~subscription and transaction ~~fee revenue~~fees.

The increase in subscription and transaction fees is primarily driven by increased processing volumes, with an approximately 36% increase in total dollar volumes for the current fiscal year quarter ~~ended December 31, 2017~~relative to the prior year quarter. We are currently exceeding pre-pandemic (COVID-19) levels of processing volumes. We continue to benefit from a broader macroeconomic recovery across the United States as businesses, schools and other organizations across the country continue to maintain normal levels of operations. Increase in revenues is also attributed to continued focus of management to grow our recurring services to our customer base and a 3% increase in the Active Devices count compared to the same period ~~in 2016, and a $4.5 million increase in equipment revenue for three months ended December 31, 2017~~last year.

Equipment sales have remained consistent compared to the same period last year as customers in both ~~driven by an increase~~periods continued to upgrade their devices to be 4G compliant as it gets closer to the discontinuation of 3G network support in ~~connections and~~2022. We expect equipment revenue to continue increasing through the ~~Cantaloupe acquisition.~~

3G network discontinuation date in North America through the end of the 2022 calendar year.

Cost of sales. Cost of sales increased ~~by $7.9~~$4.0 million for the three months ended ~~December~~March 31, ~~2017~~2022 compared to the same period ~~last year.~~in 2021. The ~~increase was driven by a $3.0 million~~ increase in cost of ~~services and~~sales is attributed primarily to a ~~$4.9~~$4.8 million increase in ~~cost of~~subscription and transaction costs offset by a $0.8 million decrease in equipment ~~sales, both~~costs. The increase in subscription and transaction costs was primarily driven by an increase in ~~connections and the Cantaloupe acquisition.~~

transaction processing fees corresponding with an increase in processing volumes. The decrease in equipment costs is in line with management's strategy to maintain a flat margin on equipment sales.

Gross ~~margin. The overall~~margin. Total gross margin ~~decreased 0.8%~~increased from ~~29.1%~~29.7% for the three months ended ~~December~~March 31, ~~2016~~2021 to ~~28.3%~~32.2% for the three months ended ~~December~~March 31, ~~2017.~~2022. The ~~decrease~~increase in gross margin was primarily a result of a change in revenue mix of higher transaction fees during the ~~equipment~~current quarter compared to the same period in 2021. Even though transaction processing is inherently a lower margin ~~from 21.2% for the three months ended December 31, 2016~~revenue stream than our subscription model, we were able 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,~~operate at a higher margin ~~license~~for that specific product than the prior year due to the improvements in our payment processor and ~~transaction fees. This decrease was partially offset by~~payment networks pricing that reduced our costs of sales. Furthermore, we have seen an increase in average price per transaction relative to the ~~license fee and transaction margin from 31.6% for~~same period in the ~~three months ended December 31, 2016~~prior year which is additive to ~~37.2% for the three months ended December 31, 2017, which was driven by the impact~~our gross margin.

Table of ~~the Cantaloupe acquisition.~~

~~Operational~~Contents

Operating Expenses


	For the three months ended December 31,				Percent		Three months ended March 31,				Percent Change
Category ($ in thousands)	2017		2016		Change	Category ($ in thousands)	2022		2021
Selling, general and administrative expenses	$	8,329	$	5,785	44.0%
Integration and acquisition costs		3,335		8	41,587.5%
Sales and marketing						Sales and marketing	$	1,937	$	1,754	10.4	%
Technology and product development						Technology and product development	5,532		4,425		25.0	%
General and administrative expenses						General and administrative expenses	6,788		7,552		(10.1)	%
Depreciation and amortization		737		307	140.1%	Depreciation and amortization	1,062		991		7.2	%
Total operating expenses	$	12,401	$	6,100	103.3%	Total operating expenses	$	15,319	$	14,722	4.1	%

~~Selling, general and administrative~~

Total operating expenses. ~~Selling~~, ~~general and administrative~~Operating expenses increased ~~approximately $2.5~~by $0.6 million for the three months ended ~~December~~March 31, ~~2017,~~2022 compared to the same period in 2021. This change is attributed primarily to an increase of $1.1 million in technology and product development expenses, $0.2 million increase in sales and marketing partially offset by a $0.8 million decrease in general and administrative expenses. The change in total operating expenses reflects the Company's overall objectives to reduce general and administrative expenses and utilize savings to invest in innovative technologies and products and increase marketing spend to penetrate new and existing customers with our products and services. See further details on individual categories below.

Sales and marketing. Sales and marketing expenses were relatively consistent for the three months ended March 31, 2022 and March 31, 2021.

Technology and product development. Technology and product development expenses increased approximately $1.1 million for the three months ended March 31, 2022, as compared to the same period in ~~2016. This~~2021. The increase was driven primarily by the Company's objectives of investing in innovative technologies and to further strengthen our network environment and platform through utilizing a combination of company personnel and external consultants.

