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~~

2023

☐
☐			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 Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒☑ No ◻

☐

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

☐

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

Large accelerated filer

◻

☐

Accelerated filer

☒

☑

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

◻

☐

Smaller reporting company

◻

☐

Emerging growth company

◻

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

☐

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

☑

As of ~~February 2, 2018~~April 28, 2023 there were ~~53,623,143~~72,519,258 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 - March 31, 2023 (unaudited) and June 30, 2022	3 3

	Condensed Consolidated Statements of Operations - Three and Nine Months ended March 31, 202 3 and 202 2 (unaudited)	4 4

	Condensed Consolidated ~~Statement~~Statements of Shareholders’ Equity - Three and Nine Months ended March 31, 202 3 and 202 2 (unaudited)	5 5

	Condensed Consolidated Statements of Cash Flows -Nine Months ended March 31, 202 3 and 202 2 (unaudited)	6 6

	Notes to Condensed 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	39 32

Item 4.	Controls and Procedures	39 33

Part II - Other Information

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	41

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 3.	Defaults Upon Senior Securities	41

Item 4.	Mine Safety Disclosures	41

Item 5.	Other Information	41

Item 6.	Exhibits	41 33

	Signatures	43 34

Table of Contents

Part I. Financial Information

Item 1. Condensed 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, 2023 (Unaudited)		June 30, 2022

Assets
Current assets:
Cash and cash equivalents	$	46,676	$	68,125
Accounts receivable, net	29,219		37,695
Finance receivables, net	7,477		6,721
Inventory, net	29,837		19,754
Prepaid expenses and other current assets	5,035		4,285
Total current assets	118,244		136,580

Non-current assets:
Finance receivables due after one year, net	13,870		14,727
Property and equipment, net	22,790		12,784
Operating lease right-of-use assets	2,799		2,370
Intangibles, net	27,817		17,947
Goodwill	92,772		66,656
Other assets	4,804		4,568
Total non-current assets	164,852		119,052

Total assets	$	283,096	$	255,632

Liabilities, convertible preferred stock, and shareholders’ equity
Current liabilities:
Accounts payable	$	51,019	$	48,440
Accrued expenses	25,732		28,154
Current obligations under long-term debt	787		692
Deferred revenue	1,894		1,893
Total current liabilities	79,432		79,179

Long-term liabilities:
Deferred income taxes	258		186
Long-term debt, less current portion	38,314		13,930
Operating lease liabilities, non-current	2,641		2,366
Total long-term liabilities	41,213		16,482

Total liabilities	120,645		95,661
Commitments and contingencies (Note 14)
Convertible preferred stock:
Series A convertible preferred stock, 900,000 shares authorized, 385,782 and 445,063 issued and outstanding, with liquidation preferences of $22,144 and $22,115 at March 31, 2023 and June 30, 2022, respectively	2,720		3,138
Shareholders’ equity:

Common stock, no par value, 640,000,000 shares authorized, 72,509,261 and 71,188,053 shares issued and outstanding at March 31, 2023 and June 30, 2022, respectively	475,015		469,918
Accumulated deficit	(315,284)		(313,085)
Total shareholders’ equity	159,731		156,833
Total liabilities, convertible preferred stock, and shareholders’ equity	$	283,096	$	255,632

See accompanying notes.

Table of Contents

~~USA Technologies,~~Cantaloupe, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

Three months ended

Six months ended

December 31,

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

2017

2016

2017

2016
Revenues:

License and transaction fees

$
22,853

$
16,639

$
42,797

$
33,004
Equipment sales

9,653

5,117

15,326

10,340
Total revenues

32,506

21,756

58,123

43,344

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
Total costs of sales

23,305

15,422

41,721

30,843

Gross profit

9,201

6,334

16,402

12,501

Operating expenses:

Selling, general and administrative

8,329

5,785

15,075

12,593
Integration and acquisition costs

3,335

8

4,097

109
Depreciation and amortization

737

307

982

515
Total operating expenses

12,401

6,100

20,154

13,217

Operating (loss) income

(3,200)

234

(3,752)

(716)

Other income (expense):

Interest income

251

200

331

273
Interest expense

(494)

(201)

(703)

(413)
Change in fair value of warrant liabilities

-

-

-

(1,490)
Total other expense, net

(243)

(1)

(372)

(1,630)

(Loss) income before income taxes

(3,443)

233

(4,124)

(2,346)
(Provision) benefit for income taxes

(9,073)

-

(8,605)

115

Net (loss) income

(12,516)

233

(12,729)

(2,231)
Preferred dividends

-

-

(334)

(334)
Net (loss) income applicable to common shares

$
(12,516)

$
233

$
(13,063)

$
(2,565)
Net (loss) income per common share

Basic

(0.24)

0.01

(0.26)

(0.07)
Diluted

(0.24)

0.01

(0.26)

(0.07)
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


	Three months ended				Nine months ended
	March 31,				March 31,
($ in thousands, except share and per share data)	2023		2022		2023		2022
Revenues:
Subscription and transaction fees	$	51,245	$	42,143	$	147,252	$	123,956
Equipment sales	9,111		8,157		32,216		23,215
Total revenues	60,356		50,300		179,468		147,171

Costs of sales:
Cost of subscription and transaction fees	29,577		25,291		90,149		76,234
Cost of equipment sales	7,886		8,809		33,823		23,871
Total costs of sales	37,463		34,100		123,972		100,105

Gross profit	22,893		16,200		55,496		47,066

Operating expenses:
Sales and marketing	3,154		1,937		8,888		6,021
Technology and product development	4,594		5,532		16,757		16,701
General and administrative	7,041		6,788		25,179		21,724
Investigation, proxy solicitation and restatement expenses, net of insurance recoveries	(1,000)		—		(453)		—
Integration and acquisition expenses	—		—		2,787		—
Depreciation and amortization	2,364		1,062		5,029		3,197
Total operating expenses	16,153		15,319		58,187		47,643

Operating income (loss)	6,740		881		(2,691)		(577)

Other income (expense):
Interest income from leases	540		445		1,985		1,363
Interest income (expense), net	(263)		852		(1,258)		(100)
Other expense	(13)		(7)		(112)		(83)
Total other income	264		1,290		615		1,180

Income (loss) before income taxes	7,004		2,171		(2,076)		603
Provision for income taxes	(56)		(35)		(123)		(226)

Net income (loss)	6,948		2,136		(2,199)		377
Preferred dividends	(289)		(334)		(623)		(668)
Net income (loss) applicable to common shares	$	6,659	$	1,802	$	(2,822)	$	(291)

Net earnings (loss) per common share
Basic and diluted	$	0.09	$	0.03	$	(0.04)	$	—

Weighted average number of common shares outstanding used to compute net earnings (loss) per share applicable to common shares
Basic	72,491,373		71,083,044		71,771,135		71,076,022
Diluted	72,866,221		71,486,718		71,771,135		71,076,022

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, 2023


	Common Stock			Accumulated Deficit		Total
($ in thousands, except share data)	Shares	Amount
Balance, June 30, 2022	71,188,053	$	469,918	$	(313,085)	$	156,833
Stock-based compensation and exercises (net)	30,077	1,318		—		1,318
Repurchase of Series A convertible preferred stock	—	(1,733)		—		(1,733)
Net loss	—	—		(8,574)		(8,574)
Balance, September 30, 2022	71,218,130	469,503		(321,659)		147,844
Stock-based compensation and exercises (net)	3,919	160		—		160
Common stock issued for acquisition	1,240,920	3,942		—		3,942
Net loss	—	—		(573)		(573)
Balance, December 31, 2022	72,462,969	473,605		(322,232)		151,373
Stock-based compensation and exercises (net)	46,292	1,410		—		1,410
Net income	—	—		6,948		6,948
Balance, March 31, 2023	72,509,261	$	475,015	$	(315,284)	$	159,731

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

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)	2023		2022
Cash flows from operating activities:
Net income (loss)	$	(2,199)	$	377
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Stock based compensation	2,889		4,624
Amortization of debt issuance costs and discounts	87		68
Provision for expected losses	1,823		2,519
Provision for inventory reserve	25		334
Depreciation and amortization included in operating expenses	5,029		3,197
Depreciation included in costs of sales for rental equipment	852		738

Other	6		402
Changes in operating assets and liabilities:
Accounts receivable	9,589		(4,415)
Finance receivables	(653)		(627)
Inventory	(8,245)		(8,691)
Prepaid expenses and other assets	(746)		(1,909)
Accounts payable and accrued expenses	(2,868)		(206)
Operating lease liabilities	183		(547)
Deferred revenue	1		207
Net cash provided by (used in) operating activities	5,773		(3,929)

Cash flows from investing activities:
Acquisition of business, net of cash acquired	(35,855)		(2,966)
Purchase of property and equipment	(12,634)		(7,198)

Net cash used in investing activities	(48,489)		(10,164)

Cash flows from financing activities:
Payment of third-party debt issuance costs	—		(107)

Proceeds from long-term debt	25,000		738
Repayment of long-term debt	(580)		(437)
Contingent consideration paid for acquisition	(1,000)		—

Proceeds from exercise of common stock options	—		849
Repurchase of Series A Convertible Preferred Stock	(2,153)		—
Net cash provided by financing activities	21,267		1,043

Net decrease in cash and cash equivalents	(21,449)		(13,050)
Cash and cash equivalents at beginning of year	68,125		88,136
Cash and cash equivalents at end of period	$	46,676	$	75,086

Supplemental disclosures of cash flow information:
Interest paid in cash	$	1,869	$	542
Common stock issued in business combination	$	3,942	$	—

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

See accompanying notes.

Table of Contents

~~USA Technologies,~~Cantaloupe, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. BUSINESS

~~USA Technologies,~~

Cantaloupe, Inc. ~~(the “Company”~~, ~~“We”, “USAT”, or “Our”) was incorporated in~~is organized under the laws of the Commonwealth of ~~Pennsylvania in January 1992.~~Pennsylvania. We are a ~~provider of technology-enabled~~software and payments company that provides end-to-end technology solutions for self-service commerce. Cantaloupe is transforming the self-service industry by offering one integrated solution for payments processing, logistics, and ~~value-added services that facilitate electronic payment transactions and~~back-office management. Our enterprise-wide platform is designed to increase consumer engagement ~~services primarily within~~and sales revenue through digital payments, digital advertising and customer loyalty programs, while providing retailers with control and visibility over their operations and inventory. As a result, customers ranging from vending machine companies to operators of micro-markets, car wash, electric vehicle charging stations, commercial laundry, kiosks, amusements and more, can run their businesses more proactively, predictably, and competitively.

COVID-19 Update

While there has not been any resurgence of the COVID-19 virus or new strains or variants emerge that significantly impacted the Company, its employees, or its customers, we have ~~designed~~experienced lingering effects during fiscal year 2023. We underwent elevated component and ~~marketed systems~~supply chain costs necessary for the production and ~~solutions that facilitate electronic payment options, as well as telemetry Internet~~distribution of ~~Things (“IoT”)~~our hardware products. Additionally, schools and ~~machine-to-machine (“M2M”) services,~~other organizations have re-opened which ~~include the ability~~has led to ~~remotely monitor, control, and report on the results of~~increased foot-traffic to distributed assets containing our electronic payment ~~solutions. Historically, these distributed assets~~solutions, but we have ~~relied on cash for payment~~not seen a full return to the office. Many companies have implemented a hybrid approach requiring employees to work in the ~~form~~office several days a week and allow work from home for the remaining days. Where applicable, we have incorporated judgments and estimates of ~~coins or bills, whereas, our systems allow them~~the expected impact of COVID-19 in the preparation of the financial statements based on information currently available. We will continue to ~~accept cashless payments such as through~~monitor the ~~use~~situation and follow any guidance from federal, state, and local public health authorities.Given the potential uncertainty of ~~credit or debit cards or other emerging contactless forms, such as mobile payment. The connection to~~ the ~~ePort Connect Platform also enables consumer loyalty programs, national rewards programs and digital content, including advertisements and product information to be delivered at the point of sale.~~

~~On November 9, 2017,~~situation, the Company ~~acquired all~~cannot reasonably estimate the longer-term repercussions of ~~the outstanding equity interests~~COVID-19 on our financial condition, result of ~~Cantaloupe Systems, Inc. (“Cantaloupe”), pursuant to the Agreement~~operations or cash flows.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Plan of Merger (“Merger Agreement”). Cantaloupe is a premier provider of cloud and mobile solutions for vending, micro markets, and office coffee service. The acquisition expanded the Company’s existing platform to become an end-to-end enterprise platform integrating Cantaloupe’s Seed Cloud which provides cloud and mobile solutions for dynamic route scheduling, automated pre-kitting, responsive merchandising, inventory management, warehouse and accounting management, 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, 2022 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~~statement of ~~normal recurring adjustments, have been included.~~financial results for the interim period. Operating results for the three and ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, ~~2018.~~2023. Actual results could differ from estimates. The balance sheet at June 30, ~~2017~~2022 has been derived from the audited consolidated financial statements at that date, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

~~BASIS OF PRESENTATION~~

~~Certain reclassifications~~

The Company operates as one 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 ~~prior year’s data have been made~~making decisions regarding allocating resources and assessing performance.

