Table of Contents


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 MarchDecember 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934
For the transition period from _________ to _________                         
Commission file number 001-33365
USA Technologies, Inc.

(Exact name of registrant as specified in its charter)
Pennsylvania23-2679963
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
100 Deerfield Lane,Suite 300,Malvern,Pennsylvania19355
(Address of principal executive offices)(Zip Code)
(610) (610) 989-0340

(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName Of Each Exchange On Which Registered
NoneCommon Stock, no par valueNoneUSATNoneThe 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 filerAccelerated 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 June 18, 2020January 29, 2021 there were 64,557,33665,285,674 outstanding shares of Common Stock, no par value.


EXPLANATORY NOTE



On May 7, 2020, USA Technologies, Inc. (the “Company”, “We”, “USAT”, or “Our”) filed a Current Report on Form 8-K (the “Form 8-K”) with the U.S. Securities and Exchange Commission (the “Commission”) indicating its reliance on the 45-day extension provided by an order issued by the Commission under Section 36
Table of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) entitled Granting Exemptions from Specified Provisions of the Exchange Act and Certain Rules Thereunder, dated March 4, 2020 (Release No. 34-88318), as modified and superseded by a new Commission order under Section 36 of the Exchange Act entitled Modifying Exemptions from the Reporting and Proxy Delivery Requirements for Public Companies, dated March 25, 2020 (Release No. 34-88465) (collectively, the “Order”). Specifically, the Company disclosed that it was unable to timely prepare and review the Quarterly Report due to circumstances related to COVID-19, including the remote working arrangements the Company has instituted for employees. These circumstances have impacted the Company’s ability to ensure information required to be disclosed in its reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management to allow for timely decisions regarding required disclosure. Therefore, due to COVID-19’s interference in the Company’s operations, the Company was unable to file the Original Form 10-Q on or prior to the original due date for the report. Consistent with the Company’s statements made in the Form 8-K, this Quarterly Report for the three months ended March 31, 2020, has been filed on June 24, 2020 (which was within the permitted timeframe of the Order).Contents


USA TECHNOLOGIES, INC.
TABLE OF CONTENTS




Part I. Financial Information
Item 1. Consolidated Financial Statements
USA Technologies, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
($ in thousands) March 31,
2020
 June 30,
2019
($ in thousands, except share data)($ in thousands, except share data)December 31,
2020
June 30,
2020
    
Assets    Assets
Current assets:    Current assets:
Cash and cash equivalents $25,894
 $27,464
Cash and cash equivalents$28,162 $31,713 
Accounts receivable, less allowance of $6,952 and $4,866, respectively 18,418
 21,906
Accounts receivable, netAccounts receivable, net20,080 17,273 
Finance receivables, net 7,941
 6,727
Finance receivables, net7,196 7,468 
Inventory, net 9,577
 11,273
Inventory, net8,794 9,128 
Prepaid expenses and other current assets 2,319
 1,558
Prepaid expenses and other current assets1,419 1,782 
Total current assets 64,149
 68,928
Total current assets65,651 67,364 
    
Non-current assets:    Non-current assets:
Finance receivables due after one year, net 11,541
 12,642
Other assets 2,075
 2,099
Finance receivables due after one yearFinance receivables due after one year10,296 11,213 
Property and equipment, net 8,293
 9,590
Property and equipment, net7,185 7,872 
Operating lease right-of-use assets 5,903
 
Operating lease right-of-use assets4,799 5,603 
Intangibles, net 23,818
 26,171
Intangibles, net21,501 23,033 
Goodwill 63,945
 63,945
Goodwill63,945 63,945 
Other assetsOther assets2,130 1,993 
Total non-current assets 115,575
 114,447
Total non-current assets109,856 113,659 
    
Total assets $179,724
 $183,375
Total assets$175,507 $181,023 
    
Liabilities, convertible preferred stock and shareholders’ equity    Liabilities, convertible preferred stock and shareholders’ equity
Current liabilities:    Current liabilities:
Accounts payable $24,592
 $27,584
Accounts payable$26,907 $27,058 
Accrued expenses 27,533
 23,351
Accrued expenses29,479 30,265 
Finance lease obligations and current obligations under long-term debt 381
 12,497
Income taxes payable 168
 254
Current obligations under long-term debtCurrent obligations under long-term debt3,804 3,328 
Deferred revenue 1,621
 1,681
Deferred revenue1,648 1,698 
Total current liabilities 54,295
 65,367
Total current liabilities61,838 62,349 
    
Long-term liabilities:    Long-term liabilities:
Deferred income taxes 86
 71
Deferred income taxes148 137 
Finance lease obligations and long-term debt, less current portion 12,297
 276
Long-term debt, less current portionLong-term debt, less current portion13,901 12,435 
Operating lease liabilities, non-current 5,025
 
Operating lease liabilities, non-current4,241 4,749 
Accrued expenses, less current portion 450
 100
Total long-term liabilities 17,858
 447
Total long-term liabilities18,290 17,321 
    
Total liabilities 72,153
 65,814
Total liabilities80,128 79,670 
Commitments and contingencies (Note 13) 


 


Commitments and contingencies (Note 13)00
Convertible preferred stock:    Convertible preferred stock:
Series A convertible preferred stock, 900,000 shares authorized, 445,063 issued and outstanding, with liquidation preferences of $20,778 and $20,111 at March 31, 2020 and June 30, 2019, respectively 3,138
 3,138
Series A convertible preferred stock, 900,000 shares authorized, 445,063 issued and outstanding, with liquidation preferences of $21,113 and $20,779 at December 31, 2020 and June 30, 2020, respectivelySeries A convertible preferred stock, 900,000 shares authorized, 445,063 issued and outstanding, with liquidation preferences of $21,113 and $20,779 at December 31, 2020 and June 30, 2020, respectively3,138 3,138 
Shareholders’ equity: 

 

Shareholders’ equity:
Preferred stock, no par value, 1,800,000 shares authorized, no shares issued 
 
Common stock, no par value, 640,000,000 shares authorized, 64,448,957 and 60,008,481 shares issued and outstanding at March 31, 2020 and June 30, 2019, respectively 396,044
 376,853
Preferred stock, 0 par value, 1,800,000 shares authorizedPreferred stock, 0 par value, 1,800,000 shares authorized
Common stock, 0 par value, 640,000,000 shares authorized, 65,285,674 and 65,196,882 shares issued and outstanding at December 31, 2020 and June 30, 2020, respectivelyCommon stock, 0 par value, 640,000,000 shares authorized, 65,285,674 and 65,196,882 shares issued and outstanding at December 31, 2020 and June 30, 2020, respectively404,433 401,240 
Accumulated deficit (291,611) (262,430)Accumulated deficit(312,192)(303,025)
Total shareholders’ equity 104,433
 114,423
Total shareholders’ equity92,241 98,215 
Total liabilities, convertible preferred stock and shareholders’ equity $179,724
 $183,375
Total liabilities, convertible preferred stock and shareholders’ equity$175,507 $181,023 
See accompanying notes.

3

Table of Contents
USA Technologies, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
Three months endedSix months ended
 Three months ended March 31, Nine months ended March 31,December 31,December 31,
($ in thousands, except per share data) 2020 2019 2020 2019($ in thousands, except per share data)2020201920202019
Revenue:        Revenue:
License and transaction fees $34,961
 $31,515
 $105,324
 $89,919
License and transaction fees$33,214 $35,754 $66,322 $70,363 
Equipment sales 8,137
 6,189
 25,184
 16,039
Equipment sales5,071 8,297 8,840 17,047 
Total revenue 43,098
 37,704
 130,508
 105,958
Total revenue38,285 44,051 75,162 87,410 
        
Costs of sales:        
Cost of services 22,244
 20,307
 66,912
 58,141
Cost of equipment 9,856
 7,444
 28,420
 17,371
Total costs of sales 32,100
 27,751
 95,332
 75,512
Cost of sales:Cost of sales:
Cost of license and transaction feesCost of license and transaction fees20,617 22,579 39,953 44,668 
Cost of equipment salesCost of equipment sales5,367 8,710 8,668 18,564 
Total cost of salesTotal cost of sales25,984 31,289 48,621 63,232 
        
Gross profit 10,998
 9,953
 35,176
 30,446
Gross profit12,301 12,762 26,541 24,178 
        
Operating expenses:        Operating expenses:
Selling, general and administrative 20,069
 11,156
 56,876
 31,537
Selling, general and administrative13,831 16,161 30,641 31,342 
Investigation and restatement expenses 
 1,408
 4,303
 13,122
Integration and acquisition costs 
 24
 
 1,127
Investigation, proxy solicitation and restatement expensesInvestigation, proxy solicitation and restatement expenses3,277 9,768 
Depreciation and amortization 1,107
 1,083
 3,209
 3,359
Depreciation and amortization1,052 1,080 2,120 2,102 
Total operating expenses 21,176
 13,671
 64,388
 49,145
Total operating expenses14,883 20,518 32,761 43,212 
        
Operating loss (10,178) (3,718) (29,212) (18,699)Operating loss(2,582)(7,756)(6,220)(19,034)
        
Other income (expense):        Other income (expense):
Interest income 411
 348
 988
 1,245
Interest income325 283 675 577 
Interest expense (683) (913) (1,981) (2,518)Interest expense(596)(833)(3,881)(1,298)
Change in fair value of derivative 1,070
 
 1,070
 
Total other income (expense), net 798
 (565) 77
 (1,273)Total other income (expense), net(271)(550)(3,206)(721)
        
Loss before income taxes (9,380) (4,283) (29,135) (19,972)Loss before income taxes(2,853)(8,306)(9,426)(19,755)
Benefit (provision) for income taxes 85
 (23) (46) (60)
Provision for income taxesProvision for income taxes(49)(72)(89)(131)
        
Net loss (9,295) (4,306) (29,181) (20,032)Net loss(2,902)(8,378)(9,515)(19,886)
Preferred dividends (334) (334) (668) (668)Preferred dividends(334)(334)
Net loss applicable to common shares $(9,629) $(4,640) $(29,849) $(20,700)Net loss applicable to common shares$(2,902)$(8,378)$(9,849)$(20,220)
Net loss per common share        Net loss per common share
Basic $(0.15) $(0.08) $(0.48) $(0.34)Basic$(0.04)$(0.13)$(0.15)$(0.33)
Diluted $(0.15) $(0.08) $(0.48) $(0.34)Diluted$(0.04)$(0.13)$(0.15)$(0.33)
Weighted average number of common shares outstanding        Weighted average number of common shares outstanding
Basic 64,096,778
 60,065,053
 62,591,947
 60,059,594
Basic64,913,364 63,664,256 64,886,183 61,891,197 
Diluted 64,096,778
 60,065,053
 62,591,947
 60,059,594
Diluted64,913,364 63,664,256 64,886,183 61,891,197 
See accompanying notes.

4

Table of Contents
USA Technologies, Inc.
Condensed Consolidated Statements of Shareholders’ Equity
(Unaudited)

NineSix Month Period Ended MarchDecember 31, 2020
Common StockAccumulated
Deficit
Total
($ in thousands, except share data)SharesAmount
Balance, June 30, 202065,196,882 $401,240 $(303,025)$98,215 
Impact of adoption of ASC 326— — 348 348 
Stock based compensation56,083 1,502 — 1,502 
Net loss— — (6,613)(6,613)
Balance, September 30, 202065,252,965 402,742 (309,290)93,452 
Stock based compensation32,709 1,691 — 1,691 
Net loss— — (2,902)(2,902)
Balance, December 31, 202065,285,674 $404,433 $(312,192)$92,241 
  Common Stock 
Accumulated
Deficit
 Total
($ in thousands) Shares Amount  
Balance, June 30, 2019 60,008,481
 $376,853
 $(262,430) $114,423
Stock based compensation 
 290
 
 290
Net loss 
 
 (11,508) (11,508)
Balance, September 30, 2019 60,008,481
 377,143
 (273,938) 103,205
Issuance of common stock in relation to private placement, net of offering costs incurred of $1,102 3,800,000
 16,777
 
 16,777
Stock based compensation 362,941
 1,742
 
 1,742
Net loss 
 
 (8,378) (8,378)
Balance, December 31, 2019 64,171,422
 395,662
 (282,316) 113,346
Stock based compensation 277,535
 382
 
 382
Net loss 
 
 (9,295) (9,295)
Balance, March 31, 2020 64,448,957
 $396,044
 $(291,611) $104,433


NineSix Month Period Ended MarchDecember 31, 2019
Common StockAccumulated
Deficit
Total
 Common Stock 
Accumulated
Deficit
 Total
($ in thousands) Shares Amount 
Balance, June 30, 2018 59,998,811
 $375,436
 $(232,748) $142,688
Cumulative effect adjustment for ASC 606 adoption 
 
 200
 200
($ in thousands, except share data)($ in thousands, except share data)SharesAmountAccumulated
Deficit
Total
Balance, June 30, 2019Balance, June 30, 201960,008,481 $376,853 
Stock based compensation 13,344
 370
 
 370
Stock based compensation— 290 — 290 
Net loss 
 
 (5,288) (5,288)Net loss— — (11,508)(11,508)
Balance, September 30, 2018 60,012,155
 375,806
 (237,836) 137,970
Balance, September 30, 2019Balance, September 30, 201960,008,481 377,143 (273,938)103,205 
Issuance of common stock in relation to private placement, net of offering costs incurred of $1,102Issuance of common stock in relation to private placement, net of offering costs incurred of $1,1023,800,000 16,777 — 16,777 
Stock based compensation 1,563
 557
 
 557
Stock based compensation362,941 1,742 — 1,742 
Net loss 
 
 (10,438) (10,438)Net loss— — (8,378)(8,378)
Balance, December 31, 2018 60,013,718
 376,363
 (248,274) 128,089
Stock based compensation 5,720
 337
 
 337
Net loss 
 
 (4,306) (4,306)
Balance, March 31, 2019 60,019,438
 $376,700
 $(252,580) $124,120
Balance, December 31, 2019Balance, December 31, 201964,171,422 $395,662 $(282,316)$113,346 
See accompanying notes.

5

Table of Contents
USA Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
  Nine months ended March 31,
($ in thousands) 2020 2019
OPERATING ACTIVITIES:    
Net loss $(29,181) $(20,032)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:    
Non-cash stock based compensation 2,453
 1,393
Loss (gain) on disposal of property and equipment 88
 (39)
Non-cash interest and amortization of debt discount 1,040
 286
Bad debt expense 1,400
 1,537
Provision for inventory reserve (434) 2,699
Depreciation and amortization 5,193
 5,899
Non-cash lease expense 1,398
 
Deferred income taxes 15
 14
Change in fair value of derivative (1,070) 
Changes in operating assets and liabilities:    
Accounts receivable 2,088
 (6,288)
Finance receivables (113) (182)
Inventory 2,204
 (5,349)
Prepaid expenses and other assets (1,045) (1,545)
Accounts payable and accrued expenses (414) (3,836)
Operating lease liabilities (1,102) 
Deferred revenue (60) (316)
Income taxes payable (86) 42
Net cash used in operating activities (17,626) (25,717)
     
INVESTING ACTIVITIES:    
Purchase of property and equipment, including rentals (1,711) (3,156)
Proceeds from sale of property and equipment, including rentals 33
 103
Net cash used in investing activities (1,678) (3,053)
     
FINANCING ACTIVITIES:    
Proceeds from long-term debt issuance by Antara 14,248
 
Proceeds from equity issuance by Antara 17,879
 
Repayment of revolving credit facility (10,000) 
Repayment of finance lease obligations and long-term debt (2,413) (22,313)
Payment of debt and equity issuance costs (1,980) (135)
Proceeds from exercise of common stock options 
 42
Net cash provided by (used in) financing activities 17,734
 (22,406)
     
Net (decrease) increase in cash and cash equivalents (1,570) (51,176)
Cash and cash equivalents at beginning of year 27,464
 83,964
Cash and cash equivalents at end of period $25,894
 $32,788
     
Supplemental disclosures of cash flow information:
    
Interest paid in cash $940
 $2,321
Income taxes paid in cash $25
 $12
Supplemental disclosures of noncash financing and investing activities:    
Equipment and software acquired under finance lease $
 $5
Six months ended
December 31,
($ in thousands)20202019
OPERATING ACTIVITIES:
Net loss$(9,515)$(19,886)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation3,149 2,032 
Amortization of debt discount and issuance costs2,657 311 
Provision for expected losses1,286 862 
Provision for inventory reserve1,262 1,006 
Depreciation and amortization included in operating expenses2,120 2,102 
Depreciation included in cost of sales for rental equipment1,054 1,391 
Other957 1,072 
Changes in operating assets and liabilities:
Accounts receivable(2,987)2,133 
Finance receivables429 (990)
Inventory(928)(1,055)
Prepaid expenses and other assets243 (411)
Accounts payable and accrued expenses195 2,424 
Operating lease liabilities(526)(776)
Deferred revenue(50)(52)
Net cash provided by operating activities(654)(9,837)
INVESTING ACTIVITIES:
Purchase of property and equipment(970)(1,361)
Proceeds from sale of property and equipment11 31 
Net cash used in investing activities(959)(1,330)
FINANCING ACTIVITIES:
Proceeds from long-term debt issuance by Antara, net of issuance costs paid to Antara14,790 
Proceeds from equity issuance by Antara, net of issuance costs paid to Antara18,560 
Payment of third-party debt issuance costs(33)
Repayment of 2018 JPMorgan Revolving Credit Facility(10,000)
Proceeds from 2021 JPMorgan Revolving Credit Facility1,750 
Repayment of 2021 JPMorgan Revolving Credit Facility(1,750)
Proceeds from long-term debt issuance by JPMorgan Chase Bank, N.A., net of debt issuance costs14,550 
Repayment of long-term debt(15,364)(2,109)
Proceeds from exercise of common stock options76 
Payment of Antara prepayment penalty and commitment termination fee(1,200)
Net cash used in (provided by) financing activities(1,938)21,208 
Net (decrease) increase in cash and cash equivalents(3,551)10,041 
Cash and cash equivalents at beginning of year31,713 27,464 
Cash and cash equivalents at end of period$28,162 $37,505 
Supplemental disclosures of cash flow information:
Interest paid in cash$615 $565 
Supplemental disclosures of noncash financing activities:
Third-party debt issuance costs related to Antara financing, incurred during the six months ended December 31, 2019 and paid the nine months ended March 31, 2020$$1,947 
Registration termination fee related to Antara financing, incurred during the six months ended December 31, 2019 and paid during the nine months ended March 31, 2020$$1,223 
See accompanying notes.

6

Table of Contents
USA Technologies, Inc.
Condensed Notes to Consolidated Financial Statements
(Unaudited)
1. BUSINESS
The Company
USA Technologies, Inc. (“USAT” or the “Company”) was incorporated in the Commonwealth of Pennsylvania in January 1992. We are a provider of technology-enabled solutions and value-added services that facilitate electronic payment transactions and consumer engagement services primarily within the unattended Point of Sale (“POS”) market. We are a leading provider in the small ticket, beverage and food vending industry in the United States and are expanding our solutions and services to other unattended market segments, such as amusement, commercial laundry, kioskgas and others.car charging stations, laundromats, kiosks, amusements and more. Since our founding, we have designed and marketed systems and solutions that facilitate electronic payment options, as well as telemetry and IoTInternet of Things services, which include 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. 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,
We have evolved from unlocking the Company acquired allpotential of cashless payments in vending to transforming into the outstanding equity interests of Cantaloupe Systems, Inc. (“Cantaloupe”), pursuantfirst platform as a service (PaaS) to the Agreement 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 ofpower unattended retail machines run their business better. The combined product offering provides the data-rich Seed system with USAT’s consumer benefits, providing operators with valuable consumer data that results in customized experiences. In additionoperations, from hardware 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
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principlessoftware 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, 2019 Annual Report on Form 10-K.  In the opinion of management, all adjustments considered necessary for a fair presentation, consisting of normal recurring adjustments, have been included.  Operating results for the three and nine months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending June 30, 2020.  The balance sheet at June 30, 2019 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.
In connection with the preparation of the condensed consolidated financial statements for the three months ended December 31, 2019, the Company identified certain adjustments that are required to be made to its fiscal year 2019 interim and annual financial statements. As a result, the Company has revised in this filing certain prior year interim and annual amounts in its condensed consolidated balance sheets, statements of operations and statements of cash flows and related disclosures. Such adjustments resulted in a $0.2 million decrease in net loss for the three months ended March 31, 2019 and a $1.5 million decrease in net loss for the nine months ended March 31, 2019. The Company does not believe these adjustments are material to the previously issued financial statements.
A novel strain of coronavirus (COVID-19) was first identified in China in December 2019 and subsequently declared a global pandemic in March 2020 by the World Health Organization. COVID-19 containment measures began in parts of the United States in March 2020 resulting in forced closure of non-essential businesses and social distancing protocols. The effects of COVID-19 are not significant to our financial statements for the quarter ended March 31, 2020. Further disclosure around the impact of COVID-19 as a subsequent event is discussed in Note 14.
LIQUIDITY
At June 30, 2019, the Company had $27.5 million in cash and a working capital surplus of $3.6 million. As of June 30, 2019, the Company was not in compliance with the fixed charge coverage ratio and the total leverage ratio of its Revolving Credit Facility

and Term Loan, which represented an event of default under the credit agreement. As a result, the Company classified all amounts outstanding ($11.5 million) under these credit facilities as current liabilities.
In response to its need to develop a cash management strategy, the Company developed a plan that included potentially seeking to extend the credit borrowings to beyond one year, securing a commitment for the sale of its long-term receivables, and obtaining outside financing.
Pursuant to a Stock Purchase Agreement dated October 9, 2019 (“SPA”) between the Company and Antara Capital Master Fund LP (“Antara”), the Company sold to Antara 3,800,000 shares of the Company’s common stock at a price of $5.25 per share for gross proceeds of $19,950,000. Antara qualifies as an accredited investor under Rule 501 of the Securities Act of 1933, as amended (the "Act"), and the offer and sale of the shares was exempt from registration under Section 4(a)(2) of the Act. Antara agreed not to dispose of the shares for a period of 90 days from the closing date. In connection with the private placement, William Blair & Company, L.L.C. (“Blair”) acted as exclusive placement agent for the Company and received a cash placement fee of $1.2 million.
On October 9, 2019, the Company also entered into a commitment letter (“Commitment Letter”) with Antara, pursuant to which Antara committed to extend to the Company a $30.0 million senior secured term loan facility (“Term Facility”). Upon the execution of the Commitment Letter, the Company paid to Antara a non-refundable commitment fee of $1.2 million. In connection with the Commitment Letter, Blair acted as exclusive placement agent for the Company and received a cash placement fee of $750,000. On October 31, 2019, the Company entered into a Financing Agreement with Antara to draw $15.0 million on the Term Facility and agreed to draw an additional $15.0 million at any time between July 31, 2020 and April 30, 2021, subject to the terms of the Financing Agreement. The outstanding amount of the draws under the Term Facility bear interest at 9.75% per annum, payable monthly in arrears. The proceeds of the initial draw were used to repay the outstanding balance of the revolving line of credit loan due to JPMorgan Chase Bank, N.A. in the amount of $10.1 million, including accrued interest payable, and to pay transaction expenses, and the Company intends to utilize the balance for working capital and general corporate purposes. The Commitment Letter provides that the outstanding principal amount of the loan must be paid in full by no later than the maturity date of October 31, 2024; and that the Company is required to be in compliance with financial covenants related to the minimum fixed charge coverage ratio beginning with the fiscal quarter ending June 30, 2020, maximum capital expenditures beginning with the fiscal quarter ending December 31, 2019, and minimum consolidated EBITDA beginning with the fiscal year ending June 30, 2020.
The Company is evaluating its options with respect to the Financing Agreement, including all rights and remedies that may be available to it. Based upon the current financial forecast for the fourth quarter of fiscal year 2020, without a refinancing or modification of existing terms within the Term Facility, the Company anticipates that as of June 30, 2020, it is highly likely the Company will not be in compliance with the minimum fixed charge coverage ratio and the minimum consolidated EBITDA of its Term Facility. Unless the Commitment Letter is rescinded, amended, or replaced, noncompliance would represent an event of default under the Term Facility, and, following the request of the Required Lenders (as such term is defined in the Term Facility), all unpaid principal of $15.0 million and accrued interest to Antara would immediately become due, in addition to a $0.8 million prepayment premium. In addition, all of the Company's unamortized issuance costs and debt discount related to the Term Facility would be recognized upon repayment of the loan as interest expense in the period of repayment, which as of March 31, 2020 was $2.7 million.
As of June 30, 2019 the Company disclosed potential sales tax and related interest liabilities, which the Company estimated to be $18.2 million in the aggregate as of March 31, 2020. The Company has since engaged additional advisors to help evaluate such potential liabilities and the amount and timing of any such payments.
During the three months ended March 31, 2020, the Company reached a settlement of a shareholder class action lawsuit pending in federal court. On May 29, 2020, the parties filed documents with the Court seeking preliminary approval of the settlement, and on June 9, 2020, the Court granted preliminary approval of the settlement and issued a scheduling order for further action on the settlement. The Company anticipates the payment of approximately $2.6 million toward that settlement in addition to amounts to be paid by the Company’s insurers. As discussed in Note 13, those amounts are contingent upon certain future events, but are expected to be paid during the next 12 months.
The Company is currently evaluating a variety of financing alternatives, including but not limitedbrands. Today, the unattended retail experience is constantly expanding into new markets and enables brands and merchants to negotiating modificationswork in new ways. USAT’s mission is to the existing Term Facility. The Company has receiveddeliver a communication from an investorsuperior operational and payments platform for unattended retail, that it will provide sufficient financing in the event that the Companyis quick to implement, easy to integrate, flexible to operate, cost effective and Antara fail to agree to modifications to the existing Term Facility and other financing alternatives are not in place. The Company believes that its current financial resources, together with cash generated by operations and the financing available from the investor, if needed, will be sufficient to fund its current twelve-month operating budget from the date of issuance of these consolidated financial statements, alleviating any substantial doubt raised by the potential breach in our Term Facility with Antara.