General and administrative expenses. General and administrative expenses decreased approximately $0.8 million for the three months ended March 31, 2022, as compared to the same period in 2021. The decrease in general and administrative expenses was primarily driven by a decrease of $1.3 million in stock based compensation expense related to a combination of forfeitures, lower Company stock price and valuation of performance based options, a decrease of $0.8 million in professional fees due to reduced reliance on external consultants who previously supported the Company’s accounting, financial reporting and legal functions, and a decrease of $0.8 million change in sales tax reserve. The above decreases were partially offset by an increase in bad debt expense of approximately $1 million, an increase of $0.6 million in cash compensation expense and a settlement of customer related expenses of $0.5 million in the prior year.

Depreciation and amortization. Depreciation and amortization expenses were relatively consistent for the three months ended March 31, 2022 and March 31, 2021.

Other Income (Expense), Net


	Three months ended March 31,				Percent Change
($ in thousands)	2022		2021
Other income (expense):
Interest income	$	445	$	302	47.4	%
Interest expense	852		(88)		(1,068.2)	%
Other income (expense)	(7)		—		(100.0)	%
Total other income (expense), net	$	1,290	$	214	(502.8)	%

Other income (expense), net. Other income (expense), net increased $1.1 million for the three months ended March 31, 2022 as compared to the same period in 2021. The increase in interest income was driven by a larger finance receivables amount on our balance sheet as of March 31, 2022 compared to March 31, 2021.

The reduction in interest expense is primarily attributable to a $0.9 million change in the interest component of the sales tax reserve compared to the same period in the prior fiscal year. The change in the sales tax reserve was driven by the expiration of statute of limitations and other factors considered by management while establishing the reserve.

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Nine Months Ended March 31, 2022 Compared to Nine Months Ended March 31, 2021

Revenues and Gross Profit


	Nine months ended March 31,						Percent Change
($ in thousands)	2022			2021
Revenues:
Subscription and transaction fees	$	123,956		$	101,008		22.7	%
Equipment sales	23,215			16,913			37.3	%
Total revenues	147,171			117,921			24.8	%

Costs of sales:
Cost of subscription and transaction fees	76,234			60,415			26.2	%
Cost of equipment sales	23,871			18,262			30.7	%
Total costs of sales	100,105			78,677			27.2	%

Gross profit:
Subscription and transaction fees	47,722			40,593			17.6	%
Equipment sales	(656)			(1,349)			(51.4)	%
Total gross profit	$	47,066		$	39,244		19.9	%

Gross margin:
Subscription and transaction fees	38.5		%	40.2		%
Equipment sales	(2.8)		%	(8.0)		%
Total gross margin	32.0		%	33.3		%

Revenues. Total revenues increased by $29.3 million for the nine months ended March 31, 2022 compared to the same period in 2021. The increase in revenues is attributed to a $22.9 million and $6.3 million increase in subscription and transaction fees and equipment sales, respectively.

The increase in subscription and transaction fees is primarily driven by increased processing volumes, with an approximately 24% increase in total dollar volumes for the nine months ended March 31, 2022 compared to the same period in 2021. We are currently exceeding pre-pandemic (COVID-19) levels of processing volumes. We continue to benefit from a broader macroeconomic recovery across the United States as businesses, schools and other organizations across the country continue to maintain normal levels of operations. Increase in revenues is also attributed to continued focus of management to grow our recurring services to our customer base and a slight increase in the Active Devices count compared to the same period last year.

The increase in equipment sales relates to more equipment shipments in the current quarter compared to same period last year driven by customers focused on liquidity during fiscal year 2021 due to the pandemic with many committing to 4G device upgrades but holding off on delivery until closer to the discontinuation of 3G network support in 2022. We expect equipment revenue to continue increasing through the 3G network discontinuation date in North America through the end of the 2022 calendar year.

Cost of sales. Cost of sales increased $21.4 million for the nine months ended March 31, 2022 compared to the same period in 2021. The increase in cost of sales is attributed to a $15.8 million and $5.6 million increase in subscription and transaction costs and equipment costs respectively. The increase in cost of sales was primarily driven by an increase in ~~selling,~~transaction processing fees and equipment sales corresponding with an increase in processing volumes and equipment sales respectively.

Gross margin. Total gross margin decreased from 33.3% for the nine months ended March 31, 2021 to 32.0% for the nine months ended March 31, 2022. The decrease in gross margin was primarily as a result of a change in revenue mix with transaction fees making a larger percentage of our total revenues and subscription fees making up a lower percentage of our total revenues during the current year. Transaction processing is inherently a lower margin revenue stream than our subscription model resulting in a reduction of gross margin. We were able to offset a portion of the decrease in the total gross margin with an increase in our transaction fees margin by lowering costs for our payment processor and payment networks. Additionally, we have seen an increase in average price per transaction relative to the same period in the prior year, which is additive to our gross margin.