The Company assessed the foreign exchange impact associated with the 32M U.K. operations, which utilized the British Pound as its functional currency, and concluded the foreign currency fluctuations were highly immaterial to conform to current year’s presentation. As disclosed in Note 3, the Company incurred integration and acquisition expenses during the current period and deemed it appropriate to have such costs individually captioned within the statementour financial statements including Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of operations. Accordingly, the Company retrospectively reclassified integration and acquisition costs incurred in the corresponding periods from the previous fiscal year to conform to the current period’s presentation.

Operations, Condensed

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~~2. ACCOUNTING POLICIES~~

~~RECENT ACCOUNTING PRONOUNCEMENTS~~

Consolidated Statements of Shareholders’ Equity, and Condensed Consolidated Statement of Cash Flows. The Company will continue to monitor and assess its exposures to foreign exchange fluctuations in future periods.

Recently Adopted Accounting ~~pronouncements adopted in fiscal year 2018~~

Pronouncements

Lessor Classification

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, which did not impact our consolidated financial statements.~~

~~In March 2016,~~2021, the FASB issued ASU ~~No. 2016-09, Compensation - Stock Compensation (Topic 718), Improvements~~2021-05, “Lessors – Certain Leases with Variable Lease Payments” which requires lessors to ~~Employee Share-Based Payment Accounting, which modifies the accounting for certain aspects of share-based~~classify leases as operating leases if they have variable lease payments ~~to employees. The new guidance requires excess tax benefits~~that do not depend on an index or rate 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~~would have selling losses if they were 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 asales-type or direct financing ~~activity on the statement of cash flows.~~leases. The Company adopted this ~~standard as of~~pronouncement on 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.

2022. The adoption of ~~ASU No. 2016-09~~this accounting standard did not materially impact ~~our statement of cash flows for the three and six months ended December 31, 2016.~~

~~Accounting 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.~~

statements.

Accounting for Debt and Equity Instruments

In ~~May 2014,~~August 2020, the FASB issued ASU ~~2014-09, “Revenue from~~2020-06, “Accounting for Convertible Instruments and Contracts ~~with Customers (Topic 606) (“the New Standard”).~~in an Entity’s Own Equity” ~~This ASU was amended by ASU No. 2015-14, issued in August 2015,~~ which ~~deferred the original effective date by one year. The new guidance provides a single model for entities to use in~~simplifies accounting for ~~revenue arising from~~convertible instruments and the derivatives scope exception for contracts ~~with customers~~in an entity's own equity and ~~will supersede most current revenue recognition~~improves and amends the related earnings per share (EPS) guidance. The ~~new~~Company adopted this pronouncement on July 1, 2022. The adoption of this accounting standard ~~also requires expanded qualitative and quantitative disclosures about~~did not materially impact 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.~~ condensed consolidated financial statements.

3. LEASES

Lessee Accounting

The Company ~~is currently evaluating~~has operating leases for office space, warehouses, and office equipment, including those obtained through the ~~impact of~~32M acquisition in December 2022. At March 31, 2023, the ~~potential changes identified by its initial phase one assessment work which included internal surveys of~~Company has the ~~business, holding revenue recognition workshops with sales and business unit finance leadership, and reviewing a representative sample of revenue arrangements across~~following balances recorded in the ~~business to initially identify a set of applicable qualitative revenue recognition changes~~balance sheet related to ~~the new standard update. During the quarter, the Company completed an acquisition~~its lease arrangements:


($ in thousands)	Balance Sheet Classification	As of March 31, 2023		As of June 30, 2022

Assets:	Operating lease right-of-use assets	$	2,799	$	2,370

Liabilities:
Current	Accrued expenses	$	1,445	$	1,538
Long-term	Operating lease liabilities, non-current	2,641		2,366
Total lease liabilities		$	4,086	$	3,904

Components of ~~Cantaloupe~~lease cost are as follows:


($ in thousands)	Three months ended March 31, 2023	Three months ended March 31, 2022

Operating lease costs*	691	462


($ in thousands)	Nine months ended March 31, 2023	Nine months ended March 31, 2022

Operating lease costs*	1,778	1,347

* Includes short-term lease and ~~has commenced the phase one assessment of the recently acquired business.~~

variable lease costs, which are not material.

Supplemental cash flow information and non-cash activity related to our leases are as follows:

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($ in thousands) Nine months ended March 31, 2023 Nine months ended March 31, 2022
Supplemental cash flow information:
Cash paid for amounts included in the measurement of operating lease liabilities $ 1,793 $ 1,257
Non-cash activity:
Lease assets obtained in exchange for new operating lease liabilities $ — $ 471

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


($ in thousands)	Operating Leases
Remainder of 2023	$	548
2024	1,449
2025	1,127
2026	1,048
2027	440
Thereafter	$	—
Total lease payments	$	4,612
Less: Imputed interest	(526)
Present value of lease liabilities	$	4,086

During the three months ended March 31, 2023, the Company extended an existing operating lease for an additional 70-months period. The ~~objectives~~lease extension will commence on October 1, 2023. As such, this was not included in the Operating lease right-of-use assets or liabilities on the Condensed Consolidated Balance Sheets for as of March 31, 2023.

Lessor Accounting

Property and equipment used for the ~~second phase~~operating lease rental program consisted of the ~~project will~~following:


($ in thousands)	March 31, 2023		June 30, 2022
Cost	$	28,182	25,242
Accumulated depreciation	(22,915)		(22,914)
Net	$	5,267	$	2,328

The Company’s net investment in sales-type leases (carrying value of lease receivables) and the future minimum amounts to be ~~to establish~~collected on these lease receivables as of March 31, 2023 are disclosed within Note 6 - Finance Receivables.

4. REVENUES

Based on similar operational characteristics, the Company's revenues are disaggregated as follows:


	Three months ended March 31,				Nine months ended March 31,
($ in thousands)	2023		2022		2023		2022
Transaction fees	$	33,389	$	27,509	$	97,076	$	80,704
Subscription fees	17,856		14,634		50,176		43,252
Subscription and transaction fees	$	51,245	$	42,143	$	147,252	$	123,956
Equipment sales	9,111		8,157		32,216		23,215
Total revenues	$	60,356	$	50,300	$	179,468	$	147,171

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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)	2023		2022

Deferred revenue, beginning of the period	$	1,970	$	1,745
Deferred revenue, end of the period	1,894		1,970
Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period	$	94	$	87


	Nine months ended March 31,		Nine months ended March 31,
($ in thousands)	2023		2022

Deferred revenue, beginning of the period	$	1,893	$	1,763
Deferred revenue, end of the period	1,894		1,970
Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period	$	319	$	301

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 ~~document key accounting policies and assess disclosures, business process and control impacts resulting~~payment from the ~~New Standard. New policies~~customer.

Contract Costs

At March 31, 2023, the Company had net capitalized costs to obtain contracts of $0.5 million included in Prepaid expenses and ~~procedures identified during phase two~~other current assets and $2.5 million included in Other noncurrent assets on the Condensed Consolidated Balance Sheet. At June 30, 2022, the Company had net capitalized costs to obtain contracts of $0.5 million included in Prepaid expenses and other current assets and $2.3 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, 2023, amortization of capitalized contract costs was $0.2 million and $0.6 million respectively. During the three and nine months ended March 31, 2022, amortization of capitalized contract costs was $0.2 million and $0.5 million respectively.

Future Performance Obligations

The Company will ~~be applied~~recognize revenue in future periods related to ~~both historical Company~~remaining performance obligations for certain open contracts. Generally, these contracts have terms of one year or less. The amount of revenue ~~streams and those~~related to unsatisfied performance obligations in which the original duration of the ~~recently acquired business to ensure compliance with~~contract is greater than one year is not significant.

5. ACQUISITION

We completed 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 completedfollowing acquisitions in ~~the fourth quarter of~~ fiscal year ~~2018.~~

~~The Company is still evaluating the impact that the New Standard will have on the Company’s~~2023 and 2022. Financial results of each transaction are included in our consolidated financial statements and will be unable to quantify its impact until the third phase of the project has been completed. The standard is expected to impact the Company’s revenue recognition processes, primarily in the areas of the allocation of contract revenues. An entity can elect to apply the guidance under one of the following two methods: (i) retrospectively to each prior reporting period presented – referred to as the full retrospective method; or (ii) retrospectively with the cumulative effect of initially applying the standard recognized atfrom the date of initial application in retained earnings – referred to as the modified retrospective method. The method of adoption has not yet been determined and is not expected to be finalized until the second phase of the project plan has been completed.

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

~~In June 2016,~~ 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 aftereach acquisition.

Three Square Market

On December ~~15, 2019. Early adoption of the guidance is permitted 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, and interim periods within that fiscal year. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The new guidance requires adoption on a retrospective basis unless it is impracticable to apply, in which case the company would be required to apply the amendments prospectively as of the earliest date practicable. Upon adoption, the Company does not anticipate significant changes to the Company's existing accounting policies or presentation of the Statement of Cash Flows.

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

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

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

~~On November 9, 2017,~~1, 2022, the Company acquired all of the ~~outstanding~~ equity interests of ~~Cantaloupe~~Three Square Market, Inc., a Wisconsin corporation, and Three Square Market Limited, a UK private limited company (collectively "32M") pursuant to ~~the Merger Agreement, for approximately $85.0 million in aggregate consideration, net of cash acquired. Cantaloupe~~an Equity Purchase Agreement. 32M is a ~~premier~~leading provider of ~~cloud~~software and ~~mobile~~self-service kiosk-based point of sale and payment solutions ~~for vending,~~to the micro ~~markets,~~market industry and ~~office coffee service.~~

~~The~~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.Company's presence in that industry. In addition to new technology and services, due to ~~Cantaloupe’s~~32M’s existing customer base, the acquisition expands the Company’s footprint into new global markets.

The ~~preliminary~~Company paid an aggregate consideration of approximately $40.7 million, which consisted of $36.8 million in cash and 1,240,920 shares of the Company's common stock (the "Stock Consideration") with an aggregate fair value of $3.9 million for

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the acquisition of 32M. The aggregate cash consideration includes $0.5 million of cash paid into an escrow account for net working capital and other post-closing adjustments. Additionally, the Stock Consideration of 1,240,920 shares ("Escrowed Shares") referred to above were placed into an escrow account to resolve indemnification claims for breach of certain representations and warranties and will be released 50% on the first anniversary of the acquisition date and 50% on the second anniversary of the acquisition date, less any shares that may be returned to Company on account of any indemnity claims. The Escrowed Shares are considered to be issued and outstanding shares of the Company as of the acquisition date.

The company funded the cash consideration of the acquisition by borrowing $25 million of debt from the JPMorgan Credit Facility and the remaining consideration utilizing existing cash on hand.

The acquisition of 32M was accounted for as a business combination using the acquisition method of accounting andwhich 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.