2. ACCOUNTING POLICIES

RECENT ACCOUNTING PRONOUNCEMENTS
Accounting pronouncements adopted

In February 2016, the FASB issued ASU 2016-02, Leases, which requires, among other items, lessees to recognize a right of use asset and a related lease liability for most leases on the balance sheet. Lessees and lessors are required to disclose quantitative and qualitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period and requires a modified retrospective application, with early adoption permitted. The Company adopted this new guidance on July 1, 2019, using the optional modified retrospective transition method applying the guidance to leases existing as of the effective date. The Company has determined that there was no cumulative effect adjustment to beginning retained earnings on the consolidated balance sheet. We will continue to report periods prior to July 1, 2019 in our financial statements under prior guidance as outlined in Topic 840.
provides valuable, real-time customer knowledge. The Company’s adoption of ASU No. 2016-02 resulted in an increase inPaaS is transforming the Company’s assetsunattended retail community by offering one cohesive, integrated solution for payments processing, logistics, and liabilities of approximately $3.9 million at July 1, 2019. The Company’s adoption of ASU No. 2016-02 did not have a material impact to the Company’s consolidated statements of operations or its consolidated statements of cash flows. Further, there was no impact on the Company’s covenant compliance under its current debt agreements as a result of the adoption of ASU No. 2016-02. The Company elected the package of practical expedients included in this guidance, which allowed it to not reassess: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and, (iii) the initial direct costs for existing leases. From a lessee perspective, the Company elected the practical expedient related to treating lease and non-lease components as a single lease component for all leases as well as electing a policy exclusion permitting leases with an original lease term of less than one year to be excluded from the Right-of-Use (“ROU”) assets and lease liabilities. From a lessor perspective, the Company also elected the practical expedient related to treating lease and non-lease components as a single component for those leases where the timing and pattern of transfer for the non-lease component and associated lease component are the same and the stand-alone lease component would be classified as an operating lease if accounted for separately. The combined component is then accounted for under Topic 606 or Topic 842 depending on the predominant characteristic of the combined component.
In June 2018, the FASB issued ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting.” The standard simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The Company adopted this ASU on July 1, 2019, and its adoption did not have a material effect on the Company’s condensed consolidated financial statements.
In July 2018, the FASB issued ASU No. 2018-09, “Codification Improvements”. These amendments provide clarifications and corrections to certain Accounting Standards Codification (“ASC”) subtopics including “Compensation - Stock Compensation - Income Taxes” (Topic 718-740), “Business Combinations - Income Taxes” (Topic 805-740) and “Fair Value Measurement - Overall” (Topic 820-10). The Company adopted this ASU on July 1, 2019, and its adoption did not have a material effect on the Company’s condensed consolidated financial statements.
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.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326).” The new guidance changes the accounting for estimated credit losses pertaining to certain types of financial instruments including, but not limited to, trade and lease receivables. This pronouncement will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating and assessing the impact this guidance will have on its condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, “Intangibles—Goodwill and Other (Topic 350): Internal-Use Software.” This standard aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The

standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, which means that it will be effective for us in the first quarter of our fiscal year beginning July 1, 2020. The Company expects that the adoption of this ASU will not have a material impact on the Company’s condensed consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12back-office management. It is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in Topic 740increase consumer engagement and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020sales revenue through contactless payments, digital advertising and interim periods within those fiscal years. The Company is currently evaluatingcustomer loyalty programs, while providing retailers with control and assessing the impact this guidance will have on its condensed consolidated financial statements.visibility over their operations and inventory.

3. LEASES

Lessee Accounting
The Company determines if an arrangement is a lease at inception. The Company has operating and finance leases for office space, warehouses, automobiles and office equipment. USAT’s leases have lease terms of one year to eight years and some include options to extend and/or terminate the lease. The exercise of lease renewal options is at the Company’s sole discretion. When deemed reasonably certain of exercise, the renewal options are included in the determination of the lease term. The Company’s lease agreements do not contain any material variable lease payments, material residual value guarantees or any material restrictive covenants.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date of the lease based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate, which is the collateralized rate of interest that we would pay to borrow over a similar term an amount equal to the lease payments, based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. USAT has lease agreements with lease and non-lease components, which are accounted for together as a single lease component. Lease expense for operating lease payments are recognized on a straight-line basis over the lease term.
Variable lease payments that are not based on an index or that result from changes to an index subsequent to the initial measurement of the corresponding lease liability are not included in the measurement of lease ROU assets or liabilities and instead are recognized in earnings in the period in which the obligation for those payments is incurred.
At March 31, 2020, the Company has the following balances recorded in the balance sheet related to its lease arrangements:
($ in thousands) Classification As of March 31, 2020
     
Assets    
Operating leases Operating lease right-of-use assets $5,903
Finance leases Property and equipment, net 73
     
Liabilities    
Current:    
Operating leases Accrued expenses 1,082
Finance leases Finance lease obligations and current obligations under long-term debt 55
     
Non-current:    
Operating leases Operating lease liabilities, non-current 5,025
Finance leases Finance lease obligations and long-term debt, less current portion $24


Impact of COVID-19

Components of lease cost are as follows:
($ in thousands)Three months ended March 31, 2020 Nine months ended March 31, 2020
    
Finance lease costs:   
   Amortization of ROU assets$25
 $79
   Interest on lease assets3
 8
Operating lease costs*515
 1,970
Total$543
 $2,057
* Includes short-term lease and variable lease costs, which are not material.

Supplemental cash flow information and non-cash activity related to our leases are as follows:
($ in thousands)Nine months ended March 31, 2020
  
Supplemental cash flow information: 
Cash paid for amounts included in the measurement of lease liabilities 
Financing cash flows from finance leases$73
Operating cash flows from finance leases9
Operating cash flows from operating leases1,350
  
Non-cash activity 
Right-of-use assets obtained in exchange for lease obligations: 
Finance lease liabilities12
Operating lease liabilities$3,384

Weighted-average remaining lease term and discount rate for our leases are as follows:
Nine months ended March 31, 2020
Weighted-average remaining lease term (years)
Finance leases1.4
Operating leases5.4
Weighted-average discount rate
Finance leases9.9%
Operating leases6.8%

Maturities of lease liabilities by fiscal year for our leases are as follows:
($ in thousands)
Operating
Leases
 
Finance
Leases
Remainder of 2020$384
 $27
20211,440
 46
20221,461
 16
20231,493
 2
20241,030
 1
Thereafter1,520
 
Total lease payments$7,328
 $92
Less: Imputed interest(1,221) (13)
Present value of lease liabilities$6,107
 $79


The Company's future minimum lease commitments as of June 30, 2019, under ASC Topic 840, the predecessor to Topic 842, are as follows:
($ in thousands)
Operating
Leases
 
Capital
Leases
2020$1,326
 $106
20211,151
 34
20221,180
 12
20231,208
 1
2024859
 1
Thereafter1,550
 
Total minimum lease payments$7,274
 $154
Less: interest  (14)
Present value of minimum lease payments, net  140
Less: current obligations under capital leases  (106)
Obligations under capital leases, noncurrent  $34

Lessor Accounting
Lessor accounting remained substantially unchanged with the adoption of ASC Topic 842. The Company offers its customers financing for the lease of our POS electronic payment devices. We account for these transactions as sales-type leases. Our sales-type leases generally have a non-cancellable term of 60 months. Certain leases contain an end-of-term purchase option that is generally insignificant and is reasonably certain to be exercised by the lessee. Leases that do not meet the criteria for sales-type lease accounting are accounted for as operating leases, typically our JumpStart program leases. JumpStart terms are typically 36 months and are cancellable with 30 to 60 days' written notice. As discussed in Note 2, the Company has elected to combine lease and non-lease components for its operating leases and account for the combined components under ASC 606, which is the predominant characteristic of the combined components. All QuickStart leases are sales-type and do not qualify for the election.
Lessor consideration is allocated between lease components and the non-lease components using the requirements under ASC 606. Revenue from sales-type leases is recognized upon shipment to the customer and the interest portion is deferred and recognized as earned. The revenues related to the sales-type leases are included in Equipment sales in the Consolidated Statements of Operations and a portion of the lease payments as interest income. Revenue from operating leases is recognized ratably over the applicable service period with service fee revenue related to the leases included in License and transaction fees in the Consolidated Statements of Operations.
Property and equipment used for the operating lease rental program consisted of the following:
($ in thousands) March 31,
2020
 June 30,
2019
Cost $32,572
 36,190
Accumulated depreciation (27,664) (30,473)
Net $4,908
 $5,717

The Company’s net investment in sales-type leases (carrying value of lease receivables) and the future minimum amounts to be collected on these lease receivables as of March 31, 2020 are disclosed within Note 6 - Finance Receivables.
4. REVENUE

Disaggregated Revenue

Based on similar operational and economic characteristics, the Company’s revenue from contracts with customers is disaggregated by License and transaction fees and Equipment sales, as reported in the Company’s Condensed Consolidated Statements of Operations. The Company believes these revenue categories depict how the nature, amount, timing, and uncertainty of its revenue and cash flows are influenced by economic factors, and also represent the level at which management makes operating decisions and assesses financial performance.


Transaction Price Allocated to Future Performance Obligations

In determining the transaction price allocated to unsatisfied performance obligations, we did not include non-recurring charges. Further, we applied the practical expedient to not consider arrangements with an original expected duration of one year or less, which are primarily month to month rental agreements. The majority of contracts are considered to have a contractual term of between 36 and 60 months based on implied and explicit termination penalties. These amounts will be converted into revenue in future periods as work is performed, primarily based on the services provided or at delivery and acceptance of products, depending on the applicable accounting method.

The following table reflects the estimated fees to be recognized in the future related to performance obligations that are unsatisfied at the end of the period:
($ in thousands)As of March 31, 2020
  
2020$3,536
202112,668
202211,120
20238,524
2024 and thereafter5,000
Total$40,848


Contract Liabilities

The Company’s contract liability (i.e., deferred revenue) balances are as follows:
  Three months ended March 31, Nine months ended March 31,
($ in thousands) 2020 2020
     
Deferred revenue, beginning of the period 1,629
 1,681
Deferred revenue, end of the period 1,621
 1,621
Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period 120
 467


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

Contract Costs

At March 31, 2020, the Company had net capitalized costs to obtain contracts of $0.3 million included in Prepaid expenses and other current assets and $1.7 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, 2020, amortization of capitalized contract costs was $0.1 million and $0.4 million, respectively.
5. RESTRUCTURING/INTEGRATION COSTS

On October 17, 2019, Stephen P. Herbert resigned as Chief Executive Officer (“CEO”) of the Company and as a member of the Company’s Board of Directors. Mr. Herbert received a severance payment in the amount of $400,000 in a lump sum, less applicable taxes, on October 25, 2019, along with certain other benefits as more fully described in the Company's Current Report on Form 8-K filed with the SEC on October 18, 2019.
Subsequent to the Cantaloupe acquisition, the Company initiated workforce reductions to integrate the Cantaloupe business for which costs totaled $2.1 million for the year ended June 30, 2018.  The Company included these severance charges under “Integration and acquisition costs” within the Condensed Consolidated Statements of Operations, with the remaining outstanding balance included within “Accrued expenses” on the Condensed Consolidated Balance Sheet.  All amounts were paid as of December 31, 2019.

No additional severance activity related to the integration of the Cantaloupe business was recorded for the three months ended March 31, 2020. The following table summarizes the Company’s severance activity for the three and six months ended December 31, 2019 related to the workforce reductions to integrate the Cantaloupe business:
($ in thousands) 
Workforce
reduction
Balance at July 1, 2019 $175
Plus: additions 26
Less: cash payments 
Balance at September 30, 2019 $201
Plus: additions 9
Less: cash payments (210)
Balance at December 31, 2019 $

6. FINANCE RECEIVABLES
The Company's finance receivables consist of financed devices under the Quickstart program and Cantaloupe devices contractually associated with the Seed platform. Predominately all of the Company's finance receivables agreements are classified as non-cancellable 60 month sales-type leases. As of March 31, 2020 and June 30, 2019 finance receivables consist of the following:
($ in thousands) March 31,
2020
 June 30,
2019
Current finance receivables, net $7,941
 6,727
Finance receivables due after one year, net 11,541
 12,642
Total finance receivables, net of allowance of $702 and $606, respectively $19,482
 $19,369

The Company routinely evaluates outstanding finance receivables for impairment based on past due balances or accounts otherwise determined to be at a higher risk of loss.  A finance receivable is classified as nonperforming if it is considered probable the Company will be unable to collect all contractual interest and principal payments as scheduled. 
At March 31, 2020 and June 30, 2019, credit quality indicators consisted of the following:
($ in thousands) March 31,
2020
 June 30,
2019
Performing $19,482
 $19,369
Nonperforming 702
 606
Total $20,184
 $19,975



As part of the financing under the Quickstart program and Cantaloupe devices contractually associated with the Seed platform, the Company has contractually granted deferred payment terms, where the entire sequence of up to 60 monthly payments are deferred by an agreed upon period. The “Deferred Payment Arrangements / Timing” column represents amounts subject to the agreed upon deferral period or amounts subject to adjustments related to situations where a third party is financing the receivable. The “Other Finance Receivables” column represents an aging schedule for finance receivables not subject to such deferral arrangements and other non-performing receivables.
  March 31,
2020
 June 30,
2019
($ in thousands) Deferred Payment Arrangements / Timing Other Finance Receivables Total Total
Current $18,367
 $353
 $18,720
 $19,133
0-30 days 37
 103
 140
 190
31-60 days 193
 44
 237
 49
61-90 days 34
 36
 70
 146
Greater than 91 days 513
 504
 1,017
 457
Total finance receivables (gross) $19,144
 $1,040
 $20,184
 $19,975

Cash to be collected on our performing finance receivables due for each of the fiscal years are as follows:
($ in thousands) 
2020$4,977
20216,159
20225,513
20233,908
20241,957
Thereafter79
Total amounts to be collected22,593
Less: interest(2,409)
Less: allowance for nonperforming receivables(702)
Total finance receivables$19,482

7. EARNINGS (LOSS) PER SHARE
The calculation of basic earnings (loss) per share (“EPS”) and diluted EPS are presented below:
  Three months ended March 31,
($ in thousands, except per share data) 2020 2019
     
Numerator for basic and diluted loss per share    
Net loss $(9,295) $(4,306)
Preferred dividends (334) (334)
Net loss applicable to common shareholders $(9,629) (4,640)
     
Denominator for basic loss per share - Weighted average shares outstanding
 64,096,778
 60,065,053
Effect of dilutive potential common shares 
 
Denominator for diluted loss per share - Adjusted weighted average shares outstanding
 64,096,778
 60,065,053
     
Basic loss per share $(0.15) $(0.08)
Diluted loss per share $(0.15) $(0.08)

  Nine months ended March 31,
($ in thousands, except per share data) 2020 2019
     
Numerator for basic and diluted loss per share    
Net loss $(29,181) $(20,032)
Preferred dividends (668) (668)
Net loss applicable to common shareholders $(29,849) $(20,700)
     
Denominator for basic loss per share - Weighted average shares outstanding
 62,591,947
 60,059,594
Effect of dilutive potential common shares 
 
Denominator for diluted loss per share - Adjusted weighted average shares outstanding
 62,591,947
 60,059,594
     
Basic loss per share $(0.48) $(0.34)
Diluted loss per share $(0.48) $(0.34)


Anti-dilutive shares excluded from the calculation of diluted loss per share were 1,625,414 for the three and nine months ended March 31, 2020 and 1,240,302 for the three and nine months ended March 31, 2019.
8. GOODWILL AND INTANGIBLES
Intangible asset balances and goodwill consisted of the following:
  As of March 31, 2020  
($ in thousands) Gross 
Accumulated
Amortization
 Net 
Amortization
Period
Intangible assets:        
Non-compete agreements $2
 $(2) $
 2 years
Brand and tradenames 1,695
 (642) 1,053
 3 - 7 years
Developed technology 10,939
 (4,649) 6,290
 5 - 6 years
Customer relationships 19,049
 (2,574) 16,475
 10 - 18 years
Total intangible assets $31,685
 $(7,867) $23,818
  
         
Goodwill 63,945
 
 63,945
 Indefinite
         
Total intangible assets & goodwill $95,630
 $(7,867) $87,763
  
  As of June 30, 2019  
($ in thousands) Gross 
Accumulated
Amortization
 Net 
Amortization
Period
Intangible assets:        
Non-compete agreements $2
 $(2) $
 2 years
Brand and tradenames 1,695
 (470) 1,225
 3 - 7 years
Developed technology 10,939
 (3,266) 7,673
 5 - 6 years
Customer relationships 19,049
 (1,776) 17,273
 10 - 18 years
Total intangible assets $31,685
 $(5,514) $26,171
  
         
Goodwill 63,945
 
 63,945
 Indefinite
         
Total intangible assets & goodwill $95,630
 $(5,514) $90,116
  

For the three and nine months ended March 31, 2020 there was $0.8 million and $2.4 million in amortization expense related to intangible assets, respectively, as compared to the three and nine months ended March 31, 2019, for which there was $0.8 million and $2.4 million in amortization expense related to intangible assets, respectively. 

9. DEBT AND OTHER FINANCING ARRANGEMENTS
The Company's debt and other financing arrangements as of March 31, 2020 and June 30, 2019 consisted of the following:
  As of
March 31,
 As of
June 30,
($ in thousands) 2020 2019
     
Term Facility $15,000
 $
Revolving Credit Facility 
 10,000
Term Loan 
 1,458
Other, including finance lease obligations 423
 1,323
Less: unamortized issuance costs and debt discount (2,745) (8)
Total 12,678
 12,773
Less: debt and other financing arrangements, current (381) (12,497)
Debt and other financing arrangements, noncurrent $12,297
 $276
Details of interest expense presented on the Condensed Consolidated Statements of Operations are as follows:
  Three months ended March 31, Nine months ended March 31,
($ in thousands) 2020 2019 2020 2019
Term Facility $542
 $
 $921
 $
Revolving Credit Facility 
 170
 303
 526
Term Loan 
 456
 160
 1,158
Other interest expense 141
 287
 597
 834
Total interest expense $683
 $913
 $1,981
 $2,518

Revolving Credit Facility and Term Loan with JPMorgan Chase
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 ($7.2 million). All advances under the Revolving Credit Facility and all other obligations were required to be paid in full at maturity on November 9, 2022.
Loans under the five year credit agreement bore interest, at the Company's option, by reference to a base rate or a rate based on LIBOR, in either case, plus an applicable margin determined quarterly based on the Company's total leverage ratio as of the last day of each fiscal quarter. The applicable interest rate on the loans for the year to date ended October 31, 2019 was LIBOR plus 4%. The Term Loan and Revolving Credit Facility contained customary representations and warranties and affirmative and negative covenants and required the Company to maintain a minimum quarterly total leverage ratio and fixed charge coverage ratio. The Revolving Credit Facility and Term Loan also required the Company to furnish various financial information on a quarterly and annual basis. As of June 30, 2019, the Company was not in compliance with the fixed charge coverage ratio and the total leverage ratio, which represented an event of default under the Term Facility and the Company classified all amounts outstanding under the Revolving Credit Facility and Term Loan as current liabilities as of June 30, 2019.
Due to the Company's delay in filing its periodic reports, between September 28, 2018, and September 30, 2019, the parties entered into various agreements to provide for the extension of the delivery of the Company’s financial information required under the terms of the credit agreement. In connection with these agreements, the Company incurred extension fees due to the lender, totaling $0.2 million, between September 28, 2018 and September 30, 2019. Additionally, during the quarter ended March 31, 2019, the