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Operating Expenses


	Nine months ended March 31,				Percent Change
Category ($ in thousands)	2022		2021
Sales and marketing	$	6,021	$	4,873	23.6	%
Technology and product development	16,701		11,422		46.2	%
General and administrative expenses	21,724		28,076		(22.6)	%
Depreciation and amortization	3,197		3,111		2.8	%
Total operating expenses	$	47,643	$	47,482	0.3	%

Total operating expenses. Operating expenses as a whole remained consistent for the nine months ended March 31, 2022 compared to the same period in 2021. The increase of $0.2 million is attributed to a decrease of $6.4 million in general and administrative ~~costs incurred related to Cantaloupe as well as an~~expenses, offset by a $5.3 million increase in technology and product development expenses and a $1.1 million increase in sales and marketing ~~related consulting~~costs. The change in total operating expenses ~~as we continue~~reflects the Company's overall objectives to reduce general and administrative expenses and utilize savings to invest in innovative technologies and products and increase marketing spend to penetrate new and existing customers with our ~~market share in the cashless-transaction vending industry.~~

~~Integration~~products and ~~acquisition costs. Integration~~services. See further details on individual categories below.

Sales and ~~acquisition costs~~marketing. Sales and marketing expenses increased ~~$3.3~~approximately $1.1 million for the ~~three~~nine months ended ~~December~~March 31, ~~2017~~2022, as compared to the same period in ~~2016, due~~2021 and relates primarily to ~~the~~an increase in advertising, trade show costs ~~incurred in connection with the acquisition~~

~~Table of Contents~~

~~of Cantaloupe, partially offset by $8 thousand of acquisition costs incurred~~and sales and marketing employee headcount in the ~~second quarter of fiscal~~current year ~~2017 pertaining~~ to support our expanding business and service offerings in the ~~acquisition of VendScreen, Inc. (“VendScreen”).~~

~~Depreciation~~United States and ~~amortization.~~ ~~Depreciation~~internationally.

Technology and ~~amortization~~product development. Technology and product development expenses increased approximately ~~$0.4~~$5.3 million for the ~~three~~nine 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~~2022, as compared to the same period in ~~2016.~~2021. The increase was driven primarily by the Company's objectives of investing in innovative technologies and to further strengthen our network environment and platform through utilizing a combination of company personnel and external consultants.

General and administrative expenses. General and administrative expenses decreased approximately $6.4 million for the nine months ended March 31, 2022, as compared to the same period in 2021. The decrease in general and administrative expenses was primarily driven by a $3.8 million decrease in professional fees due to reduced reliance on external consultants who previously supported the ~~interest incurred~~Company’s accounting, financial reporting and legal functions, a $1.8 million change relating to the network incident in ~~connection with~~ the ~~Term Loan~~prior year, a $2 million change in sales tax reserve, $0.4 million decrease in compensation and ~~Revolving Credit Facility utilized to fund a portion~~benefits partially offset by an increase in bad debt expense of approximately $1.2 million and an increase in travel and expense costs of $0.5 million during the ~~acquisition of Cantaloupe.~~

~~Income Taxes~~

current year.

For the three months ended December 31,

Percent
($ in thousands)

2017

2016

Change
Provision for income taxes

$
(9,073)

$
-

100%

~~Income taxes. For~~

Depreciation and amortization. Depreciation and amortization expenses were consistent for the ~~three~~nine months ended ~~December~~March 31, ~~2017, an~~2022 and March 31, 2021.

Other Income (Expense), Net


	Nine months ended March 31,				Percent Change
($ in thousands)	2022		2021
Other income (expense):
Interest income	$	1,363	$	978	39.4	%
Interest expense	(100)		(3,970)		(97.5)	%
Other income (expense)	(83)		—		(100.0)	%
Total other income (expense), net	$	1,180	$	(2,992)	139.4	%

Other income ~~tax provision of 9,073 thousand (substantially all deferred~~(expense), net. Other income ~~taxes)~~(expense), net increased $4.2 million for the nine months ended March 31, 2022 as compared to the same period in 2021. The higher interest expense for the nine months ended March 31, 2021 was ~~recorded which includes a charge of $6,592 thousand~~primarily related to the ~~recent enactment~~recognition of the ~~U.S. Tax Cuts~~remaining balance of unamortized debt issuance costs and ~~Jobs Act.~~debt discount associated with the senior secured term loan facility with Antara Capital Master Fund LP of $2.6 million into interest expense, when the Antara Term Facility was fully repaid and terminated. The remaining reduction in interest expense was mainly due to a $1.1 million change in the interest component of the sales tax ~~provision is based upon income (loss) before income taxes using an estimated negative annual effective income~~reserve compared to the same period in the prior fiscal year. The change in the sales tax ~~rate of 49.20%, which is primarily~~reserve was driven by the ~~impact~~expiration of ~~permanent differences. The tax rate reduction related to tax reform was treated as a discrete item in~~statute of limitations and other factors considered by management while establishing 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 change in the fair value of warrant liabilities which was treated discretely.