The estimated fair value of the purchase price consideration consisted of the following:

40,738

~~(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~~

During the three months ended March 31, 2023, the Company reassessed the opening balance of 32M's working capital accounts. We have updated the allocation amounts from the December 31, 2022 balance to account for $0.7 million of liabilities incurred prior to the acquisition but not previously recorded and immaterial adjustments to accounts receivables and other assets. The net impact of these adjustments resulted in an increase to goodwill. The adjustment 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 (“Term Loan”) and $10.0 million~~had no impact on the Company's consolidated results of ~~borrowings under a line of credit (“Revolving Credit Facility”), provided by JPMorgan Chase Bank, N.A., for an aggregate principal amount of $35.0 million. Refer~~operations. The following table summarizes the adjusted fair value assigned to ~~Note 9 for additional details.~~

~~The acquisition of Cantaloupe was accounted for as a business combination using the acquisition method. Under the acquisition method of accounting,~~ the assets acquired and liabilities assumed ~~in the transaction were recorded at the date~~as of ~~acquisition at their respective fair values using assumptions that are subject to change.~~ March 31, 2023.


($ in thousands)	Amount
Cash and cash equivalents	$	941
Accounts receivable	2,502
Inventories	1,862
Intangible assets	13,222
Other assets	535
Total identifiable assets acquired	19,062
Accounts payable	(2,457)
Tax liabilities	(1,983)
Total liabilities assumed	(4,440)
Total identifiable net assets	14,622
Goodwill	26,116
Fair value of total consideration transferred	$	40,738

The Company has not finalized its valuation of certain assets and liabilities recorded in connection with this transaction. Thus, the estimated measurements recorded to date are subject to change and any changes will be recorded as adjustments todetermined the fair value of ~~those~~the identifiable intangible assets ~~and liabilities and residual amounts will be allocated to goodwill. The final~~acquired with the assistance of third-party valuation adjustments may also require adjustment to 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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~~The following table summarizes the fair value of total consideration transferred to the holders of all of the outstanding equity interests of Cantaloupe at the acquisition date of November 9, 2017:~~

Cantaloupe
($ in thousands)

Systems, Inc.
Accounts receivable

$
3,232
Finance receivables, current portion

1,640
Inventory

782
Prepaid expense and other current assets

682
Finance receivables, less current portion

3,483
Other assets

50
Property and equipment

1,573
Intangibles

30,800
Goodwill

52,957
Total assets acquired

95,199
Accounts payable

(1,591)
Accrued expenses

(1,832)
Deferred revenue

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

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

(1,134)
Deferred income tax liabilities

(4,359)
Total net assets acquired

$
84,991

consultants. Amounts allocated to identifiable intangible assets included ~~$18.9~~$7.4 million related to developed technology, $5.3 million related to customer relationships, ~~$10.3~~and $0.5 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.

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Goodwill of ~~$53.0~~$26.1 million arising from the acquisition includes the expected synergies between ~~Cantaloupe~~32M 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 above allocation of the purchase price is provisional and is still subject to change within the measurement period as the Company continues to work through valuation of the 32M intangible assets. 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.

The Company recognized $2.8 million of acquisition related costs that were expensed during the nine months ended March 31, 2023. These costs were recorded within Integration and acquisition expenses in the Condensed Consolidated Statements of Operations.

The amount of ~~Cantaloupe revenues~~32M revenue included in the Company’s Condensed Consolidated ~~Statements~~Statement of Operations ~~for both~~from the ~~three and six months ended December~~acquisition date through March 31, ~~2017 is $4.7~~2023 was $6.6 million. The amount of ~~Cantaloupe~~32M earnings included in the Company’s Condensed Consolidated ~~Statements~~Statement 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~~from 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~~date through March 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

2023 was $0.4 million.

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Supplemental disclosure of pro forma information

The following ~~supplemental unaudited~~table presents pro forma information ~~presents the combined results of USAT and Cantaloupe~~ as if the acquisition of ~~Cantaloupe~~32M had occurred on July 1, ~~2016.~~2021. The pro forma information presented combines the historical condensed consolidated results of operations of the Company and 32M after giving effect to the preliminary purchase accounting impact of the 32M acquisition related costs (including, but not limited to, amortization associated with the acquired intangible assets, interest expense associated with the Credit Facility to finance a portion of the purchase price, acquisition related costs) and the alignment of accounting policies. 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,~~2021, nor are they indicative of any future results.

~~The pro forma results include adjustments for~~ Furthermore, cost savings and other business synergies related to the ~~preliminary purchase accounting impact of the Cantaloupe~~ acquisition ~~(including, but~~are 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 portion of the purchase price, along with the related tax impacts) and the alignment of accounting policies. Other material non-recurring adjustments are reflected in the pro forma ~~and described below:~~

amounts.

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,				Nine months ended March 31,
(In thousands)	2023		2022		2023		2022
Revenues	$	60,356	$	54,620	$	187,806	$	159,285
Net income (loss)	5,832		1,545		(1,808)		(3,981)

The supplemental ~~unaudited~~ pro forma for the nine months ended March 31, 2023 was adjusted to exclude $2.8 million of acquisition related costs. The supplemental pro forma for the nine months ended March 31, 2022 was adjusted to include $2.8 million of acquisition related costs, the components of which were previously described.

Yoke Payments

In August 2021, we completed the acquisition of certain assets and liabilities of Delicious Nutritious LLC, doing business as Yoke Payments (“Yoke”), a micro market payments company. The acquisition of Yoke was accounted for as a business combination using 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 and $1 million in deferred cash payment due on or before July 30, 2022 based on the achievement of certain sales growth targets for software licenses. On July 27, 2022, the Company made the cash payment of $1 million in accordance with the requirements of the purchase agreement.

Additionally in connection with the acquisition, the Company will issue common stock to the former owners of Yoke based on the achievement of certain sales growth targets for software licenses through July 31, 2024 and continued employment as of the respective measurement dates. The accounting treatment for these awards in the context of the business combination is to

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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, 2023, 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, 2023.

The following table summarizes the total consideration paid for Yoke, total net assets acquired, identifiable assets and goodwill recognized at the acquisition date:


($ 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 $0.9 million related to developed technology, $0.3 million related to customer relationships, and $0.1 million related to other intangible assets. The fair value of the acquired developed technology was determined using a multi-period excess earnings method. The fair value of the acquired customer relationships was determined using the with-and-without method which estimates the value using the cash flow impact in a scenario where the customer relationships are not in place. The recognized intangible assets will be amortized on a straight-line basis over the estimated useful lives of the respective assets.

Goodwill of $2.7 million arising from the acquisition includes the expected synergies between Yoke and the Company and intangible assets that do not qualify for separate recognition at the time of acquisition. The goodwill, which is deductible for income tax purposes, was assigned to the Company’s only reporting unit.

The above table represents the final allocation of the purchase price. The Company did not record any material adjustment during the 12 months measurement period after the acquisition.

6. FINANCE RECEIVABLES

The Company's finance receivables consist of financed devices under its QuickStart program. Predominately all of the Company’s finance receivables agreements are classified as non-cancellable sixty-month sales-type leases. As of March 31, 2023 and June 30, 2022, finance receivables consist of the following:


($ in thousands)	March 31, 2023		June 30, 2022
Current finance receivables, net	$	7,477	$	6,721
Finance receivables due after one year, net	13,870		14,727
Total finance receivables, net of allowance of $864 and $760, respectively	$	21,347	$	21,448

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 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 to the customer’s ability to repay the lease.

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Credit risk for these receivables is continuously monitored by management and reflected within the allowance for finance receivables by aggregating leases with similar risk characteristics into pools that are collectively assessed. Because the Company’s lease contracts generally have similar terms, customer characteristics around transaction processing volume and sales were used to disaggregate the leases. Our key credit quality indicator is the amount of transaction revenue we process for 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 insufficient to cover the lease payment are considered to be at a higher risk of customer default.

Customers are pooled based on their ratio of gross sales to required monthly lease obligations. We categorize outstanding receivables into two categories: high ratio customers (customers who have adequate transaction processing volumes sufficient to cover monthly fees) and 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, 2023, 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	$	8,570	$	5,538	$	2,312	$	1,814	$	1,706	$	30	$	19,970
30 days and under	72		83		59		69		64		16		363
31-60 days	12		42		29		55		61		14		213
61-90 days	7		30		33		48		58		15		191
Greater than 90 days	27		169		98		393		632		155		1,474
Total finance receivables	$	8,688	$	5,862	$	2,531	$	2,379	$	2,521	$	230	$	22,211

At June 30, 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	$	7,451	$	5,047	$	2,758	$	2,593	$	2,807	$	103	$	20,759
30 days and under	18		10		32		56		94		3		213
31-60 days	25		23		26		58		100		—		232
61-90 days	25		14		20		46		91		—		196
Greater than 90 days	41		47		97		232		391		—		808
Total finance receivables	$	7,560	$	5,141	$	2,933	$	2,985	$	3,483	$	106	$	22,208

At March 31, 2023, credit quality indicators by year of origination consisted of the following:

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	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	$	8,661	$	5,576	$	2,219	$	1,837	$	1,786	$	64	$	20,143
Low ratio customers	27		286		312		542		735		166		2,068
Total finance receivables	$	8,688	$	5,862	$	2,531	$	2,379	$	2,521	$	230	$	22,211

At June 30, 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	$	7,498	$	4,853	$	2,688	$	2,623	$	2,950	$	102	$	20,714
Low ratio customers	62		288		245		362		533		4		1,494
Total finance receivables	$	7,560	$	5,141	$	2,933	$	2,985	$	3,483	$	106	$	22,208

The following table represents a rollforward of the allowance for finance receivables for the three and ~~six~~nine months ~~ended December~~ending March 31, ~~2017 were adjusted~~2023 and 2022:


	Three months ended March 31,		Three months ended March 31,
($ in thousands)	2023		2022

Balance, beginning of period	$	864	$	1,062
Provision for expected losses	—		225
Write-offs	—		(138)
Balance, end of period	$	864	$	1,149


	Nine months ended March 31,		Nine months ended March 31,
($ in thousands)	2023		2022

Balance, beginning of period	$	760	$	1,109
Provision for expected losses	392		425
Write-offs	(288)		(385)
Balance, end of period	$	864	$	1,149

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Cash to ~~exclude $3.3 million and $4.1 million of integration and acquisition costs, respectively.~~

~~The supplemental unaudited pro forma earnings~~be collected on our performing finance receivables due 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~~each of the ~~following:~~

fiscal years are as follows:


	December 31,		June 30,
($ in thousands)	2017		2017		($ in thousands)
2023 (remaining 3 months)					2023 (remaining 3 months)	$	2,690
2024					2024	7,570
2025					2025	5,965
2026					2026	4,546
2027					2027	2,754
Thereafter					Thereafter	793
Total amounts to be collected					Total amounts to be collected	24,318
Less: interest					Less: interest	(2,107)
Less: allowance for receivables					Less: allowance for receivables	(864)
Total finance receivables	$	16,732	$	19,617	Total finance receivables	$	21,347
Less current portion		5,517		11,010
Non-current portion of finance receivables	$	11,215	$	8,607

~~The~~

7. ACCOUNTS RECEIVABLE

Accounts receivable primarily include amounts due to the Company for sales of equipment and subscription fees, settlement receivables for amounts due from third-party payment processors and receivables from contract manufacturers, net of the allowance for credit losses. Accounts receivable, net of the allowance for uncollectible 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~~were $29.2 million as of ~~December~~March 31, ~~2017~~2023 and $37.7 million as of June 30, 2022. Accounts receivable from one contract manufacturer represented 16% of accounts receivable as of June 30, 2022. This contract manufacturer did not have a material balance as of March 31, 2023.

Concentrations

Accounts receivable with the Company's largest customer represented 6% and 17% of accounts receivable, net of allowance as of March 31, 2023 and June 30, ~~2017,~~2022 respectively.

Allowance for credit losses

The Company ~~expects~~maintains an allowance for credit losses resulting from the inability of its customers to make required payments, including from a shortfall in the customer transaction fund flow from which the Company would normally 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 consistedamounts due. The allowance is calculated under an expected loss model. We estimate our allowance using an aging analysis of the ~~following:~~

December 31,

June 30,
($ in thousands)

2017

2017
Performing

$
16,325

$
19,515
Nonperforming

407

102
Total

$
16,732

$
19,617

receivables balances, primarily based on historical loss experience. Furthermore, current conditions are analyzed on a quarterly basis as we reassess whether our receivables continue to exhibit similar risk characteristics as the prior measurement date, and determine if the reserve calculation needs to be adjusted for new developments, such as a customer’s inability to meet its financial obligations. The Company writes off receivable balances against the allowance for credit losses when management determines the balance is uncollectible and the Company ceases collection efforts.