Company prepaid $20.0 million of the balance outstanding under the Term Loan, and on September 30, 2019, the Company prepaid the remaining principal balance of the Term Loan and agreed to permanently reduce the amount available under the Revolving Credit Facility to $10 million which represented the outstanding balance on the date thereof. On October 31, 2019, the Company repaid the outstanding balance on the Revolving Credit Facility.
Term Facility with Antara
On October 9, 2019, as a result of seeking additional financing sources to support the Company's operating activities, the Company entered into a commitment letter with Antara Capital Master Fund LP (“Antara”), pursuant to which Antara committed to extend to the Company a $30.0 million senior secured term loan facility (“Term Facility”). On October 31, 2019, the Company entered into a Financing Agreement with Antara to draw $15.0 million on the Term Facility and agreed to draw an additional $15.0 million at any time between July 31, 2020 and April 30, 2021, subject to the terms of the Financing Agreement. If the Company fails to make the subsequent draw on the Term Facility by April 30, 2021, the Company shall pay Antara a commitment termination fee equal to 3% of the subsequent draw commitment. The outstanding amount of the draws under the Term Facility bear interest at 9.75% per annum, payable monthly in arrears. The proceeds of the initial draw were used to repay the outstanding balance of the Revolving Credit Facility due to JPMorgan Chase Bank, N.A. in the amount of $10.1 million, including accrued interest payable, and to pay transaction expenses, and the Company intends to utilize the balance for working capital and general corporate purposes. The outstanding principal amount of the loan must be paid in full by no later than the maturity date of October 31, 2024. The Company is required to be in compliance with financial covenants related to the minimum fixed charge coverage ratio beginning with the fiscal quarter ending June 30, 2020, maximum capital expenditures beginning with the fiscal quarter ending December 31, 2019, and minimum consolidated EBITDA beginning with the fiscal year ending June 30, 2020. As of March 31, 2020, the Company was in compliance with its capital expenditures financial covenant.
The Company is evaluating its options with respect to the Financing Agreement, including all rights and remedies that may be available to it. Based upon the current financial forecast for the fourth quarter of fiscal year 2020, without a refinancing or modification of existing terms within the Term Facility, the Company anticipates that as of June 30, 2020, it is highly likely the Company will not be in compliance with the minimum fixed charge coverage ratio and the minimum consolidated EBITDA of its Term Facility. Unless the Commitment Letter is rescinded, amended, or replaced, noncompliance would represent an event of default under the Term Facility, and, following the request of the Required Lenders (as such term is defined in the Term Facility), all unpaid principal of $15.0 million and accrued interest to Antara would immediately become due, in addition to a $0.8 million prepayment premium. In addition, all of the Company's unamortized issuance costs and debt discount related to the Term Facility would be recognized upon repayment of the loan as interest expense in the period of repayment, which as of March 31, 2020 was $2.7 million.
The Company may prepay any principal amount outstanding on the Term Facility plus a prepayment premium of 5% (if prepaid on or prior to December 31, 2020), 3% (between January 1, 2021 and December 31, 2021), 1% (between January 1, 2022 and December 31, 2022) and 0% thereafter. Under the Term Facility, the Company is subject to mandatory prepayments as a result of certain asset sales, insurance proceeds, issuances of disqualified capital stock, and issuances of debt. These mandatory prepayments are subject to the prepayment premium that applies to voluntary prepayments. The Company is also subject to annual mandatory prepayments ranging from 0% to 75% of excess cash flow depending upon the consolidated total leverage ratio measured at the end of each fiscal year beginning with the fiscal year ending June 30, 2020. These mandatory prepayments are not subject to the aforementioned prepayment premium.
As discussed in Note 12, on October 9, 2019, the Company also sold shares of the Company’s common stock to Antara at a price below market value. Since the Term Facility and equity issuance were negotiated in contemplation of each other and executed within a short period of time, the Company evaluated the debt and equity financing as a combined arrangement, and estimated the fair values of the debt and equity components to allocate the proceeds, net of the registration rights agreement liability (Note 12) on a relative fair value basis between the debt and equity components. The non-lender fees incurred to establish the debt and equity financing arrangement were allocated to the debt and equity components, which includes the delayed draw commitment, on a relative fair value basis and capitalized on the Company’s balance sheet. $0.9 million was allocated to debt issuance costs which is amortized on an effective interest method into interest expense over the term of the Term Facility and $0.1 million was allocated to debt commitment fees which is amortized on a straight-line basis through April 30, 2021.
The Term Facility was further evaluated for the existence of embedded features to be bifurcated from the amount allocated to the debt component. The Term Facility agreement contains a mandatory prepayment feature that was determined to be an embedded derivative, requiring bifurcation and fair value recognition for the derivative liability. The fair value of this derivative liability is remeasured at each reporting period, with changes in fair value recognized in the consolidated statement of operations and any changes in the assumptions used in measuring the fair value of the derivative liability could result in a material increase or decrease

in its carrying value. The allocation of the proceeds to the debt component and the bifurcation of the embedded derivative liability resulted in a $2.1 million debt discount that will be amortized as a credit to interest expense over the term of the Term Facility.
If the Company does not meet its financial covenants as of June 30, 2020 and the debt and all accrued interest immediately becomes due as described above, all of the Company's unamortized issuance costs and debt discount would be recognized upon repayment of the loan as interest expense in the period of repayment. At March 31, 2020, the unamortized balance of the $0.9 million debt issuance costs and the $2.1 million debt discount was $2.7 million.
Other Borrowings
In connection with the acquisition of Cantaloupe, the Company assumed debt of $1.8 million with an outstanding balance of $0.3 million and $0.8 million as of March 31, 2020 and June 30, 2019, respectively, comprised of: (i) $0.0 million and $0.2 million of promissory notes bearing an interest rate of 5% and maturing on April 5, 2020 with principal and interest payments due monthly; (ii) $0.3 million and $0.4 million of promissory notes bearing an interest rate of 10% and maturing on April 1, 2021 with principal and interest payments due quarterly; and (iii) $0.1 million as of June 30, 2019 of promissory notes bearing an interest rate of 12% that matured on December 15, 2019.
10. FAIR VALUE MEASUREMENTS
Financial assets and liabilities are initially recorded at fair value. The carrying amounts of certain of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued expenses, are carried at cost which approximates fair value due to the short-term maturity of these instruments and are Level 1 assets or liabilities of the fair value hierarchy.
The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows: 
Level 1 ‑ Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 ‑ Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 ‑ Inputs are unobservable and reflect the Company’s assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available.
The Company's embedded derivative liability is measured at fair value using a probability-weighted discounted cash flow model and is classified as a Level 3 liability of the fair value hierarchy due to the use of significant unobservable inputs. The liability is included as a component of Accrued expenses, less current portion on the consolidated balance sheets and subject to remeasurement to fair value at the end of each reporting period. For the three and nine months ended March 31, 2020, the Company recognized the change as a component of Other income (expense) in its consolidated statements of operations. The assumptions used in the discounted cash flow model of the embedded derivative liability include: (1) management's estimates of the probability and timing of future cash flows and related events; (2) the Company's risk-adjusted discount rate that includes a company-specific risk premium; and (3) the Company's cost of debt. The assumptions used in the discounted cash flow model were based on information known to the Company as of March 31, 2020. As described above, based on current forecasts, it is highly likely the Company will not be in compliance with certain covenants within the Term Facility as of June 30, 2020. The Company is currently pursuing a refinancing or modification of its Term Facility, or alternative financing arrangements. As a result, subsequent to March 31, 2020, the refinancing or modification may have a material impact on the assumptions used in the discounted cash flow model and related embedded derivative liability. If the Company is not in compliance with its covenants on June 30, 2020, this is likely to cause a material decrease in the carrying value of the embedded derivative liability.

There were no transfers between Level 1, Level 2, and Level 3 during the periods presented. The following table provides a reconciliation for the opening and closing balances of the embedded derivative liability from October 31, 2019 to March 31, 2020:
($ in millions)  
Balance at October 31, 2019 $1.5
Net change in fair value 
Balance at December 31, 2019 1.5
Net change in fair value (1.1)
Balance at March 31, 2020 $0.4

The Company’s obligations under its long-term debt agreements are carried at amortized cost, which approximates their fair value as of June 30, 2019. The fair value of the Company’s obligations under its long-term debt agreements with JPMorgan Chase were considered Level 2 liabilities of the fair value hierarchy because these instruments have interest rates that reset frequently. The fair value of the Company's obligations under its long-term debt agreements with Antara as of March 31, 2020 was approximately $16.1 million and considered a Level 3 liability of the fair value hierarchy because this instrument used significant unobservable inputs consistent with those used in determining the embedded derivative liability values.
11. INCOME TAXES

On March 27, 2020, in response to COVID-19 and its detrimental impact to the global economy, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) into law, which provides a stimulus to the U.S. economy in the form of various individual and business assistance programs as well as temporary changes to existing tax law. Among the changes to the provision in business tax laws include a five-year net operating loss carryback for the 2018, 2019 and 2020 tax
years, a deferral of the employer’s portion of the social security tax, an increase in the interest expense limitation under Section 163(j) from 30% to 50% for the 2019 and 2020 tax years, and others. ASC 740 requires the tax effects of changes in tax laws or rates to be recorded in the period of enactment. None of the income tax provisions of the CARES Act have a material impact on the Company, and therefore no adjustment was recorded.
For the three months ended March 31, 2020, the Company recorded an income tax benefit of $85 thousand. For the nine months ended March 31, 2020, the Company recorded an income tax provision of $46 thousand. As of March 31, 2020, the Company reviewed the existing deferred tax assets in light of COVID-19 and continues to record a full valuation against its deferred tax assets.  The income tax provisions primarily relate to the Company's uncertain tax positions, as well as state income and franchise taxes. As of March 31, 2020, the Company had a total unrecognized income tax benefit of $0.2 million. The Company is actively working with the tax authorities related to the majority of this uncertain tax position and it is reasonably possible that a majority of the uncertain tax position will be settled within the next 12 months. The provision is based upon actual loss before income taxes for the nine months ended March 31, 2020, as the use of an estimated annual effective income tax rate does not provide a reliable estimate of the income tax provision. The Company will continue to monitor the status of the COVID-19 pandemic and its impact on our results of operations.

For the three months ended March 31, 2019, an income tax provision of $23 thousand was recorded, which primarily relates to state income and franchise taxes. For the nine months ended March 31, 2019, an income tax provision of $60 thousand was recorded, which primarily relates to state income and franchise taxes. The provisions are based upon actual loss before income taxes for the nine months ended March 31, 2019, as the use of an estimated annual effective income tax rate does not provide a reliable estimate of the income tax provision.
12. EQUITY

WARRANTS
The Company had 23,978 warrants outstanding as of March 31, 2020 and June 30, 2019, all of which were exercisable at $5.00 per share. The warrants have an expiration date of March 29, 2021.
STOCK OPTIONS
The Company estimates the grant date fair value of the stock options 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 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. 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 to 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 former Chief Executive Officer and Chief Financial Officer to purchase up to 19,047 and 25,000 shares respectively of common stock at an exercise price of $5.25 per share. The Chief Executive Officer options vested on August 16, 2018, expiring if not exercised prior to August 16, 2024.  The Chief Financial Officer options were scheduled to 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 Chief Executive Officer options were intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended, and the Chief Financial Officer options are non-qualified stock options. The Company's former Chief Executive Officer exercised all of his 274,267 outstanding options during the three months ended December 31, 2019. The Company's former Chief Financial Officer forfeited the remaining unvested options upon her resignation effective January 7, 2019.
In September 2018, the Company awarded stock options to 102 employees to purchase up to 400,000 shares of common stock at an exercise price of $8.75 which vest 1/3 each year.
In October 2019, the Company awarded stock options to its then-interim Chief Executive Officer to purchase up to 225,000 shares of common stock at an exercise price of $7.18 per share which vested immediately and are non-qualified stock options.
In November 2019, the Company awarded stock options to 11 employees to purchase up to 110,000 shares of common stock at an exercise price of $6.28 which vest 1/3 each year. The options are intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended.
The fair value of options granted during the nine months ended March 31, 2020 and 2019 was determined using the following assumptions:
 Nine months ended March 31,
 2020 2019
Expected volatility (percent)74.6% - 90.1%
 58.4% - 70.9%
Expected life (years)3.5 - 4.5
 4.5
Expected dividends0.0% 0.0%
Risk-free interest rate (percent)1.4% - 1.6%
 2.23% - 2.91%
Number of options granted340,760
 420,000
Weighted average exercise price$6.85
 $8.52
Weighted average grant date fair value$6.84
 $4.27

Stock based compensation related to all stock options for the three and nine months ended March 31, 2020 was $0.1 million and $1.5 million, respectively, and $0.2 million and $0.6 million for the three and nine months ended March 31, 2019, respectively.
COMMON STOCK
On July 2, 2018, 6,677 shares were awarded to each non-employee director for a total of 40,062 shares. The shares were scheduled to vest on a monthly basis over the two-year period following July 2, 2018.  

On October 9, 2019, the Company sold to Antara 3,800,000 shares of the Company’s common stock at a below market value price of $5.25 per share for gross cash proceeds of $19,950,000. Since the Term Facility and equity issuance were negotiated in contemplation of each other and executed within a short period of time, the Company evaluated the debt and equity financing as a combined arrangement, and estimated the fair values of the debt and equity components to allocate the total proceeds on a relative fair value basis between the debt and equity components, resulting in a $17.9 million allocation to equity, less $1.1 million in issuance fees allocated to the equity component on a relative fair value basis.
On October 16, 2019, 13,216 shares were awarded to each non-employee director and its interim Chief Executive Officer for a total of 118,944 shares. 1/3 of the shares vested immediately at the award date, with the remaining shares scheduled to vest on October 16, 2020.
On November 22, 2019, 104,500 total shares were awarded to 11 employees. The shares vest 1/3 each year.
On February 28, 2020, the Company awarded 186,916 total shares to its Chief Executive Officer. The shares were scheduled to vest 1/4 on February 28, 2021, with the remaining shares scheduled to vest on a quarterly basis thereafter through February 28, 2024. The Company also awarded 10,778 shares each for a total of 21,556 shares which were scheduled to vest on February 28, 2021 to new non-employee directors Kelly Kay and Sunil Sabharwal. The Company also awarded 16,767 total shares to its Chief Financial Officer and 8,982 total shares to its Chief Accounting Officer which vest 1/3 each year.
On November 8, 2019, Albin F. Moschner retired as a member of the Board of Directors, and his remaining unvested shares immediately vested. On February 28, 2020, Steven D. Barnhart, Joel Brooks, and William J. Reilly, Jr. resigned as members of the Board of Directors, and their remaining unvested shares were forfeited immediately. Due to the resignation of the Chief Executive Officer and members of the Board of Directors in the fourth quarter of fiscal year 2020, certain unvested common stock awards were forfeited upon their resignations. See Note 14.
The total expense recognized for all common stock awards for the three and nine months ended March 31, 2020 was $0.4 million and $0.9 million, and for the three and nine months ended March 31, 2019 was $0.1 million and $0.4 million, respectively.
LONG TERM INCENTIVE PLANS
In October 2019, the Company's Board of Directors approved the Fiscal Year 2020 Long-Term Stock Incentive Plan (“FY20 LTI Plan”) which provides that each executive officer would be awarded shares of common stock of the Company in the event that certain metrics relating to the Company’s 2020 fiscal year would result in specified ranges of year-over-year percentage growth. The metrics are total number of connections as of June 30, 2020 as compared to total number of connections as of June 30, 2019 (40% weighting) and adjusted EBITDA earned during the 2020 fiscal year as compared to the adjusted EBITDA earned during the 2019 fiscal year (60% weighting). If none of the minimum threshold year-over-year percentage target goals are achieved, the executive officers would not be awarded any shares. Assuming the minimum threshold year-over-year percentage target goal would be achieved for a particular metric, the number of shares to be awarded for that metric would be determined on a pro rata basis, provided that the award would not exceed the maximum distinguished award for that metric (which in any event cannot exceed 150% of the executive officer’s target bonus award). Any shares awarded under the plan would vest as follows: one-third at the time of issuance; one-third on June 30, 2021; and one-third on June 30, 2022. The Company is evaluating the impact of COVID-19 on the FY20 LTI Plan.
The Company had long-term stock incentive plans in prior fiscal years for its then executive officers. Stock based compensation related to the LTI plans was as follows in the three and nine months ended March 31, 2020 and 2019:
  Three months ended March 31, Nine months ended March 31,
($ in thousands) 2020 2019 2020 2019
FY20 LTI Plan $(83) $
 $36
 $
FY18 LTI Plan 2
 30
 21
 91
FY17 LTI Plan 
 17
 
 68
Total $(81) $47
 $57
 $159

SHAREHOLDER RIGHTS PLAN
Effective April 27, 2020, the Company's Board of Directors terminated the shareholder rights plan, implemented on October 18, 2019. The Company determined it was in the best interests of the Company and its shareholders to redeem the shareholder rights plan and as a result, the rights plan, which was previously scheduled to automatically expire at the time of the Company's 2020 annual meeting of shareholders, was terminated.

REGISTRATION RIGHTS AGREEMENT

In connection with the Stock Purchase Agreement on October 9, 2019 with Antara, the Company also entered into a registration rights agreement (the "Registration Rights Agreement") with Antara, pursuant to which the Company agreed, at its expense, to file a registration statement under the Act with the Securities and Exchange Commission (the "SEC") covering the resale of the shares by Antara (the "Registration Statement").

Pursuant to an Amendment to Registration Rights Agreement dated as of January 31, 2020 (the “Amendment”), Antara and the Company agreed to terminate the obligation of the Company to register the shares in exchange for a payment of approximately $1.2 million by the Company to Antara. The Amendment provided that the payment would be in full satisfaction of any and all liquidated damages which may be due by the Company to Antara under the Registration Rights Agreement for the failure to timely file the Form S-1 registration statement and/or to obtain and maintain the effectiveness thereof.
Under the Registration Rights Agreement, and prior to the Amendment, the Company was required to file the registration statement by no later than November 8, 2019 (extended by agreement of the parties until November 26, 2019). The Company informed Antara that it would not be able to file the Registration Statement without unreasonable effort and expense because the applicable rules of the SEC require the Company to include certain pre-acquisition financial statements of Cantaloupe in the Registration Statement.
These pre-acquisition financial statements had been filed by the Company as exhibit 99.1 to the Form 8-K/A filed on January 24, 2018. As part of the audit process and subsequent to June 30, 2019, the Company performed an extensive analysis relating to certain of the accounts of Cantaloupe for periods subsequent to the acquisition and made certain adjustments to previously issued financial statements, all of which were described in the Company’s annual report on Form 10-K for the year ended June 30, 2019 and the Amendment No. 1 thereto. The Company determined that to perform such an analysis in connection with the pre-acquisition financial statements required to be included in the registration statement would be unduly time consuming and expensive. The Company also sought to obtain a waiver from the staff of the SEC from the regulations which require the inclusion of these pre-acquisition financial statements in the registration statement. By letter dated December 30, 2019, the SEC staff indicated that it was unable to provide such a waiver.
13. COMMITMENTS AND CONTINGENCIES

Eastern District of Pennsylvania Consolidated Shareholder Class Actions

As previously reported, various putative shareholder class action complaints had been filed in the United States District Court for the District of New Jersey against the Company, its chief executive officer and chief financial officer at the relevant time, its directors at the relevant time, and the investment banks who served as underwriters in the May 2018 follow-on public offering of the Company (the “Underwriters”). These complaints alleged violations of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. These various actions were consolidated by the Court into one action (the “Consolidated Action”), and the Court granted the Motion to Transfer filed by the Company and its former chief executive officer, and transferred the Consolidated Action to the United States District Court for the Eastern District of Pennsylvania, Docket No. 19-cv-04565. On November 20, 2019, Plaintiff filed an amended complaint, and defendants filed motions to dismiss on February 3, 2020. The Court has not yet ruled on the motions to dismiss. The parties participated in a private mediation on February 27, 2020 which resulted in a settlement. On May 29, 2020, the plaintiffs filed documents with the Court seeking preliminary approval of the settlement, with the defendants supporting approval of the settlement. On June 9, 2020, the Court granted preliminary approval of the settlement and issued a scheduling order for further action on the settlement. The settlement provides for a payment of $15.3 million which includes all administrative costs and plaintiff’s attorneys’ fees and expenses. The Company’s insurance carriers are anticipated to pay approximately $12.7 million towards the settlement and the Company is anticipated to pay approximately $2.6 million towards the settlement, which has been recorded as a liability in the accompanying condensed consolidated financial statements. Payments will not be distributed pursuant to the settlement until and unless an opt-out process is completed successfully and the Court grants final approval of the settlement. The Company expects but cannot assure that those events will occur later in the calendar year. Should the settlement not be approved the parties will resume litigation of the claims.
Chester County, Pennsylvania Class Action

As previously reported, a putative shareholder class action complaint was filed against the Company, its chief executive officer and chief financial officer at the relevant time, its directors at the relevant time, and the Underwriters, in the Court of Common Pleas, Chester County, Pennsylvania, Docket No. 2019-04821-MJ. The complaint alleged violations of the Securities Act of 1933, as amended. As also previously reported, on September 20, 2019 the Court granted the defendants’ Petition for Stay and stayed the Chester County action until the Consolidated Action reaches a final disposition. On October 18, 2019, plaintiff filed an appeal

to the Pennsylvania Superior Court from the Order granting defendants’ Petition for Stay, Docket No. 3100 EDA 2019. On December 6, 2019, the Pennsylvania Superior Court issued an Order stating that the Stay Order does not appear to be final or otherwise appealable and directed plaintiff to show cause as to the basis of the Pennsylvania Superior Court’s jurisdiction. The plaintiff filed a Response to the Order to Show Cause on December 16, 2019, and the defendants filed an Application to Quash Appeal on December 26, 2019. On February 20, 2020 the Pennsylvania Superior Court quashed the appeal.

Subpoena

During the three months ended March 31, 2020, the Company responded to a subpoena received from the U.S. Department of Justice that sought records regarding Company activities that occurred during prior financial reporting periods, including restatements. The Company is cooperating fully with the agency’s queries.

HEC Master Fund LP Lawsuit

On November 15, 2019, HEC Master Fund LP (together with related entities, including Hudson Executive Capital LP, “HEC”) filed a lawsuit against the Company and its directors at the relevant time in the Court of Common Pleas of Chester County, Pennsylvania, Docket No. 2019-11640-MJ. The lawsuit alleged that the directors’ adoption of an amendment to the Company’s bylaws that prohibited shareholders from calling a special meeting of shareholders until the Company’s next annual meeting of shareholders, along with other efforts by the directors to prevent HEC from soliciting consents to call a special meeting of shareholders, constituted impermissible entrenchment and interference with the shareholder franchise in violation of Pennsylvania law. On November 22, 2019, the Court, with the consent of HEC and the Company, ordered the Company to call and hold its annual meeting of shareholders on or before April 30, 2020. The Court also ordered that the directors stand for election at the annual meeting in accordance with the bylaws and prohibited the board of directors from making further amendments of any kind to the bylaws prior to the annual meeting. Following the entry of that order, HEC voluntarily discontinued the lawsuit. On March 27, 2020, HEC moved to strike the discontinuance and hold the Company in contempt of the Court’s November 22, 2019 order. On April 26, 2020, the parties entered into a Letter Agreement pursuant to which HEC’s action was dismissed with prejudice.

HEC Master Fund LP Shareholder Demand

By letter dated February 12, 2020, HEC demanded that the Board of Directors investigate, remedy and commence proceedings against certain of the Company’s current and former officers and directors and other responsible parties for breach of fiduciary duties. The matters alleged to constitute breaches of duty related to the matters raised by HEC during the contest for the election of directors at the 2020 annual meeting. On April 26, 2020, the parties entered into a Letter Agreement pursuant to which HEC withdrew its shareholder demand for board action.
14. SUBSEQUENT EVENTS

Agreement with Hudson Executive Capital LP

On April 26, 2020, the Company entered into a Letter Agreement with Hudson Executive Capital LP (“Hudson”), the largest shareholder of the Company, to appoint Lisa P. Baird, Douglas G. Bergeron, Douglas L. Braunstein, Jacob Lamm, Michael K. Passilla, Ellen Richey, Anne M. Smalling and Shannon S. Warren to the Board of Directors. The Company accepted the resignations of Kelly Ann Kay, Robert L. Metzger, Sunil Sabharwal, William J. Schoch and Ingrid S. Stafford from the Board of Directors. All of the unvested common stock awards of the former members of the Board of Directors were forfeited upon their resignation. Pursuant to its proxy disclosure, Hudson has requested that the Company reimburse the expenses it incurred in connection with its proxy solicitation and has informed the Company that it is prepared to accept non-cash consideration for such reimbursement; the Board is considering Hudson’s request. No determination regarding the reimbursement or the possible amount of such reimbursement has been made at this time.

Chief Executive Officer Resignation

On May 10, 2020, Donald W. Layden, Jr., former Chief Executive Officer, agreed to resign his employment with the Company, effective as of May 8, 2020. Mr. Layden further agreed to resign from his position as a director on the Board of Directors of the Company (the “Board”), also effective as of May 8, 2020. The resignation was not the result of any disagreement Mr. Layden had with the Company on any matter relating to the Company’s operations, policies, and practices.

Pursuant to a Separation Agreement and Release (the “Release”) entered into by and between Mr. Layden and the Company on May 10, 2020, Mr. Layden received no severance pay or other separation benefits in connection with his resignation. The Release provides that Mr. Layden will retain certain vested equity awards in accordance with the terms of the Release, and additionally

provides releases of claims by Mr. Layden and, on a limited basis, by the Company. The Release also contains customary restrictive covenants, including perpetual confidentiality and non-disparagement covenants, and a one-year post-employment non-solicit of customers and employees. All of Mr. Layden's unvested common stock awards were forfeited upon his resignation.

Appointment of New Chief Executive Officer

On and effective as of May 8, 2020, the Board appointed Sean Feeney as its Chief Executive Officer. In connection with Mr. Feeney’s appointment as Chief Executive Officer, the Company entered into an employment agreement with Mr. Feeney, also dated and effective as of May 8, 2020 (the “Feeney Agreement”). On May 21, 2020, the Board appointed Mr. Feeney as a director of the Company.

Pursuant to the Feeney Agreement, Mr. Feeney shall serve as Chief Executive Officer of the Company, reporting to the Board. The Feeney Agreement provides Mr. Feeney a base salary of $450,000 per year, and, commencing with the Company’s fiscal 2021 year, an annual cash bonus target opportunity each fiscal year equal to 100% of his base salary (up to a maximum of 150% of base salary), with any cash bonus earned based on the terms of the Company’s then-current annual incentive program (with a minimum bonus for fiscal 2021, only, equal to 50% of Mr. Feeney’s base salary).

In addition, Mr. Feeney was awarded an initial inducement equity grant of 1,000,000 stock options, with an exercise price equal to the Company's closing price on May 8, 2020, subject to the terms of a Non-Qualified Stock Option Agreement, also dated as of May 8, 2020 (the “Option Agreement”). The stock options are eligible to vest as follows: (i) 50% of the options are eligible to vest in 4 equal annual installments on the first four anniversaries of the grant date, (ii) 12.5% of the options are eligible to vest on June 30, 2021, and (iii) an additional 12.5% of the options are eligible to vest on each of June 30, 2022, June 30, 2023, and June 30, 2024, subject to the achievement of performance goals for the fiscal year ending on each such date to be established by the Board, following consultation with Mr. Feeney, as soon as reasonably practicable following the commencement of the applicable fiscal year, and in each case subject to Mr. Feeney’s continued employment through the applicable vesting date. 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 in respect of such fiscal year will vest on a prorated basis. In addition, any of the stock options then-outstanding and unvested will immediately vest upon a “change of control,” as defined in the Feeney Agreement, subject to Mr. Feeney’s continued employment as of immediately prior to the “change of control.”

