As filed with the Securities and Exchange Commission on October 26, 2001
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
Registration Statement
Under
The Securities Act of 1933
USA TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 7359 23-2679963
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
200 Plant Avenue
Wayne, Pennsylvania 19087
(Address of principal executive offices and zip code)
George R. Jensen, Jr.
Chief Executive Officer
USA Technologies, Inc.
200 Plant Avenue
Wayne, Pennsylvania 19087
(610) 989-0340
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Douglas M. Lurio, Esquire
Lurio & Associates, P. C.
One Commerce Square
2005 Market Street, Suite 2340
Philadelphia, PA 19103-7015
(215) 665-9300
-----------------------------------
Approximate date of proposed sale to the public: From time to time
after this Registration Statement becomes effective.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, check the
following box: [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
--------------------------------------------------------------------------------------------
Title of each
class of Proposed Proposed
Securities Amount Maximum Maximum Amount of
to be to be Offering Price Aggregate Registration
Registered Registered Per Unit(29) Offering Price Fee
---------- ---------- --------------- -------------- ------------
Common Stock,
no par value 139,000 shares(1) $4.00 $ 556,000 $ 161.94
15,000 shares(2) $4.50 $ 67,500 $ 19.57
449,000 shares(3) $5.00 $ 2,245,000 $ 561.25
463,800 shares(4) $5.00 $ 2,319,000 $ 579.75
197,400 shares(5) $4.00 $ 789,600 $ 272.28
375,000 shares(6) $3.90 $ 1,462,500 $ 482.62
276,333 shares(7) $5.50 $ 1,519,832 $ 379.96
893,600 shares(8) $1.72 $ 1,536,992 $ 405.77
50,000 shares(9) $2.00 $ 100,000 $ 27.80
50,000 shares(10) $3.00 $ 150,000 $ 41.70
34,000 shares(11) $2.50 $ 85,000 $ 21.25
318,000 shares(12) $2.88 $ 915,840 $ 228.96
631,167 shares(13) $2.88 $ 1,817,761 $ 498.07
2,340,450 shares(14) $2.88 $ 6,740,496 $ 1,685.12
3,560,000 shares(15) $2.88 $10,252,800 $ 2,809.27
9,400 shares(16) $2.88 $ 27,072 $ 7.42
1,200,000 shares(17) $2.25 $ 2,700,000 $ 712.80
895,000 shares(18) $1.31 $ 1,172,450 $ 293.11
10,000 shares(19) $1.31 $ 13,100 $ 3.28
200,000 shares(20) $1.50 $ 300,000 $ 82.20
500,000 shares(21) $ .69 $ 345,000 $ 86.25
225,000 shares(21) $ .69 $ 155,250 $ 38.81
2,250,000 shares(21) $ .69 $ 1,552,500 $ 388.13
1,580,828 shares(22) $1.31 $ 2,070,885 $ 517.72
7,395,440 shares(23) $ .69 $ 5,102,854 $ 1,275.71
14,790,880 shares(24) $ .69 $10,205,707 $ 2,551.43
4,212,350 shares(25) $ .69 $ 2,906,522 $ 726.63
4,212,350 shares(26) $ .69 $ 2,906,522 $ 726.63
550,000 shares(27) $ .70 $ 385,000 $ 96.25
200,000 shares(28) $ .69 $ 138,000 $ 34.50
----------- ----------
Total...............48,023,998 shares..........................$60,539,183 $15,716.18(30)
=========== ==========
(1) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-66927 and pursuant to Rule 429 of the Securities Act
of 1933, as amended, carries forward 139,000 shares of common stock
underlying the 1998-B warrants. A filing fee of $161.94 was paid in
connection with the filing of the previous registration statement.
(2) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-66927 and pursuant to Rule 429 of the Securities Act
of 1933, as amended, carries forward 15,000 shares of common stock
underlying certain management options. A filing fee of $19.57 was paid in
connection with the filing of the previous registration statement.
(3) This registration statement amends our registration statement on amendment
No. 8 to Form SB-2, Commission File No. 333-98808 and pursuant to Rule 429
of the Securities Act of 1933, as amended, carries forward 449,000 shares of
common stock underlying the 1995 warrants. A filing fee of $561.25 was paid
in connection with the filing of the previous registration statement.
