~~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 ~~December 31, 2020~~September 30, 2021


☐			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,~~

Cantaloupe, Inc.

(Exact name of registrant as specified in its charter)


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

100 Deerfield Lane,

Suite 300,

Malvern,

Pennsylvania

19355

(Address of principal executive offices)

(Zip Code)

(610) 989-0340

(Registrant’s telephone number, including area code)

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


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

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

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

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


Large accelerated filer	☐	Accelerated filer	☑
Non-accelerated filer	☐	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 ~~January 29,~~October 31, 2021 there were ~~65,285,674~~70,968,164 outstanding shares of Common Stock, no par value.

Table of Contents

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

TABLE OF CONTENTS


Part I - Financial Information

Item 1.	Condensed Consolidated Financial Statements

	Condensed Consolidated Balance Sheets (unaudited)	3

	Condensed Consolidated Statements of Operations (unaudited)	4

	Condensed Consolidated Statements of Shareholders’ Equity (unaudited)	5

	Condensed Consolidated Statements of Cash Flows (unaudited)	6

	Notes to Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2522

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3731

Item 4.	Controls and Procedures	3732

Part II - Other Information

Item 1.	Legal Proceedings	3833

Item 1 A .1A.	Risk Factors	3833

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3833

Item 3.	Defaults Upon Senior Securities	3833

Item 4.	Mine Safety Disclosures	3834

Item 5.	Other Information	3834

Item 6.	Exhibits	3934

	Signatures	4036

Table of Contents

Part I. Financial Information

Item 1. Consolidated Financial Statements

~~USA Technologies,~~Cantaloupe, Inc.

Condensed Consolidated Balance Sheets

~~(Unaudited)~~


($ in thousands, except share data)	($ in thousands, except share data)	December 31, 2020		June 30, 2020		($ in thousands, except share data)	September 30, 2021 (Unaudited)		June 30, 2021

Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	28,162	$	31,713	Cash and cash equivalents	$	82,511	$	88,136
Accounts receivable, net	Accounts receivable, net	20,080		17,273		Accounts receivable, net	24,184		27,470
Finance receivables, net	Finance receivables, net	7,196		7,468		Finance receivables, net	8,031		7,967
Inventory, net	Inventory, net	8,794		9,128		Inventory, net	9,537		5,292
Prepaid expenses and other current assets	Prepaid expenses and other current assets	1,419		1,782		Prepaid expenses and other current assets	2,293		2,414
Total current assets	Total current assets	65,651		67,364		Total current assets	126,556		131,279

Non-current assets:	Non-current assets:					Non-current assets:
Finance receivables due after one year		10,296		11,213
Finance receivables due after one year, net						Finance receivables due after one year, net	10,832		11,632
Property and equipment, net	Property and equipment, net	7,185		7,872		Property and equipment, net	6,722		5,570
Operating lease right-of-use assets	Operating lease right-of-use assets	4,799		5,603		Operating lease right-of-use assets	3,240		3,049
Intangibles, net	Intangibles, net	21,501		23,033		Intangibles, net	20,923		19,992
Goodwill	Goodwill	63,945		63,945		Goodwill	66,194		63,945
Other assets	Other assets	2,130		1,993		Other assets	2,474		2,205
Total non-current assets	Total non-current assets	109,856		113,659		Total non-current assets	110,385		106,393

Total assets	Total assets	$	175,507	$	181,023	Total assets	$	236,941	$	237,672

Liabilities, convertible preferred stock and shareholders’ equity	Liabilities, convertible preferred stock and shareholders’ equity					Liabilities, convertible preferred stock and shareholders’ equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	26,907	$	27,058	Accounts payable	$	36,153	$	36,775
Accrued expenses	Accrued expenses	29,479		30,265		Accrued expenses	26,207		26,460
Current obligations under long-term debt	Current obligations under long-term debt	3,804		3,328		Current obligations under long-term debt	662		675
Deferred revenue	Deferred revenue	1,648		1,698		Deferred revenue	1,720		1,763
Total current liabilities	Total current liabilities	61,838		62,349		Total current liabilities	64,742		65,673

Long-term liabilities:	Long-term liabilities:					Long-term liabilities:
Deferred income taxes	Deferred income taxes	148		137		Deferred income taxes	185		179
Long-term debt, less current portion	Long-term debt, less current portion	13,901		12,435		Long-term debt, less current portion	13,477		13,644
Operating lease liabilities, non-current	Operating lease liabilities, non-current	4,241		4,749		Operating lease liabilities, non-current	3,535		3,645
Total long-term liabilities	Total long-term liabilities	18,290		17,321		Total long-term liabilities	17,197		17,468

Total liabilities	Total liabilities	80,128		79,670		Total liabilities	81,939		83,141
Commitments and contingencies (Note 13)	Commitments and contingencies (Note 13)	0		0		Commitments and contingencies (Note 13)	0		0
Convertible preferred stock:	Convertible preferred stock:					Convertible preferred stock:
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, respectively		3,138		3,138
Series A convertible preferred stock, 900,000 shares authorized, 445,063 issued and outstanding, with liquidation preferences of $21,781 and $21,447 at September 30, 2021 and June 30, 2021, respectively						Series A convertible preferred stock, 900,000 shares authorized, 445,063 issued and outstanding, with liquidation preferences of $21,781 and $21,447 at September 30, 2021 and June 30, 2021, respectively	3,138		3,138
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Preferred stock, 0 par value, 1,800,000 shares authorized		0		0
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, respectively		404,433		401,240
Preferred stock, no par value, 1,800,000 shares authorized						Preferred stock, no par value, 1,800,000 shares authorized	—		—
Common stock, no par value, 640,000,000 shares authorized, 70,959,182 and 71,258,047 shares issued and outstanding at September 30, 2021 and June 30, 2021, respectively						Common stock, no par value, 640,000,000 shares authorized, 70,959,182 and 71,258,047 shares issued and outstanding at September 30, 2021 and June 30, 2021, respectively	464,537		462,775
Accumulated deficit	Accumulated deficit	(312,192)		(303,025)		Accumulated deficit	(312,673)		(311,382)
Total shareholders’ equity	Total shareholders’ equity	92,241		98,215		Total shareholders’ equity	151,864		151,393
Total liabilities, convertible preferred stock and shareholders’ equity	Total liabilities, convertible preferred stock and shareholders’ equity	$	175,507	$	181,023	Total liabilities, convertible preferred stock and shareholders’ equity	$	236,941	$	237,672

See accompanying notes.

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~~USA Technologies,~~Cantaloupe, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)


		Three months ended				Six months ended					Three months ended
		December 31,				December 31,					September 30,
($ in thousands, except per share data)	($ in thousands, except per share data)	2020		2019		2020		2019		($ in thousands, except per share data)	2021		2020
Revenue:
License and transaction fees		$	33,214	$	35,754	$	66,322	$	70,363
Revenues:										Revenues:
Subscription and transaction fees										Subscription and transaction fees	$	40,625	$	33,108
Equipment sales	Equipment sales	5,071		8,297		8,840		17,047		Equipment sales	5,155		3,769
Total revenue		38,285		44,051		75,162		87,410
Total revenues										Total revenues	45,780		36,877

Cost of sales:
Cost of license and transaction fees		20,617		22,579		39,953		44,668
Costs of sales:										Costs of sales:
Cost of subscription and transaction fees										Cost of subscription and transaction fees	26,024		19,336
Cost of equipment sales	Cost of equipment sales	5,367		8,710		8,668		18,564		Cost of equipment sales	4,880		3,301
Total cost of sales		25,984		31,289		48,621		63,232
Total costs of sales										Total costs of sales	30,904		22,637

Gross profit	Gross profit	12,301		12,762		26,541		24,178		Gross profit	14,876		14,240

Operating expenses:	Operating expenses:									Operating expenses:
Selling, general and administrative		13,831		16,161		30,641		31,342
Investigation, proxy solicitation and restatement expenses		0		3,277		0		9,768
Sales and marketing										Sales and marketing	2,339		1,599
Technology and product development										Technology and product development	5,389		3,214
General and administrative										General and administrative	7,264		11,997
Depreciation and amortization	Depreciation and amortization	1,052		1,080		2,120		2,102		Depreciation and amortization	1,022		1,068
Total operating expenses	Total operating expenses	14,883		20,518		32,761		43,212		Total operating expenses	16,014		17,878

Operating loss	Operating loss	(2,582)		(7,756)		(6,220)		(19,034)		Operating loss	(1,138)		(3,638)

Other income (expense):	Other income (expense):									Other income (expense):
Interest income	Interest income	325		283		675		577		Interest income	473		350
Interest expense	Interest expense	(596)		(833)		(3,881)		(1,298)		Interest expense	(478)		(3,285)
Other income (expense)										Other income (expense)	(59)		—
Total other income (expense), net	Total other income (expense), net	(271)		(550)		(3,206)		(721)		Total other income (expense), net	(64)		(2,935)

Loss before income taxes	Loss before income taxes	(2,853)		(8,306)		(9,426)		(19,755)		Loss before income taxes	(1,202)		(6,573)
Provision for income taxes	Provision for income taxes	(49)		(72)		(89)		(131)		Provision for income taxes	(89)		(40)

Net loss	Net loss	(2,902)		(8,378)		(9,515)		(19,886)		Net loss	(1,291)		(6,613)
Preferred dividends	Preferred dividends	0		0		(334)		(334)		Preferred dividends	(334)		(334)
Net loss applicable to common shares	Net loss applicable to common shares	$	(2,902)	$	(8,378)	$	(9,849)	$	(20,220)	Net loss applicable to common shares	$	(1,625)	$	(6,947)

Net loss per common share	Net loss per common share									Net loss per common share
Basic		$	(0.04)	$	(0.13)	$	(0.15)	$	(0.33)
Diluted		$	(0.04)	$	(0.13)	$	(0.15)	$	(0.33)
Weighted average number of common shares outstanding
Basic		64,913,364		63,664,256		64,886,183		61,891,197
Diluted		64,913,364		63,664,256		64,886,183		61,891,197
Basic and diluted										Basic and diluted	$	(0.02)	$	(0.11)

Weighted average number of common shares outstanding used to compute net loss per share applicable to common shares										Weighted average number of common shares outstanding used to compute net loss per share applicable to common shares
Basic and diluted										Basic and diluted	71,175,927		64,859,002

See accompanying notes.

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~~USA Technologies,~~Cantaloupe, Inc.

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited)

~~Six~~Three Month Period Ended ~~December 31, 2020~~September 30, 2021

Common Stock Accumulated
Deficit Total
($ in thousands, except share data) Shares Amount
Balance, June 30, 2020 65,196,882 $ 401,240 $ (303,025) $ 98,215
Impact of adoption of ASC 326 — — 348 348
Stock based compensation 56,083 1,502 — 1,502
Net loss — — (6,613) (6,613)
Balance, September 30, 2020 65,252,965 402,742 (309,290) 93,452
Stock based compensation 32,709 1,691 — 1,691
Net loss — — (2,902) (2,902)
Balance, December 31, 2020 65,285,674 $ 404,433 $ (312,192) $ 92,241


	Common Stock			Accumulated Deficit		Total
($ in thousands, except share data)	Shares	Amount
Balance, June 30, 2021	71,258,047	$	462,775	$	(311,382)	$	151,393
Stock-based compensation and exercises (net)	20,958	1,762		—		1,762
Retirement of common stock	(319,823)	—		—		—
Net loss	—	—		(1,291)		(1,291)
Balance, September 30, 2021	70,959,182	464,537		(312,673)		151,864

~~Six~~Three Month Period Ended ~~December 31, 2019~~September 30, 2020

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


	Common Stock			Accumulated Deficit		Total
($ in thousands, except share data)	Shares	Amount
Balance, June 30, 2020	65,196,882	$	401,240	$	(303,025)	$	98,215
Impact of adoption of ASC 326	—	—		348		348
Stock-based compensation and exercises (net)	56,083	1,502		—		1,502
Net loss	—	—		(6,613)		(6,613)
Balance, September 30, 2020	65,252,965	402,742		(309,290)		93,452

See accompanying notes.