Under the Feeney Agreement, if Mr. Feeney is terminated without “cause” or resigns for “good reason” (as each term is defined under the Feeney Agreement), then, subject to Mr. Feeney’s execution of a release of claims and continued compliance with the Feeney Agreement, Mr. Feeney will be provided with a severance package consisting of (i) 12 months of continued base salary, (ii) senior executive-level outplacement support for 12 months, and (iii) up to a 12-month COBRA subsidy. However, if such termination occurs within 24 months following a “change of control,” as defined in the Feeney Agreement, then Mr. Feeney will instead be provided a lump sum payment equal to the sum of his base salary and last annual bonus paid in the fiscal year completed prior to such termination.

The Feeney Agreement contains customary restrictive covenants, including perpetual confidentiality, non-disparagement, and intellectual property covenants, as well as a non-compete, non-solicit of customers and suppliers, and non-solicit of employees (including a no-hire) that each apply during employment and for two years following any termination.

COVID-19
A novel strain of coronavirus (COVID-19) was first identified in China in December 2019, and subsequently declared a global pandemic in March 2020 by the World Health Organization. COVID-19 containment measures began in parts of the United States in March 2020 resulting in forced closure of non-essential businesses and social distancing protocols. As a result, COVID-19 has impacted our business, significantly reducing foot traffic to distributed assets containing our electronic payment solutions and reducing discretionary spending by consumers. The Company did not observe meaningful reductions in processing volume until mid-March, when average daily processing volume decreased approximately 40%. By mid-April, processing volumes began to recover and had steadily improved through September 2020. As of September 30, 2020, our average daily processing volume had increased 53% from the lows in April. During the second half of the current quarter, we have shown a steady improvementexperienced an approximately 7% decrease in volumes driven by approximately 30% overan increase in COVID-19 cases across the mid-March levels.country and seasonality of the business. Continued COVID-19 recurrences could result in further reductions in foot traffic to distributed assets containing our electronic payment solutions and reduced discretionary spending by consumers. In addition, the length of time required for an effective vaccine or therapy to become widely available is uncertain. At this time, we are unable to reasonably estimate the length of time that containment measures will be needed in the United States. Furthermore, even after containment measures are lifted there can be no assurance as to the time required to regain operations and sales at levels prior to the pandemic.

In response to the outbreak and business disruption, first and foremost, we have prioritized the health and safety of our employees by implementing work-from-home measures while continuing to diligently serve our customers. Additionally, we have created anAn internal task force was created at the start of the pandemic to leaddevelop measures to protect the business in light of the volatility and uncertainty caused by the COVID-19 pandemic, includingpandemic. This included such aspects as ensuring the safety of our employees and our community by implementing work from home policies,

conserving liquidity, evaluating cost saving actions, partnering with customers to position USAT for renewed growth post crisis, and temporarily pausing onplans for international expansion. The liquidity conservation and cost savings initiatives include but are not limited to:included: a 20% salary reduction for the senior leadership team untilthrough December 2020; deferral of all cash-based director fees until calendar year 2021; a temporary furlough of aboutapproximately 10% of our employee base; negotiations with and concessions from vendors in regard to cost reductions and/or payment deferrals; an increased collection effort to reduce outstanding accounts receivables; and various supply chain/inventory improvements. Our During the summer of 2020 as restrictions lifted, our offices were opened with strict guidelines for social distancing and with adherence to state and local mandates. As a result of an increase in COVID-19 cases during the current quarter and additional lockdowns mandated by state officials, most of our employees continue to work remotely as of December 31, 2020. All of our furloughed employees returned to work, primarily remotely, by June 26, 2020. To date, our supply chain network has not been significantly disrupted and we are continuously
7

Table of Contents
monitoring for the impact from COVID-19. In addition, the Company received loan proceeds from the Paycheck Protection Program in the fourth quarter of COVID-19.fiscal year 2020. See Note 8 for additional information.

Subsequent to March 31, 2020, in response to the outbreak, we have agreed to concessions regarding modifications to price and/or payment terms with certain customers who have been negatively impacted by COVID-19, and may negotiate additional concessions or other contract amendments regarding modifications to price and/or payment terms.

We continue to monitor the rapidlycontinuously evolving situation and follow guidance from federal, state and local public health authorities. As such, given the dynamic nature of this situation, the Company cannot, at this time, reasonably estimate the impactslonger-term repercussions of COVID-19 on our financial condition, results of operations or cash flows in the future. The effects of COVID-19 are not significant to our financial statements for the quarter ended March 31, 2020. However, based on current trends and if the pandemic is not substantially contained in the near future, COVID-19 may have a material adverse impact on our revenue growth as well as our overall profitability for the quarter ended June 30, 2020 and beyond,in fiscal year 2021, and may lead to higher sales-related, inventory-related, and operating reserves. Further,As of December 31, 2020, we have evaluated the potential impact of the COVID-19 outbreak on our financial statements, including, but not limited to, the impairment of goodwill and intangible assets, impairment of long-lived assets including operating lease right-of-use assets, property and equipment and allowance for doubtful accounts for accounts and finance receivables. We have concluded that there are no material impairments as a sustained downturn may also result in a decreaseof our evaluation. Where applicable, we have incorporated judgments and estimates of the expected impact of COVID-19 in the fair valuepreparation of our goodwill or other intangible assets, causing them to exceed their carrying value. Thisthe financial statements based on information currently available. These judgments and estimates may require us to recognize an impairment to those assets.change, as new events develop and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known.


BASIS OF PRESENTATION AND PREPARATION
Paycheck Protection Program Loan
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements and therefore should be read in conjunction with the Company’s June 30, 2020 Annual Report on Form 10-K.  In the opinion of management, all adjustments considered necessary for a fair presentation, consisting of normal recurring adjustments, have been included.  Operating results for the three and six months ended December 31, 2020 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2021. Actual results could differ from estimates. The balance sheet at June 30, 2020 has been derived from the audited consolidated financial statements at that date, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

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

As previously disclosed in the Company’s June 30, 2020 Annual Report on Form 10-K and the September 30, 2020 Quarterly Report on Form 10-Q, during the fourth quarter of fiscal year 2020, the Company reclassified certain operating expenses previously reported in the first three quarters of fiscal year 2020 as Selling, general and administrative expenses to Investigation, proxy solicitation and restatement expenses. The reclassifications resulted from management’s conclusion that those operating expenses related to non-recurring professional services fees to assist the Company with accounting and compliance activities following the filing of the 2019 Form 10-K, as well as the proxy solicitation costs incurred in fiscal year 2020. These reclassifications did not affect Total operating expenses or Net loss.

As part of the Company’s financial statement close process for the quarter ended December 31, 2020, management identified that the previously reported reclassification amounts from Selling, general and administrative expenses to Investigation, proxy solicitation and restatement expenses as disclosed in the June 30, 2020 Annual Report on Form 10-K and the September 30, 2020 Quarterly Report on Form 10-Q needed to be revised to properly reflect expense accrual amounts for certain vendors that were incorrectly excluded from the previously calculated amounts. These revisions to the reclassification amounts do not affect the previously reported Depreciation and amortization, Total operating expenses or Net loss for the quarters ended September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020 or the full year ended June 30, 2020 and other interim reporting periods. The Company analyzed the potential impact of the reclassification error in accordance with the appropriate guidance, from both a qualitative and quantitative perspective, and concluded that the error was not material to any individual interim or annual period.

8

Table of Contents
Operating expenses for each quarter of fiscal year 2020 and other reporting periods before and after the revision discussed above are as follows:
Three months endedOther reporting periods
($ in thousands)September 30, 2019December 31, 2019March 31, 2020June 30, 2020Year ended June 30, 2020Six months ended December 31, 2019Nine months ended March 31, 2020
Selling, general and administrative, before revision (a) (b)
$17,196 $12,520 $18,065 $12,485 $60,266 $29,716 $47,781 
Investigation, proxy solicitation and restatement expenses, before revision (a) (b)
4,476 6,918 2,004 7,894 21,292 11,394 13,398 
Additional amounts reclassified from (to) Selling, general and administrative to (from) Investigation, proxy solicitation and restatement expenses2,015 (3,641)2,177 (2,033)(1,482)(1,626)551 
Selling, general and administrative, after revision (c)
15,181 16,161 15,888 14,518 61,748 31,342 47,230 
Investigation, proxy solicitation and restatement expenses, after revision (c)
6,491 3,277 4,181 5,861 19,810 9,768 13,949 
Depreciation and amortization, no change (a) (b) (d)
1,022 1,080 1,107 1,098 4,307 2,102 3,209 
Total operating expenses, no change (a) (b) (d)
$22,694 $20,518 $21,176 $21,477 $85,865 $43,212 $64,388 
(a) The amounts for the three months ended September 30, 2019, December 31, 2019, March 31, 2020 and full year ended June 30, 2020 were presented in the Company’s June 30, 2020 Annual Report on Form 10-K.
(b)    The amounts for the three months ended September 30, 2019 were presented in the Company’s September 30, 2020 Quarterly Report on Form 10-Q.
(c)    The revised amounts for the three and six months ended December 2019 are presented in the Condensed Consolidated Statements of Operations.
(d)    No changes noted for these amounts. The amounts for the three and six months ended December 2019 are presented in the Condensed Consolidated Statements of Operations.

2. ACCOUNTING POLICIES

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting pronouncements adopted

ASC Topic 326 - Credit Losses

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

The Company adopted Topic 326 using the modified retrospective approach through an adjustment to retained earnings, and began calculating our allowance for accounts and finance receivables under an expected loss model rather than an incurred loss model.

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

The adoption of this pronouncement on July 1, 2020 resulted in a net increase of $0.3 million in retained earnings, with an offsetting adjustment to the allowance for doubtful accounts and finance receivables.
9

Table of Contents

The following table represents a rollforward of the allowance for doubtful accounts for accounts and finance receivables for the six months ending December 31, 2020:
Six months ended December 31, 2020
($ in thousands)Accounts receivableFinance receivable
Beginning balance of allowance at June 30, 2020, prior to adopting ASC 326$7,676 $150 
Impact of adoption of ASC 326(757)409 
Provision for expected losses394 
Balance at September 30, 20207,313 559 
Provision for expected losses542 350 
Balance at December 31, 2020$7,855 $909 

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

In August 2018, the FASB issued ASU No. 2018-15, “Intangibles—Goodwill and Other (Topic 350): Internal-Use Software.” This standard aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The adoption of this ASU on July 1, 2020 did not have a material impact on our condensed consolidated financial statements.

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.

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

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12 is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. The Company does not expect the changes to have a material impact on its financial statements.

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

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

ASU 2020-10, Codification Improvements

In October 2020, the FASB issued ASU 2020-10, “Codification Improvements.” The purpose of the ASU is to update a variety of ASC Topics to make conforming amendments, clarifications to guidance, simplifications to wording or structure of guidance, and other minor improvements. The ASU is effective for fiscal years beginning after December 15, 2020 with early application permitted. The Company does not expect the changes to have a material impact on its financial statements.

3. LEASES

Lessee Accounting
The Company determines if an arrangement is a lease at inception. The Company has appliedoperating leases for office space, warehouses, automobiles and office equipment. USAT’s leases have lease terms of one year to eight years and some include
10

Table of Contents
options to extend and/or terminate the lease. The exercise of lease renewal options is at the Company’s sole discretion. When deemed reasonably certain of exercise, the renewal options are included in the determination of the lease term. The Company’s lease agreements do not contain any material variable lease payments, material residual value guarantees or any material restrictive covenants.

Right-of-Use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date of the lease based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate, which is the collateralized rate of interest that we would pay to borrow over a similar term an amount equal to the lease payments, based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives received. USAT has lease agreements with lease and non-lease components. The Company elected the practical expedient related to treating lease and non-lease components as a single lease component for all leases as well as electing a policy exclusion permitting leases with an original lease term of less than one year to be excluded from the ROU assets and lease liabilities. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

At December 31, 2020, the Company has the following balances recorded in the balance sheet related to its lease arrangements:
($ in thousands)ClassificationAs of December 31, 2020
AssetsOperating lease right-of-use assets$4,799 
Liabilities
CurrentAccrued expenses1,114 
Long-termOperating lease liabilities, non-current$4,241 

Components of lease cost are as follows:
($ in thousands)Three months ended December 31, 2020Three months ended December 31, 2019
Operating lease costs*535 753 
* Includes short-term lease and variable lease costs, which are not material.
($ in thousands)Six months ended December 31, 2020Six months ended December 31, 2019
Operating lease costs*1,064 1,454 
* Includes short-term lease and variable lease costs, which are not material.

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

($ in thousands)Six months ended December 31, 2020Six months ended December 31, 2019
Supplemental cash flow information:
Cash paid for amounts included in the measurement of operating lease liabilities$802 $962 
Non-cash activity
Right-of-use assets obtained in exchange for lease obligations:
Operating lease liabilities$$3,384 


11

Table of Contents
Weighted-average remaining lease term and discount rate for our leases are as follows:
Six months ended December 31, 2020
Weighted-average remaining lease term (years)
Operating leases4.8
Weighted-average discount rate
Operating leases6.8 %

Maturities of lease liabilities by fiscal year for our leases are as follows:
($ in thousands)Operating
Leases
Remainder of 2021$723 
20221,460 
20231,492 
20241,029 
2025707 
Thereafter893 
Total lease payments$6,304 
Less: Imputed interest(949)
Present value of lease liabilities$5,355 

Lessor Accounting

The Company offers its customers financing for the lease of our POS electronic payment devices. We account for these transactions as sales-type leases. Our sales-type leases generally have a non-cancellable term of 60 months. Certain leases contain an end-of-term purchase option that is generally insignificant and is reasonably certain to be exercised by the lessee. Leases that do not meet the criteria for sales-type lease accounting are accounted for as operating leases, which are typically our JumpStart program leases, which are agreements for renting POS electronic payment devices. JumpStart terms are typically 36 months and are cancellable with 30 to 60 days' written notice.

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

Lessor consideration is allocated between lease components and the non-lease components using the requirements under Topic 606. Revenue from sales-type leases is recognized upon shipment to the customer and the interest portion is deferred and recognized as earned. The revenues related to the sales-type leases are included in Equipment sales in the Condensed Consolidated Statements of Operations and a portion of the lease payments as interest income. Revenue from operating leases is recognized ratably over the applicable service period with service fee revenue related to the leases included in License and transaction fees in the Condensed Consolidated Statements of Operations.

Property and equipment used for the operating lease rental program consisted of the following:
($ in thousands)December 31,
2020
June 30,
2020
Cost$32,432 32,445 
Accumulated depreciation(28,298)(27,745)
Net$4,134 $4,700 

12

Table of Contents
The Company’s net investment in sales-type leases (carrying value of lease receivables) and the future minimum amounts to be collected on these lease receivables as of December 31, 2020 are disclosed within Note 5 - Finance Receivables.

4. REVENUE

Disaggregated Revenue

Based on similar operational and economic characteristics, the Company’s revenue from contracts with customers is disaggregated by License and transaction fees and Equipment sales, as reported in the Company’s Condensed Consolidated Statements of Operations. The Company believes these revenue categories depict how the nature, amount, timing, and uncertainty of its revenue and cash flows are influenced by economic factors, and also represent the level at which management makes operating decisions and assesses financial performance.

Transaction Price Allocated to Future Performance Obligations

In determining the transaction price allocated to unsatisfied performance obligations, we do not include non-recurring charges. Further, we apply the practical expedient to not consider arrangements with an original expected duration of one year or less, which are primarily month to month rental agreements. The majority of our contracts have a contractual term of between 36 and 60 months based on implied and explicit termination penalties. These amounts will be converted into revenue in future periods as work is performed, primarily based on the services provided or at delivery and acceptance of products, depending on the applicable accounting method for the services or products being delivered.

The following table reflects the estimated fees to be recognized in the future related to performance obligations that are unsatisfied at the end of the period:
($ in thousands)As of December 31, 2020
Remainder of 2021$6,033 
202211,154 
20239,312 
20245,160 
2025 and thereafter2,361 
Total$34,020 

Contract Liabilities

The Company’s contract liability (i.e., deferred revenue) balances are as follows:
Three months ended December 31,Three months ended December 31,
($ in thousands)20202019
Deferred revenue, beginning of the period$1,639 $1,649 
Deferred revenue, end of the period1,648 1,629 
Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period$95 $209 
Six months ended December 31,Six months ended December 31,
($ in thousands)20202019
Deferred revenue, beginning of the period$1,698 $1,681 
Deferred revenue, end of the period1,648 1,629 
Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period$184 $360 

The change in the contract liability balances period-over-period is primarily the result of timing difference between the Company’s satisfaction of a performance obligation and payment from the customer.
13

Table of Contents

Contract Costs

At December 31, 2020 and June 30, 2020, the Company had net capitalized costs to obtain contracts of $0.4 million included in Prepaid expenses and other current assets and $1.8 million included in Other noncurrent assets on the Condensed Consolidated Balance Sheet. None of these capitalized contract costs were impaired. During the three and six months ended December 31, 2020, amortization of capitalized contract costs was $0.1 million and $0.3 million. During the three and six months ended December 31, 2019, amortization of capitalized contract costs was $0.1 million and $0.2 million.

5. FINANCE RECEIVABLES

The Company's finance receivables consist of financed devices under the Quickstart program and devices contractually associated with the Seed platform. Predominately all of the Company’s finance receivables agreements are classified as non-cancellable sixty month sales-type leases. As of December 31, 2020 and June 30, 2020, finance receivables consist of the following:
($ in thousands)December 31,
2020
June 30,
2020
Current finance receivables, net$7,196 7,468 
Finance receivables due after one year, net10,296 11,213 
Total finance receivables, net of allowance of $909 and $150, respectively$17,492 $18,681 

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.

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 to cover monthly fees) and low ratio customers (customers that do not consistently have adequate transaction processing volumes to cover monthly fees). Using these two categories, we performed an analysis of historical write-offs to calculate reserve percentages by aging buckets for each category of customer.

At December 31, 2020, the gross lease receivable by current payment performance on a contractual basis and year of origination consisted of the following:

Leases by Origination
($ in thousands)Up to 1 Year AgoBetween 1 and 2 Years AgoBetween 2 and 3 Years AgoBetween 3 and 4 Years AgoBetween 4 and 5 Years AgoMore than 5 Years AgoTotal
Current$4,161 $6,291 $3,127 $2,583 $683 $53 $16,898 
30 days and under16 57 25 40 145 
31-60 days32 84 24 34 176 
61-90 days30 51 15 34 132 
Greater than 90 days330 367 108 211 32 1,050 
Total finance receivables$4,569 $6,850 $3,299 $2,902 $726 $55 $18,401 
14

Table of Contents

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

Leases by Origination
($ in thousands)Up to 1 Year AgoBetween 1 and 2 Years AgoBetween 2 and 3 Years AgoBetween 3 and 4 Years AgoBetween 4 and 5 Years AgoMore than 5 Years AgoTotal
Current$4,950 $4,406 $4,811 $2,730 $555 $22 $17,474 
30 days and under40 66 121 28 11 267 
31-60 days13 15 13 41 
61-90 days10 44 62 19 138 
Greater than 90 days22 263 537 67 14 911 
Total finance receivables$5,035 $4,794 $5,544 $2,844 $583 $31 $18,831 

At December 31, 2020, credit quality indicators by year of origination consisted of the following:

Leases by Origination
($ in thousands)Up to 1 Year AgoBetween 1 and 2 Years AgoBetween 2 and 3 Years AgoBetween 3 and 4 Years AgoBetween 4 and 5 Years AgoMore than 5 Years AgoTotal
High ratio customers$3,940 $6,158 $2,659 $2,369 $525 $49 $15,700 
Low ratio customers629 692 640 533 201 2,701 
Total finance receivables$4,569 $6,850 $3,299 $2,902 $726 $55 $18,401 

The following table represents a rollforward of the allowance for finance receivables for the six months ending December 31, 2020 and 2019:
Six months ended December 31,Six months ended December 31,
($ in thousands)20202019
Balance at June 30$150 $606 
Impact of ASC 326 *409 — 
Provision for expected losses
Balance at September 30559 607 
Provision for expected losses350 
Write-offs(5)
Balance at December 31$909 $602 
*    The Company adopted ASC 326 on July 1, 2020.


15

Table of Contents
Cash to be collected on our performing finance receivables due for each of the fiscal years are as follows:
($ in thousands)
2021$7,561 
20225,875 
20234,561 
20242,818 
20251,204 
Thereafter85 
Total amounts to be collected22,104 
Less: interest(3,703)
Less: allowance for receivables(909)
Total finance receivables$17,492 

6. LOSS PER SHARE

The calculation of basic and diluted loss per share are presented below:
Three months ended
December 31,
($ in thousands, except per share data)20202019
Numerator for basic and diluted loss per share
Net loss applicable to common shareholders$(2,902)$(8,378)
Denominator for basic loss per share - Weighted average shares outstanding
64,913,364 63,664,256 
Effect of dilutive potential common shares
Denominator for diluted loss per share - Adjusted weighted average shares outstanding
64,913,364 63,664,256 
Basic loss per share$(0.04)$(0.13)
Diluted loss per share$(0.04)$(0.13)
Six months ended December 31,
($ in thousands, except per share data)20202019
Numerator for basic and diluted loss per share
Net loss applicable to common shareholders$(9,849)$(20,220)
Denominator for basic loss per share - Weighted average shares outstanding
64,886,183 61,891,197 
Effect of dilutive potential common shares
Denominator for diluted loss per share - Adjusted weighted average shares outstanding
64,886,183 61,891,197 
Basic loss per share$(0.15)$(0.33)
Diluted loss per share$(0.15)$(0.33)

Anti-dilutive shares excluded from the calculation of diluted loss per share were 2,586,480 for the three and six months ended December 31, 2020 and 1,529,381 for the three and six months ended December 31, 2019.


16

Table of Contents
7. GOODWILL AND INTANGIBLES

Intangible asset balances and goodwill consisted of the following:
As of December 31, 2020
($ in thousands)GrossAccumulated
Amortization
NetAmortization
Period
Intangible assets:
Brand and tradenames$1,735 $(817)$918 3 - 7 years
Developed technology10,939 (6,032)4,907 5 - 6 years
Customer relationships19,049 (3,373)15,676 10 - 18 years
Total intangible assets$31,723 $(10,222)$21,501 
Goodwill63,945 — 63,945 Indefinite
As of June 30, 2020
($ in thousands)GrossAccumulated
Amortization
NetAmortization
Period
Intangible assets:
Brand and tradenames1,695 (699)996 3 - 7 years
Developed technology10,939 (5,110)5,829 5 - 6 years
Customer relationships19,049 (2,841)16,208 10 - 18 years
Total intangible assets$31,683 $(8,650)$23,033 
Goodwill63,945 — 63,945 Indefinite

For the three and six months ended December 31, 2020 and 2019, there was $0.8 million and $1.6 million in amortization expense related to intangible assets, respectively, that was recognized. 

The Company performs an annual goodwill impairment test on April 1 and more frequently if events and circumstances indicate that the asset might be impaired. The Company has determined that there is a single reporting unit for purposes of testing goodwill for impairment. During the three and six months ended December 31, 2020, the Company did not recognize any impairment charges related to goodwill.

8. DEBT AND OTHER FINANCING ARRANGEMENTS

The Company's debt and other financing arrangements as of December 31, 2020 and June 30, 2020 consisted of the following:
As of December 31,As of June 30,
($ in thousands)20202020
2020 Antara Term Facility$$15,000 
2021 JPMorgan Credit Facility14,813 
PPP and other loans3,183 3,358 
Less: unamortized issuance costs and debt discount(291)(2,595)
Total17,705 15,763 
Less: debt and other financing arrangements, current(3,804)(3,328)
Debt and other financing arrangements, noncurrent$13,901 $12,435 


17

Table of Contents
Details of interest expense presented on the Condensed Consolidated Statements of Operations are as follows:
Three months endedSix months ended
December 31,December 31,
($ in thousands)2020201920202019
2020 Antara Term Facility$$379 $2,779 $379 
2021 JPMorgan Credit Facility303 475 
2018 JPMorgan Revolving Credit Facility226 303 
2018 JPMorgan Term Loan160 
Other interest expense293 228 627 456 
Total interest expense$596 $833 $3,881 $1,298 

JPMorgan Chase Bank Credit Agreement

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

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

The 2021 JPMorgan Credit Facility has a three year maturity, with interest determined, at the Company’s option, on a base rate of LIBOR or Prime Rate plus an applicable margin tied to the Company’s total leverage ratio and having ranges between 2.75% and 3.75% for Prime rate loans and between 3.75% and 4.75% for LIBOR rate loans. In the event of default, the interest rate may be increased by 2.00%. The 2021 JPMorgan Credit Facility will also carry a commitment fee of 0.50% per annum on the unused portion. Through December 31, 2021, the applicable interest rate was Prime Rate plus 3.75%. Principal payments are due in quarterly installments of $187,500 beginning December 31, 2020 through September 30, 2022 for a total annual repayment of $750,000 and total repayment over the period of $1,500,000. Beginning December 31, 2022 through June 30, 2023, principal payments are due in quarterly installments of $375,000 for a total repayment over the period of $1,125,000. The remaining unpaid principal amounts are due at the maturity date of the 2021 JPMorgan Credit Facility.