The following table represents a rollforward of the allowance for credit losses for the three and nine months ending March 31, 2023 and 2022:


	Three months ended March 31,
($ in thousands)	2023		2022
Balance, beginning of period	$	10,122	$	7,161
Provision for expected losses	296		981
Write-offs	—		(1,022)
Balance, end of period	$	10,418	$	7,120


	Nine months ended March 31,
($ in thousands)	2023		2022
Balance, beginning of period	$	9,328	$	6,614
Provision for expected losses	1,431		2,094

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~~Age Analysis~~
Write-offs (341) (1,588)
Balance, end of period $ 10,418 $ 7,120

8. EARNINGS (LOSS) PER SHARE CALCULATION

Basic earnings (loss) per share is computed by dividing net earnings (loss) by the weighted average number of ~~Past Due Finance Receivables~~

Ascommon shares outstanding during the period. Diluted earnings per share, applicable only to years ended with reported income, is computed by dividing net income by the weighted average number 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~~common shares outstanding during the period plus the dilutive effect of ~~Past Due Finance Receivables~~

~~As of June 30, 2017~~

~~5. INVENTORY~~

~~Inventory, net of reserves, was $11.~~2 ~~million~~outstanding stock options 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~~restricted stock-based awards using 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 months ended December 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~~

treasury stock method. The calculation of basic and diluted earnings (loss) per share is presented below:


	Three months ended March 31,
($ in thousands, except per share data)	2023		2022

Numerator for basic and diluted earnings (loss) per share
Net earnings	$	6,948	$	2,136
Preferred dividends	(289)		(334)
Net earnings applicable to common shareholders	6,659		1,802

Denominator for basic earnings (loss) per share - Weighted average shares outstanding	72,491,373		71,083,044
Effect of dilutive potential common shares	374,848		403,674
Denominator for diluted loss per share - Adjusted weighted average shares outstanding	72,866,221		71,486,718

Basic and diluted earnings per share	$	0.09	$	0.03


	Nine months ended March 31,
($ in thousands, except per share data)	2023		2022

Numerator for basic and diluted loss per share
Net earnings (loss)	$	(2,199)	$	377
Preferred dividends	(623)		(668)
Net earnings (loss) applicable to common shareholders	(2,822)		(291)

Denominator for basic loss per share - Weighted average shares outstanding	71,771,135		71,076,022
Effect of dilutive potential common shares	—		—
Denominator for diluted loss per share - Adjusted weighted average shares outstanding	71,771,135		71,076,022

Basic and diluted loss per share	$	(0.04)	$	—

For the three month ended March 31, 2023, approximately 4.5 million of anti-dilutive shares were excluded from the computation of diluted earnings per share. For the nine months ended March 31, 2023, approximately 4.9 million anti-dilutive shares were excluded from the calculation of diluted loss per share. Anti-dilutive shares excluded from the calculation of diluted loss 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

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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~~were approximately 5 million 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~~nine months ended ~~December~~March 31, ~~2017 compared to the same period last year, were due to warrants exercised in connection with our common stock during September 2016.~~

7.2022.

9. 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

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	As of March 31, 2023
($ in thousands)	Gross		Accumulated Amortization		Net		Amortization Period
Intangible assets:
Brand and tradenames	$	2,226	$	(1,377)	$	849	1 - 7 years
Developed technology	19,267		(10,678)		8,589		5 - 6 years
Customer relationships	24,592		(6,213)		18,379		5 - 18 years
Total intangible assets	$	46,085	$	(18,268)	$	27,817

Goodwill	92,772		—		92,772		Indefinite


	As of June 30, 2017
			Accumulated				Amortization		As of June 30, 2022
($ in thousands)	Gross		Amortization		Net		Period	($ in thousands)	Gross		Accumulated Amortization		Net		Amortization Period
Intangible assets:								Intangible assets:
Non-compete agreements		2		(2)		—	2 years
Brand		95		(48)		47	3 years
Brand and tradenames								Brand and tradenames	1,705		(1,133)		572		1 - 7 years
Developed technology		639		(191)		448	5 years	Developed technology	11,819		(8,761)		3,058		5 - 6 years
Customer relationships		149		(22)		127	10 years	Customer relationships	19,339		(5,022)		14,317		10 - 18 years
Total intangible assets	$	885	$	(263)	$	622		Total intangible assets	$	32,863	$	(14,916)	$	17,947

Goodwill		11,492		—		11,492	Indefinite	Goodwill	66,656		—		66,656		Indefinite

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

~~For~~

The weighted-average remaining useful life of the finite-lived intangible assets was 16.6 years as of March 31, 2023, of which the weighted-average remaining useful life for the brand and trade names was 2.2 years, for the developed technology was 4.1 years, and for the customer relationships was 10.3 years.

During the three and ~~six~~nine months ended ~~December~~March 31, ~~2017, there was $472 thousand~~2023, the Company recognized $1.7 million and ~~$516 thousand~~$3.4 million, respectively, in amortization expense related to intangible assets. The Company recognized $26.1 million in goodwill and $13.2 million in newly acquired intangible assets ~~respectively,~~in association with the 32M acquisition as ~~compared to~~referenced in Note 5- Acquisition.

During the three and ~~six~~nine months ended ~~December~~March 31, ~~2016, for which there was $43 thousand~~2022, the Company recognized $0.8 million and ~~$87 thousand~~$2.5 million, respectively, in amortization expense related to intangible assets. The Company recognized $2.7 million in goodwill and $1.2 million in newly acquired intangible assets ~~respectively.~~

~~8. LINE OF CREDIT~~

in association with the Yoke acquisition as referenced in Note 5- Acquisition.

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, 2023 and March 31, 2022, the Company did not recognize any impairment charges related to goodwill.

10. DEBT AND OTHER FINANCING ARRANGEMENTS

The Company's debt and other financing arrangements as of March 31, 2023 and June 30, ~~2016,~~2022 consisted of the following:


	As of March 31,		As of June 30,
($ in thousands)	2023		2022

JPMorgan Credit Facility*	39,250		14,813
Other obligations	53		70
Less: unamortized issuance costs and debt discount	(202)		(261)
Total	39,101		14,622
Less: debt and other financing arrangements, current	(787)		(692)
Debt and other financing arrangements, noncurrent	$	38,314	$	13,930

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

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


	Three months ended				Nine months ended
	March 31,				March 31,
($ in thousands)	2023		2022		2023		2022
JPMorgan Credit Facility*	1,142		221		1,733		679
Other interest income	(879)		(1,073)		(475)		(579)
Total interest (income) expense, net	$	263	$	(852)	$	1,258	$	100

JPMorgan Chase Bank Credit Agreement

JP Morgan 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 (the "2021 JPMorgan Credit Agreement") with JPMorgan Chase Bank, N.A ("JPMorgan").

The 2021 JPMorgan Credit Agreement provides for a $5 million secured revolving credit facility (the “2021 JPMorgan Revolving Facility”) and a $15 million secured term facility (the “2021 JPMorgan Secured Term Facility” and together with the 2021 JPMorgan Revolving Facility, 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 has a three year maturity, with interest determined, at the Company’s option, on a base rate of LIBOR or Prime Rate plus an applicable spread tied to the Company’s total leverage ratio and having ranges between 2.75% and 3.75% for Prime rate loans and between 3.75% and 4.75% for LIBOR rate loans. In the event of default, the interest rate may be increased by 2.00%. The 2021 JPMorgan Credit Facility 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.

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 provided 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 replaced 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.

On December 1, 2022, the Company entered into a ~~Loan~~first amendment (the “2022 Amendment”) to its Amended and Security Agreement and other ancillary documents (as amended, the “Heritage Loan Documents”) 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 ofRestated 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~~17, 2022, which, among other things, amended ~~and ancillary agreements by and between~~the definition of the Company’s EBITDA under the Credit Agreement. On December 1, 2022, the Company ~~and Heritage Bank~~borrowed an additional $25 million under the Amended JPMorgan Credit Facility to partially fund the cash consideration of ~~Commerce.~~ the 32M acquisition as referenced in Note 5 - Acquisition.

The ~~Company recorded~~Amended JPMorgan Credit Facility has 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 balancefour year maturity. Interest on the ~~Heritage Line of Credit at December 31, 2017.~~

~~9. DEBT~~

~~Revolving~~Amended JPMorgan 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”), pursuant to which the Lender (i) made a $25 million Term Loan to the Company and (ii) provided 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 maywill 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,~~based, at the ~~Company's~~Company’s option, ~~by reference to~~on a base rate or ~~a rate based on LIBOR, in either case,~~SOFR plus an applicable margin ~~determined quarterly based on~~tied to the ~~Company's Total Leverage Ratio as~~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 ~~last day~~applicable margin shall be 2.75% for base rate loans and 3.75% for SOFR loans. Subject to the

Table of ~~each fiscal quarter. The applicable~~Contents

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, 2023, the applicable interest rate for the ~~three and six months ended December 31, 2017 is LIBOR plus 4%. The Term Loan and Revolving~~Amended JPMorgan Credit Facility ~~contain~~is approximately 8.8%.

The Amended JPMorgan Credit Facility includes customary representations, ~~and~~ warranties and ~~affirmative and negative~~ covenants, and ~~require~~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 ~~minimum quarterly Total Leverage Ratio and Fixed Charge Coverage Ratio.~~

Astotal leverage ratio of ~~December 31, 2017,~~not more than 3.00 to 1.00 on the ~~outstanding balances~~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 ~~and~~during the ~~Term Loan were $10.0 million and $24.6 million, respectively.~~

~~Other Long-Term Borrowings~~

year-ended June 30, 2022. The Company ~~periodically enters into capital lease obligations~~was in compliance with its financial covenants for the Amended JPMorgan Credit Facility as of March 31, 2023.

References to ~~finance network servers, computers, office furniture~~"JPMorgan Credit Facility" in the Condensed Consolidated Financial Statements 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~~notes, Management’s Discussion and Analysis of ~~monthly installments~~Financial Condition and Results of ~~$7 thousand due within three years. The value~~Operations and other parts of the ~~acquired equipment is included in property~~Form 10-Q specifically refers to the 2021 JPMorgan Credit Facility prior to March 17, 2022 and ~~equipment~~to the Amended JPMorgan Credit Facility subsequent to and ~~depreciated accordingly.~~

~~In connection with~~as of March 17, 2022.

11. ACCRUED EXPENSES

Accrued expenses consisted of the ~~acquisition~~following as of ~~Cantaloupe, the Company assumed debt of $1.8 million. At December~~March 31, ~~2017, the debt is comprised of $550 thousand of promissory notes bearing an interest rate of a 5%~~2023 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 purchase shares2022:


	As of March 31,		As of June 30,
($ in thousands)	2023		2022

Sales tax reserve	$	13,172	$	14,694
Accrued compensation and related sales commissions	2,483		3,289
Operating lease liabilities, current	1,445		1,538
Accrued professional fees	5,185		4,200
Accrued taxes and filing fees payable	1,349		2,036
Contingent consideration arrangement for the Yoke acquisition*	—		1,000
Other accrued expenses	1,656		1,397
Consideration withheld in escrow for the 32M acquisition*	442		—
Total accrued expenses	$	25,732	$	28,154

* See Note 5 - Acquisition for description of the Company’s common stock. The Level 3 financial instruments included features requiring liability treatment of the warrants, with the fair value of the common stock based on valuations performed by an independent third-party valuation firm. The fair value was determined using proprietary valuation models using the quality of the underlying securities of the warrants, restrictions on the warrants and security underlying the warrants, time restrictions and precedent sale transactions completed in the secondary market or in other private transactions. Duringarrangement.

12. 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.

~~Table of Contents~~

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,~~2023, the Company recorded an income tax ~~provisions~~provision of ~~$9,073 thousand~~$0.1 million. For the nine months ended March 31, 2023, the Company recorded an income tax provision of $0.1 million. As of March 31, 2023, the Company reviewed the existing deferred tax assets and ~~$8,605 thousand, respectively, (substantially all~~continues to record a full valuation against its deferred tax assets. The income ~~taxes) which include a charge of $6,592 thousand~~tax provision primarily relates to state income and franchise taxes and deferred taxes related to indefinite lived intangibles. As of March 31, 2023, the ~~Act. These provisions are~~Company had a total unrecognized income tax benefit of $0.7 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 on2023, 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.