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~~USA Technologies,~~Cantaloupe, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


		Six months ended					Three months ended
		December 31,					September 30,
($ in thousands)	($ in thousands)	2020		2019		($ in thousands)	2021		2020
OPERATING ACTIVITIES:
Cash flows from operating activities:						Cash flows from operating activities:
Net loss	Net loss	$	(9,515)	$	(19,886)	Net loss	$	(1,291)	$	(6,613)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:						Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Stock based compensation	Stock based compensation	3,149		2,032		Stock based compensation	1,762		1,509
Amortization of debt discount and issuance costs		2,657		311
Amortization of debt issuance costs and discounts						Amortization of debt issuance costs and discounts	39		3,125
Provision for expected losses	Provision for expected losses	1,286		862		Provision for expected losses	412		394
Provision for inventory reserve	Provision for inventory reserve	1,262		1,006		Provision for inventory reserve	(370)		802
Depreciation and amortization included in operating expenses	Depreciation and amortization included in operating expenses	2,120		2,102		Depreciation and amortization included in operating expenses	1,022		1,068
Depreciation included in cost of sales for rental equipment		1,054		1,391
Depreciation included in costs of sales for rental equipment						Depreciation included in costs of sales for rental equipment	264		539
Other	Other	957		1,072		Other	(186)		271
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(2,987)		2,133		Accounts receivable	2,991		(1,540)
Finance receivables	Finance receivables	429		(990)		Finance receivables	635		531
Inventory	Inventory	(928)		(1,055)		Inventory	(3,875)		1,324
Prepaid expenses and other assets	Prepaid expenses and other assets	243		(411)		Prepaid expenses and other assets	(148)		100
Accounts payable and accrued expenses	Accounts payable and accrued expenses	195		2,424		Accounts payable and accrued expenses	(2,239)		3,985
Operating lease liabilities	Operating lease liabilities	(526)		(776)		Operating lease liabilities	153		(259)
Deferred revenue	Deferred revenue	(50)		(52)		Deferred revenue	(43)		(58)
Net cash provided by operating activities		(654)		(9,837)
Net cash (used in) provided by operating activities						Net cash (used in) provided by operating activities	(874)		5,178

INVESTING ACTIVITIES:
Cash flows from investing activities:						Cash flows from investing activities:
Cash paid for acquisition						Cash paid for acquisition	(2,900)		—
Purchase of property and equipment	Purchase of property and equipment	(970)		(1,361)		Purchase of property and equipment	(1,641)		(483)
Proceeds from sale of property and equipment	Proceeds from sale of property and equipment	11		31		Proceeds from sale of property and equipment	—		8
Net cash used in investing activities	Net cash used in investing activities	(959)		(1,330)		Net cash used in investing activities	(4,541)		(475)

FINANCING ACTIVITIES:
Proceeds from long-term debt issuance by Antara, net of issuance costs paid to Antara		0		14,790
Proceeds from equity issuance by Antara, net of issuance costs paid to Antara		0		18,560
Payment of third-party debt issuance costs		0		(33)
Repayment of 2018 JPMorgan Revolving Credit Facility		0		(10,000)
Proceeds from 2021 JPMorgan Revolving Credit Facility		1,750		0
Repayment of 2021 JPMorgan Revolving Credit Facility		(1,750)		0
Cash flows from financing activities:						Cash flows from financing activities:

Proceeds from long-term debt issuance by JPMorgan Chase Bank, N.A., net of debt issuance costs	Proceeds from long-term debt issuance by JPMorgan Chase Bank, N.A., net of debt issuance costs	14,550		0		Proceeds from long-term debt issuance by JPMorgan Chase Bank, N.A., net of debt issuance costs	—		14,550
Repayment of long-term debt	Repayment of long-term debt	(15,364)		(2,109)		Repayment of long-term debt	(210)		(15,101)

Proceeds from exercise of common stock options	Proceeds from exercise of common stock options	76		0		Proceeds from exercise of common stock options	—		25
Payment of Antara prepayment penalty and commitment termination fee	Payment of Antara prepayment penalty and commitment termination fee	(1,200)		0		Payment of Antara prepayment penalty and commitment termination fee	—		(1,200)
Net cash used in (provided by) financing activities		(1,938)		21,208
Net cash used in financing activities						Net cash used in financing activities	(210)		(1,726)

Net (decrease) increase in cash and cash equivalents	Net (decrease) increase in cash and cash equivalents	(3,551)		10,041		Net (decrease) increase in cash and cash equivalents	(5,625)		2,977
Cash and cash equivalents at beginning of year	Cash and cash equivalents at beginning of year	31,713		27,464		Cash and cash equivalents at beginning of year	88,136		31,713
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	28,162	$	37,505	Cash and cash equivalents at end of period	$	82,511	$	34,690

Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Interest paid in cash	Interest paid in cash	$	615	$	565	Interest paid in cash	$	187	$	191
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		$	0	$	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		$	0	$	1,223

See accompanying notes.

Table of Contents

~~USA Technologies,~~Cantaloupe, Inc.

Condensed Notes to Consolidated Financial Statements

(Unaudited)

1. BUSINESS

Cantaloupe, Inc. (“Cantaloupe” or the “Company”), previously known as USA Technologies, Inc., is organized under the laws of the Commonwealth of Pennsylvania. On March 29, 2021, USA Technologies, Inc. ~~(“USAT” or~~filed Articles of Amendment to its Amended and Restated Articles of Incorporation with the ~~“Company”) was incorporated in~~Pennsylvania Department of State to effect a change of the ~~Commonwealth~~Company’s name from “USA Technologies, Inc.” to “Cantaloupe, Inc.,” effective as 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 withinApril 15, 2021. On April 19, 2021, the ~~unattended Point of Sale (“POS”~~Company’s common stock, no par value per share (the “Common Stock”) 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 gas and 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 Internet of Things services, which include the ability to remotely monitor, control, and report, began trading on the ~~results of distributed assets containing our electronic payment solutions. Historically, these distributed assets have relied~~NASDAQ Global Select Market under the ticker symbol “CTLP” and the Company’s Series A Convertible Preferred Stock, no par value per share, began trading on ~~cash for payment in~~ the ~~form of coins or bills, whereas, our systems allow them to accept cashless payments such as through~~OTC Markets’ Pink Open Market under the use of credit or debit cards or other emerging contactless forms, such as mobile payment. 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.trading symbol, “CTLPP”.

~~We have evolved from unlocking the potential of cashless~~Cantaloupe is a digital payments ~~in vending to transforming into the first platform as a service (PaaS) to power unattended retail operations, from hardware to~~and software services company that provides end-to-end technology solutions for ~~a variety of brands. Today,~~ the unattended retail experience is constantly expanding into new markets and enables brands and merchants to work in new ways. USAT’s mission is to deliver a superior operational and payments platform for unattended retail, that is quick to implement, easy to integrate, flexible to operate, cost effective and provides valuable, real-time customer knowledge. The Company’s PaaS ismarket. We are transforming the unattended retail ~~community~~world by offering ~~one cohesive, integrated~~a solution for payments processing, as well as one that handles inventory management, pre-kitting, route logistics, warehouse and back-office management. ItOur enterprise-wide platform is ~~intended~~designed to increase consumer engagement and sales revenue through ~~contactless~~digital payments, digital advertising and customer loyalty programs, while providing retailers with control and visibility over their operations and inventory. As a result, customers ranging from vending machine companies to operators of micro-markets, car wash and electric vehicle charging stations, commercial laundry, kiosks, amusements and more, can run their businesses more proactively, predictably, and competitively.

~~Impact of~~ COVID-19 Update

The ~~coronavirus (COVID-19) was first identified~~Company, its employees, and its customers operate in ~~China~~geographic locations (primarily the United States) in ~~December 2019,~~which its business operations and ~~subsequently declared a global pandemic in March 2020~~financial performance continues to be affected by the ~~World Health Organization.~~ COVID-19 ~~containment measures began in parts of~~pandemic. However, as businesses, schools, and other organizations re-open and continue through an economic recovery, the ~~United States in March 2020 resulting in forced closure of non-essential businesses and social distancing protocols. As a result, COVID-19~~Company has ~~impacted our business, significantly reducing~~seen increased foot traffic to distributed assets containing our electronic ~~payment solutions and reducing discretionary spending by consumers.~~payments solutions. 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~~continues to ~~recover~~monitor for potential impacts of COVID-19 as new variants emerge 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~~could lead to a resurgence of the current quarter, we have experienced an approximately 7% decrease in volumes driven by an increase in COVID-19 cases across the country and seasonality of the business. Continued COVID-19 recurrences could result in further reductions in foot trafficvirus. Such impacts 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 prioritized the health and safety of our employees while continuing to diligently serve our customers. An internal task force was created at the start of the pandemic to develop measures to protect the business in light of the volatility and uncertainty caused by the COVID-19 pandemic. This included such aspects as ensuring the safety of our employees and our community by implementing work from home policies, conserving liquidity, evaluating cost saving actions, partnering with customers to position USAT for renewed growth post crisis, and temporarily pausing plans for international expansion. The liquidity conservation and cost savings initiatives included: a 20% salary reduction for the senior leadership team through December 2020; deferral of all cash-based director fees until calendar year 2021; a temporary furlough of approximately 10% of our employee base; negotiations with and concessions from vendors in regard to cost reductions and/or payment deferrals; an increased collection effort to reduce outstanding accounts receivables; and various supply chain/inventory improvements. During the summer of 2020 as restrictions lifted, our offices were opened with strict guidelines for social distancing and with adherence to state and local mandates. 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

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

We continue to monitor the continuously evolving situation and follow guidance from federal, state and local public health authorities. As such, given the dynamic nature of this situation, the Company cannot, at this time, reasonably estimate the longer-term repercussions of COVID-19 on our financial condition, results of operations or cash flows in the future. 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 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,~~include, but are 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 condensed consolidated financial statements as soon as they become known.

~~BASIS~~

2. SUMMARY OF ~~PRESENTATION AND PREPARATION~~SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Preparation

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~~2021 Annual Report on Form 10-K.

All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting of normal recurring adjustments, have been included. Operating results for the three ~~and six~~ months ended ~~December 31, 2020~~September 30, 2021 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, ~~2021.~~2022. Actual results could differ from estimates. The balance sheet at June 30, ~~2020~~2021 has been derived from the audited consolidated financial statements at that date, but does not include all disclosures required by accounting principles generally accepted in the United States of America. Certain prior period amounts have been reclassified to conform with current year presentation.

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

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Condensed Consolidated Statement of Operations: operating expenses presentation

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

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

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

•Technology and product development: Technology and product development expenses consists primarily of our technology and product team personnel costs and fees paid to external consultants relating to innovating and maintaining our portfolio of products and services and strengthening our network environment and platform. These costs include but are not limited to engineering, platform and software development, fees for software licenses, contract labor and other technology and product related items.

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

•Depreciation and amortization: No changes made to the accounting policies or previously reported amounts included within the Company’s June 30, ~~2020~~2021 Annual Report on Form 10-K for this category. Depreciation expense on our property and equipment, excluding property and equipment used for rentals, and amortization expense on our intangible assets are included within the ~~September 30, 2020 Quarterly Report on Form 10-Q, during~~Depreciation and amortization caption in the ~~fourth~~Consolidated Statements of Operations.

The presentation changes described above did not impact total operating expenses, operating loss, net loss or net loss per common share.

Below are excerpts from the Condensed Consolidated Statement of Operations for each quarter of fiscal year ~~2020,~~2021 before and after 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.revisions:


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

As 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.