The Company’s obligations under the 2021 JPMorgan Credit Facility are secured by first priority security interests in substantially all of the assets of the Company. The 2021 JPMorgan Credit Agreement includes customary representations, warranties and covenants, and acceleration, indemnity and events of default provisions, including a financial covenant requiring the Company to maintain an adjusted quick ratio of not less than 2.00 to 1.00 through and including September 30, 2020, not less than 2.50 to 1.00 beginning October 1, 2020, 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. The Company was in compliance with its financial covenants as of December 31, 2020.

Term Facility with Antara

On October 9, 2019, the Company entered into a commitment letter with Antara, pursuant to which Antara committed to extend to the Company a $30.0 million senior secured term loan facility. On October 31, 2019, the Company entered into a Financing Agreement with Antara to draw $15.0 million on the 2020 Antara Term Facility and agreed to draw an additional $15.0 million at any time between July 31, 2020 and April 30, 2021, subject to the terms of the Financing Agreement. If the Company failed to make the subsequent draw on the 2020 Antara Term Facility by April 30, 2021, the Company would pay Antara a commitment termination fee equal to 3% of the subsequent draw commitment. The outstanding amount of the draws under the 2020 Antara Term Facility bore interest at 9.75% per annum, payable monthly in arrears. The proceeds of the initial draw were
18

Table of Contents
used to repay the outstanding balance of the 2018 JPMorgan Revolving Credit Facility (as defined below) due to JPMorgan in the amount of $10.1 million, including accrued interest, and to pay transaction expenses. The Company would also incur a prepayment premium of 5% of the principal balance if prepaid on or prior to December 31, 2020.

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

On August 14, 2020, the Company repaid all amounts outstanding under the 2020 Antara Term Facility and entered into the 2021 JPMorgan Credit Agreement. The Company recorded a liability for the commitment termination fee and prepayment premium for $1.2 million as of June 30, 2020, which was paid during the three months ended September 30, 2020.

Revolving Credit Facility and Term Loan with JPMorgan Chase

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, as the lender and administrative agent for the lender (the “Lender”), pursuant to which the Lender (i) made a $25 million term loan (“2018 JPMorgan Term Loan”) to the Company and (ii) provided the Company with a line of credit (“2018 JPMorgan 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. All advances under the 2018 JPMorgan Revolving Credit Facility and all other obligations were required to be paid in full at maturity on November 9, 2022. The applicable interest rate on the loans for the year to date ended October 31, 2019 was LIBOR plus 4%. On September 30, 2019, the Company prepaid the remaining principal balance of the 2018 JPMorgan Term Loan, and on October 31, 2019, the Company repaid the outstanding balance on the 2018 JPMorgan Revolving Credit Facility.

Other Borrowings

In the fourth quarter of fiscal year 2020, we received funds underloan proceeds of approximately $3.1 million (the “PPP Loan”) pursuant to the Paycheck Protection Program afterunder the period endCoronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). We used the PPP Loan in accordance with the amountprovisions of $3.1 million.the CARES Act. The loan bears a fixed interest rate of 1% over a two year term from the approval date of April 28, 2020. The application for these funds requiresrequired the Company to, in good faith, certify that the current economic uncertainty caused by COVID-19 made the loan request necessary to support the ongoing operations of the Company. This certification further requiresrequired the Company to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on our future adherence to the forgiveness criteria. The Company anticipates filing for the forgiveness of the loan in the quarter ended March 31, 2021.




19

Table of Contents
9. ACCRUED EXPENSES
Accrued expenses consisted of the following as of December 31, 2020 and June 30, 2020:
As of December 31,As of June 30,
($ in thousands)20202020
Accrued sales tax$22,007 $20,036 
Accrued compensation and related sales commissions3,502 2,757 
Operating lease liabilities, current1,114 1,075 
Accrued professional fees848 924 
Income taxes payable126 123 
Accrued other taxes and filing fees327 220 
Accrued other, including settlement of shareholder class action lawsuit1,555 5,130 
Total accrued expenses$29,479 $30,265 

10. FAIR VALUE MEASUREMENTS

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

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

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

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

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

The Company’s obligations under its long-term debt agreements are carried at amortized cost, which approximates their fair value as of December 31, 2020. The fair value of the Company’s obligations under its long-term debt agreements with JPMorgan Chase were considered Level 2 liabilities of the fair value hierarchy because these instruments have interest rates that reset frequently. The fair value of the Company's obligations under its long-term debt agreements with Antara as of June 30, 2020 was approximately $15.8 million and considered a Level 3 liability of the fair value hierarchy because this instrument used significant unobservable inputs consistent with those used in determining the embedded derivative liability values, as discussed below.

As discussed in Note 8, the Company’s 2020 Antara Term Facility agreement contained a mandatory prepayment feature that was determined to be an embedded derivative, requiring bifurcation and fair value recognition. At June 30, 2020, the Company’s embedded derivative liability was measured at fair value using a probability-weighted discounted cash flow model including assumptions for (1) management's estimates of the probability and timing of future cash flows and related events; (2) the Company's risk-adjusted discount rate that includes a company-specific risk premium; and (3) the Company's cost of debt; and was classified as a Level 3 liability of the fair value hierarchy and included as a component of Accrued expenses on the
20

Table of Contents
consolidated balance sheets as of June 30, 2020. The Company paid the prepayment premium on the 2020 Antara Term Facility and derecognized the embedded derivative liability during the three months ended September 30, 2020.

11. INCOME TAXES

On December 21, 2020, Congress approved the Consolidated Appropriations Act, 2021 (the “Appropriations Act”), which was signed into law by the President on December 27, 2020. The Appropriations Act funds the federal government to the end of the fiscal year and provides further COVID-19 economic relief. Some of the business provisions included in the Appropriations Act are additional Paycheck Protection Program (PPP) loans, clarification of the deductibility of business expenses that were paid for with PPP funds, expansion of the employee retention credit, and temporary full deduction for business expenses for food and beverages provided by a restaurant. The Appropriations Act did not have a material impact on the Company’s income taxes. The Company will continue to monitor for additional legislation related to COVID-19 and its impact on our results of operations.

For the three months ended December 31, 2020, the Company recorded an income tax provision of $49 thousand. For the six months ended December 31, 2020, the Company recorded an income tax provision of $89 thousand. As of December 31, 2020, the Company reviewed the existing deferred tax assets and continues to record a full valuation against its deferred tax assets.  The income tax provisions primarily relate to the Company's uncertain tax positions, as well as state income and franchise taxes. As of December 31, 2020, the Company had a total unrecognized income tax benefit of $0.2 million. The provision is based upon actual loss before income taxes for the six months ended December 31, 2020, as the use of an estimated annual effective income tax rate does not provide a reliable estimate of the income tax provision. The Company will continue to monitor the status of the COVID-19 pandemic and its impact on our results of operations.

For the three months ended December 31, 2019, the Company recorded an income tax provision of $72 thousand. For the six months ended December 31, 2019, an income tax provision of $131 thousand was recorded. As of December 31, 2019, the Company continued to record a full valuation against its deferred tax assets. The income tax provision primarily relates to the Company’s uncertain tax positions, as well as state income and franchise taxes. As of December 31, 2019, the Company had a total unrecognized income tax benefit of $0.3 million. The provision is based upon actual loss before income taxes for the six months ended December 31, 2019, as the use of an estimated annual effective income tax rate does not provide a reliable estimate of the income tax provision.

12. EQUITY

WARRANTS

The Company had 23,978 warrants outstanding as of December 31, 2020 and June 30, 2020, all of which were exercisable at $5.00 per share. The warrants have an expiration date of March 29, 2021.

STOCK OPTIONS

The Company estimates the grant date fair value of the stock options 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 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 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.

During the three and six months ended December 31, 2020, the Company granted stock options to certain employees which vest each year over a three-year period. Certain of those stock options are also subject to the achievement of goals to be established by the Company for each fiscal year. Because the performance conditions of those stock options granted had not yet been established as of December 31, 2020, a measurement date under ASC 718, Compensation - Stock Compensation, has not yet been established for those stock options and compensation cost will not be measured and recorded until the date on which those specific performance terms are established and mutually understood with the awardee. In January 2021, the Compensation Committee of the Board of Directors established and approved the performance metrics applicable to the above mentioned stock options.


21

Table of Contents
The fair value of all options granted during the six months ended December 31, 2020 and 2019 was determined using the following assumptions and includes only options with an established measurement date under ASC 718:
Six months ended December 31,
20202019
Expected volatility (percent)76.3% - 77.3%74.6% - 90.1%
Weighted average expected life (years)4.53.5 - 4.5
Dividend yield (percent)0.0 %0.0 %
Risk-free interest rate (percent)0.2% - 0.4%1.4% - 1.6%
Number of options granted650,000 340,760 
Weighted average exercise price$8.00 $6.85 
Weighted average grant date fair value$4.69 $6.84 

Stock based compensation related to stock options for the three and six months ended December 31, 2020 was $1.4 million and $2.5 million, respectively, and for the three and six months ended December 31, 2019 was $1.1 million and $1.4 million, respectively.

COMMON STOCK

There were no significant new common stock awards granted during the three and six months ended December 31, 2020.

The total expense recognized for all common stock awards for the three and six months ended December 31, 2020 was $0.3 million and $0.7 million, respectively, and for the three and six months ended December 31, 2019 was $0.5 million.

13. 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.

Eastern District of Pennsylvania Consolidated Shareholder Class Actions

As previously reported, on September 11, 2018, Stéphane Gouet filed a putative class action complaint against the Company, Stephen P. Herbert, the then-current Chief Executive Officer, and Priyanka Singh, the then-current Chief Financial Officer, in the United States District Court for the District of New Jersey. The class was defined as purchasers of the Company’s securities from November 9, 2017 through September 11, 2018. The complaint alleged that the Company disclosed on September 11, 2018 that it was unable to timely file its Annual Report on Form 10-K for the fiscal year ended June 30, 2018 (the “2018 Form 10-K”), and that the Audit Committee of the Company’s Board of Directors was in the process of conducting an internal investigation of current and prior period matters relating to certain of the Company’s contractual arrangements, including the accounting treatment, financial reporting and internal controls related to such arrangements. The complaint alleged that the defendants disseminated false statements and failed to disclose material facts and engaged in practices that operated as a fraud or deceit upon Gouet and others similarly situated in connection with their purchases of the Company’s securities during the proposed class period. The complaint alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “1934 Act”) and Rule 10b-5 promulgated thereunder.

Two additional class action complaints, containing substantially the same factual allegations and legal claims, were filed against the Company, Herbert and Singh in the United States District Court for the District of New Jersey. On September 13, 2018, David Gray filed a putative class action complaint, and on October 3, 2018, Anthony E. Phillips filed a putative class action complaint. Subsequently, multiple shareholders moved to be appointed lead plaintiff, and on December 19, 2018, the Court consolidated the three actions, appointed a lead plaintiff (the “Lead Plaintiff”), and appointed lead counsel for the consolidated actions (the “Consolidated Action”).

22

Table of Contents
On February 28, 2019, the Court approved a Stipulation agreed to by the parties in the Consolidated Action for the filing of an amended complaint within fourteen days after the Company filed its 2018 Form 10-K. On January 22, 2019, the Company and Herbert filed a motion to transfer the Consolidated Action to the United States District Court for the Eastern District of Pennsylvania. On February 5, 2019, the Lead Plaintiff filed its opposition to the Motion to Transfer.  On August 12, 2019, the University of Puerto Rico Retirement System (“UPR”) filed a putative class action complaint in the United States District Court for the District of New Jersey against the Company, Herbert, Singh, the Company’s Directors at the relevant time (Steven D. Barnhart, Joel Books, Robert L. Metzger, Albin F. Moschner, William J. Reilly and William J. Schoch) (the “Independent Directors”), and the investment banking firms who acted as underwriters for the May 2018 follow-on public offering of the Company (the “Public Offering”): William Blair & Company; LLC; Craig-Hallum Capital Group, LLC; Northland Securities, Inc.; and Barrington Research Associates, Inc. (the “Underwriters”). The class was defined as purchasers of the Company’s shares pursuant to the registration statement and prospectus issued in connection with the Public Offering. Plaintiff sought to recover damages caused by Defendants’ alleged violations of the Securities Act of 1933 (as amended, the “1933 Act”), and specifically Sections 11, 12 and 15 thereof. The complaint generally sought compensatory damages, rescissory damages and attorneys’ fees and costs. The UPR complaint was consolidated into the Consolidated Action and the UPR docket was closed.

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

Chester County, Pennsylvania Class Action

As previously reported, a putative shareholder class action complaint was filed against the Company, its chief executive officer and chief financial officer at the relevant time, its directors at the relevant time, and the Underwriters, in the Court of Common Pleas, Chester County, Pennsylvania, Docket No. 2019-04821-MJ. The complaint alleged violations of the 1933 Act. As also previously reported, on September 20, 2019 the Court granted the defendants’ Petition for Stay and stayed the Chester County action until the Consolidated Action reaches a final disposition. On October 18, 2019, plaintiff filed an appeal to the Pennsylvania Superior Court from the Order granting defendants’ Petition for Stay, Docket No. 3100 EDA 2019. On December 6, 2019, the Pennsylvania Superior Court issued an Order stating that the Stay Order does not appear to be final or otherwise appealable and directed plaintiff to show cause as to the basis of the Pennsylvania Superior Court’s jurisdiction. The plaintiff filed a Response to the Order to Show Cause on December 16, 2019, and the defendants filed an Application to Quash Appeal on December 26, 2019. On February 20, 2020, the Pennsylvania Superior Court quashed the appeal. This action has remained stayed pending final disposition of the Consolidated Action. The Company expects that this action will be dismissed, but there can be no guarantee as to the outcome.

Department of Justice Subpoena

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

Other Shareholder Demand Letters

By letter dated October 12, 2018, Peter D’Arcy, a purported shareholder of the Company, demanded that the Board of Directors investigate, remedy and commence proceedings against certain of the Company’s former officers and directors for breach of fiduciary duties. The letter alleged the officers and directors made false and misleading statements that failed to disclose that the Company’s accounting treatment, financial reporting and internal controls related to certain of the Company’s contractual agreements would result in an internal investigation and would delay the Company’s filing of its 2018 Form 10-K, and that the
23

Table of Contents
Company failed to maintain adequate internal controls. By letter dated October 18, 2018, Chiu Jen-Ting, a purported shareholder of the Company, demanded that the Board of Directors investigate, remedy and commence proceedings against certain of the Company’s former officers and directors for breach of fiduciary duties in connection with issues similar to those asserted by Mr. D’Arcy. By letter dated August 2, 2019, Stan Emanuel, a purported shareholder of the Company, demanded that the Board of Directors investigate, remedy and commence proceedings against certain of the Company’s former officers and directors for breach of fiduciary duties in connection with issues similar to those asserted by Mr. D’Arcy. In accordance with Pennsylvania law, the Board of Directors formed a special litigation committee (the “SLC”), currently consisting of Lisa P. Baird, Douglas L. Braunstein and Michael K. Passilla, in order to, among other things, investigate and evaluate the demand letters. The SLC and its counsel are currently investigating the matters raised in these letters. During the second fiscal quarter of 2021, the Company reached a settlement in principle with these shareholders. The settlement consists of a payment of $500,000 in attorney’s fees to the shareholders’ counsel and adoption of various corporate governance reforms. The final settlement documents are being negotiated and, once finalized, the derivative shareholders’ counsel will file a complaint naming each of the former officers and directors as defendants and the Company as a nominal defendant. They will then file the motion for preliminary approval of the proposed settlement along with all of the related settlement documents. Assuming the court preliminarily approves the settlement and the proposed form of notice, the Company will have to provide notice of the settlement and final approval hearing to shareholders through publication and filing a Form 8-K with the notice and settlement papers attached and posting the Form 8-K with attachments on its website. The court will provide shareholders an opportunity to submit objections to the settlement and then will hold a hearing to consider final approval of the settlement. There can be no guarantee that the settlement will be approved. We have recognized an accrual for the $500,000 within our consolidated financial statements for the six months ended December 31, 2020.

Leases

The Company has entered into various operating lease obligations. See Note 3 for additional information.
24

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

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

Forward-Looking Statements

This Form 10-Q contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things, the anticipated financial and operating results of USA Technologies, Inc. (“USAT” 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, including the impact of the coronavirus disease 2019 (COVID-19) pandemic on the Company's business;
the uncertainties associated with COVID-19, including its effects on the Company’s operations, financial condition, and the demand for the Company’s products and services;
failure to comply with the financial covenants of our Term Facility;credit agreement with JPMorgan Chase Bank, N.A. entered into on August 14, 2020;
failure to negotiate amendments to the existing Term Facility or otherwise raise additional capital from other lenders or investors;
uncertainties resulting from, among other things, quarantines of employees, customers, consumers, and suppliers, travel restrictions, reduced consumer spending, and closures of customer locations, manufacturing facilities, warehouses and logistics supply chains, associated with COVID-19;
the Company’s ability to efficiently and flexibly manage its business and financial resources amid uncertainties related to COVID-19;
uncertainty around the duration of the COVID-19 virus’ impact;
the ability of the Company to raise funds in the future through sales of securities or debt financing in order to sustain its operations in the normal course of business or if an unexpected or unusual event would occur;
the ability of the Company to compete with its competitors to obtain market share;
whether the Company’s current or future customers purchase, lease, rent or utilize ePort devices 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;receivables, or to do so in a timely manner;
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 revenue 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 revenue areis derived;
the ability of a key customer to reduce or delay purchasing products from the Company;

the ability of the Company to obtain widespread commercial acceptance of its products and service offerings such as ePort QuickConnect, mobile payment and loyalty programs;
whether any patents issued to the Company will provide the Company with any competitive advantages or adequate protection for its products, or would be challenged, invalidated or circumvented by others;
the ability of the Company to operate without infringing the intellectual property rights of others;
the ability of the Company to maintain the resilience of our productselectronic platforms, soundness of our business continuity and servicesdisaster recovery plans and to avoid unauthorized hacking or credit card fraud;
whether we continue towill 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;
25

Table of Contents
whether our suppliers would increase their prices, reduce their output or change their terms of sale; and
the ability of the Company to sell to third party lenders all or a portion of our finance receivables, or to do so in a timely manner;
whether the listing application for the Company’s securities which has been filed by the Company with The Nasdaq Stock Market LLC (“Nasdaq”) will be granted in a timely manner;
our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired; and
the risks associated with the currently pending litigation or possible regulatory action arising from the internal investigation conducted by the Audit Committee in fiscal year 2019 and its findings (the “2019 Investigation”), from the failure to timely file our periodic reports with the SEC,Securities and Exchange Commission, from the restatement of the affected financial statements, from allegations related to the registration statement for the follow-on public offering, or from potential litigation or other claims arising from the shareholder demands for derivative action.action or from the subpoena the Company received from the U.S. Department of Justice.

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, or those discussed under Item 1A. “Risk Factors” in thisour Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2020 and in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019 (the "20192020 (“2020 Form 10-K"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, Inc. is a cashless payments and software services company that provides wireless networking, cashless transactions, asset monitoring,end-to-end technology solutions for the unattended and other value-added services principally to the small ticket, unattended Point of Sale (“POS”) market.self-service retail markets through its Platform as a Service (PaaS). Our ePort® technology can be installed and/or embedded into everyday devices such as vending machines, a variety of kiosks, amusement games, and commercial laundry via either our ePort hardware or our Quick Connect solution. Our associated service, ePort Connect®, is a PCI-compliant, comprehensive service that includes simplified credit/debit card processing and support, consumer engagement services as well as telemetry, Internet of Things, (“IoT”), and machine-to-machine (“M2M”) services, including the ability to remotely monitor, control and report on the results of distributed assets containing our electronic payment solutions. Our comprehensive platform combines the ePort’s cashless, interactive and digital payment capabilities with the Seed suite’s comprehensive software solution, for better business efficiencies, using real-time data and analytics, as well as offering a loyalty component; all of which results in a true digital transformation at the point of purchase.

The Company's fiscal year ends June 30. The Company generates revenue in multiple ways. During the three and ninesix months ended MarchDecember 31, 2020, we derived approximately 81%87% and 88%, respectively of our revenue from recurring license and transaction fees related to our ePort Connect service and approximately 19%13% and 12%, respectively, of our revenue from equipment sales. Connections toActive Devices on our service stem from the sale or lease of our POSpoint of sale (POS) electronic payment devices, certified payment software, or the servicing of similar third-party installed POS terminals. Connections toDevices utilizing the ePort Connect service are the most significant driver of the Company’s revenue, particularly the recurring revenue from license and transaction fees. Customers can obtain POS electronic payment devices from us in the following ways:
Purchasing devices directly from the Company or one of its authorized resellers;
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, which are cancellable month-to-month operating leases.
As of MarchDecember 31, 2020, highlights of the Company are below:
Headquarters in Malvern, Pennsylvania;
Over 150 employees;
Over 22,000 customers 18,304 Active Customers and approximately 1,289,000 connections1,154,932 Active Devices to our service;
Three direct sales teams at the national, regional, and local customer-level and a growing number of OEMsoriginal equipment manufacturers and national distribution partners;
The Company’s fiscal year ends June 30th.
As indicated in our 2019 Form 10-K, as a result of our failure to comply with our periodic reporting obligations, on September 26, 2019, our securities were suspended from trading on The Nasdaq Stock Market LLC (“Nasdaq”) and are currently quoted on the OTC Markets. On October 8, 2019, and pursuant to applicable Nasdaq rules, we filed an appeal to the Nasdaq Listing and Hearing Review Council (the “Listing Council”) from the Nasdaq Hearing Panel’s determination to delist the Company’s securities from trading. On November 22, 2019, the Company received a notification that the Listing Council had affirmed the decision of the Hearing Panel to suspend trading of the Company’s securities on Nasdaq and to delist the Company’s securities. On January 29, 2020, the Company received written notification from Nasdaq that the Nasdaq Board of Directors declined to call for review of the decision of the Listing Council, and that the decision of the Listing Council represented the final action of Nasdaq relating to the decision of the Listing Council. Pursuant to applicable Nasdaq listing rules and the rules promulgated under the Securities Exchange Act of 1934, as amended, on February 4, 2020, Nasdaq issued a press release stating that it will delist the Company’s securities and will file a Form 25 with the Securities and Exchange Commission to complete the delisting. The delisting of the Company’s securities from Nasdaq became effective on February 18, 2020. Independent of and in addition to the appeal process described above, the Company has applied to relist its common stock and preferred stock on Nasdaq, and the application is currently under review by the staff of the Nasdaq Listing Qualifications Department. There can be no assurance that the listing application will be granted by Nasdaq or granted in a timely manner.

Agreement with Hudson Executive Capital LP
On April 26, 2020, the Company entered into a Letter Agreement with Hudson Executive Capital LP (“Hudson”), the largest shareholderRelisting of the Company to appoint Lisa P. Baird, Douglas G. Bergeron, Douglas L. Braunstein, Jacob Lamm, Michael K. Passilla, Ellen Richey, Anne M. Smalling and Shannon S. Warren toon Nasdaq in November 2020;
26

Table of Contents
Announcement of the Boardrebrand of Directors. The Company accepted the resignations of Kelly Ann Kay, Robert L. Metzger, Sunil Sabharwal, William J. Schoch and Ingrid S. Stafford from the Board of Directors. Pursuant to its proxy disclosure, Hudson has requested that the Company reimbursefrom USA Technologies to Cantaloupe;
Launched upgrade program for 2G and 3G devices to 4G LTE;
Upgraded and expanded the expenses it incurred in connection with its proxy solicitation and has informed the Company that it is preparedePort product family to accept non-cash consideration for such reimbursement; the Board is considering Hudson’s request. No determination regarding the reimbursement or the possible amount of such reimbursement has been made at this time.EMV contact and contactless payments;
Launched “UR Tech Insiders” podcast program;
Over 150 employees; and
We have offices in Malvern, Pennsylvania, Denver, Colorado, and Atlanta, Georgia.