(4) This registration statement amends our registration statement on amendment
No. 4 to Form SB-2, Commission File No. 333-09465 and pursuant to Rule 429
of the Securities Act of 1933, as amended, carries forward 463,800 shares of
common stock underlying the 1996 warrants. A filing fee of $579.75 was paid
in connection with the filing of the previous registration statement.
(5) This registration statement amends our registration statement on
Form SB-2, Commission File No. 333-30853 and pursuant to Rule 429 of the
Securities Act of 1933, as amended, carries forward 197,400 shares of common
stock underlying the 1997 warrants and 1996-B warrants. A filing fee of
$272.28 was paid in connection with the filing of the previous registration
statement.
(6) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-48731 and pursuant to Rule 429 of the Securities Act
of 1933, as amended, carries forward 375,000 shares of common stock
underlying the 1998-A warrants. A filing fee of $482.62 was paid in
connection with the filing of the previous registration statement.
(7) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-38593 and pursuant to Rule 429 of the Securities Act
of 1933, as amended, carries forward 276,333 shares of common stock
underlying certain management options. A filing fee of $536.02 was paid in
connection with the filing of the previous registration statement.
(8) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-81591 and pursuant to Rule 429 of the Securities Act
of 1933, as amended, carries forward 893,600 shares of common stock
underlying the 1999-A warrants. A filing fee of $405.77 was paid in
connection with the filing of the previous registration statement.
(9) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-84513 and pursuant to Rule 429 of the Securities Act
of 1933, as amended, carries forward 50,000 shares of common stock
underlying certain consultant warrants. A filing fee of $27.80 was paid in
connection with the filing of the previous registration statement.
(10) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-84513 and pursuant to Rule 429 of the Securities
Act of 1933, as amended, carries forward 50,000 shares of common stock
underlying certain consultant warrants. A filing fee of $41.70 was paid in
connection with the filing of the previous registration statement.
(11) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-84513 and pursuant to Rule 429 of the Securities
Act of 1933, as amended, carries forward 34,000 shares of common stock
underlying certain consultant warrants. A filing fee of $21.25 was paid in
connection with the filing of the previous registration statement.
(12) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-48972 and pursuant to Rule 429 of the Securities
Act of 1933, as amended, carries forward 318,000 shares of common stock
underlying senior notes due December 31, 2001. A filing fee of $228.96 was
paid in connection with the filing of the previous registration statement.
(13) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-48972, and pursuant to Rule 429 of the Securities
Act of 1933, as amended, carries forward 631,167 shares of common stock
underlying our management options. A filing fee of $489.07 was paid in
connection with the filing of the previous registration statement.
(14) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-48972, and pursuant to Rule 429 of the Securities
Act of 1933, as amended, carries forward 2,340,450 shares of common stock
underlying our 1999-B warrants. A filing fee of $1,685.12 was paid in
connection with the filing of the previous registration statement.
(15) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-48972, and pursuant to Rule 429 of the Securities
Act of 1933, as amended, carries forward 3,560,000 shares of 1999-B
restricted common stock. A filing fee of $2,809.27 was paid in connection
with the filing of the previous registration statement.
(16) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-48972, and pursuant to Rule 429 of the Securities
Act of 1933, as amended, carries forward 9,400 shares of common stock
underlying our 1999-B warrants issued to Harmonic Research. A filing fee
of $7.42 was paid in connection with the filing of the previous
registration statement.
(17) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-35070 and pursuant to Rule 429 of the 1933 Act
carries forward 1,200,000 shares of 2000-A restricted common stock issued
pursuant to a private placement in February, March and April 2000. A filing
fee of $712.80 was paid in connection with the filing of the previous
registration statement.
(18) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-48972, and pursuant to Rule 429 of the Securities
Act of 1933, as amended, carries forward 895,000 shares of 2000-B
restricted common stock. A filing fee of $293.11 was paid in connection
with the filing of the previous registration statement.
(19) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-48972, and pursuant to Rule 429 of the Securities
Act of 1933, as amended, carries forward 10,000 shares of common stock
underlying our 2000-B warrants. A filing fee of $3.28 was paid in
connection with the filing of the previous registration statement.
(20) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-48972, and pursuant to Rule 429 of the Securities
Act of 1933, as amended, carries forward 200,000 shares of common stock
underlying our management options. A filing fee of $82.20 was paid in
connection with the filing of the previous registration statement.