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

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~~Operating expenses for each~~

Condensed Consolidated Statement of Operations: updated caption

Beginning in the first quarter of fiscal year ~~2020~~2022, the Company revised the previously reported revenue caption of License and ~~other reporting periods~~ ~~before~~transaction fees to Subscription and ~~after~~transaction fees within its Condensed Consolidated Statement of Operations to provide a more accurate description of the ~~revision~~ ~~discussed above are as follows:~~

Three months ended Other reporting periods
($ in thousands) September 30, 2019 December 31, 2019 March 31, 2020 June 30, 2020 Year ended June 30, 2020 Six months ended December 31, 2019 Nine 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 expenses 2,015 (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~~revenue stream and align with commonly used terminology by industry participants. No changes were made to the revenue recognition accounting policies or previously reported amounts ~~for the three months ended September 30, 2019, December 31, 2019, March 31, 2020 and full year ended June 30, 2020 were presented in~~included within the Company’s June 30, ~~2020~~2021 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.~~Recently Adopted Accounting Pronouncements

~~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.Statements

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

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

three months ending ~~December 31, 2020:~~September 30, 2021:

Six months ended December 31, 2020
($ in thousands) Accounts receivable Finance receivable
Beginning balance of allowance at June 30, 2020, prior to adopting ASC 326 $ 7,676 $ 150
Impact of adoption of ASC 326 (757) 409
Provision for expected losses 394 0
Balance at September 30, 2020 7,313 559
Provision for expected losses 542 350
Balance at December 31, 2020 $ 7,855 $ 909


	Three months ended September 30, 2021
($ in thousands)	Accounts Receivable		Finance Receivable
Beginning balance of allowance as of June 30, 2021	$	6,614	$	1,109
Provision for expected losses	312		100
Balance at September 30, 2021	$	6,926	$	1,209

ASU ~~2018-15~~2019-12 - ~~Intangibles—Goodwill and Other~~Income Taxes (Topic ~~350)~~740): ~~Internal-Use Software~~Simplifying the Accounting for Income Taxes

~~In August 2018,~~On July 1, 2021, the ~~FASB issued~~Company adopted ASU No. ~~2018-15, “Intangibles—Goodwill~~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 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 incurredamends existing guidance to ~~develop or obtain internal-use software.~~improve consistent application. The adoption of this ~~ASU on July 1, 2020~~accounting standard did not ~~have a material~~materially impact ~~on our~~the Company’s condensed consolidated financial statements.

Accounting ~~pronouncements to be adopted~~Pronouncements To Be Adopted

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

~~ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~Reference Rate Reform

In ~~December 2019,~~March 2020 and January 2021, 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~~” and ASU ~~No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of~~ 2021-01, “Reference Rate ~~Reform~~Reform: Scope”, respectively. Together, the ASUs provide temporary optional expedients and exceptions for applying U.S. GAAP guidance on ~~Financial Reporting.” This standard provides practical expedients for~~ contract modifications ~~with the transition from~~and hedging relationships that reference ~~rates, such as~~ LIBOR ~~that are~~or another reference rate expected to be ~~discontinued. This guidance is applicable for the Company's~~discontinued because of reference rate reform. The Company’s exposure to LIBOR includes our 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~~However, these facilities provide for an alternative rate of interest if LIBOR is discontinued. These optional expedients and exceptions are effective beginning March 12, 2020 through December 31, 2022 and adoption is permitted at any time in the effective period. The Company is currently evaluating and assessing the impact these accounting standards will ~~continue to evaluate ASU 2020-04 to determine the timing~~have on its condensed consolidated financial statements and ~~extent to which we~~related disclosures and if it will ~~apply the provided accounting relief.~~elect these optional standards.

~~ASU 2020-10, Codification Improvements~~Lessor Classification

In ~~October 2020,~~July 2021, the FASB issued ASU ~~2020-10, “Codification Improvements.~~2021-05, “Lessors – Certain Leases with Variable Lease Payments” ~~The purpose~~which requires lessors to classify leases as operating leases if they have variable lease payments that do not depend on an index or rate and would have

Table of ~~the~~Contents

selling losses if they were classified as sales-type or direct financing leases. 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~~2021-05 is effective for fiscal years beginning after December 15, ~~2020 with early application permitted.~~2021, and interim periods within those fiscal years. We plan to adopt this pronouncement for our fiscal year beginning July 1, 2022. The Company ~~does not expect~~is currently evaluating and assessing the ~~changes to~~impact this accounting standard will have ~~a material impact~~ on its condensed consolidated financial statements.

Accounting for Debt and Equity Instruments

In August 2020, the FASB issued ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” which simplifies accounting for convertible instruments and the derivatives scope exception for contracts in an entity's own equity and improves and amends the related earnings per share (EPS) guidance. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. We plan to adopt this pronouncement for our fiscal year beginning July 1, 2022. The Company is currently evaluating and assessing the impact this accounting standard will have on its condensed consolidated financial statements.

3. LEASES

Lessee Accounting

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

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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,~~September 30, 2021, the Company has the following balances recorded in the balance sheet related to its lease arrangements:

~~($ in thousands)~~

~~Classification~~

~~As of December 31, 2020~~

~~Assets~~

~~Operating lease right-of-use assets~~

~~4,799~~

~~Liabilities~~

~~Current~~

~~Accrued expenses~~

~~1,114~~

~~Long-term~~

~~Operating lease liabilities, non-current~~

~~4,241~~


($ in thousands)	Balance Sheet Classification	As of September 30, 2021		As of June 30, 2021


Assets:	Operating lease right-of-use assets	$	3,240	$	3,049

Liabilities:
Current	Accrued expenses	$	1,430	$	1,166
Long-term	Operating lease liabilities, non-current	3,535		3,645
Total lease liabilities		$	4,965	$	4,811

Components of lease cost are as follows:

($ in thousands)

Three months ended December 31, 2020

Three months ended December 31, 2019

($ in thousands)

Three months ended September 30, 2021

Three months ended September 30, 2020

Operating lease costs*

535

753

Operating lease costs*

442

529

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

($ in thousands) Six months ended December 31, 2020 Six 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)	($ in thousands)	Six months ended December 31, 2020		Six months ended December 31, 2019		($ in thousands)	Three months ended September 30, 2021		Three months ended September 30, 2020

Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Cash paid for amounts included in the measurement of operating lease liabilities	Cash paid for amounts included in the measurement of operating lease liabilities	$	802	$	962	Cash paid for amounts included in the measurement of operating lease liabilities	$	480	$	346

Non-cash activity
Non-cash activity:						Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations:	Right-of-use assets obtained in exchange for lease obligations:					Right-of-use assets obtained in exchange for lease obligations:
Operating lease liabilities	Operating lease liabilities	$	0	$	3,384	Operating lease liabilities	$	471	$	—

1110

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~~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 leases~~	~~4.8~~

~~Weighted-average discount rate~~
~~Operating leases~~	~~6.8~~	%

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


($ in thousands)	($ in thousands)	Operating Leases		($ in thousands)	Operating Leases
Remainder of 2021		$	723
2022	2022	1,460		2022	$	1,287
2023	2023	1,492		2023	1,758
2024	2024	1,029		2024	1,029
2025	2025	707		2025	707
2026				2026	628
Thereafter	Thereafter	893		Thereafter	265
Total lease payments	Total lease payments	$	6,304	Total lease payments	$	5,674
Less: Imputed interest	Less: Imputed interest	(949)		Less: Imputed interest	(709)
Present value of lease liabilities	Present value of lease liabilities	$	5,355	Present value of lease liabilities	$	4,965

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)	($ in thousands)	December 31, 2020		June 30, 2020		($ in thousands)	September 30, 2021		June 30, 2021
Cost	Cost	$	32,432	32,445		Cost	$	26,664	26,753
Accumulated depreciation	Accumulated depreciation	(28,298)		(27,745)		Accumulated depreciation	(24,626)		(24,487)
Net	Net	$	4,134	$	4,700	Net	$	2,038	$	2,266

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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~~September 30, 2021 are disclosed within Note 56 - Finance Receivables.

4. REVENUE

Disaggregated Revenue

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

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

•Subscription fees: Subscription fees are primarily comprised of the monthly service fee charged to our customers for our cashless payment services, service fees originated through our rental program and Seed software services that include inventory management, route logistics optimization, warehouse and accounting management, and responsive merchandising.

Based on similar operational ~~and economic~~ characteristics, the ~~Company’s~~Company's revenue ~~from contracts with customers~~ is disaggregated ~~by License and transaction fees and Equipment sales,~~ as follows:


	Three months ended September 30,
($ in thousands)	2021		2020
Transaction fees	$	26,421	$	19,677
Subscription fees	14,204		13,431
Subscription and transaction fees	$	40,625	$	33,108
Equipment sales	5,155		3,769
Total revenues	$	45,780	$	36,877

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


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

Transaction Price Allocated to Future Performance Obligations

In determining the transaction price allocated to ~~unsatisfied~~future performance obligations, we do not include non-recurring charges. Further, we apply the practical expedient to not consider arrangements with an original expected duration of one year or less, which are primarily ~~month to month~~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)	($ in thousands)	As of December 31, 2020		($ in thousands)	As of September 30, 2021

Remainder of 2021		$	6,033
2022	2022	11,154		2022	$	10,133
2023	2023	9,312		2023	11,892
2024	2024	5,160		2024	7,775
2025 and thereafter		2,361
2025				2025	4,092
2026				2026	2,199
Thereafter				Thereafter	143
Total	Total	$	34,020	Total	$	36,234

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) 2020 2019
Deferred revenue, beginning of the period $ 1,639 $ 1,649
Deferred revenue, end of the period 1,648 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,			Three months ended September 30,		Three months ended September 30,
($ in thousands)	($ in thousands)	2020		2019		($ in thousands)	2021		2020

Deferred revenue, beginning of the period	Deferred revenue, beginning of the period	$	1,698	$	1,681	Deferred revenue, beginning of the period	$	1,763	$	1,698
Deferred revenue, end of the period	Deferred revenue, end of the period	1,648		1,629		Deferred revenue, end of the period	1,720		1,639
Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period	Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period	$	184	$	360	Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period	$	95	$	93

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.

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Contract Costs

At ~~December 31, 2020 and June~~September 30, ~~2020,~~2021, the Company had net capitalized costs to obtain contracts of $0.4 million included in Prepaid expenses and other current assets and ~~$1.8~~$2.0 million included in Other noncurrent assets on the Condensed Consolidated Balance Sheet. At June 30, 2021, the Company had net capitalized costs to obtain contracts of $0.4 million included in Prepaid expenses and other current assets and $2.0 million included in Other noncurrent assets on the Condensed Consolidated Balance Sheet. None of these capitalized contract costs were impaired.

During the three ~~and six~~ months ended ~~December 31,~~September 30, 2021, amortization of capitalized contract costs was $0.2 million. During the three months ended September 30, 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. ACQUISITION

In August 2021, we completed the acquisition of certain assets and liabilities of Delicious Nutritious LLC, doing business as Yoke Payments (“Yoke”), a micro market payments company. The acquisition of Yoke was accounted for as a business combination using the acquisition method of accounting which includes the results of operations of the acquired business from the date of acquisition. The purchase price of the acquired company is allocated between tangible and intangible assets acquired and liabilities assumed from the acquired business based on their estimated fair values using primarily Level 3 inputs under ASC Topic 820, Fair Value Measurement, with the residual of the purchase price recorded as goodwill.

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

The consideration transferred for the acquisition includes payments of $3 million in cash at the close of the transaction and $1 million in deferred cash payment due on or before July 30, 2022 based on the achievement of certain sales growth targets. As of the date of the acquisition and as of September 30, 2021, we expect to pay the entire deferred cash payment and we have accrued a contingent consideration liability of $1 million which is included within Accrued expenses in our Condensed Consolidated Balance Sheet.

Additionally in connection with the acquisition, the Company will issue common stock to the former owners of Yoke based on the achievement of certain sales growth targets for software licenses through July 31, 2024 and continued employment as of the respective measurement dates. The accounting treatment for these awards in the context of the business combination is to recognize the awards as a post-combination expense and were not included in the purchase price. We will begin recognizing compensation expense for these awards over the requisite service period when it becomes probable that the performance condition would be satisfied pursuant to ASC 718. At each reporting date, we assess the probability of achieving the sales targets and fulfilling the performance condition. As of September 30, 2021, we determined that it is not probable that the performance condition would be satisfied and, accordingly, have not recognized compensation expense related to these awards for the fiscal quarter ended September 30, 2021.