~~Reconciliation 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

reserve.

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~~As used herein,~~ Non-GAAP Financial Measures - Adjusted EBITDA

Adjusted EBITDA represents net (loss) income before interest income, interest expense, income tax provision (benefit), depreciation, amortization, stock-based compensation expense, and non-recurring integration and acquisition costs that were incurred in connection with the acquisition of Cantaloupe, including a charge for inventory fair value step-up, in the current fiscal year and the acquisition of the VendScreen business 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 and acquisition expenses incurred in connection with the Cantaloupe acquisition, including a charge for inventory fair value step-up, during the current fiscal year and the VendScreen transaction from the previous fiscal year in order to allow for a more accurate comparison of the financial results to historical operations, as they pertain to period operational expenses that are not a core function of our business. Adjusted EBITDA(as defined below) is a non-GAAP financial measure which is not required by or defined under ~~GAAP (Generally Accepted Accounting Principles).~~GAAP. We use this non-GAAP financial measure for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons. We believe that this non-GAAP financial measure provides useful information about our operating results, enhances the overall understanding of past financial performance and future prospects and allows 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 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 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 of Operating (Loss) Income to~~

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) income excluding costs or benefits relating to any non-cash portions of the Company’s income tax benefit, adjustment for fair value of warrant liabilities, non-recurring costs and expenses that were incurred in connection with the acquisition 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

~~Table of Contents~~

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.

~~Table of Contents~~

~~Operational Expenses~~

For the six months ended December 31,

Percent
Category ($ in thousands)

2017

2016

Change
Selling, general and administrative expenses

$
15,075

$
12,593

19.7%
Integration and acquisition costs

4,097

109

3,658.7%
Depreciation and amortization

982

515

90.7%
Total operating expenses

$
20,154

$
13,217

52.5%

~~Selling, general and administrative expenses.~~ ~~Selling~~, general and administrative expenses increased approximately $2.5 million for the six months ended December 31, 2017, as compared to the same period in 2016. This change was primarily driven by an increase in selling, general and administrative costs related to Cantaloupe as well as an increase in sales and marketing related consulting expenses as we continue to increase our market share in the cashless-transaction vending industry.

~~Integration and acquisition costs~~. Integration and acquisition costs increased $4.0 million for the six months ended December 31, 2017 as compared to the same period in 2016, due to the $4.1 million incurred in connection with the acquisition of Cantaloupe, partially offset by $0.1 million of acquisition costs incurred in the same period of fiscal year 2017 pertaining to the acquisition of VendScreen.

~~Depreciation and amortization.~~ Depreciation and amortization expenses increased approximately $0.5 million for the six months ended December 31, 2017 primarily due to the amortization of intangible assets recognized in connection with the Cantaloupe acquisition.

~~Other Expense, net~~

For the six months ended December 31,

Percent
($ in thousands)

2017

2016

Change
Other income (expense):

Interest income

$
331

$
273

21.2%
Interest expense

(703)

(413)

70.2%
Change in fair value of warrant liabilities

-

(1,490)

(100.0%)
Total other expense, net

$
(372)

$
(1,630)

(77.2%)

~~Other expense, net~~. Other expense, net decreased $1.3 million for the six months ended December 31, 2017 compared to the same period in 2016. The decrease was primarily driven by the change in fair value associated with the exercised warrants recognized during September 2016.

~~Income Taxes~~

For the six months ended December 31,

Percent
($ in thousands)

2017

2016

Change
(Provision) benefit for income taxes

$
(8,605)

$
115

(7,583)%

~~Income taxes~~. For the six months ended December 31, 2017, an income tax provision of $8,605 thousand (substantially all deferred income taxes) was recorded which includes a charge of $6,592 thousand related to tax reform. The tax provision is based upon income (loss) before (i) interest income, ~~taxes using an estimated negative annual effective~~(ii) interest expense on debt and reserves, (iii) 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 six months ended December 31, 2017.

For the six months ended December 31, 2016, an income tax benefit of $115 thousand (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 ending June 30, 2017 net of a provision for the tax effect of the change in the fair value of warrant liabilities which was treated discretely.