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For the three months ended ~~June 30, 2017. However, such benefits actually calculated have been limited~~March 31, 2022, the Company recorded an income tax provision of $0.04 million. For the nine months ended March 31, 2022, the Company recorded an income tax provision of $0.2 million. As of March 31, 2022, the Company reviewed the existing deferred tax assets and continues to ~~$115 thousand pending~~record a full valuation against its deferred tax assets. The income tax provisions primarily relate to the ~~materialization~~Company's uncertain tax positions, as well as state income and franchise taxes. As of ~~additional~~March 31, 2022, the Company had a total unrecognized income tax benefit of $0.5 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~~2022, 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.~~

~~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.

income tax provision.

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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:

13. EQUITY

Three months ended

Six months ended

December 31,

December 31,


2017

2016

2017

2016
Beginning balance

23,978

68,978

23,978

2,445,653
Issued

—

—

—

—
Exercised

—

(24,733)

—

(2,401,408)
Expired

—

—

—

—
Cancelled

—

(20,267)

—

(20,267)
Ending balance

23,978

23,978

23,978

23,978

STOCK OPTIONS

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

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

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

The fair value of options granted during the ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023 and ~~2016 was~~2022 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				2023			2022
Expected volatility (percent)		50.21 - 50.89		50.00	Expected volatility (percent)		74.6% - 77.6%			73.2% - 73.6%
Expected life (years)		4.0 - 4.5		4.0
Expected dividends		—		—
Weighted average expected life (years)					Weighted average expected life (years)		4.4 - 4.6			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)		2.7% - 4.1%			1.0% - 1.2%
Number of options granted		179,047		20,080	Number of options granted		1,720,000			777,000
Weighted average exercise price	$	5.66	$	4.98	Weighted average exercise price		$	4.61		$	9.28
Weighted average grant date fair value	$	2.42	$	1.98	Weighted average grant date fair value		$	2.89		$	5.34

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~~2023 was $1.1 million and ~~2016~~$2.7 million, respectively, and for the three and nine months ended March 31, 2022 was ~~$276 thousand~~$0.9 million and ~~$95 thousand,~~$2.3 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 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~~

The Compensation Committee of the Board of Directors has 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. We did not recognize any additional expenses during the three months ended March 31, 2023. The total benefit recognized for the nine months ended March 31, 2023 for these awards was $(1.1) million, as a result of reversing unvested grants for terminated executives during the period. 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.

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COMMON STOCK AWARDS

Two employees of Hudson Executive, a greater than 10% shareholder and a related party of the Company, entered into consulting agreements with the Company in August and September of 2020, respectively, under which the consultants provided financial and strategic analysis and advisory services to the Company's CEO through July 31, 2021. As consideration for the ~~six~~services, in March 2021 the consultants were granted a total of 80,000 restricted stock units. 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 ~~ending December~~ended March 31, ~~2017~~2023 and 2022 for these consulting agreements was ~~$315 thousand.~~

immaterial.

The total expense recognized for common stock awards for the three and nine months ended March 31, 2023 was $0.3 million and $1.3 million, respectively, and for the three and nine months ended March 31, 2022 was $0.5 million and $1.3 million, respectively.

PREFERRED STOCK

During the ~~six~~nine months ended ~~December~~March 31, ~~2017,~~2023, the Company ~~awarded~~retired 59,281 shares of its Series A convertible preferred stock that it purchased for an aggregate amount of ~~177,363 shares~~approximately $2.5 million.

The repurchase transaction was primarily accounted for as an extinguishment of preferred stock and recorded as a decrease to ~~its Chief Executive Officer, Chief Financial Officer~~the carrying value of the preferred stock in the amount of $0.5 million 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 shares of~~ common stock of $1.7 million for an aggregate amount of $2.2 million that was included within the Cash flows from financing activities in the Condensed Consolidated Statements of Cash Flows.

The remaining $0.3 million was deemed to be an amount in excess of the fair value of the preferred stock and was recorded within Operating expenses in the Condensed Consolidated Statements of Operations and Cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows.

14. COMMITMENTS AND CONTINGENCIES

LITIGATION

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

Securities and Exchange Commission ("SEC") Inquiries and Settlement

In fiscal year 2019, the USA Technologies Audit Committee, with the assistance of independent legal and forensic accounting advisors, conducted an internal investigation of then-current and prior period matters relating to certain contractual arrangements, including the accounting treatment, financial reporting and internal controls related to such arrangements (the “2019 Investigation”). During the quarter, the Company entered into a preliminary settlement agreement with the SEC to resolve its investigation of these legacy matters. If approved by the SEC, the Company anticipates that this resolution will entail a financial payment no more than $1 million higher than the amount previously accrued. As of March 31, 2023, we fully reserved for the settlement. During the quarter, the Company received a $2.0 million insurance reimbursement for legal fees and expenses incurred in connection with the ~~event that certain metrics relating to~~2019 Investigation. The insurance reimbursement was recorded as a reduction of "Investigation, proxy and restatement expenses, net of insurance recoveries" on the ~~Company’s 2018 fiscal year would result in specified ranges~~Company's Condensed Consolidated Statement of year-over-year percentage growth. The metrics are total number of connections 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 to the adjusted EBITDA earned during the 2017 fiscal year (60% weighting). If none 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 the following value: Chief Executive Officer - $840,000 (160% of base salary), Chief Financial Officer - $300,000 (100% of base salary), Chief Services Officer - $275,000 (100% of base salary), 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.

Operations.

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

Purchase Commitments

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As of March 31, 2023, the Company had ~~long-term stock incentive plans (“LTI”) in prior fiscal years~~firm commitments to purchase inventory of approximately $7.4 million over the next year.

15. RELATED PARTY TRANSACTIONS

A member of our Board of Directors serves as a strategic advisor to a consulting firm that we utilize for ~~its then executive officers. Stock~~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 ~~compensation related to~~on the ~~LTI plans was as follows in~~savings realized by the Company, and a recurring monthly subscription fee for the analytical services. The total expense recognized within Cost of subscription and transaction fees for the three and ~~six~~nine months ended ~~December~~March 31, ~~2017~~2023 for these arrangements was $0.1 million 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~~$0.2 million, respectively. The total expense recognized within Cost of subscription and transaction fees for the ~~current fiscal year, the Company expanded the leased space~~three and nine months ended March 31, 2022 for ~~its headquarters in Malvern, Pennsylvania~~these arrangements was $0.3 million and $1.1 million respectively.

See Note 13 - Equity for information on transactions relating 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.

Hudson Executive.

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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 to the balance sheet date and prior to the filing date of this Form 10-Q that would have a material impact on the Consolidated Financial Statements.

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 Cantaloupe, Inc. (“Cantaloupe” or the ~~Company.~~“Company”). For this purpose, forward-looking statements are any statements contained herein that are not statements of historical fact and include, but are not limited to, those preceded by or that include the words, “estimate,” “could,” “should,” “would,” “likely,” “may,” “will,” “plan,” “intend,” “believes,” “expects,” “anticipates,” “projected,” or similar expressions. Those statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and was derived using numerous assumptions. Important factors that could cause the Company’s actual results to differ materially from those projected include, for example:

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

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

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

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

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

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

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

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

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

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

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

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

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

•general economic, market or business conditions unrelated to our operating performance, including inflation, rising interests rates, financial institution disruptions and public health emergencies such as COVID-19;

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

•failure to comply with the financial covenants in the Amended JPMorgan Credit Facility (as defined below);

•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;

•disruptions in or inefficiencies to our supply chain and/or operations;

•the risks related to the availability of, and cost inflation in, supply chain inputs, including labor, raw materials, packaging and transportation;

•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;

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•whether we are able to fully remediate our material weaknesses in our internal controls over financial reporting or continue to 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 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 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®;

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

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

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

•the risks associated with cyber attacks and data breaches; and

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;

•the risks associated with the recently settled 2019 Investigation, which remains subject to the SEC’s issuance of its Final Order.

~~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 Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2022 (“2022 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

~~USA Technologies,~~

Cantaloupe, Inc. ~~was incorporated in~~, is organized under the laws of the Commonwealth of ~~Pennsylvania in January 1992.~~Pennsylvania. We are a ~~provider of technology-enabled~~software and payments company that provides end-to-end technology solutions for self-service commerce. Cantaloupe is transforming the self-service industry by offering one integrated solution for payments processing, logistics, and ~~value-added services that facilitate electronic payment transactions and~~back-office management. Our enterprise-wide platform is designed to increase consumer engagement ~~services primarily within~~and sales revenue through digital payments, digital advertising and customer loyalty programs, while providing retailers with control and visibility over their operations and inventory. As a result, customers ranging from vending machine companies to operators of micro-markets, car wash, electric vehicle charging stations, commercial laundry, kiosks, amusements and more, can run their businesses more proactively, predictably, and competitively.

On December 1, 2022, the ~~unattended Point~~Company acquired all of ~~Sale (“POS”~~the equity interests of Three Square Market, Inc., a Wisconsin corporation, and Three Square Market Limited, a UK private limited company (collectively "32M") ~~market. We are~~pursuant to an Equity Purchase Agreement. 32M is a leading provider ~~in the small ticket, beverage~~of software and ~~food vending industry~~self-service kiosk-based point of sale 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~~payment solutions that ~~facilitate electronic payment options, as well as telemetry Internet of Things (“IoT”) and machine-to-machine (“M2M”) services, which include~~power the ability to remotely monitor, control, and report on the results of distributed assets containing our electronic payment solutions. Historically, these distributed assets have relied on cash for payment in the form of coins or bills, whereas, our systems allow them to accept cashless payments such as through the use of credit or debit cards or other emerging contactless forms, such as mobile payment.

micro market industry.

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

Company's fiscal year ends June 30. The Company generates ~~revenue~~revenues in multiple ways. During the three ~~and six~~ months ended ~~December~~March 31, ~~2017,~~2023 and March 31, 2022, we derived ~~70.3%~~approximately 85% and ~~73.6% of our revenues~~84%, respectively, from ~~recurring license~~subscription and transaction fees ~~related to our ePort Connect service or Seed Cloud solution~~ and ~~29.7%~~15% and ~~26.4% of our revenue~~16%, respectively, from equipment ~~sales, respectively. Connections to~~sales. During the nine months ended March 31, 2023 and March 31, 2022, we derived approximately 82% and 84%, respectively, from subscription and transaction fees and 18% and 16%, 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 or lease 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;~~

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

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

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

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

•Renting devices under the Company’s Cantaloupe One program, which are typically 36 months duration agreements.

3G Network discontinuation and upgrade cycle

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The Company currently has a large customer base with over 1 million Active Devices connected to our platform which we have built over 30 years of being a key player in the unattended retail industry. The major telecommunication service providers in North America have been phasing out older generation cellular networks (2G and 3G networks) over the past year due to capacity and bandwidth limitations to make room for newer technologies that are faster, more reliable, provides a wider range of coverage, and overall enables a more responsive device. The phase out of these cellular networks was completed on December 31, ~~2017, highlights~~2022.

The upgrade in cellular networks has impacted a significant portion of our customer base and Active Devices and has required the Company to offer discounts to strategic customers especially during the fiscal year 2023 to ensure that our existing customer base is properly transitioned to the new platform. These discounts contributed to the decrease in our equipment sales margin in the first half of fiscal year 2023.

Though the 2G and 3G networks were phased out, we have small percentage of customers that were not able to replace all their old devices with 4G devices prior to the old networks being decommissioned.Labor shortages and supply issues have been the primary drivers of the delay.Replacement 4G devices continued to come online during the quarter ended March 31, 2023, and we anticipate the majority of replacements to be completed by June 30, 2023.