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


($ in thousands)	Amount
Consideration
Cash	$	3,000
Contingent consideration arrangement	$	1,000
Fair value of total consideration transferred	$	4,000

Recognized amounts of identifiable assets
Total net assets acquired	$	66
Identifiable intangible assets	$	1,685
Total identifiable net assets	$	1,751

Goodwill	$	2,249

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Amounts allocated to identifiable intangible assets included $1.3 million related to developed technology, $0.3 million related to customer relationships, and $0.1 million related to other intangible assets. The fair value of the acquired developed technology was determined using a multi-period excess earnings method. The fair value of the acquired customer relationships was determined using the with-and-without method which estimates the value using the cash flow impact in a scenario where the customer relationships are not in place. The recognized intangible assets will be amortized on a straight-line basis over the estimated useful lives of the respective assets.

Goodwill of $2.2 million arising from the acquisition includes the expected synergies between Yoke and the Company and intangible assets that do not qualify for separate recognition at the time of acquisition. The goodwill, which is deductible for income tax purposes, was assigned to the Company’s only reporting unit.

The above allocation of the purchase price is provisional and is still subject to change within the measurement period. The final allocation of the purchase price is expected to be completed as soon as practicable, but no later than one year from the date of the acquisition. Pro forma financial information of the acquisition is not presented due to the immaterial impact of the financial results of Yoke in the Company's Consolidated Financial Statements.

6. FINANCE RECEIVABLES

The Company's finance receivables consist of financed devices under the ~~Quickstart~~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~~sixty-month sales-type leases. As of ~~December 31, 2020~~September 30, 2021 and June 30, ~~2020,~~2021, finance receivables consist of the following:


($ in thousands)	($ in thousands)	December 31, 2020		June 30, 2020		($ in thousands)	September 30, 2021		June 30, 2021
Current finance receivables, net	Current finance receivables, net	$	7,196	7,468		Current finance receivables, net	$	8,031	$	7,967
Finance receivables due after one year, net	Finance receivables due after one year, net	10,296		11,213		Finance receivables due after one year, net	10,832		11,632
Total finance receivables, net of allowance of $909 and $150, respectively		$	17,492	$	18,681
Total finance receivables, net of allowance of $1,209 and $1,109, respectively						Total finance receivables, net of allowance of $1,209 and $1,109, respectively	$	18,863	$	19,599

We collect lease payments from customers primarily as part of the flow of funds from our transaction processing service. Balances are considered past due if customers do not have sufficient transaction revenue to cover the monthly lease payment by 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 sufficient to cover monthly fees) and low ratio customers (customers that do not consistently have adequate transaction processing volumes sufficient to cover monthly fees). Using these two categories, we performed an analysis of historical write-offs to calculate reserve percentages by aging buckets for each category of customer.

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At ~~December 31, 2020,~~September 30, 2021, the gross lease receivable by current payment performance on a contractual basis and year of origination consisted of the following:

Leases by Origination
($ in thousands) Up to 1 Year Ago Between 1 and 2 Years Ago Between 2 and 3 Years Ago Between 3 and 4 Years Ago Between 4 and 5 Years Ago More than 5 Years Ago Total
Current $ 4,161 $ 6,291 $ 3,127 $ 2,583 $ 683 $ 53 $ 16,898
30 days and under 16 57 25 40 7 0 145
31-60 days 32 84 24 34 2 0 176
61-90 days 30 51 15 34 2 0 132
Greater than 90 days 330 367 108 211 32 2 1,050
Total finance receivables $ 4,569 $ 6,850 $ 3,299 $ 2,902 $ 726 $ 55 $ 18,401

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	Leases by Origination
($ in thousands)	Up to 1 Year Ago		Between 1 and 2 Years Ago		Between 2 and 3 Years Ago		Between 3 and 4 Years Ago		Between 4 and 5 Years Ago		More than 5 Years Ago		Total
Current	$	6,673	$	2,831	$	4,689	$	2,602	$	1,583	$	22	$	18,400
30 days and under	14		44		80		86		3		1		228
31-60 days	4		8		35		3		3		—		53
61-90 days	14		27		63		49		5		—		158
Greater than 90 days	102		147		460		439		46		39		1,233
Total finance receivables	$	6,807	$	3,057	$	5,327	$	3,179	$	1,640	$	62	$	20,072

At June 30, ~~2020,~~2021, the gross lease receivable by current payment performance on a contractual basis and year of origination consisted of the following:


		Leases by Origination															Leases by Origination
($ in thousands)	($ in thousands)	Up to 1 Year Ago		Between 1 and 2 Years Ago		Between 2 and 3 Years Ago		Between 3 and 4 Years Ago		Between 4 and 5 Years Ago		More than 5 Years Ago		Total		($ in thousands)	Up to 1 Year Ago		Between 1 and 2 Years Ago		Between 2 and 3 Years Ago		Between 3 and 4 Years Ago		Between 4 and 5 Years Ago		More than 5 Years Ago		Total
Current	Current	$	4,950	$	4,406	$	4,811	$	2,730	$	555	$	22	$	17,474	Current	$	6,736	$	3,970	$	3,942	$	3,081	$	1,358	$	31	$	19,118
30 days and under	30 days and under	40		66		121		28		11		1		267		30 days and under	19		67		90		93		11		1		281
31-60 days	31-60 days	13		15		13		0		0		0		41		31-60 days	4		9		22		2		1		—		38
61-90 days	61-90 days	10		44		62		19		3		0		138		61-90 days	10		42		66		54		10		—		182
Greater than 90 days	Greater than 90 days	22		263		537		67		14		8		911		Greater than 90 days	46		69		490		419		54		11		1,089
Total finance receivables	Total finance receivables	$	5,035	$	4,794	$	5,544	$	2,844	$	583	$	31	$	18,831	Total finance receivables	$	6,815	$	4,157	$	4,610	$	3,649	$	1,434	$	43	$	20,708

At ~~December 31, 2020,~~September 30, 2021, credit quality indicators by year of origination consisted of the following:


		Leases by Origination															Leases by Origination
($ in thousands)	($ in thousands)	Up to 1 Year Ago		Between 1 and 2 Years Ago		Between 2 and 3 Years Ago		Between 3 and 4 Years Ago		Between 4 and 5 Years Ago		More than 5 Years Ago		Total		($ in thousands)	Up to 1 Year Ago		Between 1 and 2 Years Ago		Between 2 and 3 Years Ago		Between 3 and 4 Years Ago		Between 4 and 5 Years Ago		More than 5 Years Ago		Total
High ratio customers	High ratio customers	$	3,940	$	6,158	$	2,659	$	2,369	$	525	$	49	$	15,700	High ratio customers	$	6,338	$	2,747	$	4,624	$	2,423	$	1,477	$	16	$	17,625
Low ratio customers	Low ratio customers	629		692		640		533		201		6		2,701		Low ratio customers	469		310		703		756		163		46		2,447
Total finance receivables	Total finance receivables	$	4,569	$	6,850	$	3,299	$	2,902	$	726	$	55	$	18,401	Total finance receivables	$	6,807	$	3,057	$	5,327	$	3,179	$	1,640	$	62	$	20,072

~~The following table represents a rollforward~~

At June 30, 2021, credit quality indicators by year of origination consisted of the ~~allowance for finance receivables for the six months ending December 31, 2020 and 2019:~~following:

Six months ended December 31, Six months ended December 31,
($ in thousands) 2020 2019
Balance at June 30 $ 150 $ 606
Impact of ASC 326 * 409 —
Provision for expected losses 0 1
Balance at September 30 559 607
Provision for expected losses 350 0
Write-offs 0 (5)
Balance at December 31 $ 909 $ 602

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


	Leases by Origination
($ in thousands)	Up to 1 Year Ago		Between 1 and 2 Years Ago		Between 2 and 3 Years Ago		Between 3 and 4 Years Ago		Between 4 and 5 Years Ago		More than 5 Years Ago		Total
High ratio customers	$	6,415	$	3,824	$	3,793	$	2,920	$	1,290	$	24	$	18,266
Low ratio customers	400		333		817		729		144		19		2,442
Total finance receivables	$	6,815	$	4,157	$	4,610	$	3,649	$	1,434	$	43	$	20,708

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The following table represents a rollforward of the allowance for finance receivables for the three months ending September 30, 2021 and 2020:


	Three months ended September 30,		Three months ended September 30,
($ in thousands)	2021		2020

Balance at June 30	$	1,109	$	150
Impact of adoption of ASC 326*	—		409
Provision for expected losses	100		—
Balance at September 30	$	1,209	$	559

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

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


($ in thousands)	($ in thousands)			($ in thousands)
2021		$	7,561
2022	2022	5,875		2022	$	9,408
2023	2023	4,561		2023	5,794
2024	2024	2,818		2024	3,925
2025	2025	1,204		2025	2,467
2026				2026	1,129
Thereafter	Thereafter	85		Thereafter	66
Total amounts to be collected	Total amounts to be collected	22,104		Total amounts to be collected	22,789
Less: interest	Less: interest	(3,703)		Less: interest	(2,717)
Less: allowance for receivables	Less: allowance for receivables	(909)		Less: allowance for receivables	(1,209)
Total finance receivables	Total finance receivables	$	17,492	Total finance receivables	$	18,863

7. LOSS PER SHARE CALCULATION

Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the

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

presented below:

Three months ended
December 31,
($ in thousands, except per share data) 2020 2019
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 0 0
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) 2020 2019
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 0 0
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)


	Three months ended September 30,
($ in thousands, except per share data)	2021		2020

Numerator for basic and diluted loss per share
Net loss	$	(1,291)	$	(6,613)
Preferred dividends	(334)		(334)
Net loss applicable to common shareholders	(1,625)		(6,947)

Denominator for basic loss per share - Weighted average shares outstanding	71,175,927		64,859,002
Effect of dilutive potential common shares	—		—
Denominator for diluted loss per share - Adjusted weighted average shares outstanding	71,175,927		64,859,002

Basic and diluted loss per share	$	(0.02)	$	(0.11)

Anti-dilutive shares excluded from the calculation of diluted loss per share were ~~2,586,480~~4,212,024 for the three ~~and six~~ months ended ~~December 31, 2020~~September 30, 2021 and ~~1,529,381~~2,534,225 for the three ~~and six~~ months ended ~~December 31, 2019.~~

September 30, 2020.

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7.8. GOODWILL AND INTANGIBLES

Intangible asset balances and goodwill consisted of the following:


		As of December 31, 2020								As of September 30, 2021
($ in thousands)	($ in thousands)	Gross		Accumulated Amortization		Net		Amortization Period	($ in thousands)	Gross		Accumulated Amortization		Net		Amortization Period
Intangible assets:	Intangible assets:								Intangible assets:
Brand and tradenames	Brand and tradenames	$	1,735	$	(817)	$	918	3 - 7 years	Brand and tradenames	$	1,705	$	(899)	$	806	3 - 7 years
Developed technology	Developed technology	10,939		(6,032)		4,907		5 - 6 years	Developed technology	12,269		(7,320)		4,949		5 - 6 years
Customer relationships	Customer relationships	19,049		(3,373)		15,676		10 - 18 years	Customer relationships	19,339		(4,171)		15,168		10 - 18 years
Total intangible assets	Total intangible assets	$	31,723	$	(10,222)	$	21,501		Total intangible assets	$	33,313	$	(12,390)	$	20,923

Goodwill	Goodwill	63,945		—		63,945		Indefinite	Goodwill	66,194		—		66,194		Indefinite


		As of June 30, 2020								As of June 30, 2021
($ in thousands)	($ in thousands)	Gross		Accumulated Amortization		Net		Amortization Period	($ in thousands)	Gross		Accumulated Amortization		Net		Amortization Period
Intangible assets:	Intangible assets:								Intangible assets:
Brand and tradenames	Brand and tradenames	1,695		(699)		996		3 - 7 years	Brand and tradenames	1,640		(840)		800		3 - 7 years
Developed technology	Developed technology	10,939		(5,110)		5,829		5 - 6 years	Developed technology	10,939		(6,890)		4,049		5 - 6 years
Customer relationships	Customer relationships	19,049		(2,841)		16,208		10 - 18 years	Customer relationships	19,049		(3,906)		15,143		10 - 18 years
Total intangible assets	Total intangible assets	$	31,683	$	(8,650)	$	23,033		Total intangible assets	$	31,628	$	(11,636)	$	19,992

Goodwill	Goodwill	63,945		—		63,945		Indefinite	Goodwill	63,945		—		63,945		Indefinite

During the three months ended September 30, 2021, The Company recognized $2.2 million in goodwill and $1.7 million in newly acquired intangible assets in association with the Yoke acquisition as referenced in Note 5- Acquisition.