(21) Represents up to 500,000 shares issuable upon exercise of warrant issued to
La Jolla Cove Investors, Inc. in July 2001, up to 225,000 shares issuable
upon conversion of Convertible Debenture issued to La Jolla Cove Investors,
Inc. in August 2001, and up to 2,250,000 shares issuable upon exercise of
common stock purchase warrants to be issued to La Jolla Cove Investors,
Inc. upon conversion of Convertible Debenture.
(22) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-48938, and pursuant to Rule 429 of the Securities
Act of 1933, as amended, carries forward 1,580,828 shares underlying
warrants issued to Swartz. A filing fee of $517.72 was paid in connection
with the filing of the previous registration statement.
(23) Represents shares of 2001-B restricted common stock.
(24) Represents shares underlying 2001-B warrants.
(25) Represents shares of 2001-C restricted common stock.
(26) Represents shares underlying 2001-C warrants.
(27) Represents shares underlying options and warrants granted in August and
September 2001.
(28) Represents shares issued to Ratner & Prestia.
(29) Pursuant to Rule 457(g), the registration fee has been calculated at the
higher of the exercise price of the warrants relating to the above common
stock or the average of the bid and asked price within 5 business days
prior to the date of the initial filing of the registration statement.
(30) A filing fee of $9,791.84 was paid in connection with the filing of the
previous registration statements. The balance of $5,924.34 has been paid in
connection with the filing of this registration statement.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission ("SEC") is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS
USA TECHNOLOGIES, INC.
48,023,998 shares of Common Stock
THE OFFERING
The resale of up to 48,023,998 shares of common stock in the over-the-
counter market at the prevailing market price or in negotiated transactions.
We will receive no proceeds from the sale of the shares by the selling
shareholders. However, we will receive proceeds from the sale of shares issuable
upon the exercise of warrants or options by the selling shareholders. Also, the
proceeds of sales of some of the shares will be applied against our debt
obligations. Because the selling shareholders will offer and sell the shares at
various times, we have not included in this prospectus information about the
price to the public of the shares or the proceeds to the selling shareholders.
Our common stock is included for quotation on the over-the-counter
bulletin board under the symbol "USTT." The closing bid price for the common
stock on October 22, 2001 was $.69 per share.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
PURCHASE SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS.
Please refer to Risk Factors beginning on Page 4.
Neither the SEC nor any state securities commission has approved or
disapproved of the securities or passed on the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is October 26, 2001.
No person has been authorized to give any information or to make any
representations other than those contained in this prospectus and, if given or
made, such information or representation must not be relied upon as having been
authorized. This prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which the prospectus relates or an offer to sell or the solicitation of an offer
to buy such securities in any circumstances in which such offer or solicitation
is unlawful. Neither the delivery of this prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of USA since the date hereof or that the information
contained herein is current as of any time subsequent to its date.
TABLE OF CONTENTS
Prospectus Summary ....................................................... 1
Risk Factors ............................................................. 4
Use of Proceeds .......................................................... 12
Managements Discussion And Analysis of
Financial Condition And Results
of Operations .......................................................... 13
Business ................................................................. 19
Management ............................................................... 29
Principal Shareholders ................................................... 37
Certain Transactions ..................................................... 40
Selling Shareholders ..................................................... 43
Market for Common Stock .................................................. 98
Description of Securities ................................................ 100
Plan of Distribution ..................................................... 112
Legal Matters ............................................................ 113
Experts .................................................................. 113
Financial Statements ..................................................... F-1
PROSPECTUS SUMMARY
OUR COMPANY
USA Technologies, Inc. was incorporated in Pennsylvania in 1992. We are
an owner and licensor of automated, credit card activated control systems for
use in connection with copying machines, debit card purchase/revalue stations,
facsimile machines, personal computers, computer printers, and vending machines.
Our customers are hotels, university libraries, public libraries, vending
machine operators and retail locations. We generate revenues primarily from the
sale of equipment utilizing our control systems, from retaining a percentage of
the revenues generated from all credit card transactions conducted through our
control systems, and from monthly administrative fees paid by various locations
utilizing our control systems.