COVID-19 Update

A novel strain ofThe coronavirus (COVID-19) was first identified in China in December 2019, and subsequently declared a global pandemic in March 2020 by the World Health Organization. COVID-19 containment measures began in parts of the United States in March 2020 resulting in forced closure of non-essential businesses and social distancing protocols. As a result, COVID-19 has impacted our business, significantly reducing foot traffic to distributed assets containing our electronic payment solutions and reducing discretionary spending by consumers. The Company did not observe meaningful reductions in processing volume until mid-March, when average daily processing volume decreased approximately 40%. By mid-April, processing volumes began to recover and had steadily improved through September 2020. As of September 30, 2020, our average daily processing volume had increased 53% from the lows in April. During the second half of the current quarter, we have shown a steady improvementexperienced an approximately 7% decrease in volumes driven by approximately 30% overan increase in COVID-19 cases across the mid-March levels.country and seasonality of the business. Continued COVID-19 recurrences could result in further reductions in foot traffic to distributed assets containing our electronic payment solutions and reduced discretionary spending by consumers. In addition, the length of time required for an effective vaccine or therapy to become widely available is uncertain. At this time, we are unable to reasonably estimate the length of time that containment measures will be needed in the United States. Furthermore, even after containment measures are lifted there can be no assurance as to the time required to regain operations and sales at levels prior to the pandemic.

In response to the outbreak and business disruption, first and foremost, we have prioritized the health and safety of our employees by implementing work-from-home measures while continuing to diligently serve our customers. Additionally, we have created

anAn internal task force was created at the start of the pandemic to leaddevelop measures to protect the business in light of the volatility and uncertainty caused by the COVID-19 pandemic, includingpandemic. This included such aspects as ensuring the safety of our employees and our community by implementing work from home policies, conserving liquidity, evaluating cost saving actions, partnering with customers to position USAT for renewed growth post crisis, and temporarily pausing onplans for international expansion. The liquidity conservation and cost savings initiatives include but are not limited to:included: a 20% salary reduction for the senior leadership team untilthrough December 2020; deferral of all cash-based director fees until calendar year 2021; a temporary furlough of aboutapproximately 10% of our employee base; negotiations with and concessions from vendors in regard to cost reductions and/or payment deferrals; an increased collection effort to reduce outstanding accounts receivables; and various supply chain/inventory improvements. OurDuring the summer of 2020 as restrictions lifted, our offices were opened with strict guidelines for social distancing and with adherence to state and local mandates. As a result of an increase in COVID-19 cases during the current quarter and additional lockdowns mandated by state officials, most of our employees continue to work remotely as of December 31, 2020. All of our furloughed employees returned to work, primarily remotely, by June 26, 2020. To date, our supply chain network has not been significantly disrupted and we are continuously monitoring for the impact from COVID-19. In addition, the Company received loan proceeds from the Paycheck Protection Program in the fourth quarter of COVID-19.
Subsequent to March 31, 2020, in response to the outbreak, we have agreed to concessions regarding modifications to price and/or payment terms with certain customers who have been negatively impacted by COVID-19, and may negotiatefiscal year 2020. See Note 8 for additional concessions or other contract amendments regarding modifications to price and/or payment terms.

information.

We continue to monitor the rapidlycontinuously evolving situation and follow guidance from federal, state and local public health authorities. As such, given the dynamic nature of this situation, the Company cannot, at this time, reasonably estimate the impactslonger-term repercussions of COVID-19 on our financial condition, results of operations or cash flows in the future. The effects of COVID-19 are not significant to our financial statements for the quarter ended March 31, 2020. However, based on current trends and if the pandemic is not substantially contained in the near future, COVID-19 may have a material adverse impact on our revenue growth as well as our overall profitability for the quarter ended June 30, 2020 and beyond,in fiscal year 2021, and may lead to higher sales-related, inventory-related, and operating reserves. As of December 31, 2020, we have evaluated the potential impact of the COVID-19 outbreak on our financial statements, including, but not limited to, the impairment of goodwill and intangible assets, impairment of long-lived assets including operating lease right-of-use assets, property and equipment and allowance for doubtful accounts for accounts and finance receivables. We have concluded that there are no material impairments as a result of our evaluation. Where applicable, we have incorporated judgments and estimates of the expected impact of COVID-19 in the preparation of the financial statements based on information currently available. These judgments and estimates may change, as new events develop and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known.
27

Table of Contents

FINANCIAL HIGHLIGHTS

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


usat-20201231_g1.jpgusat-20201231_g2.jpg

usat-20201231_g3.jpg
Financial Summary
Three months ended December 31,Percent
Change
($ in thousands, except per share data)20202019
Revenue$38,285 $44,051 (13.1)%
Cost of sales25,984 31,289 (17.0)%
Gross profit12,301 12,762 (3.6)%
Operating expenses14,883 20,518 (27.5)%
Operating loss(2,582)(7,756)(66.7)%
Other expense, net(271)(550)(50.7)%
Provision for income taxes(49)(72)(31.9)%
Net loss(2,902)(8,378)(65.4)%
Net loss per common share - diluted(0.04)(0.13)(69.2)%
Adjusted EBITDA (a)
$958 $(900)206.4 %
(a)    Adjusted EBITDA is a non-GAAP measurement. See Reconciliations of Non-GAAP Measures for a reconciliation of Adjusted EBITDA to net loss.

28

Table of Contents
Revenue. Further,Total revenue decreased $5.8 million for the three months ended December 31, 2020 compared to the same period in 2019. Approximately $3.2 million of the decrease relates to fewer equipment shipments and revenue in the quarter as compared to the prior year quarter. Additionally, $2.5 million of the decrease relates to lower transaction volumes due to the impacts of COVID-19 in the current quarter compared to the prior year quarter.

Cost of sales. Cost of sales decreased $5.3 million for the three months ended December 31, 2020 compared to the same period in 2019. The change was driven by a sustained downturn may also result$3.3 million decrease in cost of equipment sales, and a $2.0 million decrease in cost of license and transaction fees due to lower transaction volumes and a decrease in network service fees. See “Revenue and Gross Profit” below for a discussion on the fair value of our goodwill or other intangible assets, causing them to exceed their carrying value. This may require us to recognize an impairment to those assets.

Paycheck Protection Program Loan

The Company has applied for, and has received, funds under the Paycheck Protection Program after the period endsignificant changes in the amountcost of $3.1 million. The applicationsales.

Operating expenses. Operating expenses decreased $5.6 million for these funds requires the Companythree months ended December 31, 2020 from the comparable prior period. See “Operating Expenses” below for a discussion of the significant changes in our operating expenses.

Financial Summary
Six months ended December 31,Percent
Change
($ in thousands, except per share data)20202019
Revenue$75,162 $87,410 (14.0)%
Cost of sales48,621 63,232 (23.1)%
Gross profit26,541 24,178 9.8 %
Operating expenses32,761 43,212 (24.2)%
Operating loss(6,220)(19,034)(67.3)%
Other expense, net(3,206)(721)344.7 %
Provision for income taxes(89)(131)(32.1)%
Net loss(9,515)(19,886)(52.2)%
Net loss per common share - diluted$(0.15)$(0.33)(54.5)%
Adjusted EBITDA (a)
436 (3,741)111.7 %
(a)    Adjusted EBITDA is a non-GAAP measurement. See Reconciliations of Non-GAAP Measures for a reconciliation of Adjusted EBITDA to net loss.

Revenue. Total revenue decreased $12.2 million for the six months ended December 31, 2020 compared to the same period in good faith, certify that2019. Approximately $8.2 million of the decrease relates to fewer equipment shipments and revenue in the year-to-date as compared to the prior year-to-date. Additionally, $4.0 million of the decrease relates to lower transaction volumes due to the impacts of COVID-19 in the current economic uncertainty madeyear-to-date compared to the loan request necessaryprior year-to-date.

Cost of sales. Cost of sales decreased $14.6 million for the six months ended December 31, 2020 compared to support the ongoing operationssame period in 2019. The change was driven by a $9.9 million decrease in cost of equipment sales, including a $5.5 million sale of equipment to a strategic partner in the prior year period, and a $4.7 million decrease in cost of license and transaction fees due to lower transaction volumes and a decrease in network service fees. See “Revenue and Gross Profit” below for a discussion on the significant changes in the cost of sales.

Operating expenses. Operating expenses decreased $10.5 million for the six months ended December 31, 2020 from the comparable prior period. See “Operating Expenses” below for a discussion of the Company. This certification further requires the Company to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on our future adherence to the forgiveness criteria.
CRITICAL ACCOUNTING POLICIES

There have been no significant changes to the critical accounting policies disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2019 Form 10-K.operating expenses.
Recent Accounting Pronouncements
See Note 2 to the interim Condensed Consolidated Financial Statements for a description of recent accounting pronouncements.
RESULTS OF OPERATIONS


TRENDING QUARTERLY FINANCIAL AND NON-FINANCIAL DATA

The following table shows certain financial and non-financial data that management believes give readers insight into certain trends and relationships about the Company’s financial performance. We believe the first three measurementsmetrics (Active Devices and Net New Active Devices, Active Customers and Net Change in Active Customers and Total Number of Transactions and Total Dollar Volume of Transactions) are useful in allowing management and readers to evaluate our strategy of driving growth in connectionsdevices and transactions and the fourth measurementFinancing Structure of Devices metric is useful in allowing management and readers to evaluate the growth of our QuickStart program and direct sales compared to the JumpStart program.

GrossActive Devices and Net New Active Devices (new presentation)
Active Devices is defined as a device that has communicated with us or has had a transaction in the last 12 months. Included in the number of 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.
29

Table of Contents

Net New Active Devices during the quarter are defined as the net change in Active Devices from prior quarter.

Active Customers and Net Change in Active Customers
The Company defines Active Customers as all customers with at least one active device. Net Change in Active customers is defined by the net change in Active Customers from the prior period.

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

Financing Structure of Devices
The Financing Structure of Devices is determined by identifying the gross new devices during the quarter and determining which devices were due to devices financed by the JumpStart program compared to devices financed by the QuickStart program or purchased outright. We monitor this metric as we are able to increase cash collections from direct sales to customers or under QuickStart sales by utilizing lease companies which improves cash provided by operating activities.
As of and for the three months ended
December 31, 2020September 30, 2020June 30,
2020
March 31,
2020
December 31, 2019
Devices, new presentation:
Active Devices1,154,932 1,133,754 1,117,805 1,103,242 1,089,406 
Net New Active Devices21,178 15,949 14,563 13,836 25,744 
Customers:
Active Customers18,304 17,760 17,249 16,808 16,489 
Net Change in Active Customers544 511 441 319 479 
Volumes:
Total Number of Transactions (millions)211.8 201.9 167.7 237.3 243.4 
Total Dollar Volume of Transactions (millions)422.6 406.3 329.1 462.7 476.4 
Financing structure of Devices:
JumpStart4.3 %3.0 %6.2 %1.4 %4.3 %
QuickStart & all others (a)
95.7 %97.0 %93.8 %98.6 %95.7 %
Total100.0 %100.0 %100.0 %100.0 %100.0 %
a)    Includes credit sales with standard trade receivable terms.

Highlights of USAT’s devices and customers for the quarter ended December 31, 2020 include:

An increase of 544 Active Customers and 21,178 Active Devices during the quarter;
1,154,932 Active Devices compared to the same quarter last year of 1,089,406, an increase of 65,526 Net New Active Devices, or 6.01%;
18,304 Active Customers to our service compared to the same quarter last year of 16,489, an increase of 1,815 Net Change in Active Customers, or 11.01%.

Total Connections (historical presentation)
Historically, connections net new connections, and total connections.
is a performance metric that has been used by the Company. Connections to the Company’s service include those resulting from the sale or lease of our point of sale (“POS”)POS electronic payment devices, telemetry devices or certified payment software or the servicing of similar third-party installed POS terminals or telemetry devices. The Company records a connection upon shipment of an activated device or the activation of a non-device location on our platform to a customer under contract. A self-service retail location that utilizes an ePort cashless payment device as well as Seed management services constitutes only one connection. We will no longer count an existing connection asIf a connection following the receipt of instructions from the customer provides sufficient notice to deactivate thea device or non-device location, as the case may be, upon the expiration of the applicable notice period, provided that the notice is in accordance with the terms of the customer contract.contract, we stop counting the existing connection as a connection after the applicable notice period. A previously installed telemeter or cashless payment system that is no longer being utilized by our customer is still considered and reported as an existing connection unless and until the customer provides the appropriate notice under the contractrequests deactivation and the applicablecontractual notice period has expired.

30

Table of Contents
Net
As noted in the previous section, management is now focused on Active Devices and Active Customers as set forth in the new connectionspresentation above.

As of and for the three months ended
December 31, 2020September 30, 2020June 30,
2020
March 31,
2020
December 31, 2019
Total connections, historical presentation1,358,000 1,335,000 1,320,000 1,289,000 1,255,000 

Network Incident

During the three months ended September 30, 2020, the Company experienced a network incident on its ePort transaction processing platform, resulting in certain devices being unable to process payment transactions during the quarter are defined as gross new connections duringoutage. The Company has remediated the quarter less deactivated connections duringincident. For the quarter. We derive the majority of our revenues from licensethree months ended September 30, 2020 and transaction fees resulting from connections to, as well as services provided by, our ePort Connect service, and management tracks new connection growth and total connections to evaluate the effectiveness of our revenue strategy.

New customers added and total customers.
New customers are defined as new entities that have not previously purchased our hardware or services. Management uses new customer growth and total customer base to evaluate the effectiveness of our distribution and sales reach and ability to further penetrate attractive adjacent markets.

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

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

Five Quarter Select Key Performance Indicators Including Connections
 As of and for the three months ended
 
March 31,
2020
 December 31, 2019 September 30, 2019 
June 30,
2019
 
March 31, 
2019
Connections:         
Gross new connections37,000
 45,000
 49,000
 47,000
 51,000
Net new connections34,000
 40,000
 46,000
 43,000
 46,000
Total connections1,289,000
 1,255,000
 1,215,000
 1,169,000
 1,126,000
Customers:         
New customers added1,100
 900
 900
 825
 925
Total customers22,300
 21,200
 20,300
 19,400
 18,575
Volumes:         
Total number of transactions (millions)237.3
 243.4
 232.7
 229.6
 217.2
Total volume (millions)$462.7
 $476.4
 $461.2
 $453.0
 $420.3
Financing structure of connections:         
JumpStart1.4% 4.3% 3.4% 10.1% 1.8%
QuickStart & all others (a)
98.6% 95.7% 96.6% 89.9% 98.2%
Total100.0% 100.0% 100.0% 100.0% 100.0%
 

a)Includes credit sales with standard trade receivable terms.
Highlights of USAT’s connections for the quarter ended MarchDecember 31, 2020, include:
34,000 additional net new connections duringwe accrued approximately $1.4 million (of which $1.1 million is included in Selling, general and administrative expenses and $0.3 million is included in Cost of sales) and $0.6 million (of which $0.4 million is included in Selling, general and administrative expenses and $0.2 million is included in Cost of sales) of costs associated with the quarter; and
1,289,000 total connections to our service compared to the same quarter last year of approximately 1,126,000 total connections to our service, an increase of 163,000 connections, or 14%.


RESULTS OF OPERATIONSevent, respectively.

Three Months Ended MarchDecember 31, 2020 Compared to Three Months Ended MarchDecember 31, 2019

Revenue and Gross Profit
Three months ended December 31,Percent
Change
($ in thousands)20202019
Revenue:
License and transaction fees$33,214 $35,754 (7.1)%
Equipment sales5,071 8,297 (38.9)%
Total revenue38,285 44,051 (13.1)%
Cost of sales:
Cost of license and transaction fees20,617 22,579 (8.7)%
Cost of equipment sales5,367 8,710 (38.4)%
Total cost of sales25,984 31,289 (17.0)%
Gross profit:
License and transaction fees12,597 13,175 (4.4)%
Equipment sales(296)(413)28.3 %
Total gross profit$12,301 $12,762 (3.6)%
Gross margin:
License and transaction fees37.9 %36.8 %
Equipment sales(5.8)%(5.0)%
Total gross margin32.1 %29.0 %
  Three months ended March 31, 
Percent
Change
($ in thousands) 2020 2019 
Revenue:      
License and transaction fees $34,961
 $31,515
 10.9 %
Equipment sales 8,137
 6,189
 31.5 %
Total Revenue 43,098
 37,704
 14.3 %
       
Costs of sales:      
Cost of services 22,244
 20,307
 9.5 %
Cost of equipment 9,856
 7,444
 32.4 %
Total costs of sales 32,100
 27,751
 15.7 %
       
Gross profit:      
License and transaction fees 12,717
 11,208
 13.5 %
Equipment sales (1,719) (1,255) (37.0)%
Total gross profit $10,998
 $9,953
 10.5 %

Revenue. Total revenue increased $5.4decreased $5.8 million for the three months ended MarchDecember 31, 2020 compared to the same period in 2019. Approximately $3.2 million of the decrease relates to fewer equipment shipments and revenue in the quarter as compared to the prior year quarter. Additionally, $2.5 million of the decrease relates to lower transaction volumes due to the impacts of COVID-19 in the current quarter compared to the prior year quarter.

Cost of sales. Cost of sales decreased $5.3 million for the three months ended December 31, 2020 compared to the same period in 2019. The change in total revenue resulted from a $3.4 million increase in license and transaction fee revenue for the three months ended March 31, 2020 compared to the same period in 2019, driven primarily by the increase in connection count which caused an increase in license fee and processing fees, and a $1.9 million increase in equipment revenue for the three months ended March 31, 2020 compared to the same period in 2019 driven primarily by higher shipments compared to the same period last year.
Cost of sales. Cost of sales increased $4.3 million for the three months ended March 31, 2020 compared to the same period in 2019.  The increase was driven by a $1.9$3.3 million increase in cost of services driven primarily by an increase in transaction processing costs following the increase in transactions processed during the quarter and a $2.4 million increasedecrease in cost of equipment sales, resulting from an increaseand a $2.0 million decrease in equipment revenuecost of license and transaction fees due to higher shipments compared to the same period last year.lower transaction volumes and a decrease in network service fees.

31

Table of Contents
Gross margin. Total gross margin decreased 0.9%,increased from 26.4% for the three months ended March 31, 2019 to 25.5% for the three months ended March 31, 2020.  The change in our gross margin was driven primarily by a decrease in equipment margin from a loss of 20.3% for the three months ended March 31, 2019 to a loss of 29.0% for the three months ended MarchDecember 31, 2020. The increase in the loss on our equipment margin was due2019 to the low margin the company recognized on a large shipment in the third quarter compared to the same period in 2019. License and transaction margin increased to 36.4%32.1% for the three months ended MarchDecember 31, 2020 compared to 35.6% for the same period in 2019.2020. The change was driven primarily by decreased costs of equipment and lower transaction processing volumes.

Operating Expenses
 Three months ended March 31, 
Percent
Change
Three months ended December 31,Percent
Change
Category ($ in thousands) 2020 2019 Category ($ in thousands)20202019
Selling, general and administrative expenses $20,069
 $11,156
 79.9%Selling, general and administrative expenses$13,831 $16,161 (14.4)%
Investigation and restatement expenses 
 1,408
 NM
Integration and acquisition costs 
 24
 NM
Investigation, proxy solicitation and restatement expensesInvestigation, proxy solicitation and restatement expenses— 3,277 NM
Depreciation and amortization 1,107
 1,083
 2.2%Depreciation and amortization1,052 1,080 (2.6)%
Total operating expenses $21,176
 $13,671
 54.9%Total operating expenses$14,883 $20,518 (27.5)%
____________
NM — not meaningful


Selling, general and administrativeTotal operating expenses. Selling, general and administrativeTotal operating expenses increaseddecreased approximately $8.9$5.6 million (approximately 27.5%) for the three months ended MarchDecember 31, 2020, as compared to the same period in 2019. This change was primarily driven by a $4.5reduction in professional fees incurred by the Company relating to the investigation and the restatements of previously filed financial statements and a decrease in usage of external legal and accounting professional services firms.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased approximately $2.3 million increasefor the three months ended December 31, 2020, as compared to the same period in 2019. This change was primarily driven by $0.8 million in lower legal and accounting professional services costs, primarily$0.8 million of lower compensation expense related to severance in the Company's restatement projectprior year and related audit and legal activities that were not included in one-time costs,$0.4 million of lower travel expenses as a $2.0 million increase in employment related costs, a $2.6 million legal contingency accrual related to ongoing litigation, and a $0.3 million reduction in other selling, general and administrative expenses.result of COVID-19.

Investigation, proxy solicitation and restatement expenses. Investigation, proxy solicitation and restatement expenses were incurred beginning in the first quarter of fiscal year 2019 through the second quarter of fiscal year 2020 in connection with the Audit Committee's investigation,2019 Investigation and the restatements of previously filed financial statements, bank consents, and the ongoing remediation of deficiencies in our internal control over financial reporting.reporting, the proxy solicitation, and professional services fees to assist with accounting and compliance activities in fiscal year 2020 following the filing of the 2019 Form 10-K.
Integration and acquisition costs. The Company did not incur integration and acquisition costs for the three months ended March 31, 2020. Integration and acquisition costs were $24 thousand for the three months ended March 31, 2019 due to the completion of the Cantaloupe acquisition.
Depreciation and amortization. Depreciation and amortization expense was consistent with the same period in 2019.

Other Income (Expense), Net
Three months ended December 31,Percent
Change
($ in thousands)20202019
Other income (expense):
Interest income$325 $283 14.8 %
Interest expense(596)(833)(28.5)%
Total other income (expense), net$(271)$(550)(50.7)%
  Three months ended March 31, 
Percent
Change
($ in thousands) 2020 2019 
Other income (expense):      
Interest income $411
 $348
 18.1 %
Interest expense (683) (913) (25.2)%
Change in fair value of derivative 1,070
 
 NM
Total other income (expense), net $798
 $(565) (241.2)%
____________
NM — not meaningful
Other income (expense), net.  Other income (expense), net increased approximately $1.4 millionwas comparable for the three months ended MarchDecember 31, 2020 and the same period in 2019.


32

Table of Contents
Six Months Ended December 31, 2020 Compared to Six Months Ended December 31, 2019

Revenue and Gross Profit
Six months ended December 31,Percent
Change
($ in thousands)20202019
Revenue:
License and transaction fees$66,322 $70,363 (5.7)%
Equipment sales8,840 17,047 (48.1)%
Total revenue75,162 87,410 (14.0)%
Cost of sales:
Cost of license and transaction fees39,953 44,668 (10.6)%
Cost of equipment sales8,668 18,564 (53.3)%
Total cost of sales48,621 63,232 (23.1)%
Gross profit:
License and transaction fees26,369 25,695 2.6 %
Equipment sales172 (1,517)111.3 %
Total gross profit$26,541 $24,178 9.8 %
Gross margin:
License and transaction fees39.8 %36.5 %
Equipment sales1.9 %(8.9)%
Total gross margin35.3 %27.7 %

Revenue. Total revenue decreased $12.2 million for the six months ended December 31, 2020 compared to the same period in 2019. Approximately $8.2 million of the decrease relates to fewer equipment shipments and revenue in the current year as compared to the prior year period, which included revenue for the initial shipments of equipment to a new, larger contract. Additionally, $4.0 million of the decrease relates to lower transaction volumes due to the impacts of COVID-19 in the current year compared to the prior year period.

Cost of sales. Cost of sales decreased $14.6 million for the six months ended December 31, 2020 compared to the same period in 2019. The change was driven by a $9.9 million decrease in cost of equipment sales, including a $5.5 million sale of equipment to a strategic partner in the prior year period, and a $4.7 million decrease in cost of license and transaction fees due to lower transaction volumes and a decrease in network service fees.

Gross margin. Total gross margin increased from 27.7% for the six months ended December 31, 2019 to 35.3% for the six months ended December 31, 2020. The change was driven primarily by decreased costs of equipment, lower transaction processing volumes, and the prior year adjustment related to equipment costs referred in Note 1 - Business.