For the three ~~and six~~ months ended ~~December 31,~~September 30, 2021 and September 30, 2020, ~~and 2019,~~ there was $0.8 million ~~and $1.6 million~~for each respective period 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,~~September 30, 2021, the Company did not recognize any impairment charges related to goodwill.

9. DEBT AND OTHER FINANCING ARRANGEMENTS

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


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

2020 Antara Term Facility		$	0	$	15,000
2021 JPMorgan Credit Facility	2021 JPMorgan Credit Facility	14,813		0		2021 JPMorgan Credit Facility	14,250		14,437
PPP and other loans		3,183		3,358
Other obligations						Other obligations	90		113
Less: unamortized issuance costs and debt discount	Less: unamortized issuance costs and debt discount	(291)		(2,595)		Less: unamortized issuance costs and debt discount	(201)		(231)
Total	Total	17,705		15,763		Total	14,139		14,319
Less: debt and other financing arrangements, current	Less: debt and other financing arrangements, current	(3,804)		(3,328)		Less: debt and other financing arrangements, current	(662)		(675)
Debt and other financing arrangements, noncurrent	Debt and other financing arrangements, noncurrent	$	13,901	$	12,435	Debt and other financing arrangements, noncurrent	$	13,477	$	13,644

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


		Three months ended				Six months ended					Three months ended
		December 31,				December 31,					September 30,
($ in thousands)	($ in thousands)	2020		2019		2020		2019		($ in thousands)	2021		2020
2020 Antara Term Facility	2020 Antara Term Facility	$	0	$	379	$	2,779	$	379	2020 Antara Term Facility	$	—	$	2,779
2021 JPMorgan Credit Facility	2021 JPMorgan Credit Facility	303		0		475		0		2021 JPMorgan Credit Facility	230		172
2018 JPMorgan Revolving Credit Facility		0		226		0		303
2018 JPMorgan Term Loan		0		0		0		160
Other interest expense	Other interest expense	293		228		627		456		Other interest expense	248		334
Total interest expense	Total interest expense	$	596	$	833	$	3,881	$	1,298	Total interest expense	$	478	$	3,285

JPMorgan Chase Bank Credit Agreement

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

The 2021 JPMorgan Credit Agreement provides for a $5 million secured revolving credit facility (the “2021 JPMorgan Revolving Facility”) and a $15 million secured term facility (the “2021 JPMorgan Secured Term Facility” and together with the 2021 JPMorgan Revolving Facility, as amended, the “2021 JPMorgan Credit Facility”), which 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~~spread tied to the Company’s total leverage ratio and having ranges between 2.75% and 3.75% for Prime rate loans and between 3.75% and 4.75% for LIBOR rate loans. In the event of default, the interest rate may be increased by 2.00%. The 2021 JPMorgan Credit Facility ~~will also carry~~carries a commitment fee of 0.50% per annum on the unused portion. ~~Through December 31,~~From August 14, 2020 through March 2, 2021, the applicable interest rate was Prime Rate plus 3.75%. On March 2, 2021, the Company entered into an amendment (the “First Amendment”) to the 2021 JPMorgan Credit Facility lowering the interest rate charged to the Company. In conjunction with the First Amendment, the Company elected to convert its loans to a Eurodollar borrowing which is subject to a LIBOR based interest rate. As of September 30, 2021, the applicable interest rate for the 2021 JPMorgan Secured Term Facility is a base rate of 0.75% and a spread of 4.25% for a total applicable interest rate of 5%.

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.~~$1.5 million. 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.~~$1.1 million. 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.~~September 30, 2021.

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~~ facility ("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

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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.

Facility"). 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,

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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.~~Agreement described above. The Company ~~recorded a liability for~~de-recognized $2.6 million of unamortized debt issuance costs and debt discount associated with the ~~commitment termination fee and prepayment premium for $1.2 million as of June 30,~~ 2020 ~~which was paid~~Antara Team Facility 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 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 used 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 economic uncertainty caused by COVID-19 made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a 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.

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9.10. ACCRUED EXPENSES

Accrued expenses consisted of the following as of ~~December 31, 2020~~September 30, 2021 and June 30, ~~2020:~~2021:


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

Accrued sales tax		$	22,007	$	20,036
Sales tax reserve						Sales tax reserve	$	17,353	$	17,099
Accrued compensation and related sales commissions	Accrued compensation and related sales commissions	3,502		2,757		Accrued compensation and related sales commissions	2,444		4,233
Operating lease liabilities, current	Operating lease liabilities, current	1,114		1,075		Operating lease liabilities, current	1,430		1,166
Accrued professional fees	Accrued professional fees	848		924		Accrued professional fees	1,793		1,739
Income taxes payable		126		123
Accrued other taxes and filing fees		327		220
Accrued other, including settlement of shareholder class action lawsuit		1,555		5,130
Accrued taxes and filing fees payable						Accrued taxes and filing fees payable	1,295		1,450
Contingent consideration arrangement for the Yoke acquisition*						Contingent consideration arrangement for the Yoke acquisition*	1,000		—
Other accrued expenses						Other accrued expenses	892		773
Total accrued expenses	Total accrued expenses	$	29,479	$	30,265	Total accrued expenses	$	26,207	$	26,460

* See Note 5 - Acquisition for description of the contingent consideration arrangement.

~~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

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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,~~September 30, 2021, the Company recorded an income tax provision of $89 thousand. As of ~~December 31, 2020,~~September 30, 2021, the Company reviewed the existing deferred tax assets and continues to record a full valuation against its deferred tax assets. The income tax provisions primarily relate to the Company's uncertain tax positions, as well as state income and franchise taxes. As of ~~December 31,~~September 30, 2021, the Company had a total unrecognized income tax benefit of $0.5 million. The provision is based upon actual loss before income taxes for the three months ended September 30, 2021, 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 September 30, 2020, the Company recorded an income tax provision of $40 thousand. As of September 30, 2020, the Company reviewed the existing deferred tax assets in light of COVID-19 and recorded 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 September 30, 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~~three months ended ~~December 31,~~September 30, 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 with service conditions (i.e., a condition that requires an employee to render services to the Company for a stated period of time to vest) it grants using a Black-Scholes valuation model. The Company’s assumption for expected volatility is based on its historical volatility data related to market trading of its own common stock. The Company 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

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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~~No stock options were granted 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.

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September 30, 2021. The fair value of ~~all~~ options granted during the ~~six~~three months ended ~~December 31,~~September 30, 2020 ~~and 2019 was~~were determined using the following assumptions and includes only options with an established ~~measurement~~grant date under ASC 718:

Six months ended December 31,
2020 2019
Expected volatility (percent) 76.3% - 77.3% 74.6% - 90.1%
Weighted average expected life (years) 4.5 3.5 - 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 granted 650,000 340,760
Weighted average exercise price $ 8.00 $ 6.85
Weighted average grant date fair value $ 4.69 $ 6.84


	Three months ended September 30,
		2020
Expected volatility (percent)		76.6% - 77.3%
Weighted average expected life (years)		4.5
Dividend yield (percent)		0.0		%
Risk-free interest rate (percent)		0.2% - 0.3%
Number of options granted		467,500
Weighted average exercise price		$	7.49
Weighted average grant date fair value		$	4.41

Stock based compensation related to stock options with an established grant date for the three ~~and six~~ months ended ~~December 31,~~September 30, 2021 and 2020 was ~~$1.4~~$0.8 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~~Performance based awards

~~There were no significant new~~The Company has awarded stock options to certain executives which vest each year over a three to four year period. These stock options are also subject to the achievement of performance goals to be established by the Company's Board for each fiscal year.

On January 27, 2021, the Compensation Committee of the Board of Directors established the performance metrics as a price target for the trading price of the Company’s common stock ~~awards granted~~in each applicable fiscal year. The price target is achieved if the average closing price of the common stock during any consecutive 30-trading-day period during the ~~three~~applicable fiscal year meets or exceeds: (i) $10.50 in the case of fiscal year 2021; (ii) $13.50 in the case of fiscal year 2022; (iii) $16.50 in the case of fiscal year 2023; and ~~six~~(iv) $19.50 in the case of fiscal year 2024. If at least 80% of the performance goals for an applicable fiscal year are achieved, the Compensation Committee may determine that the portion of the option eligible to vest based on such fiscal year’s performance will vest on a prorated basis. In so determining, the Compensation Committee will consider the Company’s performance relative to its market competitors and any other considerations deemed relevant by the Compensation Committee. The Compensation Committee’s guideline is generally that for every percentage point the achieved price falls below the price target, the percentage of the performance options eligible to vest in respect of the applicable fiscal year should be reduced by 2%, but the Compensation Committee may vary this formula in its sole discretion.

For these performance based awards that provide discretion to the Compensation Committee, a mutual understanding of the key terms and conditions between the Company and the employees have not yet been met and a "Grant Date" as defined in ASC Topic 718 Compensation — Stock Compensation, has not been established. When the service period begins prior to the grant date, the Company begins recognizing compensation cost before there is a grant date. The Company estimates the award's fair value at each reporting period for these equity classified awards, until the grant date, utilizing a Monte Carlo simulation valuation model. The total expense recognized for the three months ended ~~December 31, 2020.~~September 30, 2021 for these awards was $0.6 million.

COMMON STOCK AWARDS

Two employees of Hudson Executive, a greater than 10% shareholder and a related party of the Company, entered into consulting agreements with the Company in August and September of 2020, respectively, under which the consultants provided financial and strategic analysis and advisory services to the Company's CEO through July 31, 2021. As consideration for the services, in March 2021 the consultants were granted a total of 80,000 restricted stock units. In September 2021, the Company extended these consulting agreements through July 31, 2022 and, in connection therewith, the consultants were granted an additional 20,000 restricted stock units. The total expense recognized for the three months ended September 30, 2021 for these consulting agreements was immaterial.

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The Company makes annual grants of restricted stock units to executive officers pursuant to long-term stock incentive plans (“LTIPs”) which vest annually, typically over three years. In August 2021, we granted a total of approximately 93,000 restricted stock units with a grant date fair value of approximately $0.97 million to company executives.

The total expense recognized for ~~all~~ common stock awards for the three ~~and six~~ months ended ~~December 31,~~September 30, 2021 and 2020 was ~~$0.3~~$0.4 million and ~~$0.7~~$0.4 million, ~~respectively, and for the three and six months ended December 31, 2019 was $0.5 million.~~

respectively.

13. COMMITMENTS AND CONTINGENCIES

~~Litigation~~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”).

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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

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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 - Leases for additional information.

Purchase Commitments

As of September 30, 2021, the Company had firm commitments to purchase inventory of approximately $27 million over the next three years.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the condensed consolidated financial ~~statements.~~statements and related notes included in this Form 10-Q.

Forward-Looking Statements

This Form 10-Q contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things, the anticipated financial and operating results of ~~USA Technologies,~~Cantaloupe, Inc. (“~~USAT”~~Cantaloupe” or the “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 operations, financial condition, and the demand for the Company’s products and services;

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

•failure to comply with the financial covenants of our credit agreement in connection with the 2021 JPMorgan ~~Chase Bank, N.A. entered into on August 14, 2020;~~Credit Facility;

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

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

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

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

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

•~~the 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;~~

•~~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 integrate acquired companies into its current products and services structure;

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

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

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

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

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

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

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

~~Table~~•the ability of ~~Contents~~the Company to remain in compliance with the continued listing standards of The Nasdaq Stock Market LLC (“Nasdaq”) and continue to remain as a member of the US Small-Cap Russell 2000®;

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

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

these events.