~~Table of Contents~~

~~Reconciliation of Net Loss to Adjusted EBITDA:~~

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

2017

2016
Net loss

$
(12,729)

$
(2,231)
Less interest income

(331)

(273)
Plus interest expense

703

413
Plus income tax provision (benefit)

8,605

(115)
Plus depreciation expense

2,960

2,477
Plus amortization expense

516

87
EBITDA

(276)

358

Plus loss on fair value of warrant liabilities

—

1,490
Plus stock-based compensation

1,356

445
Plus litigation related professional fees

—

33
Plus integration and acquisition costs and inventory step-up

4,120

109
Adjustments to EBITDA

5,476

2,077
Adjusted EBITDA

$
5,200

$
2,435

~~As used herein, Adjusted EBITDA represents net loss before interest income, interest~~ expense, ~~income tax provision (benefit),~~(iv) depreciation, (v) amortization, ~~change in fair value of warrant liabilities,~~(vi) stock-based compensation expense, and ~~non-recurring integration~~(vii) certain other significant infrequent or unusual losses and ~~acquisition-related costs~~gains that ~~were incurred in connection with the acquisition~~are not indicative of ~~Cantaloupe, including~~our core operations.

Below is a ~~charge for inventory fair value step-up, in the current fiscal year and the acquisition~~reconciliation of ~~the VendScreen business the previous fiscal year. We~~U.S. GAAP net loss to Adjusted EBITDA:


	Three months ended March 31,
($ in thousands)	2022		2021
U.S. GAAP net income (loss)	$	2,136	$	(1,848)
Less: interest income	(445)		(302)
Plus: interest expense	(852)		88
Plus: income tax provision	35		44
Plus: depreciation expense included in costs of sales for rentals	220		2
Plus: depreciation and amortization expense in operating expenses	1,062		991
EBITDA	2,156		(1,025)
Plus: stock-based compensation (a)	1,495		3,216
Adjustments to EBITDA	1,495		3,216
Adjusted EBITDA	$	3,651	$	2,191

(a) As an adjustment to EBITDA, we have excluded the non-operating item, change in fair value of warrant liabilities, because it represents a non-cash gain or charge that is not related to the Company’s operations. We have excluded the non-cash expense, stock-based compensation, as it does not reflect ~~the~~our cash-based ~~operations of the Company. We~~operations.


	Nine months ended March 31,
($ in thousands)	2022		2021
U.S. GAAP net income (loss)	$	377	$	(11,363)
Less: interest income	(1,363)		(978)
Plus: interest expense	100		3,970
Plus: income tax provision	226		133
Plus: depreciation expense included in costs of sales for rentals	738		1,055
Plus: depreciation and amortization expense in operating expenses	3,197		3,111
EBITDA	3,275		(4,072)
Plus: stock-based compensation (a)	4,624		6,366
Plus: asset impairment charge (b)	—		333
Adjustments to EBITDA	4,624		6,699
Adjusted EBITDA	$	7,899	$	2,627

(a) As an adjustment to EBITDA, we have excluded stock-based compensation, as it does not reflect our cash-based operations.

(b) As an adjustment to EBITDA, we have excluded the ~~integration~~non-cash impairment charges related to long-lived operating lease assets because we believe that these do not represent charges that are related to our core operations.

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LIQUIDITY AND CAPITAL RESOURCES

Sources and ~~acquisition expenses incurred~~Uses of Cash

Historically, we have financed our operations primarily through cash from operating activities, debt financings, and equity issuances. The Company has the following primary sources of capital available: (1) cash and cash equivalents on hand of $75.1 million as of March 31, 2022; (2) the cash that may be provided by operating activities; and (3) up to $15 million available to be drawn on the Amended JPMorgan Credit Facility.

The Company also has estimated and recorded for potential sales tax and related interest and penalty liabilities of $14.5 million in ~~connection with~~ the ~~Cantaloupe acquisition, including a charge for inventory fair value step-up, during the current fiscal year~~aggregate as of March 31, 2022. The Company continues to evaluate these liabilities and the ~~VendScreen transaction~~amount and timing of any such payments.

The Company believes that its current financial resources will be sufficient to fund its current twelve-month operating budget from the ~~previous fiscal year~~date of issuance of these condensed consolidated financial statements.

Below are charts that reflect our cash liquidity and outstanding debt as of March 31, 2022 and June 30, 2021:

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Cash Flows

See Condensed Consolidated Statement of Cash Flows in order to allow for a more accurate comparison of the financial results to historical operations, as they pertain to period operational expenses that are not a core function of our business. Adjusted EBITDA is a non-GAAP financial measure which is not required by or defined under GAAP (Generally Accepted Accounting Principles). The presentationPart I, Item 1 of this ~~financial measure is not intended to be considered~~Quarterly Report for details on the changes in ~~isolation or as a substitute for~~cash and cash equivalents classified by operating, investing and financing activities during our respective reporting periods.