Key Developments during the Quarter

Highlights of the Company ~~include:~~

for the fiscal quarter ended March 31, 2023 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.~~

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

~~Three direct sales teams at the national, regional, and local customer-level and a growing number of 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.~~

•Revenues of $60.4 million, an increase of 20.0% year over year. The increase was led by an eighth consecutive quarter of record transaction fees revenue;

•As a result of the acquisition of Three Square Market in December 2022, we have seen a successful acceleration in our micro market business where customers both existing and new are migrating their kiosks to the 32M platform;

•We launched a pilot program for our Seed Driver mobile app, the latest iteration in Cantaloupe’s mobile technology features that streamline driver processes and make servicing locations easier and faster than ever before. The product was made available in April 2023; and

•We continued to see significant customer interest and growth in the newly launched Cantaloupe ONE Platform, a bundled subscription model, which provides operators the flexibility and predictability of a monthly, fixed subscription amount covering the hardware and service fees.

As of March 31, 2023, we have approximately 250 employees in the United States and United Kingdom and offices in Malvern, Pennsylvania; Atlanta, Georgia; River Falls, Wisconsin; and Birmingham, United Kingdom.

COVID-19 Update

While there has not been any resurgence of the COVID-19 virus or new strains or variants emerge that significantly impacted the Company, its employees, or its customers, we have experienced lingering effects during fiscal year 2023. We underwent elevated component and supply chain costs necessary for the production and distribution of our hardware products. Additionally, schools and other organizations have re-opened which has ~~net deferred tax~~led to increased foot-traffic to distributed assets containing our electronic payment solutions, but we have not seen a full return to the office. Many companies have implemented a hybrid approach requiring employees to work in the office several days a week and allow work from home for the remaining days. Where applicable, we have incorporated judgments and estimates of ~~approximately $14.8 million predominantly resulting~~the expected impact of COVID-19 in the preparation of the financial statements based on information currently available. We will continue to monitor the situation and follow any guidance from ~~a series~~federal, state, and local public health authorities.Given the potential uncertainty of ~~operating loss carry forwards that may~~the situation, the Company cannot reasonably estimate the longer-term repercussions of COVID 19 on our financial condition, result of operations or cash flows.

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QUARTERLY RESULTS OF OPERATIONS

The following discussion should be ~~available to offset future taxable income.~~

~~CRITICAL ACCOUNTING POLICIES~~

~~Our~~read in conjunction with the condensed consolidated 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 variations and may significantly affect our reported results and financial position for the period orrelated notes included in future periods. Changes in underlying factors, assumptions, or estimates in any 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

this Form 10-Q.

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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 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, depreciation and amortization cease, 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 the inability of its customers to make required payments, including from a shortfall 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 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 costs and other factors. The allowance for doubtful accounts receivable 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 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 recognized in the consolidated financial statements. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized upon the adoption of ASC 740 and in subsequent periods.

Income taxes are computed using the asset and liability method of accounting. Under the asset and liability method, a deferred tax asset 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.~~

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~~TRENDING QUARTERLY FINANCIAL DATA~~

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

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

As of and for the three months ended

December 31,

September 30,

June 30,

March 31,

December 31,

2017

2017

2017

2017

2016
Connections:

Gross new connections

317,000

28,000

70,000

40,000

25,000
% from existing customer base

44%

82%

93%

88%

80%
Net new connections (a)

311,000

26,000

64,000

35,000

21,000
Total connections

905,000

594,000

568,000

504,000

469,000

Customers:

New customers added (a)

1,800

550

300

500

500
Total customers

15,050

13,250

12,700

12,400

11,900

Volumes:

Total number of transactions (millions)

144.8

121.1

114.8

104.9

100.1
Total volume (millions)

$
272.7

$
239.2

$
225.6

$
202.5

$
191.5

Financing structure of connections:

JumpStart

0.4%

4.1%

3.3%

8.6%

6.8%
QuickStart & all others (b)

99.6%

95.9%

96.7%

91.4%

93.2%
Total

100.0%

100.0%

100.0%

100.0%

100.0%

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

We believe the metrics (Active Devices, Active Customers, Total Number of Transactions and Total Dollar Volume) are useful in allowing management and readers to evaluate our strategy of driving growth in devices and transactions.

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

~~Highlights~~

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 ~~USAT’s connections~~Active Devices are devices that communicate through other devices that communicate or transact with us. A self-service retail location that utilizes an ePort cashless payment device as well as Seed management services constitutes only one device.

Active Customers

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

Total Number of Transactions and Total Dollar Volume of Transactions

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


	As of and for the three months ended
	March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022		March 31, 2022
Devices:
Active Devices (thousands)	1,150		1,150		1,151		1,137		1,125

Customers:
Active Customers	27,598		26,335		25,019		23,991		22,818

Volumes:
Total Number of Transactions (millions)	267.8		273.7		276.3		274.6		258.6
Total Dollar Volume of Transactions (millions)	$	653.6	$	649.4	$	639.5	$	616.1	$	562.0

Highlights for the quarter ended ~~December~~March 31, ~~2017~~2023 include:

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

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

•1.15 million Active Devices compared to the same quarter last year of 1.13 million, an increase of approximately 25 thousand Active Devices, or 2.2%;

~~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%.~~

•27,598 Active Customers on our service compared to the same quarter last year of 22,818, an increase of 4,780 Active Customers, or 20.9%; and

•$653.6 million in Total Dollar Volume of Transactions for the quarter ended March 31, 2023 compared to $562.0 million for the quarter ended March 31, 2022, an increase of $91.6 million, or 16.3%. See "Revenues and Gross Profit" in Management’s Discussion and Analysis of Financial Condition and Results of Operations below for additional information.

FINANCIAL PERFORMANCE

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~~2023 Compared to Three Months Ended ~~December~~March 31, ~~2016~~

~~Revenue~~2022

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)	2023			2022
Revenues:						Revenues:
License and transaction fees	$	22,853	$	16,639	37.3%
Subscription and transaction fees						Subscription and transaction fees	$	51,245		$	42,143		21.6	%
Equipment sales		9,653		5,117	88.6%	Equipment sales	9,111			8,157			11.7	%
Total revenues		32,506		21,756	49.4%	Total revenues	60,356			50,300			20.0	%

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	29,577			25,291			16.9	%
Cost of equipment sales						Cost of equipment sales	7,886			8,809			(10.5)	%
Total costs of sales		23,305		15,422	51.1%	Total costs of sales	37,463			34,100			9.9	%

Gross profit:						Gross profit:
License and transaction fees		8,491		5,250	61.7%
Subscription and transaction fees						Subscription and transaction fees	21,668			16,852			28.6	%
Equipment sales		710		1,084	(34.5%)	Equipment sales	1,225			(652)			287.9	%
Total gross profit	$	9,201	$	6,334	45.3%	Total gross profit	$	22,893		$	16,200		41.3	%

Gross margin:						Gross margin:
Subscription and transaction fees						Subscription and transaction fees	42.3		%	40.0		%
Equipment sales						Equipment sales	13.4		%	(8.0)		%
Total gross margin						Total gross margin	37.9		%	32.2		%

~~Revenue.~~

Revenues.Total ~~revenue~~revenues increased ~~$10.7~~by $10.1 million for the three months ended ~~December~~March 31, ~~2017~~2023 compared to the same period in ~~2016.~~2022. The ~~growth~~increase in ~~total revenue resulted from~~revenues is attributed to a ~~$6.2~~$9.1 million and $1.0 million increase in ~~license~~subscription and transaction ~~fee revenue~~ fees and equipment sales, respectively.

The increase in subscription and transaction fees was primarily driven by increased processing volumes including $3.2 million contributions from the 32M acquisition which was completed in December 2022, with an approximately 16.3% increase in total dollar volumes of transactions for the current fiscal year quarter relative to the prior year quarter. We continue to benefit as businesses, schools and other organizations across the country continue to maintain normal levels of operations and due to an increase in the average price per transaction and total number of transactions relative to the same period in the prior year. Our subscription fees have increased 22.0% for the three months ended ~~December~~March 31, ~~2017~~2023 compared to the same period in ~~2016,~~2022 which is attributed to a continued focus of management to grow our recurring subscription services and the successful expansion of the Cantaloupe One program to our customer base.

The increase in equipment sales in the current fiscal year quarter was primarily driven by additional $2.0 million sales from the 32M acquisition. Our equipment margin improved during the current year quarter as our customers have completed upgrading their hardware devices from 3G to 4G network compatible devises as of December 31, 2022. In the prior year period, we offered strategic discounts to our existing customers to ensure their proper transitions into the new platform. (See 3G Network discontinuation and upgrade cycle section above).

Cost of sales. Cost of sales increased $3.4 million for the three months ended March 31, 2023 compared to the same period in 2022. The increase in cost of sales was primarily due to a $4.3 million increase in subscription and transaction costs, partially offset by a $0.9 million decrease in equipment costs. The increase in subscription and transaction costs was primarily driven by an increase in transaction processing fees corresponding with an increase in processing volumes including contributions from the 32M acquisition.

Gross margin. Total gross margin increased to 37.9% for the three months ended March 31, 2023 from 32.2% for the three months ended March 31, 2022. The increase in gross margin was primarily a result of higher margins in both subscription and transaction fee and equipment sales after the 32M acquisition.

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Operating Expenses


	Three months ended March 31,				Percent Change
Category ($ in thousands)	2023		2022
Sales and marketing	$	3,154	$	1,937	62.8	%
Technology and product development	4,594		5,532		(17.0)	%
General and administrative expenses	7,041		6,788		3.7	%
Investigation, proxy solicitation and restatement expenses	(1,000)		—		(100.0)	%

Depreciation and amortization	2,364		1,062		122.6	%
Total operating expenses	$	16,153	$	15,319	5.4	%

Total operating expenses.Operating expenses as a whole increased 5.4% for the three months ended March 31, 2023 compared to the same period in 2022. See further details on individual categories below.

Sales and marketing. Sales and marketing expenses increased approximately $1.2 million for the three months ended March 31, 2023 compared to the same period in 2022 due to increased compensation costs as a result of higher sales and marketing employee headcount in the current quarter to support our expanding business and service offerings in the United States and internationally.

Technology and product development. Technology and product development expenses decreased by $0.9 million for the three months ended March 31, 2023 compared to the same period in 2022 primarily due to a $1.2 million decrease in compensation related expenses as a result of reduced headcount, partially offset by a $0.5 million increase in professional services related to various projects.

General and administrative expenses. General and administrative expenses increased by $0.3 million for the three months ended March 31, 2023 compared to the same period in 2022 primarily due to a $0.8 million increase in compensation expense, a $0.5 million increase in professional services and $0.4 increase in rent and other occupancy expense. This was partially offset by a release of our sale tax accrual, which had a net decrease of $0.7 million in the current quarter and $0.8 million of bad debt expense in the prior year.

Investigation, proxy solicitation, and restatement expenses. During the quarter, the Company reached a preliminary settlement with the SEC to resolve its 2019 Investigation. As a result of the settlement, we increased our accrual from $0.5 million to $1.5 million, resulting in $1.0 million of expense in the quarter. Additionally, we received a $2.0 million reimbursement from our directors and officers (D&O) insurance policy for legal fees and expenses incurred in connection with the 2019 Investigation. The D&O reimbursement proceeds was recorded as a reduction of "Investigation, proxy and restatement expenses" on the Company's Condensed Consolidated Statement of Operations for the three ended March 31, 2023.

Depreciation and amortization. Depreciation and amortization expenses increased $1.3 million for the three months ended March 31, 2023 compared to the same period in 2022. The increase was primarily driven by the acquisition of 32M in December 2022.

Other Income (Expense), Net


	Three months ended March 31,				Percent Change
($ in thousands)	2023		2022
Other income (expense):
Interest income	$	540	$	445	21.3	%
Interest expense	(263)		852		(130.9)	%
Other income (expense)	(13)		(7)		85.7	%
Total other income (expense), net	$	264	$	1,290	(79.5)	%

Other income (expense), net. Other income (expense), net decreased $1.0 million for the three months ended March 31, 2023 as compared to the same period in 2022. Our interest expense was higher during the current year quarter primarily driven by a higher outstanding debt balance, partially offset by a $0.9 million change in the interest component of the sales tax reserve. In

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the prior year period, the reduction in interest expense was primarily due to a $0.9 million change in the interest component of the sales tax reserve.