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 Part I, Item 1A. “Risk Factors” ~~in our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2020 and in~~of our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2020~~2021 (“~~2020~~2021 Form 10-K”). We cannot assure you that we have identified all the factors that create uncertainties. Moreover, new risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. Readers should not place undue reliance on forward-looking statements.

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

OVERVIEW OF THE COMPANY

Cantaloupe is a ~~cashless~~digital payments and software services company that provides end-to-end technology solutions for the unattended ~~and self-service~~ retail ~~markets through its Platform as~~market. We are transforming the unattended retail world by offering 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 cardsolution for payments processing, ~~and support, consumer engagement services~~ as well as ~~telemetry, Internet of Things,~~one that handles inventory management, pre-kitting, route logistics, warehouse and ~~machine-to-machine services, including the ability~~back-office management. Our enterprise-wide platform is designed to ~~remotely monitor,~~increase consumer engagement and sales revenue through digital payments, digital advertising and customer loyalty programs, while providing retailers with control and ~~report on the results~~visibility over their operations and inventory. As a result, customers ranging from vending machine companies to operators of ~~distributed assets containing our electronic payment solutions. Our comprehensive platform combines the ePort’s cashless, interactive~~micro-markets, car wash and ~~digital payment capabilities with the Seed suite’s comprehensive software solution, for better business efficiencies, using real-time data~~electric vehicle charging stations, commercial laundry, kiosks, amusements and ~~analytics, as well as offering a loyalty component; all of which results in a true digital transformation at the point of purchase.~~more, can run their businesses more proactively, predictably, and competitively.

The Company's fiscal year ends June 30. The Company generates revenue in multiple ways. During the three ~~and six~~ months ended ~~December 31,~~September 30, 2021, we derived approximately 89% and 11% from subscription and transaction fees and equipment sales, respectively. During the three months ended September 30, 2020, we derived approximately ~~87%~~90% and ~~88%, respectively of our revenue~~10% from ~~recurring license~~subscription and transaction fees ~~related to our ePort Connect service~~ and ~~approximately 13% and 12%, respectively, of our revenue from~~ equipment ~~sales.~~ sales, respectively.

Active Devices (as defined below) operating on the Company’s platform and using our ~~service stem~~services include those resulting from the sale or lease of our point of sale ~~(POS)~~("POS") electronic payment devices, telemetry devices or certified payment software or the servicing of similar third-party installed POS ~~terminals. Devices utilizing the ePort Connect service are the most significant driver of the Company’s revenue, particularly the recurring revenue from license and transaction fees.~~terminals or telemetry devices. Customers can obtain POS electronic payment devices from us in the following ways:

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

•Financing devices under the Company’s QuickStart Program, which are non-cancellable ~~sixty month~~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 typically 36 months duration agreements and are cancellable ~~month-to-month operating leases.~~with 30 to 60 days' written notice.

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First Quarter 2022 Highlights

Highlights of the Company for the fiscal quarter ended September 30, 2021 are below:

• ~~18,304~~20,738 Active Customers (as defined below) and ~~1,154,932~~1.1 million Active Devices toon our service;

•In August 2021, we completed the acquisition of certain assets and liabilities of Delicious Nutritious LLC, doing business as Yoke Payments ("Yoke"), a micro market payments company. Through the acquisition, Yoke's POS platform will now extend its offering to provide self-checkout while seamlessly integrating with Cantaloupe’s inventory management and payment processing platforms;

•In August 2021, the Company hosted its inaugural Cantaloupe Innovation Summit at the National Automatic Merchandising Association ("NAMA") Show 2021, showcasing new products and services;

•Completed testing and certification of the ePort Engage devices which began shipping at the end of current fiscal quarter. ePort Engage series is our next generation of digital touchscreen devices for the market which provides retailers the ability to captivate consumers in new ways and enables truly frictionless purchasing;

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

•~~Relisting of the Company on Nasdaq in November 2020;~~

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•~~Announcement of the rebrand of the Company from USA Technologies to Cantaloupe;~~

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

•~~Upgraded~~As of September 30, 2021, we have approximately 185 employees across the United States and ~~expanded the ePort product family to accept 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

The ~~coronavirus (COVID-19) was first identified~~Company, its employees, and its customers operate in ~~China~~geographic locations in ~~December 2019,~~which its business operations and ~~subsequently declared a global pandemic in March 2020~~financial performance continues to be affected by the ~~World Health Organization.~~ COVID-19 ~~containment measures began in parts of~~pandemic. However, as businesses, schools, and other organizations re-open and continue through economic recovery, the ~~United States in March 2020 resulting in forced closure of non-essential businesses and social distancing protocols. As a result, COVID-19~~Company has ~~impacted our business, significantly reducing~~seen increased foot traffic to distributed assets containing our electronic ~~payment solutions and reducing discretionary spending by consumers.~~payments solutions. 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~~continues to ~~recover~~monitor for potential impacts of COVID-19 as new variants emerge 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~~could lead to a resurgence of the current quarter, we have experienced an approximately 7% decrease in volumes driven by an increase in COVID-19 cases across the country and seasonality of the business. Continued COVID-19 recurrences could result in further reductions in foot trafficvirus. Such impacts 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.

We continue to monitor the continuously 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 longer-term repercussions of COVID-19 on our financial condition, results of operations or cash flows in the future. 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 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,~~include, 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 condensed consolidated financial statements as soon as they become known.

~~Table~~While we are encouraged by the recent gradual lifting of ~~Contents~~pandemic-related closures and other containment measures across the country, we continue to monitor the evolving situation and follow guidance from federal, state and local public health authorities.Given the potential uncertainty of the situation, the Company cannot, at this time, reasonably estimate the longer-term repercussions of COVID-19 on our financial condition, results of operations or cash flows.

~~FINANCIAL HIGHLIGHTS~~

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

Financial Summary
Three months ended December 31, Percent
Change
($ in thousands, except per share data) 2020 2019
Revenue $ 38,285 $ 44,051 (13.1) %
Cost of sales 25,984 31,289 (17.0) %
Gross profit 12,301 12,762 (3.6) %
Operating expenses 14,883 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.~~

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~~Revenue.~~ 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 $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 significant changes in the cost of sales.

~~Operating expenses.~~ Operating expenses decreased $5.6 million for the three 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) 2020 2019
Revenue $ 75,162 $ 87,410 (14.0) %
Cost of sales 48,621 63,232 (23.1) %
Gross profit 26,541 24,178 9.8 %
Operating expenses 32,761 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 2019. 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 year-to-date compared to the prior year-to-date.

~~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. 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 significant changes in our operating expenses.

QUARTERLY RESULTS OF OPERATIONS

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

The following table shows certain financial and non-financial data that management believes give readers insight into certain trends and relationships about the Company’s financial performance. We believe the metrics (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)~~Volume) are useful in allowing management and readers to evaluate our strategy of driving growth in devices and transactions and the Financing Structure of Devices metric is useful in allowing management and readers to evaluate the growth of our QuickStart program and direct sales compared to the JumpStart program.transactions.

Active Devices ~~and Net New Active Devices (new presentation)~~

Active Devices ~~is defined as a device~~are devices that ~~has~~have communicated with us or ~~has~~have had a transaction in the last 12twelve 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.

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~~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 Ofof Transactions and Total Dollar Volume of Transactions

Transactions are defined as electronic payment transactions that are processed by our technology-enabled solutions. Management uses Total Number and Dollar Volume of transactions to monitor recovery from the COVID-19 pandemic and to evaluate the effectiveness of our new customer strategy and our ability to leverage existing customers and partners.

~~Financing Structure of Devices~~


	As of and for the three months ended
	September 30, 2021	June 30, 2021	March 31, 2021	December 31, 2020	September 30, 2020
Devices:
Active Devices (thousands)	1,115	1,094	1,085	1,083	1,083

Customers:
Active Customers	20,738	19,834	18,763	18,304	17,760

Volumes:
Total Number of Transactions (millions)	257.9	241.6	213.4	211.8	201.9
Total Dollar Volume of Transactions (millions)	553.4	515.0	412.7	422.6	406.3

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, 2020 September 30, 2020 June 30,
2020 March 31,
2020 December 31, 2019
Devices, new presentation:
Active Devices 1,154,932 1,133,754 1,117,805 1,103,242 1,089,406
Net New Active Devices 21,178 15,949 14,563 13,836 25,744
Customers:
Active Customers 18,304 17,760 17,249 16,808 16,489
Net Change in Active Customers 544 511 441 319 479
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:
JumpStart 4.3 % 3.0 % 6.2 % 1.4 % 4.3 %
QuickStart & all others (a)
95.7 % 97.0 % 93.8 % 98.6 % 95.7 %
Total 100.0 % 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~~September 30, 2021 include:

•~~An increase of 544 Active Customers and 21,178 Active Devices during the quarter;~~

•~~1,154,932~~1.11 million Active Devices compared to the same quarter last year of ~~1,089,406,~~1.08 million, an increase of ~~65,526 Net New~~approximately 30 thousand Active Devices, or ~~6.01%~~3%;

•~~18,304~~20,738 Active Customers toon our service compared to the same quarter last year of ~~16,489,~~17,760, an increase of ~~1,815 Net Change in~~2,978 Active Customers, or ~~11.01%.~~17%; and

•Total Dollar Volumes for the quarter ended September 30, 2021 are approximately 7% higher than the quarter ended June 30, 2021 and 36% higher compared to the average processing volumes for the quarter ended September 30, 2020. See "Revenue and Gross Profit" in Management’s Discussion and Analysis of Financial Condition and Results of Operations above for additional information.

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FINANCIAL HIGHLIGHTS

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

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Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

Revenues and Gross Profit


	Three months ended September 30,						Percent Change
($ in thousands)	2021			2020
Revenues:
Subscription and transaction fees	$	40,625		$	33,108		22.7	%
Equipment sales	5,155			3,769			36.8	%
Total revenues	45,780			36,877			24.1	%

Costs of sales:
Cost of subscription and transaction fees	26,024			19,336			34.6	%
Cost of equipment sales	4,880			3,301			47.8	%
Total costs of sales	30,904			22,637			36.5	%

Gross profit:
Subscription and transaction fees	14,601			13,772			6.0	%
Equipment sales	275			468			(41.2)	%
Total gross profit	$	14,876		$	14,240		4.5	%

Gross margin:
Subscription and transaction fees	35.9		%	41.6		%
Equipment sales	5.3		%	12.4		%
Total gross margin	32.5		%	38.6		%

Revenues. Total ~~Connections (historical presentation)~~revenues increased by $8.9 million for the three months ended September 30, 2021 compared to the same period in 2020. The increase in revenues is attributed to a $7.5 million and $1.4 million increase in subscription and transaction fees and equipment sales, respectively.

~~Historically, connections~~

The increase in subscription and transaction fees is ~~a performance metric that has been used~~primarily driven by the ~~Company. Connections~~increased processing volumes for the current fiscal year period relative to the ~~Company’s service include those resulting~~prior year as we are currently exceeding pre-pandemic (COVID-19) levels of processing volumes. As businesses, schools and other organizations across the country continue to re-open, we continue to benefit from a broader macroeconomic recovery across the ~~sale or lease~~United States. Increase in revenues is also attributed to continued focus of management to grow our ~~POS electronic payment devices, telemetry devices or certified payment software or~~Seed services to our customer base and an increase in the ~~servicing~~Active Devices count compared to the same period last year.

The increase in equipment sales relates to more equipment shipments in the current quarter compared to same period last year driven by customers focused on liquidity during the early days of ~~similar third-party installed POS terminals or telemetry devices.~~the COVID-19 pandemic with many committing to 4G device upgrades but holding off on delivery until closer to the discontinuation of 3G network support in 2022. We expect the equipment revenue to continue increasing through the 3G network discontinuation date in North America through the end of the 2022 calendar year.

Cost of sales. Cost of sales increased $8.3 million for the three months ended September 30, 2021 compared to the same period in 2020. The ~~Company records~~increase in cost of sales is attributed to a ~~connection upon shipment~~$6.7 million and $1.6 million increase in subscription and transaction costs and equipment costs respectively. The increase in cost of sales was primarily driven by an ~~activated device or~~increase in transaction processing fees corresponding with an increase in processing volumes.