Net cash provided by (used in) operating activities

For the ~~financial measures prepared and presented in accordance with GAAP, including the net income or net loss of the Company or~~nine months ended March 31, 2022, 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~~activities was $3.9 million, which primarily reflects our net income ~~or net loss as determined~~of $0.4 million and $16.2 million of cash utilized by working capital accounts, partially offset by non-cash operating charges of $11.9 million. The change in ~~accordance with GAAP,~~working capital accounts is primarily driven by cash used of $9 million to increase our inventory on hand, increase in accounts receivable of $4.4 million, reduction of accounts payable and ~~are not a substitute for or a measure~~accrued expenses of ~~the Company’s profitability or net earnings. Adjusted EBITDA is presented because we believe it is useful to investors as a measure~~approximately $0.2 million, and an increase in prepaid expenses and other assets of ~~comparative operating performance. Additionally, the Company utilizes Adjusted EBTIDA as a metric~~$1.9 million. The increase in ~~its executive officer and management incentive compensation plans.~~

~~Reconciliation of Operating Loss to Adjusted Operating Income (Loss):~~

Six months ended December 31,
($ in thousands)

2017

2016
Operating loss

$
(3,752)

$
(716)
Plus integration and acquisition costs and inventory step-up

4,120

109
Plus amortization expense

516

87
Adjusted operating income (loss)

$
884

$
(520)

As used herein, adjusted operating loss represents operating loss before the non-recurring integration and acquisition costs and expenses incurred in connection with the acquisition of Cantaloupe, including a charge for inventory fair value step-up, and VendScreen transaction, and the amortization expenses related to our acquisition-related intangibles. We have excluded these non-recurring costs and 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 investors 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.

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

Six months ended December 31,
($ in thousands)

2017

2016
Net loss

$
(12,729)

$
(2,231)
Non-GAAP adjustments:

Non-cash portion of income tax benefit

8,605

(115)
Fair value of warrant adjustment

—

1,490
Amortization expense

516

87
Stock-based compensation

1,356

445
Litigation related professional fees

—

33
Integration and acquisition-related costs

4,175

109
Non-GAAP net income (loss)

$
1,923

$
(182)

As used herein, non-GAAP net income (loss) represents GAAP net income (loss) excluding costs or benefits relating to any non-cash portions of the Company’s income tax benefit, adjustment for fair value of warrant liabilities, professional fees incurred in connection with the class action litigation and the special litigation committee investigation, and non-recurring costs and expenses that were incurred in connection with the acquisition and integration of Cantaloupe, including a charge for inventory fair value step-up and a write-off of deferred financing costs, during the current fiscal year and VendScreen during the prior fiscal year. This is the first financial period for which we have adjusted for the non-cash expenses attributable to equity awards under our equity incentive plans, and we intend to make such adjustments for future financial periods. Management believes that non-GAAP net income (loss) is an important measure of USAT’s business. Non-GAAP net income (loss) 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 lossresult of the Company ~~or net cash provided by or (used in)~~planning ahead for customers who are continuing to upgrade 3G devices to 4G as the 3G network sunset date approaches in 2022 and purchases for our new ePort Engage devices. Cash used in accrued expenses of $0.2 million is primarily attributable to the reduction of accounts payable and accrued expenses. Non-cash operating ~~activities. Management recognizes that non-GAAP financial measures have limitations in that they do not reflect all~~charges primarily consisted of ~~the items associated with the Company’s net loss as determined in accordance with GAAP,~~stock-based compensation, depreciation of property 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 understandingequipment, amortization of our ~~comparative operating performance. We believe that this non-GAAP financial measure serves as a useful metric~~intangible assets, and provisions for ~~our management and investors because they enable a better understanding of~~expected losses.

For 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 (loss) as a metric in its executive officer and management incentive compensation plans.

~~LIQUIDITY AND CAPITAL RESOURCES~~

~~Cash provided by operating activities was $4.1 million for the six~~nine months ended ~~December~~March 31, ~~2017 compared to cash of $5.1 million used in the same period in 2016. The $9.3 million increase in~~2021, net cash provided by operating activities was $7.8 million which reflects our net loss of $11.4 million, $1.1 million of cash utilized by working capital accounts, partially offset by non-cash operating charges of $18.1 million. Non-cash operating charges primarily ~~driven by a cash inflow of $5.8 million from the payment for finance receivables related to a significant order received by us during the fourth quarter~~consisted of the ~~prior fiscal year as well as a cash inflow~~recognition of ~~$10.8~~$2.7 million in unamortized issuance costs and debt discount related to the ~~timing~~repayment of ~~accounts payable~~the 2020 Antara Term Facility, $6.4 million in stock-based compensation, and ~~accrued~~depreciation and amortization expenses ~~partially offset by a $2.8 million increase~~of $4.2 million.

Net cash used in merchant receivables due to timing differences related to the remittance of credit card receipts, and a $3.1 million increase related to inventory due to purchases made to support the company’s anticipated future growth.

~~Cash~~investing activities

Net cash used in investing activities was ~~$66.8~~$10.2 million for the ~~six~~nine months ended ~~December~~March 31, ~~2017 compared~~2022. Increase in cash used is due to ~~$1.9~~the cash paid for the Yoke acquisition of $3 million and $7.2 million for increased property and equipment balances driven primarily by the Company's continued focus on investing in innovative technologies and products.