Nine Months Ended March 31, 2023 Compared to Nine Months Ended March 31, 2022

Revenues and Gross Profit


	Nine months ended March 31,						Percent Change
($ in thousands)	2023			2022
Revenues:
Subscription and transaction fees	$	147,252		$	123,956		18.8	%
Equipment sales	32,216			23,215			38.8	%
Total revenues	179,468			147,171			21.9	%

Costs of sales:
Cost of subscription and transaction fees	90,149			76,234			18.3	%
Cost of equipment sales	33,823			23,871			41.7	%
Total costs of sales	123,972			100,105			23.8	%

Gross profit:
Subscription and transaction fees	57,103			47,722			19.7	%
Equipment sales	(1,607)			(656)			145.0	%
Total gross profit	$	55,496		$	47,066		17.9	%

Gross margin:
Subscription and transaction fees	38.8		%	38.5		%
Equipment sales	(5.0)		%	(2.8)		%
Total gross margin	30.9		%	32.0		%

Revenues. Total revenues increased by $32.3 million for the nine months ended March 31, 2023 compared to the same period in 2022. The increase in revenues was attributed to a $23.3 million increase in subscription and transaction fees, and a ~~$4.5~~$9.0 million increase in equipment ~~revenue~~sales.

The increase in subscription and transaction fees was primarily driven by increased processing volumes, with an approximately 16% increase in total dollar volumes for ~~three~~the nine months ended ~~December~~March 31, ~~2017~~2023 compared to the same period in 2022. Our transaction fees increased $16.4 million, or 20.3% as we continue to benefit as businesses, schools and other organizations across the country continue to maintain normal levels of operations and due to an increase in the average price per transaction and total number of transactions relative to the same period in the prior year. Our subscription fees increased approximately $6.9 million, or 16% for the nine months ended March 31, 2023 compared to the same period in 2022 which was attributed to a continued focus of management to grow our recurring subscription services, the successful expansion of the Cantaloupe One program to our customer base, and the acquisition of 32M.

The increase in equipment sales relates to more equipment shipments in the current fiscal year compared to the same period last year ~~both~~driven primarily by continued upgrades by our customers from 3G to 4G network compatible devices which was substantially completed as of December 31, 2022. Additionally, the completion of our 32M acquisition in December 2022 contributed additional equipment sales for the nine months ended March 31, 2023.

Cost of sales. Cost of sales increased $23.9 million for the nine months ended March 31, 2023 compared to the same period in 2022. The increase in cost of sales was attributed to a $13.9 million and $10.0 million increase in subscription and transaction costs and equipment costs, respectively.

The increase in subscription and transaction costs was primarily driven by an increase in ~~connections~~transaction processing fees corresponding with an increase in processing volumes and total dollar volume of transactions. The acquisition of 32M in December 2022 also contributed an approximately $1.6 million increase in our subscription and transaction costs for the ~~Cantaloupe acquisition.~~

~~Cost~~nine months ended March 31, 2023.

Table of ~~sales.~~ ~~Cost~~Contents

The increase in cost of sales for equipment was primarily driven by increased equipment sales and increased cost experienced within our supply chain due to inflation and unfavorable prices paid to secure certain key component parts to meet production and delivery timelines caused by ~~$7.9 million~~a greater than anticipated surge in the demand for our ePort hardware products. The increased demand in the first half of fiscal year 2023 was related to our customers upgrading their payment devices in anticipation of the 3G network discontinuation events described above (See 3G Network discontinuation and upgrade cycle section). We have taken steps to mitigate the impact of the materials shortages on our business, including increasing the amount of inventory we have on hand and negotiating fixed pricing with suppliers which has resulted in significant margin improvements in the second and third quarter of our fiscal year. Additionally, the acquisition of 32M in December 2022 contributed a $1.5 million increase in our equipment costs for the ~~three~~nine months ended ~~December~~March 31, ~~2017~~2023.

Gross margin. Total gross margin was relatively consistent for the nine months ended March 31, 2023 compared to the same period ~~last year.~~in 2022.

Operating Expenses


	Nine months ended March 31,				Percent Change
Category ($ in thousands)	2023		2022
Sales and marketing	$	8,888	$	6,021	47.6	%
Technology and product development	16,757		16,701		0.3	%
General and administrative expenses	25,179		21,724		15.9	%
Investigation, proxy solicitation and restatement expenses	(453)		—		(100.0)	%
Integration and acquisition expenses	2,787		—		100.0	%
Depreciation and amortization	5,029		3,197		57.3	%
Total operating expenses	$	58,187	$	47,643	22.1	%

Total operating expenses. Operating expenses increased approximately $10.5 million for the nine months ended March 31, 2023 compared to the same period in 2022. The increase was ~~driven by~~attributed to a ~~$3.0~~$3.5 million increase in ~~cost of services~~general and administrative expenses, a ~~$4.9~~$2.9 million increase in ~~cost of equipment~~ sales ~~both driven by an~~and marketing expenses, a $2.8 million increase in ~~connections~~integration and ~~the Cantaloupe acquisition.~~

~~Gross margin. The overall gross margin decreased 0.8% from 29.1%~~acquisition expenses, and a $1.8 million increase in depreciation and amortization. See further details on individual categories below.

Sales and marketing. Sales and marketing expenses increased approximately $2.9 million for the ~~three~~nine months ended ~~December~~March 31, ~~2016~~2023 compared to ~~28.3% for~~ the ~~three months ended December 31, 2017. The decrease~~same period in 2022 primarily due to higher sales and marketing employee headcount in the ~~equipment margin, from 21.2% for the three months ended December 31, 2016~~current year to ~~7.4% for the three months ended December 31, 2017, reflected~~support our ~~strategy of using equipment sales as an enabler for driving long-term, higher margin license~~expanding business and ~~transaction fees. This decrease was partially offset by an increase~~service offerings in the ~~license fee~~United States and ~~transaction margin from 31.6% for the three months ended December 31, 2016 to 37.2% for the three months ended December 31, 2017, which was driven by the impact of the Cantaloupe acquisition.~~

~~Operational Expenses~~

internationally.

For the three months ended December 31,

Percent
Category ($ in thousands)

2017

2016

Change
Selling, general and administrative expenses

$
8,329

$
5,785

44.0%
Integration and acquisition costs

3,335

8

41,587.5%
Depreciation and amortization

737

307

140.1%
Total operating expenses

$
12,401

$
6,100

103.3%

~~Selling, general~~

General and administrative expenses. ~~Selling~~, ~~general~~General and administrative expenses increased approximately ~~$2.5~~$3.5 million for the ~~three~~nine months ended ~~December~~March 31, ~~2017,~~2023, as compared to the same period in ~~2016. This change~~2022. The increase in general and administrative expenses was primarily driven by a $1.4 million increase in personnel compensation cost as a result of our growing business, a $1.3 million increase in professional services fees relating to additional compliance costs incurred as a result of our delayed annual report filing.

Integration and acquisition. On December 1, 2022, the Company acquired all of the equity interests of Three Square Market, Inc., a Wisconsin corporation, and Three Square Market Limited, a UK private limited company (collectively "32M") pursuant to an Equity Purchase Agreement. For the nine months ended March 31, 2023, the Company incurred professional services fees of $2.8 million from accounting, legal and investing banking advisors leading up to and for the successful completion of the 32M acquisition. The Company did not incur any material integration and acquisition expenses for the nine months ended March 31, 2022.

Depreciation and amortization. During the nine months ended March 31, 2023, the Company had an increase in ~~selling, general~~depreciation and ~~administrative~~amortization costs ~~incurred related~~of $1.8 million compared to ~~Cantaloupe~~the same period in the prior year due to the acquisition of 32M in December 2022 and increased depreciation for our growing Internal-use software as ~~well as an~~ various projects and initiatives get implemented. Our

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increase in ~~sales~~internal-use software is attributable to management's focus on developing innovative technologies to further strengthen our network environment and ~~marketing related consulting expenses as we continue to increase our market share in the cashless-transaction vending industry.~~

~~Integration and acquisition costs~~platform.

Other Income (Expense)


	Nine months ended March 31,				Percent Change
($ in thousands)	2023		2022
Other income (expense):
Interest income	$	1,985	$	1,363	45.6	%
Interest expense	(1,258)		(100)		1,158.0	%
Other income (expense)	(112)		(83)		34.9	%
Total other income	$	615	$	1,180	(47.9)	%

Other income (expense), net. ~~Integration and acquisition costs increased $3.3~~Other income (expense), net decreased $0.6 million for the ~~three~~nine months ended ~~December~~March 31, ~~2017~~2023 as compared to the same period in ~~2016,~~2022 primarily driven by an increase in interest expense of $1.2 million due to higher outstanding debt balance in the ~~costs incurred~~current year, partially offset by an increase in ~~connection with~~interest income of approximately $0.6 million and a $0.4 million change in interest component of the ~~acquisition~~

sales tax reserve. The interest expense in the prior year period was lower due to a $0.9 million change in the interest component of the sales tax reserve.

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~~of Cantaloupe, partially offset by $8 thousand of acquisition costs incurred in the second quarter of fiscal year 2017 pertaining to the acquisition of VendScreen, Inc. (“VendScreen”).~~

~~Depreciation and amortization.~~ Depreciation and amortization expenses increased approximately $0.4 million for the three months ended December 31, 2017 primarily due to the amortization of intangible assets recognized in connection with the Cantaloupe acquisition.

~~Other Expense, net~~

Non-GAAP Financial Measures - Adjusted EBITDA

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 compared to the same period in 2016. The increase was primarily driven by the interest incurred in connection with the Term Loan and Revolving Credit Facility utilized to fund a portion of the acquisition of Cantaloupe.

~~Income Taxes~~

For the three months ended December 31,

Percent
($ in thousands)

2017

2016

Change
Provision for income taxes

$
(9,073)

$
-

100%

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

For the three months ended December 31, 2016, no adjustment for the income tax benefit (provision) (substantially all deferred income taxes) was recorded based upon loss before benefit for income taxes using an estimated annual effective income tax rate of 30.0% for the fiscal year ended June 30, 2017 net of a provision for the tax effect of the change in the fair value of warrant liabilities which was treated discretely.

~~Reconciliation of Net (Loss) Income to~~ depreciation, and amortization (“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

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As used herein, 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 EBITDAEBITDA”) 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)~~loss before (i) interest income, ~~excluding costs or benefits relating to any non-cash portions of the Company’s~~(ii) interest expense on debt and reserves, (iii) income tax ~~benefit, adjustment for fair value~~provision, (iv) depreciation, (v) amortization, (vi) stock-based compensation expense, (vii) fees and charges, net of ~~warrant liabilities, non-recurring costs and expenses~~reimbursement from insurance proceeds, that were incurred in connection with the 2019 Investigation and financial statement restatement activities as well as proxy solicitation costs that are not indicative of our core operations, (viii) certain other significant infrequent or unusual losses and gains that are not indicative of our core operations such as integration and acquisition expenses, 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(ix) severance 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,are non-recurring 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 performanceindicative of our core ~~business and facilitate comparisons~~operations.

Below is a reconciliation of ~~our operating results over multiple periods, and when taken together with the corresponding~~U.S. 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.

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~~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 income taxes using an estimated negative annual effective income tax rate of 49.20%, which is primarily driven by the impact of permanent differences. The tax rate reduction related to tax reform was treated as a discrete item in the tax provision for the 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


	Three months ended March 31,
($ in thousands)	2023		2022
U.S. GAAP net income	$	6,948	$	2,136
Less: interest income	(540)		(445)
Plus: interest expense	263		(852)
Plus: income tax provision	56		35
Plus: depreciation expense included in costs of sales for rentals	297		220
Plus: depreciation and amortization expense in operating expenses	2,364		1,062
EBITDA	9,388		2,156
Plus: stock-based compensation (a)	1,410		1,495
Plus: investigation, proxy solicitation and restatement expenses (b)	(1,000)		—

Plus: severance expenses (c)	273		—
Adjustments to EBITDA	683		1,495
Adjusted EBITDA	$	10,071	$	3,651

(a) As ~~used herein, Adjusted~~an adjustment to EBITDA, represents net loss before interest income, interest expense, income tax provision (benefit), depreciation, amortization, change in fair value of warrant liabilities, stock-based compensation expense, and non-recurring integration and acquisition-related 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. Wewe 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.