Operating Expenses
Six months ended December 31,Percent
Change
Category ($ in thousands)20202019
Selling, general and administrative expenses$30,641 $31,342 (2.2)%
Investigation, proxy solicitation and restatement expenses— 9,768 NM
Depreciation and amortization2,120 2,102 0.9 %
Total operating expenses$32,761 $43,212 (24.2)%
____________
NM — not meaningful


33

Table of Contents
Total operating expenses. Total operating expenses decreased approximately $10.5 million (approximately 24.2%) for the six months ended December 31, 2020, as compared to the same period in 2019. This change was primarily driven by a reduction in professional fees incurred by the Company relating to the investigation and the restatements of previously filed financial statements and a decrease in usage of external legal and accounting professional services firms.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased approximately $0.7 million for the six months ended December 31, 2020, as compared to the same period in 2019. This change was primarily driven by $1.6 million in fair valuelower legal and accounting professional services costs offset by $1.1 million of the Company's derivativecosts related to the Antara debt.
Income Taxes
  Three months ended March 31, 
Percent
Change
($ in thousands) 2020 2019 
Benefit (provision) for income taxes $85
 $(23) (469.6)%
Income taxes.  Fornetwork incident discussed above recognized in the threesix months ended MarchDecember 31, 2020, a tax benefit of $85 thousand was recorded which primarily relates to the Company's uncertain tax positions, as well as state income2020.

Investigation, proxy solicitation and franchise taxes. As of March 31, 2020, the Company had a total unrecognized income tax benefit of $0.2 million. The Company is actively working with the tax authorities related to the majority of this uncertain tax positionrestatement expenses. Investigation, proxy solicitation and it is reasonably possible that a majority of the uncertain tax position will be settled within the next 12 months. The provision is based upon actual loss before income taxes for the three months ended March 31, 2020, as the use of an estimated annual effective income tax rate does not provide a reliable estimate of the income tax provision.
For the three months ended March 31, 2019, a tax provision of $23 thousand was recorded which primarily relates to state income and franchise taxes. The provision is based upon actual loss before income taxes for the three months ended March 31, 2019, as the use of an estimated annual effective income tax rate does not provide a reliable estimate of the income tax provision.

Reconciliation of Net Loss to Adjusted EBITDA
  Three months ended March 31,
($ in thousands) 2020 2019
Net loss $(9,295) $(4,306)
Less: interest income (411) (348)
Plus: interest expense 683
 913
Plus (less): income tax provision (benefit) (85) 23
Plus: depreciation expense 916
 1,143
Plus: amortization expense 784
 784
EBITDA (7,408) (1,791)
Plus: stock-based compensation 421
 421
Less: change in fair value of derivative (1,070) 
Plus: litigation related professional expenses 2,138
 186
Plus: investigation and restatement expenses 
 1,408
Plus: integration and acquisition costs 
 24
Adjustments to EBITDA 1,489
 2,039
Adjusted EBITDA $(5,919) $248
As used herein, Adjusted EBITDA represents net income (loss) before interest income, interest expense, income taxes, depreciation, amortization, non-recurring fees and charges thatrestatement expenses were incurred in fiscal year 2020 in connection with the acquisition2019 Investigation and integrationthe restatements of businesses, non-recurringpreviously filed financial statements, bank consents, the remediation of deficiencies in our internal control over financial reporting, the proxy solicitation, and professional services fees to assist with accounting and charges that were incurredcompliance activities in connectionfiscal year 2020 following the filing of the 2019 Form 10-K.

Depreciation and amortization. Depreciation and amortization expense was consistent with the Audit Committee investigation and financial statement restatement activities, class action litigation and activist related expenses, changessame period in the fair value of our derivative, and stock-based compensation expense.2019.
We have excluded the non-cash expense, stock-based compensation, as it does not reflect our cash-based operations. Consistent with the exclusion of debt interest expense from EBITDA, the debt-related derivative gain recorded
Other Income (Expense), Net
Six months ended December 31,Percent
Change
($ in thousands)20202019
Other income (expense):
Interest income$675 $577 17.0 %
Interest expense(3,881)(1,298)199.0 %
Total other income (expense), net$(3,206)$(721)344.7 %

Other income (expense), net.  Other income (expense), net decreased approximately $2.5 million for the third quartersix months ended December 31, 2020 as compared to the same period in 2019. This change was also excluded from adjusted EBITDA. We have excluded the non-recurring costs and expenses incurred in connection with business acquisitions in order to allow more accurate comparison of the financial results to historical operations. We have excluded the professional fees incurred in connection with the class action litigation and the activist related matters as well as the non-recurring costs and expensesprimarily related to the Audit Committee investigationrecognition of the remaining balance of unamortized issuance costs and financial statement restatement activities because we believe that they represent charges that are notdebt discount related to our operations.the senior secured term loan facility (the “2020 Antara Term Facility”) with Antara Capital Master Fund LP (“Antara”) of $2.6 million into interest expense, related to the repayment of all amounts outstanding under the 2020 Antara Term Facility.

Reconciliations of Non-GAAP Measures

Adjusted EBITDAearnings before income taxes, depreciation, and amortization (“Adjusted EBITDA”) is a non-GAAP financial measure which is not required by or defined under U.S. GAAP (Generally Accepted Accounting Principles). We use these non-GAAP financial measures for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons. We believe that these non-GAAP financial measures provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to metrics used by our management in its financial and operational decision making. The presentation of this financial measure is not intended to be considered in isolation or as a substitute for the financial measures prepared and presented in accordance with U.S. GAAP, including our net income or net loss 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 our net income or net loss as determined in accordance with U.S. GAAP, and are not a substitute for or a measure of 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, we utilize Adjusted EBITDA as a metric in our executive officer and management incentive compensation plans.


Reconciliation of Net Loss to Non-GAAP Net Loss
  Three months ended March 31,
($ in thousands) 2020 2019
Net loss $(9,295) $(4,306)
Non-GAAP adjustments:    
Non-cash portion of income tax provision 5
 5
Amortization expense 784
 784
Stock-based compensation 421
 421
Change in fair value of derivative (1,070) 
Litigation related professional fees 2,138
 186
Investigation and restatement expenses 
 1,408
Integration and acquisition costs 
 24
Non-GAAP net loss $(7,017) $(1,478)
As used herein, non-GAAP net loss representsWe define Adjusted EBITDA as U.S. GAAP net loss excluding costs or benefits relating to any non-cash portions of the Company’sbefore (i) interest income, tax provision,(ii) interest expense, (iii) income taxes, (iv) depreciation, (v) amortization, (vi) stock-based compensation expense, related to our acquisition-related intangibles,and (vii) non-recurring fees and charges that were incurred in connection with the acquisition and integration of businesses, non-recurring fees and charges that were incurred in connection with the Audit Committee investigation2019 Investigation and financial statement restatement activities class-action litigation or activist related expenses, changes in the fair value of our derivative, and stock-based compensation expense.
Non-GAAP net 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 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 not a substitute for or a measure of the Company’s profitability or net earnings. Management believes that non-GAAP net loss is an important measure of the Company’s business. 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 loss as a metric in its executive officer and management incentive compensation plans.

Nine Months Ended March 31, 2020 Compared to Nine Months Ended March 31, 2019
Revenue and Gross Profit
  Nine months ended March 31, 
Percent
Change
($ in thousands) 2020 2019 
Revenue:      
License and transaction fees $105,324
 $89,919
 17.1 %
Equipment sales 25,184
 16,039
 57.0 %
Total Revenue 130,508
 105,958
 23.2 %
       
Costs of sales:      
Cost of services 66,912
 58,141
 15.1 %
Cost of equipment 28,420
 17,371
 63.6 %
Total costs of sales 95,332
 75,512
 26.2 %
       
Gross profit:      
License and transaction fees 38,412
 31,778
 20.9 %
Equipment sales (3,236) (1,332) (142.9)%
Total gross profit $35,176
 $30,446
 15.5 %
Revenue. Total revenue increased $24.6 million for the nine months ended March 31, 2020 compared to the same period in 2019.  The growth in total revenue resulted from a $15.4 million increase in license and transaction fee revenue for the nine months ended March 31, 2020 compared to the same period in 2019, mostly driven by the increase in connection count which generated an increase in license fee and processing fees, and a $9.1 million increase in equipment revenue for the nine months ended March 31, 2020 compared to the same period in 2019 driven primarily by the 120,000 new net connections delivered for the nine months ended March 31, 2020 compared to 98,000 new net connections delivered in the same period in 2019. This 22,000 increase in new net connections represents a 22 percent increase year over year.
Cost of sales. Cost of sales increased $19.8 million for the nine months ended March 31, 2020 compared to the same period in 2019.  The increase was driven by a $8.8 million increase in cost of services driven by an increase in transaction processing costs following the increase in transactions processed for the period and a $11.0 million increase in cost of equipment sales, resulting from higher shipments compared to the same period last year.
Gross margin. Total gross margin decreased 1.8%, from 28.7% for the nine months ended March 31, 2019 to 27.0% for the nine months ended March 31, 2020.  The decrease was driven primarily by a lower equipment margin resulting from a large equipment sale made to a strategic customer during the first three quarters of fiscal year 2020, reflecting our strategy of using equipment sales as an enabler for driving longer-term, higher margin license and transaction fees. License and transaction margin increased to 36.5% for the nine months ended March 31, 2020 compared to 35.3% for the same period in 2019.
Operating Expenses
  Nine months ended March 31, 
Percent
Change
Category ($ in thousands) 2020 2019 
Selling, general and administrative expenses $56,876
 $31,537
 80.3 %
Investigation and restatement expenses 4,303
 13,122
 (67.2)%
Integration and acquisition costs 
 1,127
 NM
Depreciation and amortization 3,209
 3,359
 (4.5)%
Total operating expenses $64,388
 $49,145
 31.0 %
____________
NM — not meaningful
Selling, general and administrative expenses. Selling, general and administrative expenses increased approximately $25.3 million for the nine months ended March 31, 2020, as compared to the same period in 2019.  This change was primarily driven by a $15.3

million increase in professional services costs primarily related to the Company's restatement project and related audit and legal activities that were not included in one-time costs, a $6.3 million increase in employment related costs, and a $2.6 million legal contingency accrual related to ongoing litigation.
Investigation and restatement expenses. Investigation and restatement expenses were incurred beginning in the first quarter of fiscal year 2019 through the second quarter of fiscal year 2020 in connection with the Audit Committee's investigation, the restatements of previously filed financial statements, bank consents, and the ongoing remediation of deficiencies in our internal control over financial reporting.
Integration and acquisition costs. The Company did not incur integration and acquisition costs for the nine months ended March 31, 2020. Integration and acquisition costs were $1.1 million for the nine months ended March 31, 2019 due to the completion of the Cantaloupe acquisition.
Depreciation and amortization. Depreciation and amortization expense was consistent with the same period in 2019.
Other Income (Expense), Net
  Nine months ended March 31, 
Percent
Change
($ in thousands) 2020 2019 
Other income (expense):      
Interest income $988
 $1,245
 (20.6)%
Interest expense (1,981) (2,518) (21.3)%
Change in fair value of derivative 1,070
 
 NM
Total other income (expense), net $77
 $(1,273) (106.0)%
____________
NM — not meaningful
Other income (expense), net.  Other income (expense), net increased approximately $1.4 million for the nine months ended March 31, 2020 as compared to the same period in 2019. This change was primarily driven by the change in fair value of the Company's derivative related to the Antara debt.
Income Taxes
  Nine months ended March 31, 
Percent
Change
($ in thousands) 2020 2019 
Provision for income taxes $(46) $(60) (23.3)%
Income taxes.  For the nine months ended March 31, 2020, a tax provision of $46 thousand was recorded which primarily relates to the Company's uncertain tax positions, as well as state income and franchise taxes. Asproxy solicitation costs.


34

Table of March 31, 2020, the Company hadContents
Below is a total unrecognized income tax benefitreconciliation of $0.2 million. The Company is actively working with the tax authorities related to the majority of this uncertain tax position and it is reasonably possible that a majority of the uncertain tax position will be settled within the next 12 months. The provision is based upon actualU.S. GAAP net loss before income taxes for the nine months ended March 31, 2020, as the use of an estimated annual effective income tax rate does not provide a reliable estimate of the income tax provision.
For the nine months ended March 31, 2019, a tax provision of $60 thousand was recorded which primarily relates to state income and franchise taxes. The provision is based upon actual loss before income taxes for the nine months ended March 31, 2019, as the use of an estimated annual effective income tax rate does not provide a reliable estimate of the income tax provision.

Reconciliation of Net Loss to Adjusted EBITDAEBITDA:
Three months ended December 31,
($ in thousands, including endnotes to table)20202019
U.S. GAAP net loss$(2,902)$(8,378)
Less: interest income(325)(283)
Plus: interest expense596 833 
Plus: income tax provision49 72 
Plus: depreciation expense included in cost of sales for rentals515 757 
Plus: depreciation and amortization expense in operating expenses1,052 1,080 
EBITDA(1,015)(5,919)
Plus: stock-based compensation (a)
1,640 1,742 
Plus: investigation, proxy solicitation and restatement expenses (b) (c)
— 3,277 
Plus: asset impairment charge (b)
333 — 
Adjustments to EBITDA1,973 5,019 
Adjusted EBITDA (d) (e)
$958 $(900)
  Nine months ended March 31,
($ in thousands) 2020 2019
Net loss $(29,181) $(20,032)
Less: interest income (988) (1,245)
Plus: interest expense 1,981
 2,518
Plus: income tax provision 46
 60
Plus: depreciation expense 2,840
 3,530
Plus: amortization expense 2,353
 2,369
EBITDA (22,949) (12,800)
Plus: stock-based compensation 2,453
 1,393
Less: change in fair value of derivative (1,070) 
Plus: litigation related professional expenses 3,367
 289
Plus: investigation and restatement expenses 4,303
 13,122
Plus: integration and acquisition costs 
 1,127
Adjustments to EBITDA 9,053
 15,931
Adjusted EBITDA $(13,896) $3,131
(a)    As used herein, Adjustedan adjustment to EBITDA, represents net income (loss) before interest income, interest expense, income taxes, depreciation, amortization, non-recurring fees and charges that were incurred in connection with the acquisition and integration of businesses, non-recurring fees and charges that were incurred in connection with the Audit Committee investigation and financial statement restatement activities, class action litigation and activist related expenses, changes in the fair value of our derivative, and stock-based compensation expense.
Wewe have excluded the non-cash expense, stock-based compensation, as it does not reflect our cash-based operations. Consistent with the exclusion of debt interest expense from
(b)    As an adjustment to EBITDA, the debt-related derivative gain recorded for the third quarter was also excluded from adjusted EBITDA. We have excluded the non-recurring costs and expenses incurred in connection with business acquisitions in order to allow more accurate comparison of the financial results to historical operations. Wewe have excluded the professional fees incurred in connection with the class action litigation and the activist related matters as well as the non-recurring costs and expenses related to the Audit Committee investigation and2019 Investigation, financial statement restatement activities, and proxy solicitation costs, and non-cash impairment charges related to long-lived assets because we believe that they represent charges that are not related to our operations.
(c)     The previously reported amounts for the three months ended December 31, 2019 were reclassified to include additional operating expenses that related to non-recurring professional services fees. The adjustment amount for the three months ended December 31, 2019 has been revised as disclosed in the basis of presentation and preparation section of Note 1 to the interim Condensed Consolidated Financial Statements.
(d)     As a result of the adjustment noted in (c), the Adjusted EBITDA is a non-GAAP financial measure which is not required by or defined under GAAP (Generally Accepted Accounting Principles). We use these non-GAAP financial measures for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons. We believe that these non-GAAP financial measures provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to metrics used by our management in its financial and operational decision making. The presentation of this financial measure is not intended to be considered in isolation or as a substitute for the financial measures preparedyear ended June 30, 2020 and three months ended June 30, 2020 as previously reported in the Company’s June 30, 2020 Annual Report on Form 10-K should be revised from $(8,253) to $(9,735) and $(85) to $(2,118), respectively. Similarly, the Adjusted EBITDA for the three months ended September 30, 2019 as previously reported in the Company’s September 30, 2020 Quarterly Report on Form 10-Q should be revised from $(4,856) to $(2,841).
(e)     As a result of the adjustment noted in (c) and the subsequent revision to the reclassification amounts as noted in Note 1 to the interim Condensed Consolidated Financial Statements, the Adjusted EBITDA for the three months ended December 31, 2019 as previously reported in the Company’s December 31, 2019 Quarterly Report on Form 10-Q should have been revised from $(2,324) to $(900) as presented in accordance with GAAP, including our net income or net loss or net cash used in operating activities. Management recognizes that non-GAAP financial measurestable above.

Six months ended December 31,
($ in thousands, including endnotes to table)20202019
Net loss$(9,515)$(19,886)
Less: interest income(675)(577)
Plus: interest expense3,881 1,298 
Plus: income tax provision89 131 
Plus: depreciation expense included in cost of sales for rentals1,054 1,391 
Plus: depreciation and amortization expense in operating expenses2,120 2,102 
EBITDA(3,046)(15,541)
Plus: stock-based compensation (a)
3,149 2,032 
Plus: investigation, proxy solicitation and restatement expenses (b) (c)
— 9,768 
Plus: asset impairment charge (b)
333 — 
Adjustments to EBITDA3,482 11,800 
Adjusted EBITDA (d)
$436 $(3,741)
(a)    As an adjustment to EBITDA, we have limitations in that they doexcluded stock-based compensation, as it does not reflect all ofour cash-based operations.
(b)    As an adjustment to EBITDA, we have excluded the items associated with our net income or net loss as determined in accordance with GAAP, and are not a substitute for or a measure of 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, we utilize Adjusted EBITDA as a metric in our executive officer and management incentive compensation plans.

Reconciliation of Net Loss to Non-GAAP Net Loss
  Nine months ended March 31,
($ in thousands) 2020 2019
Net loss $(29,181) $(20,032)
Non-GAAP adjustments:    
Non-cash portion of income tax provision 15
 14
Amortization expense 2,353
 2,369
Stock-based compensation 2,453
 1,393
Change in fair value of derivative (1,070) 
Litigation related professional fees 3,367
 289
Investigation and restatement expenses 4,303
 13,122
Integration and acquisition costs 
 1,127
Non-GAAP net loss $(17,760) $(1,718)
As used herein, non-GAAP net loss represents GAAP net loss excluding costs or benefits relating to any non-cash portions of the Company’s income tax provision, amortization expense related to our acquisition-related intangibles, non-recurringprofessional fees and charges that were incurred in connection with the acquisitionnon-recurring costs and integration of businesses, non-recurring fees and charges that were incurred in connection withexpenses related to the Audit Committee investigation and2019 Investigation, financial statement restatement activities, class-action litigation or activistand proxy solicitation costs, and non-cash impairment charges related to long-lived assets because we believe that they represent charges that are not related to our operations.
(c)     The previously reported amounts for the six months ended December 31, 2019 were reclassified to include additional operating expenses changesthat related to non-recurring professional services fees. The adjustment amount for the six months ended December 31, 2019 has been revised as disclosed in the fair valuebasis of our derivative,presentation and stock-based compensation expense.preparation section of Note 1 to the interim Condensed Consolidated Financial Statements.
Non-GAAP net loss is(d)     As a non-GAAP financial measure which is not required by or defined under GAAP. The presentationresult of this financial measure is not intendedthe adjustment noted in (c) and the subsequent revision to be consideredthe reclassification amounts as noted in isolation or as a substituteNote 1 to the interim Condensed Consolidated Financial Statements, the Adjusted EBITDA for the financial measures prepared andsix months ended December 31, 2019 as previously reported in the Company’s December 31, 2019 Quarterly Report on Form 10-Q should have been revised from $(7,977) to $(3,741) as presented in accordance with GAAP, including the net income or net losstable above.
35

Table 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 not a substitute for or a measure of the Company’s profitability or net earnings. Management believes that non-GAAP net loss is an important measure of the Company’s business. 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 loss as a metric in its executive officer and management incentive compensation plans.Contents

LIQUIDITY AND CAPITAL RESOURCES

Cash used in operating activities was $17.6$0.7 million for the ninesix months ended MarchDecember 31, 2020 compared to cash used of $25.7$9.8 million in the same period in fiscal year 2019.the prior year. The change in cash used in operating activities reflects net cash provided by a change$10.4 million decrease in net expense forloss and an increase in non-cash operating activitiesexpenses of $1.7$3.7 million, andoffset by net cash providedused by the change in various operating assets and liabilities of $18.9$4.9 million. The change in operating assets and liabilities is primarily driven by the net cash used by the change of accounts receivable of $8.4 million and change of inventory of $7.6$5.1 million.

Cash used in investing activities was $1.7$1.0 million for the ninesix months ended MarchDecember 31, 2020 compared to cash used of $3.1$1.3 million in the same period in fiscalthe prior year, 2019, primarily driven by a decrease in equipmentas purchases for rental equipment were relatively consistent compared to the same period last year.

Cash provided byused in financing activities was $17.7$1.9 million for the ninesix months ended MarchDecember 31, 2020 compared to cash usedprovided of $22.4$21.2 million in the same period in fiscal year 2019. The change was primarily duethe prior year. For the six months ended December 31, 2020, the Company paid $1.2 million as a prepayment penalty and commitment termination fee to proceeds received from the Term Facility and equity financing provided by Antara offset by paymentsas part of issuance fees for the Term Facility and the repayment of the 2020 Antara Term LoanFacility and paid $0.5 million of debt issuance costs as a result of entering into the 2021 JPMorgan Credit Facility (as defined below). For the six months ended December 31, 2019, the Company entered into a debt and equity financing with Antara and also repaid the outstanding balance on the 2018 JPMorgan Revolving Credit Facility.
Sources and Uses of Cash
Due to the Company's delay in filing its periodic reports, between September 28, 2018, and September 30, 2019, the Company entered into various agreements with JPMorgan Chase Bank, N.A. (“Lender”), to provide for the extension of the delivery of the

Company’s financial information and related compliance certificates required under the terms of the credit agreement which were required to be delivered to the Lender by no later than October 31, 2019. In connection with these agreements, the Company incurred extension fees due to the lender, totaling $0.2 million, between September 28, 2018 and September 30, 2019. Additionally, during the quarter ended March 31, 2019 the Company prepaid $20.0 million of the balance outstanding under the Term Loan. On September 30, 2019, the Company prepaid the remaining principal balance of the term loan of $1.5 million and agreed to permanently reduce the amount available under the Revolving Credit Facility to $10 million which represented the outstanding balance on the date thereof. On October 31, 2019, the Company repaid the outstanding balance on the Revolving Credit Facility.
Pursuant to a Stock Purchase Agreement dated October 9, 2019 between the Company and Antara Capital Master Fund LP (“Antara”), the Company sold to Antara 3,800,000 shares of the Company’s common stock at a price of $5.25 per share for gross proceeds of $19,950,000. Antara qualifies as an accredited investor under Rule 501 of the Securities Act of 1933, as amended (the "Act"), and the offer and sale of the shares was exempt from registration under Section 4(a)(2) of the Act. Antara agreed not to dispose of the shares for a period of 90 days from the closing date. In connection with the private placement, William Blair & Company, L.L.C. (“Blair”) acted as exclusive placement agent for the Company and received a cash placement fee of $1.2 million. In connection with the Stock Purchase Agreement, the Company also entered into a registration rights agreement with Antara, pursuant to which the Company agreed, at its expense, to file a registration statement under the Act with the Securities and Exchange Commission covering the resale of the shares by Antara. Subsequently, Antara and the Company agreed to terminate the obligation of the Company to register the shares in exchange for a payment of approximately $1.2 million by the Company to Antara which was made during the three months ended March 31, 2020.
On October 9, 2019, the Company also entered into a commitment letter (“Commitment Letter”) with Antara, pursuant to which Antara committed to extend to the Company a $30.0 million senior secured term loan facility (“Term Facility”). Upon the execution of the Commitment Letter, the Company paid to Antara a non-refundable commitment fee of $1.2 million. In connection with the Commitment Letter, Blair acted as exclusive placement agent for the Company and received a cash placement fee of $750,000. On October 31, 2019, the Company entered into a Financing Agreement with Antara to draw $15.0 million on the Term Facility and agreed to draw an additional $15.0 million at any time between July 31, 2020 and April 30, 2021, subject to the terms of the Financing Agreement. The outstanding amount of the draws under the Term Facility bear interest at 9.75% per annum, payable monthly in arrears. The proceeds of the initial draw were used to repay the outstanding balance of the revolving line of credit loan due to JPMorgan Chase Bank, N.A. in the amount of $10.1 million, including accrued interest payable, and to pay transaction expenses, and the Company intends to utilize the balance for working capital and general corporate purposes. The outstanding principal amount of the loan must be paid in full by no later than the maturity date of October 31, 2024.
We may prepay any principal amount outstanding on the Term Facility plus a prepayment premium of 5% (if prepaid on or prior to December 31, 2020), 3% (between January 1, 2021 - December 31, 2021), 1% (between January 1, 2022 - December 31, 2022) and 0% thereafter. Under the Term Facility we are subject to mandatory prepayments as a result of certain asset sales, insurance proceeds, issuances of disqualified capital stock, and issuances of debt. These mandatory prepayments are subject to the prepayment premium that applies to voluntary prepayments. We are also subject to annual mandatory prepayments ranging from 0% of excess cash flow to 75% of excess cash flow depending upon the consolidated total leverage ratio measured at the end of each fiscal year beginning with the fiscal year ending June 30, 2020. These mandatory prepayments are not subject to the aforementioned prepayment premium.
The Company is required to be in compliance with financial covenants related to the minimum fixed charge coverage ratio beginning with the fiscal quarter ending June 30, 2020, maximum capital expenditures beginning with the fiscal quarter ending December 31, 2019, and minimum consolidated EBITDA beginning with the fiscal year ending June 30, 2020. As of March 31, 2020, the Company was in compliance with its capital expenditures financial covenant.
The Company is evaluating its options with respect to the Financing Agreement, including all rights and remedies that may be available to it. Based upon the current financial forecast for the fourth quarter of fiscal year 2020, without a refinancing or modification of existing terms within the Term Facility, the Company anticipates that as of June 30, 2020, it is highly likely the Company will not be in compliance with the minimum fixed charge coverage ratio and the minimum consolidated EBITDA of its Term Facility. Unless the Commitment Letter is rescinded, amended, or replaced, noncompliance would represent an event of default under the Term Facility, and, following the request of the Required Lenders (as such term is defined in the Term Facility), all unpaid principal of $15.0 million and accrued interest to Antara would immediately become due, in addition to a $0.8 million prepayment premium. In addition, all of the Company's unamortized issuance costs and debt discount related to the Term Facility would be recognized upon repayment of the loan as interest expense in the period of repayment, which as of March 31, 2020 was $2.7 million.