OUR PRODUCT
The control systems we have developed which are used in a variety of
products operate as follows:
o The consumer swipes a valid credit card through the control
system.
o The control system transmits the request to the credit card
processor.
o The credit card processor verifies that the credit card is valid
and authorizes the transaction.
o The control system activates the equipment for use by the
consumer.
o Once the consumer finishes using the equipment, the control system
transmits a record of the transaction to the credit card
processor.
o The credit card processor electronically transfers the proceeds
derived from the transaction, less the credit card processor's
charge, to us.
o Finally, we forward money (check or electronic) to each location
representing its share of the proceeds.
1
As of June 30, 2001, we had 1,400 control systems installed in the
field as follows:
o 1,066 Business Express(R) or MBE Business Express(R) control
systems;
o 170 Business Express(R) Limited Service control systems;
o 23 Copy Express(TM) control systems;
o 10 Debit Express(TM) control systems;
o 6 Fax/Printer Express(TM) control systems;
o 3 Public PC(TM) control systems; and
o 122 TransAct(TM) control systems.
In addition, there were 74 non-media e-Port(TM) control systems located
at vending locations in the United States.
Our executive offices are located at 200 Plant Avenue, Wayne,
Pennsylvania 19087. Our telephone number is (610) 989-0340. Our website is
located at http://www.usatech.com.
KEY FACTS
Shares being offered for resale
to the public: 48,023,998
Total shares of common stock outstanding prior
to the offering, as of June 30, 2001: 21,450,755 (includes a
portion of shares being
offered for resale)
Total shares of common stock outstanding after
the offering and exercise of all options/warrants: 61,986,469 (includes
shares issuable
subsequent to June 30,
2001 and prior to the
date hereof)
Price per share to the public Market price at time
of resale
Total proceeds raised by offering None, however, proceeds
may be received from the
selling shareholders
from the exercise of the
warrants and options
and sales proceeds from
a portion of the shares
will be applied towards
our debt by a selling
shareholder
2
ABOUT OUR SELLING SHAREHOLDERS
The selling shareholders are either holders of our common stock or hold
options or warrants to buy our common stock. The selling shareholders will
either sell our stock in the open market, place our stock through negotiated
transactions with other investors, or hold our stock in their own portfolio.
This prospectus covers the resale of our stock by the selling shareholders
either in the open market or to other investors.
3
RISK FACTORS
An investment in our common stock is very risky. You should be aware
that you could lose the entire amount of your investment. Prior to making an
investment decision, you should carefully consider the following risk factors
and the other information contained in this prospectus.
1. We have a history of losses and our existence may be dependent on
our ability to raise capital (which may not be readily available)
and generate sufficient revenue from operations.
We have experienced losses since inception. We expect to continue to
incur losses through fiscal 2002 as we expend substantial resources on sales,
marketing, and research and development of our products. From our inception over
eight years ago through June 30, 2001, we have incurred net losses of $36
million. For our fiscal years ended June 30, 2001 and 2000, we have incurred net
losses of $10,956,244 and $8,404,481, respectively.
There is currently no basis upon which to assume that our business will
prove financially profitable or generate more than nominal revenues. From
inception, we have generated funds primarily through the sale of securities.
There can be no assurances that we will be able to continue to sell additional
securities. If we fail to generate increased revenues or fail to sell additional
securities you may lose all or a substantial portion of your investment.
Our auditors, Ernst and Young, LLP, have included an explanatory
paragraph in their report on our June 30, 2001 financial statements indicating
that as of June 30, 2001, there is substantial doubt about our ability to
continue as a going concern. Subsequent to June 30, 2001 we have sold additional
securities pursuant to our 2001-B and 2001-C private placement offerings as well
as issuing the convertible debenture and warrants to a private placement
investment company. However, it is possible that in the future our capital
expenditures and operating losses will limit our ability to pay our liabilities
in the normal course of business and that we may not be able to continue as a
going concern.
4
2. We depend on our key personnel.
We are dependent on key management personnel, particularly the Chairman
and Chief Executive Officer, George R. Jensen, Jr. The loss of services of Mr.
Jensen or other executive officers would dramatically affect our business
prospects. Certain of our employees are particularly valuable to us because:
o they have specialized knowledge about our company and operations;
o they have specialized skills that are important to our operations;
or
o they would be particularly difficult to replace.