Net cash used in investing activities was $1.3 million for the ~~same period~~nine months ended March 31, 2021 which was primarily used to increase property and equipment.

Net cash used in ~~2016. The $64.9 million increase is primarily related to net~~financing activities

Net cash ~~consideration paid for the acquisition of Cantaloupe.~~

~~Cash~~ provided by financing activities was ~~$65.3~~$1.0 million for the ~~six~~nine months ended ~~December~~March 31, ~~2017 compared to $5.8 million for the same period in 2016. The $59.5 million increase~~2022 which was primarily due to the public offering which closed in July 2017 with net proceeds of $39.9 million as well as an increase of $35.0 million related to the Term Loan and Revolving Credit Facility, partially offset by $6.2$0.7 million in proceeds ~~received~~ from the ~~exercise~~Amended JPMorgan Credit Facility and $0.8 million in proceeds related to stock exercises, offset by $0.4 million in repayments on outstanding debt attributable to the Amended JPMorgan Credit Facility.

Net cash used in financing activities was $50.3 million for the nine months ended March 31, 2021. For the nine months ended March 31, 2021, the Company raised $52.4 million of proceeds (net of issuance costs) through a private placement transaction with respect to the sale of an aggregate of 5,730,000 shares of the ~~warrants during the six months ended September 30, 2016~~Company’s common stock to accredited investors. The Company paid $1.2 million as a prepayment penalty and ~~an increase in repayments of debt during the six months ended December 31, 2017 of $8.9 million.~~

~~Table of Contents~~

~~In September 2014, the Company reintroduced QuickStart, a program whereby our customers are able~~commitment termination fee to purchase our ePort hardware via a five-year, non-cancellable finance agreement. Under the QuickStart program, the Company sells the equipment to customers and creates a long-term and current finance receivable for five-year agreements. In the third and fourth quarters of fiscal 2015, the Company signed vendor agreements with two finance companies, whereby our customers would enter into agreements directly with the finance companiesAntara as part of the repayment of the

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2020 Antara Term Facility and paid $0.5 million of debt issuance costs as a result of entering into the 2021 JPMorgan Credit Facility.

CONTRACTUAL OBLIGATIONS

During the nine months ended March 31, 2022, we entered into an amended credit agreement with JPMorgan Chase Bank, N.A. See Note 9 - Debt and Other Financing Arrangements to the condensed consolidated financial statements for a description of the amendment. There were no other significant changes from those disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~QuickStart program. Under this scenario, the Company invoices the finance company~~Annual Report on Form 10-K for the ~~equipment financed by~~fiscal year ended June 30, 2021.

CRITICAL ACCOUNTING POLICIES

During the nine months ended March 31, 2022, there were no significant changes to our ~~customer,~~critical accounting policies from those disclosed in the section “Management’s Discussion and ~~typically receives full payment within thirty days. Prior~~Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

Recent Accounting Pronouncements

See Note 2 - Summary of Significant Accounting Policies to the ~~reintroduction~~condensed consolidated financial statements for a description of QuickStart, the Company had financed its customers’ acquisition of ePort equipment primarily through the JumpStart rental program. Under Jumpstart, the Company records an investing capital expenditure cash outflow for the equipment provided and fixed assets on the balance sheet, and then receives rental income from a month-to-month lease. Customers who utilize third party finance companies in connection with the QuickStart program improve our cash flow from operations, and our QuickStart program reduces cash flow needed for investing activities otherwise incurred by us for our JumpStart program.

Since entering into vendor agreements with two third-party finance companies, the majority of QuickStart sales consummated have been with customers entering into agreements directly with the finance companies. Our customers have shifted from acquiring our products via JumpStart, which accounted for 65% of our gross connections in fiscal year 2014, to QuickStart and sales under normal trade receivable terms, which accounted for 89%, 91%, and 93% of our gross connections in fiscal years 2015, 2016, and 2017 respectively. JumpStart was approximately 1% of our gross new connections for the six months ended December 31, 2017.

~~The Company is continually seeking to expand its outside financing partners in order to accommodate expected growth.~~

~~Sources of Cash~~

The Company’s net working capital, which is defined as current assets less current liabilities, increased $7.3 million from $5.8 million as of June 30, 2017, to $13.1 million as of December 31, 2017. As of December 31, 2017, the Company’s primary sources of cash include:

recent accounting pronouncements.

~~Cash on hand of approximately $15.4 million;~~

$2.5 million available under the Revolving Credit Facility provided we continue to satisfy the various covenants set forth in the loan agreement, including the requirement to meet the minimum quarterly Total Leverage Ratio and Fixed Charge Coverage Ratio;

~~Sales to third party lenders of all or a portion of our $16.7 million of finance receivables which may occur in future quarters; and~~

~~Anticipated cash which may be provided by operating activities in future quarters.~~

~~The Company believes its existing cash and available cash resources described above, would provide sufficient capital resources to operate its anticipated business over the next twelve months.~~

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

~~There have been no significant changes to our~~

For quantitative and qualitative disclosures about market risk, ~~since June 30, 2017. For a discussion of our exposure to market risk, refer to Part II,~~see Item ~~7A. “Quantitative~~7A, "Quantitative and Qualitative Disclosures ~~about~~About Market Risk,~~” contained in~~" of our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2017.~~

2021.