As of June 30, 2019 the Company disclosed potential sales tax and related interest liabilities, which the Company estimated to be $18.2 million in the aggregate as of March 31, 2020. The Company has since engaged additional advisors to help evaluate such potential liabilities and the amount and timing of any such payments.
During the three months ended March 31, 2020, the Company reached a settlement of a shareholder class action lawsuit pending in federal court, and anticipates the payment of approximately $2.6 million toward that settlement in addition to amounts to be paid by the Company’s insurers. As discussed in Note 13, those amounts are contingent upon certain future events, but are expected to be paid during the next 12 months.
The Company has the following primary sources of capital available: (1) cash and cash equivalents on hand of $25.9$28.2 million as of MarchDecember 31, 2020; (2) the cash which may be provided by operating activities; and (3) an aggregate amount of $15up to $5 million under the Term Facilityavailable to be drawn between July 31, 2020 and April 30,on the 2021 as described above, if the TermJPMorgan Revolving Facility were to be modified with similar draw terms.(as defined below). In addition, management has recently implemented efficiencies in working capital that are designed to increase our cash balances.
TheIn the six months ended December 31, 2020, the Company is currently evaluating a variety of financing alternatives, including but not limited to negotiating modifications toentered into the existing2021 JPMorgan Credit Agreement (as defined below) and repaid all amounts outstanding under the 2020 Antara Term Facility. The Company also paid $1.2 million to Antara for the commitment termination fee and prepayment premium, and paid $2.6 million towards the settlement of a shareholder class action lawsuit.
The Company also has received a communication from an investor that it will provide sufficient financingestimated and recorded for potential sales tax and related interest and penalty liabilities of $22.0 million in the eventaggregate as of December 31, 2020. The Company continues to evaluate these liabilities and the amount and timing of any such payments.

In the fourth quarter of fiscal year 2020, we received loan proceeds of approximately $3.1 million (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). We intend to use the PPP Loan in accordance with the provisions of the CARES Act. The loan bears a fixed interest rate of 1% over a two year term from the approval date of April 28, 2020. The application for these funds required the Company to, in good faith, certify that the current economic uncertainty caused by COVID-19 made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to take into account our current business activity and Antara failour ability to agreeaccess other sources of liquidity sufficient to modificationssupport ongoing operations in a manner that is not significantly detrimental to the existing Term Facilitybusiness. The receipt of these funds, and other financing alternatives are notthe forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on our future adherence to the forgiveness criteria. The Company anticipates filing for the forgiveness of the loan in place. the quarter ended March 31, 2021.
The Company believes that its current financial resources together with cash generated by operations and the financing available from the investor, if needed, will be sufficient to fund its current twelve-month operating budget from the date of issuance of these consolidated financial statements, alleviating any substantial doubt raised bystatements.

CRITICAL ACCOUNTING POLICIES

As a result of the potential breachJuly 1, 2020 adoption of Topic 326, the Company has updated the critical accounting policies disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Term Facility with Antara.2020 Form 10-K as follows:

Allowances for Doubtful Accounts and Finance Receivables. We maintain lifetime expected loss allowances for doubtful accounts and finance receivables based on historical experience of payment performance, current conditions of the customer, and reasonable and supportable economic forecasts of collectability for the asset’s entire expected life, which is generally less than one year for accounts receivable and five years for finance receivables. Historical loss experience is utilized as there have
36

Table of Contents
been no significant changes in the mix or risk characteristics of the receivable revenue streams used to calculate historical loss rates. Current conditions are analyzed at each measurement date to 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. Reasonable and supportable macroeconomic trends also are incorporated into the analysis. Estimating the allowances therefore requires us to apply judgment in relying on historical customer payment experience, regularly analyzing the financial condition of our customers, and developing macroeconomic forecasts to adequately cover expected credit losses on our receivables. By nature, such estimates are highly subjective, and it is possible that the amount of receivables that we are unable to collect may be different than the amounts initially estimated in the allowances.

Recent Accounting Pronouncements
See Note 2 - Accounting Policies to the interim Condensed Consolidated Financial Statements for a description of recent accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We are exposedOn August 14, 2020, the Company repaid all amounts outstanding under the 2020 Antara Term Facility and entered into a credit agreement with JPMorgan Chase Bank, N.A (the “2021 JPMorgan Credit Agreement”) for a $5 million secured revolving credit facility (the “2021 JPMorgan Revolving Facility”) and a $15 million secured term facility (the “2021 JPMorgan Secured Term Facility” and together with the 2021 JPMorgan Revolving Facility, the “2021 JPMorgan Credit Facility”). Through December 31, 2021, the applicable interest rate on the 2021 JPMorgan Credit Facility will be Prime Rate plus 3.75%. An increase of 100 basis points in Prime Rate would not have a material impact of on our interest expense or condensed consolidated financial statements.

Our other exposures to market risk related to changes in interest rates on our cash investments, which earn a floating rate of interest. The uncertainty that exists with respect to the economic impact of the global coronavirus (COVID-19) pandemic has introduced significant volatility in the financial markets. We invest our excess cash in money market funds that we believe are highly liquid and marketable in the short term. These investments arehave 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. changed materially since June 30, 2020.

In addition, as described above under Item 1A - “Risk Factors”, there may be implications on our business with regard to the COVID-19.

Market risks related to fluctuations of foreign currencies are not material.
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 reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules, 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 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"). Based on this evaluation, our management, including our chief executive officer and chief financial officer, has concluded that our disclosure controls and procedures were notare effective as of the end of such period as a result of the material weaknesses in our internal control over financial reporting, which are described in Item 9A. of our 2019 Form 10-K.December 31, 2020.
(b) Changes in Internal Control over Financial Reporting

Other than the remediation actionsplan disclosed in Item 9A. of the 20192020 Form 10-K for the material weakness identified in fiscal year 2020 related to the accounting impact of a non-routine and complex transaction, there were no changes in our internal controls over financial reporting that occurred during the quarter ended MarchDecember 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

As discussed in Item 9A. of our 20192020 Form 10-K, we have implemented a broad range of remedial proceduresreinforced our existing internal control structure to ensure that one-time and unusual transactions are subject to timely and formal evaluation by senior finance and accounting leadership to ensure proper accounting treatment to address the material weaknessesweakness in our internal control over financial reporting. These remedial procedures entailed significant changes in our internalManagement has concluded that the control over financial reporting throughouthas operated for a sufficient period of time and concluded, through testing, that the course of the fiscal year ended June 30, 2019control is operating effectively, and were not completethat this material weakness was remediated as of MarchDecember 31, 2020, and will continue through fiscal year 2020, with the goal to fully remediate all remaining material weaknesses by fiscal year end.2020.

37

Table of Contents
Part II - Other Information

Item 1. Legal Proceedings.

Eastern District of Pennsylvania Consolidated Shareholder Class Actions

As previously reported, various putative shareholder class action complaints had been filed in the United States District Court for the District of New Jersey against the Company, its chief executive officer and chief financial officer at the relevant time, its directors at the relevant time, and the investment banks who served as underwriters in the May 2018 follow-on public offering of the Company (the “Underwriters”). These complaints alleged violations of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. These various actions were consolidatedThe information required by the Court into one action (the “Consolidated Action”), and the Court granted the Motion to Transfer filedthis Item is incorporated herein by the Company and its former chief executive officer, and transferred the Consolidated Actionreference to the United States District Court for the Eastern DistrictNotes to Condensed Consolidated Financial Statements, Note 13 – Commitments and Contingencies in Part I, Item 1, of Pennsylvania, Docket No. 19-cv-04565. On November 20, 2019, Plaintiff filed an amended complaint, and defendants filed motions to dismissthis Quarterly Report on February 3, 2020. The Court has not yet ruled on the motions to dismiss. The parties participated in a private mediation on February 27, 2020 which resulted in a settlement. On May 29, 2020, the plaintiffs filed documents with the Court seeking preliminary approval of the settlement, with the defendants supporting approval of the settlement. On June 9, 2020, the Court granted preliminary approval of the settlement and issued a scheduling order for further action on the settlement. The settlement provides for a payment of $15.3 million which includes all administrative costs and plaintiff’s attorneys’ fees and expenses. The Company’s insurance carriers are anticipated to pay approximately $12.7 million towards the settlement and the Company is anticipated to pay approximately $2.6 million towards the settlement, which has been recorded as a liability in the accompanying condensed consolidated financial statements. Payments will not be distributed pursuant to the settlement until and unless an opt-out process is completed successfully and the Court grants final approval of the settlement. The Company expects but cannot assure that those events will occur later in the calendar year. Should the settlement not be approved the parties will resume litigation of the claims.Form 10-Q.

Chester County, Pennsylvania Class Action

As previously reported, a putative shareholder class action complaint was filed against the Company, its chief executive officer and chief financial officer at the relevant time, its directors at the relevant time, and the Underwriters, in the Court of Common Pleas, Chester County, Pennsylvania, Docket No. 2019-04821-MJ. The complaint alleged violations of the Securities Act of 1933, as amended. As also previously reported, on September 20, 2019 the Court granted the defendants’ Petition for Stay and stayed the Chester County action until the Consolidated Action reaches a final disposition. On October 18, 2019, plaintiff filed an appeal to the Pennsylvania Superior Court from the Order granting defendants’ Petition for Stay, Docket No. 3100 EDA 2019. On December 6, 2019, the Pennsylvania Superior Court issued an Order stating that the Stay Order does not appear to be final or otherwise appealable and directed plaintiff to show cause as to the basis of the Pennsylvania Superior Court’s jurisdiction. The plaintiff filed a Response to the Order to Show Cause on December 16, 2019, and the defendants filed an Application to Quash Appeal on December 26, 2019. On February 20, 2020, the Pennsylvania Superior Court quashed the appeal.

Subpoena

During the three months ended March 31, 2020, the Company responded to a subpoena received from the U.S. Department of Justice that sought records regarding Company activities that occurred during prior financial reporting periods, including restatements. The Company is cooperating fully with the agency’s queries.

HEC Master Fund LP Lawsuit

On November 15, 2019, HEC filed a lawsuit against the Company and its directors at the relevant time in the Court of Common Pleas of Chester County, Pennsylvania, Docket No. 2019-11640-MJ. The lawsuit alleged that the directors’ adoption of an amendment to the Company’s bylaws that prohibited shareholders from calling a special meeting of shareholders until the Company’s next annual meeting of shareholders, along with other efforts by the directors to prevent HEC from soliciting consents to call a special meeting of shareholders, constituted impermissible entrenchment and interference with the shareholder franchise in violation of Pennsylvania law. On November 22, 2019, the Court, with the consent of HEC and the Company, ordered the Company to call and hold its annual meeting of shareholders on or before April 30, 2020. The Court also ordered that the directors stand for election at the annual meeting in accordance with the bylaws and prohibited the board of directors from making further amendments of any kind to the bylaws prior to the annual meeting. Following the entry of that order, HEC voluntarily discontinued the lawsuit. On March 27, 2020, HEC moved to strike the discontinuance and hold the Company in contempt of the Court’s November 22, 2019 order. On April 26, 2020, the parties entered into a Letter Agreement pursuant to which HEC’s action was dismissed with prejudice.


HEC Master Fund LP Shareholder Demand

By letter dated February 12, 2020, HEC demanded that the Board of Directors investigate, remedy and commence proceedings against certain of the Company’s current and former officers and directors and other responsible parties for breach of fiduciary duties. The matters alleged to constitute breaches of duty related to the matters raised by HEC during the contest for the election of directors at the 2020 annual meeting. On April 26, 2020, the parties entered into a Letter Agreement pursuant to which HEC withdrew its shareholder demand for board action.

Item 1A. Risk Factors. Factors

Our results of operations may be adversely impacted by the COVID-19 pandemic depending on when the pandemic is contained.

The global spreadFor a discussion of the COVID-19 pandemic has created significant volatility, uncertainty and economic disruption on our business. Electronic payment transaction volume within unattended markets has decreased significantly sinceCompany’s risk factors, see the pandemic acceleratedinformation under the heading “Risk Factors” in the United States in March 2020, as government authorities have imposed forced closure of non-essential businesses and social distancing protocols, significantly reducing foot traffic to distributed assets containing our electronic payment solutions and reducing discretionary spending by consumers.

The extent to which the COVID-19 pandemic impacts our business, operations and financial results will depend on numerous evolving factors that we are not able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; and the impact of the pandemic on economic activity and actions taken in response. Furthermore, even after containment measures are lifted there can be no assurance as to the time required to regain operations and sales at levels prior to the pandemic. There may also be increased marketplace consolidation as companies are challenged to respond to the COVID-19 impact.

A sustained downturn may also result in a decrease in the fair value of our goodwill or other intangible assets, causing them to exceed their carrying value. This may require us to recognize an impairment to those assets. The effects of the pandemic, including remote working arrangements for employees, may also impact our financial reporting systems and internal control over financial reporting, including our ability to ensure information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

Further, the COVID-19 pandemic could decrease consumer spending, adversely affect demand for our technology and services, cause one or more of our customers and partners to file for bankruptcy protection or go out of business, cause one or more of our customers to fail to renew, terminate, or renegotiate their contracts, affect the ability of our sales team to travel to potential customers, impact expected spending from new customers and negatively impact collections of accounts receivable, all of which could adversely affect our business, results of operations and financial condition. Subsequent to March 31, 2020, in response to the outbreak, we have agreed to concessions regarding modifications to price and/or payment terms with certain customers who have been negatively impacted by COVID-19, and may negotiate additional concessions or other contract amendments regarding modifications to price and/or payment terms.

It is not possible for us to predict the duration or magnitude of the adverse results of the outbreak and its effects on our business, results of operations or financial condition at this time.

Failure to comply with any of the covenants could result in an event of default which may accelerate our outstanding indebtedness or other obligations and have a material adverse impact on our business, liquidity position and financial position.

The Term Facility contains financial covenants requiring compliance with financial covenants related to the minimum fixed charge coverage ratio beginning with the fiscal quarter ending June 30, 2020, maximum capital expenditures beginning with the fiscal quarter ending December 31, 2019, and minimum consolidated EBITDA beginning with the fiscal year ending June 30, 2020. Based upon the current financial forecast for the fourth quarter of fiscal year 2020, without a refinancing, rescission of the Commitment Letter, or modification of existing terms within the Term Facility, the Company anticipates that as of June 30, 2020, it is highly likely the Company will not be in compliance with the minimum fixed charge coverage ratio and the minimum consolidated EBITDA of its Term Facility.


Without a refinancing or modification of existing terms within the Term Facility, noncompliance with the Commitment Letter’s covenants could have materially adverse impacts on the Company's financial condition and would represent an event of default under the Term Facility, and, following the request of the Required Lenders (as such term is defined in the Term Facility), all unpaid principal and accrued interest would immediately become due. We are currently evaluating our options with respect to the Financing Agreement, including all rights and remedies that may be available to us. There is no guarantee that we will be able to reach any agreement with our lenders under the Term Facility in relation to a potential breach of our minimum fixed charge coverage ratio and the minimum consolidated EBITDA, or otherwise maintain compliance with all applicable covenants under our financial arrangements.

A failure to comply with our covenants, including our minimum fixed charge coverage ratio and the minimum consolidated EBITDA under the Term Facility, if they are not modified, may result in an event of default and have a material adverse impact on our business, liquidity position and financial position. If we are subject to and unable to comply with such covenants, we may have to enter into another credit agreement or debt financing arrangements which may contain restrictive covenants or limitations on our ability to efficiently manage our balance sheet. If we decide to raise additional capital through an equity offering, such an offering would dilute existing holders of our common stock who do not participate in the offering.

We may not be entitled to forgiveness of our recently received Paycheck Protection Program Loan, and our application for the Paycheck Protection Program Loan could in the future be determined to have been impermissible.

In the fourth quarter of fiscal year 2020, we received loan proceeds of approximately $3.1 million (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). We intend to use the PPP Loan in accordance with the provisions of the CARES Act. The PPP Loan, if not forgiven, bears interest at a rate of 1.00% per annum, and is subject to the standard terms and conditions applicable to loans administered by the SBA under the CARES Act.

Under the CARES Act, as amended in June 2020, loan forgiveness is generally available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the Covered Period, which is 8 weeks or 24 weeks (at the election of the Company) beginning on the date of the first disbursement of the PPP Loan. The amount of the PPP Loan eligible to be forgiven may be reduced in certain circumstances, including as a result of certain headcount or salary reductions. We will be required to repay any portion of the outstanding principal that is not forgiven, along with accrued interest, and we cannot provide any assurance that we will be eligible for loan forgiveness, that we will apply for forgiveness, or that any amount of the PPP Loan will ultimately be forgiven by the SBA.

In order to apply for the PPP Loan, we were required to certify, among other things, that the current economic uncertainty made the PPP Loan request necessary to support our ongoing operations. We made this certification in good faith after analyzing, among other things, the maintenance of our workforce, our need for additional funding to continue operations, and our ability to access alternative forms of capital in the current market environment to offset the effects of the COVID -19 pandemic. Following this analysis, we believe that we satisfied all eligibility criteria for the PPP Loan, and that our receipt of the PPP Loan is consistent with the broad objectives of the CARES Act. The certification described above is subject to interpretation.

On April 23, 2020, the SBA issued guidance stating that it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith. The lack of clarity regarding loan eligibility under the Paycheck Protection Program has resulted in significant media coverage and controversy with respect to public companies applying for and receiving loans. If, despite our good-faith belief that given our circumstances we satisfied all eligible requirements for the PPP Loan, we are later determined to have not been in compliance with these requirements or it is otherwise determined that we were ineligible to receive the PPP Loan, we may be required to repay the PPP Loan in its entirety and/or be subject to additional penalties. Should we be audited or reviewed by federal or state regulatory authorities as a result of filing an application for forgiveness of the PPP Loan or otherwise, such audit or review could result in the diversion of management’s time and attention and the incurrence of additional costs. Any of these events could have a material adverse effect on our business, results of operations and financial condition.

In addition to the other information set forth in this report, you should carefully consider the risks set forth in the risk factors described in Part I, Item 1A of the Company's June 30, 2019Company’s Annual Report on Form 10-K which could materially affect our business, financial condition or future results. The risks described in ourfor the fiscal year ended June 30, 2019 Annual Report on Form 10-K are not2020, as supplemented by the only risks we face. Additional risks and uncertainties not currently knownamended risk factor set forth below.

Disruptions to usour systems, breaches in the security of transactions involving our products or that we currently deem to be immaterial also may materially andservices, or failure of our processing systems could adversely affect our reputation, business and results of operations.

We rely on information technology and other systems to transmit financial condition information of consumers making cashless transactions and to provide accounting and inventory management services to our customers. As such, the information we transmit and/or operatingmaintain is exposed to the ever-evolving threat of compromised security, in the form of a risk of potential breach, system failure, computer virus, cyber-attack or unauthorized or fraudulent use by consumers, customers, company employees, or employees of third party vendors. A cybersecurity incident could result in disclosure of confidential information and intellectual property, or cause operational disruptions and compromised data. We may be unable to anticipate or prevent techniques to obtain unauthorized access or to sabotage systems because they change frequently and often are not detected until after an incident has occurred.

In addition, our processing systems may experience errors, interruptions, delays or damage from a number of causes, including, but not limited to, power outages, hardware, software and network failures, internal design, manual or usage errors, terrorism, workplace violence or wrongdoing, catastrophic events, natural disasters and severe weather conditions. The steps we take to deter and mitigate these risks, including annual validation of our compliance with the Payment Card Industry Data Security Standard, may not be successful, and any resulting compromise or loss of data or systems could adversely impact the marketplace acceptance of our products and services, and could result in significant remedial expenses to not only assess and repair any damage to our systems, but also to reimburse customers for losses that occur from service interruptions or the fraudulent use of confidential data. Additionally, we could become subject to significant fines, litigation, and loss of reputation, potentially impacting our financial results.

Further, substantially all of the cashless payment transactions handled by our network involve Visa U.S.A. Inc. (“Visa”) or MasterCard International Incorporated ("MasterCard"). If we fail to comply with the applicable standards or requirements of the Visa and MasterCard card associations relating to security, Visa or MasterCard could suspend or terminate our registration with them. The termination of our registration with them or any changes in the Visa or MasterCard rules that would impair our registration with them could require us to stop providing cashless payment services through our network. In such event, our business plan and/or competitive advantages in the market place would be materially adversely affected.

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. On February 1, 2020, an additional $334 thousand of dividends were accrued on our cumulative Series A Convertible Preferred Stock. The total accrued and unpaid dividends on our Series A Convertible Preferred Stock as of MarchDecember 31, 2020 was $20.8$21.1 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.
38

Table of Contents

Item 6. Exhibits.
Exhibit
Number
Description
Exhibit
Number
3.1
Description
3.1
3.2
4.1
10.1**4.1
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*10.1†
10.8*
10.9*
10.10*
10.11*
10.12

10.1331.1*
31.1
31.231.2*
32.132.1*
32.232.2*
101The following financial information from our Quarterly Report on Form 10-Q for the quarter ended MarchDecember 31, 2020, filed with the SEC on June 24, 2020,February 5, 2021, is formatted in Inline Extensible Business Reporting Language (XBRL)(“iXBRL”): (1) the Condensed Consolidated Balance Sheets as of MarchDecember 31, 2020 and June 30, 2019,2020, (2) the Condensed Consolidated Statements of Operations for the three-month and nine-monthsix-month periods ended MarchDecember 31, 2020 and 2019, (3) the Condensed Consolidated Statements of Shareholders’ Equity for the nine-monththree-month and six-month periods ended MarchDecember 31, 2020 and 2019, (4) the Condensed Consolidated Statements of Cash Flows for the nine-monthsix-month periods ended MarchDecember 31, 2020 and 2019, and (5) the Notes to Consolidated Financial Statements.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 6 of this report.
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
**Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(10).
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
104The cover page from our Quarterly Report on Form 10-Q for the quarter ended December 31, 2020, filed with the SEC on February 5, 2021, is formatted as Inline iXBRL and contained in Exhibit 101.


*    Filed herewith.
† Management contract or compensatory plan or arrangement.
39

Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
USA TECHNOLOGIES, INC.
Date: February 5, 2021USA TECHNOLOGIES, INC.
Date: June 24, 2020/s/ Sean Feeney
Sean Feeney
Chief Executive Officer
Date: June 24, 2020February 5, 2021/s/ Michael WasserfuhrR. Wayne Jackson
Michael WasserfuhrR. Wayne Jackson
Chief Financial Officer

49
40