Gross margin. Total gross margin decreased from 38.6% for the ~~activation~~three months ended September 30, 2020 to 32.5% for the three months ended September 30, 2021. The decrease in gross margin was primarily as a result of a ~~non-device location on our platform to a customer under contract. If a customer provides sufficient notice to deactivate a device or non-device location,~~change in ~~accordance with~~revenue mix of higher transaction fees during the ~~terms~~current quarter and an out of ~~the contract, we stop counting the existing connection~~period adjustment of $0.8 million recorded as a ~~connection after~~reduction of equipment costs in the ~~applicable notice~~prior 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 until the customer requests deactivation and the contractual notice period has expired.

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~~As noted in the previous section, management is now focused on Active Devices and Active Customers as set forth in the new presentation above.~~Operating Expenses


	Three months ended September 30,				Percent Change
Category ($ in thousands)	2021		2020
Sales and marketing	$	2,339	$	1,599	46.3	%
Technology and product development	5,389		3,214		67.7	%
General and administrative expenses	7,264		11,997		(39.5)	%
Depreciation and amortization	1,022		1,068		(4.3)	%
Total operating expenses	$	16,014	$	17,878	(10.4)	%

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

Total operating expenses. Operating expenses decreased by $1.9 million for the three months ended September 30, 2021 compared to the same period in 2020. This change is attributed to a decrease of $4.7 million in general and administrative expenses, offset by a $2.2 million increase in technology and product development expenses and a $0.7 million increase in sales and marketing costs. The change in total operating expenses reflects the Company's overall objectives to reduce general and administrative expenses and utilizing savings to invest in innovative technologies and products and increase marketing spend to penetrate new and existing customers with our products and services. See further details on individual categories below.

~~Network Incident~~Sales and marketing. Sales and marketing expenses increased approximately $0.7 million for the three months ended September 30, 2021, as compared to the same period in 2020 and relates primarily to higher sales and marketing employee headcount in the current quarter to support our expanding business and service offerings in the United States and internationally.

Technology and product development. Technology and product development expenses increased approximately $2.2 million for the three months ended September 30, 2021, as compared to the same period in 2020. The increase was driven primarily by the Company's objectives of investing in innovative technologies and to further strengthen our network environment and platform through utilizing a combination of company personnel and external consultants.

General and administrative expenses. General and administrative expenses decreased approximately $4.7 million for the three months ended September 30, 2021, as compared to the same period in 2020. The decrease in general and administrative expenses was primarily driven by a $2.3 million decrease in professional fees due to reduced reliance on external consultants who supported the Company’s accounting, financial reporting and reduced legal fees and a $1.8 million change relating to the network incident in the prior year, which is described below.

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 outage.~~platform. The Company ~~has remediated the incident. For the three months ended September 30, 2020 and December 31, 2020, we accrued approximately $1.4 million (of which~~incurred $1.1 million isof non-recurring costs relating to the outage that were included in ~~Selling,~~ general and administrative expenses in the prior period and ~~$0.3 million is~~were not included in ~~Cost~~the current quarter. The Company filed a claim with its insurance provider for the outage related expenses and recovered $0.7 million in the current quarter which was recorded as a reduction 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 event, respectively.~~

~~Three Months Ended December 31, 2020 Compared to Three Months Ended December 31, 2019~~

~~Revenue and Gross Profit~~

Three months ended December 31, Percent
Change
($ in thousands) 2020 2019
Revenue:
License and transaction fees $ 33,214 $ 35,754 (7.1) %
Equipment sales 5,071 8,297 (38.9) %
Total revenue 38,285 44,051 (13.1) %
Cost of sales:
Cost of license and transaction fees 20,617 22,579 (8.7) %
Cost of equipment sales 5,367 8,710 (38.4) %
Total cost of sales 25,984 31,289 (17.0) %
Gross profit:
License and transaction fees 12,597 13,175 (4.4) %
Equipment sales (296) (413) 28.3 %
Total gross profit $ 12,301 $ 12,762 (3.6) %
Gross margin:
License and transaction fees 37.9 % 36.8 %
Equipment sales (5.8) % (5.0) %
Total gross margin 32.1 % 29.0 %

~~Revenue.~~ ~~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 yearcurrent 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.~~

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~~Gross margin.~~ Total gross margin increased from 29.0% for the three months ended December 31, 2019 to 32.1% for the three months ended December 31, 2020. The change was driven primarily by decreased costs of equipment and lower transaction processing volumes.

~~Operating Expenses~~

Three months ended December 31, Percent
Change
Category ($ in thousands) 2020 2019
Selling, general and administrative expenses $ 13,831 $ 16,161 (14.4) %
Investigation, proxy solicitation and restatement expenses — 3,277 NM
Depreciation and amortization 1,052 1,080 (2.6) %
Total operating expenses $ 14,883 $ 20,518 (27.5) %

~~____________~~

~~NM — not meaningful~~

~~Total operating expenses.~~ Total operating expenses decreased approximately $5.6 million (approximately 27.5%) for the three 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 $2.3 million for 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, $0.8 million of lower compensation expense related to severance in the prior year and $0.4 million of lower travel expenses as a result of COVID-19.

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

Depreciation and amortization. Depreciation and amortization expense was consistent ~~with~~for the ~~same period in 2019.~~three months ended September 30, 2021 and September 30, 2020.

Other Income (Expense), Net


		Three months ended December 31,				Percent Change			Three months ended September 30,				Percent Change
($ in thousands)	($ in thousands)	2020		2019				($ in thousands)	2021		2020
Other income (expense):	Other income (expense):							Other income (expense):
Interest income	Interest income	$	325	$	283	14.8	%	Interest income	$	473	$	350	35.1	%
Interest expense	Interest expense	(596)		(833)		(28.5)	%	Interest expense	(478)		(3,285)		(85.4)	%
Other income (expense)								Other income (expense)	(59)		—		(100.0)	%
Total other income (expense), net	Total other income (expense), net	$	(271)	$	(550)	(50.7)	%	Total other income (expense), net	$	(64)	$	(2,935)	97.8	%

Other income (expense), net. Other income (expense), net ~~was comparable~~increased $2.9 million for the three months ended ~~December 31, 2020 and the same period in 2019.~~

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~~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) 2020 2019
Revenue:
License and transaction fees $ 66,322 $ 70,363 (5.7) %
Equipment sales 8,840 17,047 (48.1) %
Total revenue 75,162 87,410 (14.0) %
Cost of sales:
Cost of license and transaction fees 39,953 44,668 (10.6) %
Cost of equipment sales 8,668 18,564 (53.3) %
Total cost of sales 48,621 63,232 (23.1) %
Gross profit:
License and transaction fees 26,369 25,695 2.6 %
Equipment sales 172 (1,517) 111.3 %
Total gross profit $ 26,541 $ 24,178 9.8 %
Gross margin:
License and transaction fees 39.8 % 36.5 %
Equipment sales 1.9 % (8.9) %
Total gross margin 35.3 % 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.

~~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) 2020 2019
Selling, general and administrative expenses $ 30,641 $ 31,342 (2.2) %
Investigation, proxy solicitation and restatement expenses — 9,768 NM
Depreciation and amortization 2,120 2,102 0.9 %
Total operating expenses $ 32,761 $ 43,212 (24.2) %

~~____________~~

~~NM — not meaningful~~

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~~Total operating expenses.~~ ~~Total operating expenses decreased approximately $10.5 million (approximately 24.2%) for the six months ended December 31, 2020,~~September 30, 2021 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~~2020. The higher interest expense for the ~~six months~~fiscal quarter ended ~~December 31,~~September 30, 2020 as compared to the same period in 2019. This change was primarily driven by $1.6 million in lower legal and accounting professional services costs offset by $1.1 million of costs related to the network incident discussed above recognized in the six months ended December 31, 2020.

~~Depreciation and amortization.~~ ~~Depreciation and amortization expense was consistent with the same period in 2019.~~

~~Other Income (Expense), Net~~

Six months ended December 31, Percent
Change
($ in thousands) 2020 2019
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 six months ended December 31, 2020 as compared to the same period in 2019. This change~~ was primarily related to the recognition of the remaining balance of unamortized debt issuance costs and debt discount ~~related to~~associated

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with 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~~when the ~~repayment of all amounts outstanding under the 2020~~ Antara Term ~~Facility.~~Facility was fully paid and terminated.

~~Reconciliations of~~ Non-GAAP Financial Measures - Adjusted EBITDA

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

We define Adjusted EBITDA as U.S. GAAP net loss before (i) interest income, (ii) interest expense on debt and reserves, (iii) income ~~taxes,~~tax expense, (iv) depreciation, (v) amortization, (vi) stock-based compensation expense, and (vii) ~~non-recurring fees~~certain other significant infrequent or unusual losses and ~~charges~~gains that ~~were incurred in connection with the 2019 Investigation and financial statement restatement activities as well as proxy solicitation costs.~~are not indicative of our core operations.

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Below is a reconciliation of U.S. GAAP net loss to Adjusted ~~EBITDA:~~EBITDA for the three months ended September 30, 2021 and September 30, 2020:

Three months ended December 31,
($ in thousands, including endnotes to table) 2020 2019
U.S. GAAP net loss $ (2,902) $ (8,378)
Less: interest income (325) (283)
Plus: interest expense 596 833
Plus: income tax provision 49 72
Plus: depreciation expense included in cost of sales for rentals 515 757
Plus: depreciation and amortization expense in operating expenses 1,052 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 EBITDA 1,973 5,019
Adjusted EBITDA (d) (e)
$ 958 $ (900)


	Three months ended September 30,
($ in thousands)	2021		2020
U.S. GAAP net loss	$	(1,291)	$	(6,613)
Less: interest income	(473)		(350)
Plus: interest expense	478		3,285
Plus: income tax provision	89		40
Plus: depreciation expense included in costs of sales for rentals	264		539
Plus: depreciation and amortization expense in operating expenses	1,022		1,068
EBITDA	89		(2,031)
Plus: stock-based compensation (a)	1,762		1,509
Adjustments to EBITDA	1,762		1,509
Adjusted EBITDA	$	1,851	$	(522)

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

(b) As an adjustment to EBITDA, we have excluded the professional fees incurred in connection with the non-recurring costs and expenses related to the 2019 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 for the year 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 table above.

Six months ended December 31,
($ in thousands, including endnotes to table) 2020 2019
Net loss $ (9,515) $ (19,886)
Less: interest income (675) (577)
Plus: interest expense 3,881 1,298
Plus: income tax provision 89 131
Plus: depreciation expense included in cost of sales for rentals 1,054 1,391
Plus: depreciation and amortization expense in operating expenses 2,120 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 EBITDA 3,482 11,800
Adjusted EBITDA (d)
$ 436 $ (3,741)

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

(c) The previously reported amounts for the six 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 six 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) 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 six 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 table above.

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LIQUIDITY AND CAPITAL RESOURCES

Cash used in operating activities was $0.7 million for the six months ended December 31, 2020 compared to cash used of $9.8 million in the same period in the prior year. The change in cash used in operating activities reflects net cash provided by a $10.4 million decrease in net loss and an increase in non-cash operating expenses of $3.7 million, offset by net cash used by the change in various operating assets and liabilities of $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 $5.1 million.

Cash used in investing activities was $1.0 million for the six months ended December 31, 2020 compared to cash used of $1.3 million in the same period in the prior year, as purchases for equipment were relatively consistent compared to the same period last year.

Cash used in financing activities was $1.9 million for the six months ended December 31, 2020 compared to cash provided of $21.2 million in the same period in the 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 Antara as part of the repayment of the 2020 Antara Term Facility 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

Historically, we have financed our operations primarily through cash from operating activities, debt financings, and equity issuances. The Company has the following primary sources of capital available: (1) cash and cash equivalents on hand of ~~$28.2~~$82.5 million as of ~~December 31, 2020;~~September 30, 2021; (2) the cash ~~which~~that may be provided by operating activities; and (3) up to $5 million available to be drawn on the 2021 JPMorgan Revolving ~~Facility (as defined below).~~Facility. In addition, management ~~has recently implemented~~continues to implement efficiencies in working capital that are designed to increase our cash balances.