(b) As an adjustment to EBITDA, we have excluded the ~~integration~~costs and ~~acquisition expenses incurred in connection with~~corresponding reimbursements related to 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, as2019 Investigation, because we believe that they ~~pertain to period operational expenses~~represent charges that are not arelated to our core ~~function~~operations. During the three months ended March 31, 2023, we incurred costs 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 presentation of this financial measure is not intended$1.0 million relating 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~~settlement 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 net income or net loss as determined in accordance with GAAP, and are not2019 Investigation, but received a ~~substitute~~$2.0 million D&O insurance reimbursement for or a measure of the Company’s 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 Adjusted EBTIDA as a metric 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~~legal fees and expenses incurred in connection with the ~~acquisition~~2019 Investigation. Accordingly, Adjusted EBITDA contains a $1.0 million negative adjustment.

(c) As an adjustment to EBITDA, we have excluded expenses incurred in connection with a one-time, non-recurring severance charges related to work force reduction.

Table of ~~Cantaloupe, including a charge for inventory fair value step-up,~~Contents


	Nine months ended March 31,
($ in thousands)	2023		2022
U.S. GAAP net (loss) income	$	(2,199)	$	377
Less: interest income	(1,985)		(1,363)
Plus: interest expense	1,258		100
Plus: income tax provision	123		226
Plus: depreciation expense included in costs of sales for rentals	852		738
Plus: depreciation and amortization expense in operating expenses	5,029		3,197
EBITDA	3,078		3,275
Plus: stock-based compensation (a)	2,889		4,624
Plus: investigation, proxy solicitation and restatement expenses (b)	(453)		—
Plus: integration and acquisition expenses (c)	2,787		—
Plus: severance expenses (d)	273		—
Adjustments to EBITDA	5,496		4,624
Adjusted EBITDA	$	8,574	$	7,899

(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 costs and ~~VendScreen transaction, and~~corresponding reimbursements related to the ~~amortization expenses~~2019 Investigation, because we believe that they represent charges that are not related to our ~~acquisition-related intangibles. We have excluded these non-recurring~~core operations. During the nine months ended March 31, 2023, we incurred additional costs ~~and expenses in order~~relating to ~~allow for a more accurate comparison~~the settlement of the ~~financial results to historical operations~~2019 Investigation, but received a $2.0 million D&O insurance reimbursement for legal fees 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.~~

~~Table of Contents~~

~~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~~2019 Investigation. Accordingly, Adjusted EBITDA contains a negative adjustment.

(c) As an adjustment to EBITDA, we have excluded 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~~business acquisitions as it does not represent recurring costs ~~during the current fiscal year and VendScreen during the prior fiscal year. This is the first financial period for which~~or charges related to our core operations.

(d) As an adjustment to EBITDA, we have ~~adjusted for the non-cash~~excluded expenses ~~attributable~~incurred in connection with a one-time, non-recurring severance charges related 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~~work force reduction.

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

Contents

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash

Historically, we have financed our operations primarily through cash from operating activities, debt financings, and equity issuances. The Company's primary sources of capital available are cash and cash equivalents on hand of $46.7 million as of March 31, 2023 and the cash that we expect to be provided by operating activities ~~was $4.1~~by the Company.

The Company also has estimated and recorded for potential sales tax and related interest and penalty liabilities of $13.2 million in the aggregate as of March 31, 2023. The Company continues to evaluate these liabilities and the 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 date of issuance of these condensed consolidated financial statements. Our primary focus as part of our core operations to increase cash flow from operating activities is to prioritize collection efforts to reduce outstanding accounts receivable, utilize existing inventory to support equipment sales over the next year, focusing on various operational efficiencies to improve overall profitability of the business and continued to grow our business both domestically and internationally.

Below are charts that reflect our cash liquidity and outstanding debt as of March 31, 2023 and June 30, 2022:

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Cash Flows

See Condensed Consolidated Statement of Cash Flows in Part I, Item 1 of this Quarterly Report for details on the ~~six~~changes in 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 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~~2023, net cash provided by operating activities was $5.8 million which reflects our net loss of $2.2 million, $2.7 million of cash utilized by working capital accounts, partially offset by non-cash operating charges of $10.7 million. The change in working capital accounts was primarily driven by a $9.6 million increase of accounts receivable, $8.2 million cash ~~inflow~~used to increase our inventory on hand, and a reduction in accounts payable and accrued expenses of ~~$5.8~~$2.9 million ~~from~~in the ~~payment for finance receivables related to a significant order received~~period. Increase in inventory was driven by ~~us during the fourth quarter of the prior fiscal year~~increased equipment sales as well as strategic planning to mitigate potential supply chain disruptions. Increase in cash utilized by accounts receivable was a ~~cash inflow~~result of ~~$10.8 million related~~increased sales during fiscal year 2023 compared to the ~~timing~~prior year period.

For the nine months ended March 31, 2022, net cash used in operating activities was $3.9 million, which reflected our net income 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 working capital accounts was 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 accrued expenses ~~partially offset by a $2.8~~of approximately $0.2 million, and an increase in ~~merchant receivables due~~prepaid expenses and other assets of $1.9 million. The increase in inventory was a result of the Company anticipating customers' 3G to ~~timing differences related to~~4G device upgrade needs and demands for the ~~remittance~~new ePort Engage devices in 2022.

Non-cash operating charges primarily consisted of ~~credit card receipts,~~stock-based compensation, depreciation of property and ~~a $3.1 million increase related to inventory due to purchases made to support~~equipment, amortization of our intangible assets, and provisions for expected losses for the ~~company’s anticipated future growth.~~

~~Cash~~nine months ended March 31, 2023 and 2022.

Net cash used in investing activities

Net cash used in investing activities was ~~$66.8~~$48.5 million for the ~~six~~nine months ended ~~December~~March 31, ~~2017 compared~~2023. We paid $35.9 million in cash for the 32M acquisition and invested $12.6 million in property and equipment as the Company continued to ~~$1.9~~focus on investing in innovative technologies and products, and increasing rental devices enrolled in the Company's Cantaloupe One program.

Net cash used in investing activities was $10.2 million for the ~~same period in 2016. The $64.9~~nine months ended March 31, 2022 which was a result of $3.0 million ~~increase is primarily related to net cash consideration~~ paid for the Yoke acquisition ~~of Cantaloupe.~~

~~Cash~~and the remaining $7.2 million used to increase property and equipment.

Net cash provided by financing activities

Net cash provided by financing activities was ~~$65.3~~$21.3 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~~2023 which was primarily due to a $25 million borrowing from our Credit Facility to fund a portion of the ~~public offering~~cash consideration for the 32M acquisition, offset by $2.2 million cash used to repurchase our Series A Convertible Stock and a $1.0 million payment for contingent consideration relating to the Yoke acquisition.

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Net cash provided by financing activities was $1.0 million for the nine months ended March 31, 2022 which ~~closed~~was primarily due to $0.7 million in ~~July 2017~~proceeds from long-term debt 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.

CONTRACTUAL OBLIGATIONS

During the nine months ended March 31, 2023, the Company borrowed an additional $25 million from its credit facility with ~~net proceeds~~JPMorgan Chase Bank, N.A. to fund the acquisition of ~~$39.9~~Three Square Markets. See Note 10 - Debt and Other Financing Arrangements and Note 5 - Acquisition to the condensed consolidated financial statements for additional details on the transaction.

During the nine months ended March 31, 2023, the Company extended an existing operating lease for an additional 70-months period. The lease extension will commence on October 1, 2023. As such, this was not included in the Operating lease right-of-use assets or liabilities on the Condensed Consolidated Balance Sheets for as of March 31, 2023.

There were no other significant changes to our contractual obligations from those disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022.

CRITICAL ACCOUNTING ESTIMATES

As of March 31, 2023, we are exposed to market risk related to changes in interest rates on our outstanding borrowings. Our 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. As of March 31, 2023, we have $39.3 million ~~as well as~~total outstanding borrowings, an increase of ~~$35.0~~100 basis points in SOFR Rate would result in a change in interest expense of $0.4 million per year.

We are also exposed to market risk related to changes in interest rates on our cash investments. We invest our excess cash in money market funds that we believe are highly liquid and marketable in the ~~Term Loan~~short term. These investments earn a floating rate of interest and ~~Revolving Credit Facility, partially offset by $6.2 million in proceeds received from the exercise~~are not held for trading or other speculative purposes. Consequently, our exposure to market risks for interest rate changes related to our money market funds is not material. Market risks related to fluctuations of ~~the warrants during the six months ended September 30, 2016~~foreign currencies are not material and ~~an increase in repayments~~we have no freestanding derivative instruments as of ~~debt during the six months ended December~~March 31, ~~2017~~2023.

Recent Accounting Pronouncements

See Note 2 - Summary of ~~$8.9 million.~~

~~Table of Contents~~

In September 2014, the Company reintroduced QuickStart, a program whereby our customers are able 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 companies as part of our QuickStart program. Under this scenario, the Company invoices the finance company for the equipment financed by our customer, and typically receives full payment within thirty days. PriorSignificant 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.~~

2022. Our exposures to market risk have not changed materially since June 30, 2022.

~~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~~procedures were not effective as of March 31, 2023, as a result of the ~~end~~material weaknesses in our internal control over financial reporting, which are described in Item 9A. of ~~such period.~~

our 2022 Form 10-K.

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(b) Changes in Internal Control over Financial Reporting

~~There were~~

Other than the remediation plan disclosed in Item 9A. of our 2022 Form 10-K, there 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~~2023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

As discussed in Item 9A. of our 2022 Form 10-K, we have begun remediation activities to alleviate the identified material weaknesses. The Company has made substantial progress in the remediation efforts, including enhancing policies and procedures to improve the overall control environment, enhancing user access provisioning and monitoring controls, hiring key positions to provide appropriate oversight and improving the completeness and accuracy of the underlying date used in the operation of controls.While these remediation efforts are ongoing, the material weaknesses cannot be considered remediated until the related controls have operated for a sufficient period of time.Additionally, management has to conclude, through testing, that the controls are operating effectively. The Company continues to work toward the goal of remediating the identified material weaknesses by the end of the fiscal year 2023, but such remediation efforts could extend into the first half of fiscal year 2024.

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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 14 – 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, 2022.

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, 2023 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.

Item 6. ~~Exhibits~~Exhibits.

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~~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		~~Credit Agreement~~Second Amended and Restated Bylaws (incorporated by ~~and among the Company, its subsidiaries, and JPMorgan Chase Bank, N.A., dated November 9, 2017 (Portions of this exhibit were redacted pursuant~~reference to ~~a confidential treatment request).~~Exhibit 3.1 to Form 8-K filed on August 10, 2021)

~~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,~~2023, filed with the SEC on ~~February 8, 2018,~~May 9, 2023, is formatted in Inline Extensible Business Reporting Language ~~(XBRL)~~(“iXBRL”): (1) the Condensed Consolidated Balance Sheets as of ~~December~~March 31, ~~2017~~2023 and June 30, ~~2017,~~2022, (2) the Condensed Consolidated Statements of Operations for the three-month and ~~six-month~~nine-month periods ended ~~December~~March 31, ~~2017~~2023 and ~~2016,~~2022, (3) the Condensed Consolidated Statements of Shareholders’ Equity for the ~~six-month period~~three-month and nine-month periods ended ~~December~~March 31, ~~2017,~~2023 and 2022, (4) the Condensed Consolidated Statements of Cash Flows for the ~~six-month period~~nine-month periods ended ~~December~~March 31, ~~2017~~2023 and ~~2016,~~2022, and (5) the Notes to Condensed 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, 2023, filed with the SEC on May 9, 2023, 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~~May 9, ~~2018~~ 2023						/s/ ~~Stephen P. Herbert~~ Ravi Venkatesan
						~~Stephen P. Herbert,~~ Ravi Venkatesan
						Chief Executive Officer

Date: ~~February~~May 9, ~~2018~~ 2023						/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 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%

($ in thousands)

~~Cash~~Closing cash consideration ~~net of cash acquired~~ ~~(1)~~

~~(65,181)~~
36,796

~~USAT shares issued as stock consideration~~ ~~(2)~~
Stock Consideration

~~(19,810)~~

~~Total~~Fair value of total consideration
transferred

~~(84,991)~~