On March 17, 2022, the Company entered into an amended credit agreement with JPMorgan Chase Bank, N.A. See Note 9 - Debt and Other Financing Arrangements to the condensed consolidated financial statements for a description of the amendment.

Our exposures to market risk have not changed materially since June 30, 2021.

~~Table of Contents~~

Item 4. Controls and Procedures.

(a) Disclosure Controls and Procedures

Our management evaluated, with the participation of our chief executive officer and chief financial officer, the effectiveness as of the end of the period covered by this Form 10-Q of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")).

We maintain disclosure controls and procedures to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in ~~Securities~~the SEC’s rules and ~~Exchange Commission rules,~~forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness as of the end of the period covered by this Form 10-Q of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based on this evaluation, our management, including our chief executive officer and chief financial officer, has concluded that our disclosure controls and procedures ~~were~~are effective as of ~~the end of such period.~~

March 31, 2022.

(b) Changes in Internal Control over Financial Reporting

There ~~were~~have been no changes in ~~our~~the Company’s internal ~~controls~~control over financial reporting that occurred during the fiscal quarter ended ~~December~~March 31, ~~2017~~2022 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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Part II - Other Information

Item 1. Legal Proceedings.

The information required by this Item is incorporated herein by reference to the Notes to condensed consolidated financial statements, Note 13 – Commitments and Contingencies in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

For a discussion of the Company’s risk factors, see the information under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021 and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2021.

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

N/A

Item 3. Defaults Upon Senior Securities.

There were no defaults on any senior securities. The total liquidation preference including accrued and unpaid dividends on our Series A Convertible Preferred Stock as of March 31, 2022 was $22.1 million. The dividend accrual dates for our Preferred Stock are February 1 and August 1. The annual cumulative dividend on our Preferred Stock is $1.50 per share.

Item 4. Mine Safety Disclosures.

N/A.

Item 5. Other Information.

N/A.

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Contents

Item 6. ~~Exhibits~~

Exhibits.

~~Exhibit~~
Exhibit Number		Description

~~10.1~~ 3.1		~~Visa Small Ticket Deployment~~Amended and ~~Incentive Agreement dated as~~Restated Articles of ~~October 31, 2017 (Portions of this exhibit were redacted pursuant~~Incorporation, incorporated by reference to ~~a confidential treatment request).~~Exhibit 3.1 to Form 10-Q filed on February 4, 2022.

~~10.2~~ 3.2		Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to Form 8-K filed on August 10, 2021).

10.1		Credit ~~Agreement~~Amendment, 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 17, 2022 (incorporated by reference to ~~a confidential treatment request)~~Exhibit 10.1 to form 8-K filed on March 23, 2022).

~~10.3~~ 31.1*		~~Employment, Non-Interference, Non-Solicitation, Non-Competition and Invention Assignment Agreement by and between the Company and Mandeep Arora dated November 9, 2017.~~

~~31.1~~	Certifications of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of ~~1934.~~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,~~2022, filed with the SEC on ~~February 8, 2018,~~May 6, 2022, is formatted in Inline Extensible Business Reporting Language ~~(XBRL)~~(“iXBRL”): (1) the Condensed Consolidated Balance Sheets as of ~~December~~March 31, ~~2017~~2022 and June 30, ~~2017,~~2021, (2) the Condensed Consolidated Statements of Operations for the three-month and ~~six-month~~nine-month periods ended ~~December~~March 31, ~~2017~~2022 and ~~2016,~~2021, (3) the Condensed Consolidated Statements of Shareholders’ Equity for the ~~six-month period~~three-month and nine-month periods ended ~~December~~March 31, ~~2017,~~2022 and 2021, (4) the Condensed Consolidated Statements of Cash Flows for the ~~six-month period~~nine-month periods ended ~~December~~March 31, ~~2017~~2022 and ~~2016,~~2021, 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, 2022, filed with the SEC on May 6, 2022, is formatted as Inline iXBRL and contained in Exhibit 101.

* Filed herewith.

** Furnished herewith.

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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


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

Date: ~~February 9, 2018~~ May 6, 2022						/s/ ~~Stephen P. Herbert~~ Sean Feeney
						~~Stephen P. Herbert,~~ Sean Feeney
						Chief Executive Officer

Date: ~~February 9, 2018~~ May 6, 2022						/s/ ~~Priyanka Singh~~ Scott Stewart
						~~Priyanka Singh~~ Scott Stewart
						Chief Financial Officer


	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%