In the six months ended December 31, 2020, the Company entered into the 2021 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 estimated and recorded for potential sales tax and related interest and penalty liabilities of ~~$22.0~~$17.4 million in the aggregate as of ~~December 31, 2020.~~September 30, 2021. 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 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.

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

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

~~CRITICAL ACCOUNTING POLICIES~~

Cash Flows

AsSee Condensed Consolidated Statement of Cash Flows in Part I, Item 1 of this Quarterly Report for details on the changes in cash and cash equivalents classified by operating, investing and financing activities during our respective reporting periods.

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Net cash provided by (used in) operating activities

Cash used in operating activities was $0.9 million for the three months ended September 30, 2021 compared to cash provided by operating activities of $5.2 million in the same period in the prior year. The change in cash used in operating activities reflects our net loss of $1.3 million, $2.5 million utilized by working capital accounts offset by $2.9 million in non-cash operating charges.

The change in working capital accounts is primarily driven by cash used of $3.9 million to increase our inventory on hand, reduction of accrued expenses of approximately $2.2 million offset by cash provided by a reduction of accounts receivable of $3 million in the quarter. The increase in inventory is a result of the ~~July 1, 2020 adoption~~Company planning ahead for customers who are continuing to upgrade 3G devices to 4G as the 3G network sunset date approaches in 2022. Cash used in accounts payable and accrued expenses of ~~Topic 326,~~$2.2 million is mostly attributable to the payment of the accrued salary and bonuses as of June 30, 2021. Cash used in working capital is offset by the decrease in accounts receivable of $3 million as payments for the increased equipment sales generated during the quarter ended June 30, 2021 become due.

Non-cash operating charges primarily consisted of stock-based compensation, depreciation of property and equipment, amortization of our intangible assets, and provisions for expected losses.

Net cash used in investing activities

Cash used in investing activities was $4.5 million for the three months ended September 30, 2021 compared to cash used in investing activities of $0.5 million in the same period in the prior year. Increase in cash used is due to the cash paid for the Yoke acquisition of $2.9 million and $1.6 million for increased property and equipment balances driven primarily by the Company's continued focus on investing in innovative technologies and products.

Net cash used in financing activities

Cash used in financing activities was $0.2 million for the three months ended September 30, 2021 compared to cash used in financing activities of $1.7 million in the same period in the prior year. For the three months ended September 30, 2021, the Company ~~has updated~~made repayments of $0.2 million on outstanding debt mostly attributable to the ~~critical accounting policies~~2021 JPMorgan Credit Facility. During the three months ended September 30, 2020, the Company refinanced its debt agreements and paid $1.2 million as a prepayment penalty and commitment termination fee to Antara as part of the repayment of the 2020 Antara Term Facility.

CONTRACTUAL OBLIGATIONS

During the three months ended September 30, 2021, there were no significant changes to our contractual obligations from those disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~2020~~Annual Report on Form 10-K ~~as follows:~~for the fiscal year ended June 30, 2021.

CRITICAL ACCOUNTING POLICIES

~~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~~

During 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 asthree months ended September 30, 2021, there ~~have~~

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~~been~~were no significant changes to our critical accounting policies from those disclosed in the ~~mix or risk characteristics~~section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for 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.fiscal year ended June 30, 2021.

Recent Accounting Pronouncements

See Note 2 - Summary of Significant Accounting Policies to the ~~interim Condensed Consolidated Financial Statements~~condensed consolidated financial statements for a description of recent accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

~~On August 14, 2020,~~For quantitative and qualitative disclosures about market risk, see Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our Annual Report on Form 10-K for 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.

fiscal year ended June 30, 2021. Our ~~other~~ exposures to market risk have not changed materially since June 30, ~~2020.~~

2021.

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Item 4. Controls and Procedures.

(a) Disclosure Controls and Procedures

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

Our management, ~~evaluated,~~ with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness as of the end of the period covered by this Form 10-Q of our disclosure controls and procedures as defined in Rule 13a-15(e) under the ~~Securities~~ Exchange ~~Act of 1934 (the "Exchange Act").~~Act. Based on this evaluation, our management, including our chief executive officer and chief financial officer, has concluded that our disclosure controls and procedures are effective as of ~~December 31, 2020.~~September 30, 2021.

(b) Changes in Internal Control over Financial Reporting

Other than the remediation plan disclosed in Item 9A. of the 2020 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 wereThere have been no changes in ~~our~~the Company’s internal ~~controls~~control over financial reporting that occurred during the fiscal quarter ended ~~December 31, 2020~~September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

As discussed in Item 9A. of our 2020 Form 10-K, we reinforced 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 weakness in our internal control over financial reporting. Management has concluded that the control has operated for a sufficient period of time and concluded, through testing, that the control is operating effectively, and that this material weakness was remediated as of December 31, 2020.

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Part II - Other Information

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors

For a discussion of the Company’s risk factors, see the information under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, ~~2020,~~2021, as supplemented by the amended risk factor set forth below.

~~Disruptions~~The coronavirus disease 2019 (“COVID-19”) pandemic has and may continue to significantly and adversely impact our ~~systems, breaches in the security of transactions involving our products or services, or failure of our processing systems could adversely affect our reputation, business and results of operations.~~business.

The global spread of the COVID-19 pandemic has created significant volatility, uncertainty and economic disruption on our business. Electronic payment transaction volume within unattended markets decreased significantly at the onset of the pandemic, as government authorities 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.

As a result of COVID-19, the technology industry is experiencing disruptions within its supply chain. We ~~rely on information technology~~have experienced, and ~~other systems~~may continue to ~~transmit financial information~~experience delays in securing the components and finished goods of ~~consumers making cashless transactions~~our hardware products that we market and ~~to provide accounting and inventory management services~~sell to our customers. As such, the information we transmit and/or maintain 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 incidentSupply chain delays 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 validationshortages of our ~~compliance with the Payment Card Industry Data Security Standard, may not be successful,~~hardware products, which could negatively affect our ability to retain and ~~any resulting compromise or loss of data or systems~~acquire customers and 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~~The extent to which the COVID-19 pandemic continues to impact 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 ~~cashless payment transactions handled by our network involve Visa U.S.A. Inc. (“Visa”) or MasterCard International Incorporated ("MasterCard"). If we fail~~pandemic; potential mutations of COVID-19; the efficacy of vaccines and treatment developments and their deployment; governmental, business and individuals’ actions that have been and continue to ~~comply with~~be taken in response to the ~~applicable standards or requirements~~pandemic; and the impact of the ~~Visa~~pandemic on economic activity and ~~MasterCard card associations relating~~actions taken in response. Furthermore, even as containment measures are lifted there can be no assurance as to ~~security, Visa~~whether further measures will be implemented, or ~~MasterCard~~the time required to sustain operations and sales at pre-pandemic levels. There may also be increased marketplace consolidation as companies are challenged to respond to the continued evolving conditions of COVID-19.

A sustained or recurring downturn could ~~suspend or terminate our registration with them. The termination~~result in a decrease in the fair value of our ~~registration with~~goodwill or other intangible assets, causing them ~~or any changes in the Visa or MasterCard rules that would impair our registration with them could~~to exceed their carrying value. This may require us to ~~stop providing cashless payment~~recognize an impairment to those assets. Further, the COVID-19 pandemic could decrease consumer spending, adversely affect demand for our technology and services, ~~through~~cause one or more of our ~~network. In such event,~~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, ~~plan~~results of operations and financial condition. In response to the outbreak, we agreed to concessions on price and/or ~~competitive advantages in~~payment terms with certain customers who have been negatively impacted by the ~~market place would be materially adversely affected.~~COVID-19 pandemic, and may negotiate additional concessions on price and/or payment terms.

It is not possible for us to predict the future impact of the pandemic and its effects on our business, results of operations or financial condition at this time.

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

N/A.A

Item 3. Defaults Upon Senior Securities.

There were no defaults on any senior securities. The total liquidation preference including accrued and unpaid dividends on our Series A Convertible Preferred Stock as of ~~December 31, 2020~~September 30, 2021 was ~~$21.1~~$21.8 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.

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Item 4. Mine Safety Disclosures.

N/A.

Item 5. Other Information.

N/A.

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Item 6. Exhibits.


Exhibit Number						Description

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

3.2						Articles of Amendment to the Amended and Restated ~~Bylaws, as amended through May 4, 2020~~Articles of Incorporation of the Company (incorporated by reference to Exhibit ~~3.2~~3.1 to Form ~~8-A12B~~8-K filed on ~~November 17, 2020)~~April 2, 2021).

~~4.1~~3.3						~~Warrant dated March 29, 2016 in favor of Heritage Bank of Commerce~~Second Amended and Restated Bylaws (incorporated by reference to Exhibit ~~4.2 to Form 10-K filed on September 13, 2016).~~

~~10.1†~~						~~Separation and Transition Agreement, by and between Jeff Vogt and USA Technologies, Inc., dated as of January 11, 2021 (incorporated by reference to Exhibit 10.1~~3.1 to Form 8-K filed ~~January 12,~~on August 10, 2021).

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

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

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

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

101						The following financial information from our Quarterly Report on Form 10-Q for the quarter ended ~~December 31, 2020,~~September 30, 2021, filed with the SEC on ~~February~~November 5, 2021, is formatted in Inline Extensible Business Reporting Language (“iXBRL”): (1) the Condensed Consolidated Balance Sheets as of ~~December 31, 2020~~September 30, 2021 and June 30, ~~2020,~~2021, (2) the Condensed Consolidated Statements of Operations for the three-month ~~and six-month~~ periods ended ~~December 31,~~September 30, 2021 and 2020, ~~and 2019,~~ (3) the Condensed Consolidated Statements of Shareholders’ Equity for the three-month ~~and six-month~~ periods ended ~~December 31,~~September 30, 2021 and 2020, ~~and 2019,~~ (4) the Condensed Consolidated Statements of Cash Flows for the ~~six-month~~three-month periods ended ~~December 31,~~September 30, 2021 and 2020, ~~and 2019,~~ and (5) the Notes to Consolidated Financial Statements.

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

101.SCH*						Inline XBRL Taxonomy Extension Schema

101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase

101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase

104						The cover page from our Quarterly Report on Form 10-Q for the quarter ended ~~December 31, 2020,~~September 30, 2021, filed with the SEC on ~~February~~November 5, 2021, is formatted as Inline iXBRL and contained in Exhibit 101.

* Filed herewith.

~~† Management contract or compensatory plan or arrangement.~~

3935

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.~~Cantaloupe, Inc.

Date: ~~February~~November 5, 2021			/s/ Sean Feeney
			Sean Feeney
			Chief Executive Officer

Date: ~~February~~November 5, 2021			/s/ R. Wayne Jackson
			R. Wayne Jackson
			Chief Financial Officer

4036


	Three months ended								Other reporting periods
($ in thousands)	September 30, 2019		December 31, 2019		March 31, 2020		June 30, 2020		Year ended June 30, 2020		Six months ended December 31, 2019		Nine 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 expenses	2,015		(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


	Three months ended December 31,
($ in thousands, except per share data)	2020		2019

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	0		0
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)


Financial Summary
	Three months ended December 31,				Percent Change
($ in thousands, except per share data)	2020		2019
Revenue	$	38,285	$	44,051	(13.1)	%
Cost of sales	25,984		31,289		(17.0)	%
Gross profit	12,301		12,762		(3.6)	%
Operating expenses	14,883		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	%


	Three months ended December 31,
($ in thousands, including endnotes to table)	2020		2019
U.S. GAAP net loss	$	(2,902)	$	(8,378)
Less: interest income	(325)		(283)
Plus: interest expense	596		833
Plus: income tax provision	49		72
Plus: depreciation expense included in cost of sales for rentals	515		757
Plus: depreciation and amortization expense in operating expenses	1,052		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 EBITDA	1,973		5,019
Adjusted EBITDA (d) (e)	$	958	$	(900)