We have entered into an employment agreement with Mr. Jensen that
expires in June 2002. We have also entered into employment agreements with other
executive officers, each of which contain non-compete agreements. We have
obtained a key man life insurance policy in the amount of $2,000,000 on Mr.
Jensen, and a key man life insurance policy in the amount of $1,000,000 on our
Vice-President-Research and Development, Haven Brock Kolls, Jr.
We do not have and do not intend to obtain key man life insurance
coverage on any of our other executive officers. As a result, we are exposed to
the costs associated with the death of these key employees.
3. The commercial viability of our products has been tested on a
limited basis.
While a number of products or services such as gasoline and public
telephones are currently provided through unattended, credit card activated
terminals, the commercial viability of any of our products has not been
established. Although commercial production and installation of our products has
commenced on a very limited basis, there can be no assurance that:
o our products will be successful or become profitable;
o the demand for our products will be sufficient to enable us to
become profitable; or
o even if our products become commercially viable, they can evolve
or be improved to meet the future needs of the market place.
5
In any such event, investors may lose all or substantially all of their
investment in USA.
4. USA's dependence on proprietary technology and limited ability to
protect our intellectual property may adversely affect our ability
to compete.
A successful challenge to our ownership of our technology could
materially damage our business prospects. Our technology may infringe upon the
proprietary rights of others. Our success is dependent in part on our ability to
obtain patent protection for our proprietary products, maintain trade secret
protection and operate without infringing the proprietary rights of others.
To date, we have pending patent applications, and intend to file
applications for additional patents covering our future products, although there
can be no assurance that we will do so. In addition, there can be no assurance
that we will maintain or prosecute these applications. The United States
Government granted us twelve patents as of June 30, 2001. See "Business -
Patents, Trademarks and Proprietary Information." There can be no assurance
that:
o any of the remaining patent applications will be granted to us;
o we will develop additional products that are patentable or do not
infringe the patents of others;
o any patents issued to us will provide us with any competitive
advantages or adequate protection for our products;
o any patents issued to us will not be challenged, invalidated or
circumvented by others; or
o any of our products would not infringe the patents of others.
If any of the products are found to have infringed any patent, there
can be no assurance that we will be able to obtain licenses to continue to
manufacture and license such product or that we will not have to pay damages as
a result of such infringement. Even if a patent application is granted for any
of our products, there can be no assurance that the patented technology will be
a commercial success or result in any profits to us.
6
5. Competition from others with greater resources could prevent USA
from increasing revenue and achieving profitability.
Competition from other companies which are well established and have
substantially greater resources may reduce our profitability. Many of our
competitors have established reputations for success in the development, sale
and service of high quality products. We face competition from the following
groups:
o companies offering automated, credit card activated control
systems in connection with facsimile machines, personal computers,
debit card purchase/revalue stations, and use of the Internet
and e-mail which directly compete with our products. See
"Business-Competition";
o companies which have developed unattended, credit card activated
control systems currently used in connection with public
telephones, prepaid telephone cards, gasoline dispensing machines,
or vending machines and are capable of developing control systems
in direct competition with USA; and
o businesses which provide access to the Internet and personal
computers to hotel guests. Although these services are not credit
card activated, such services would compete with USA's Business
Express(R).
Competition may result in lower profit margins on our products or may
reduce potential profits or result in a loss of some or all of our customer
base. To the extent that our competitors are able to offer more attractive
technology, our ability to compete could be adversely affected.
6. The termination of any of our relationships with third parties
upon whom we rely for supplies and services that are critical to
our products could adversely affect our business.
We depend on arrangements with third parties for a variety of component
parts used in our products. We have contracted with RadiSys Corporation and
Masterwork Electronics to assist us to develop and manufacture our proposed
e-Port(TM) products. For other components, we do not have supply contracts with
any of our third-party suppliers and we purchase components as needed from time
to time. See "Business-Procurement". We have contracted with IBM to develop our
network services so that these services are Internet capable as well as interact
with our proposed media capable e-Post(TM). If these business relationships are
terminated, the implementation of our business plan may be delayed until an
alternative supplier or service provider can be retained. If we are unable to
find another source or one that is comparable, the content and quality of our
products could suffer and our business, operating results and financial
condition could be harmed.
7
7. We do not expect to pay cash dividends in the foreseeable future.
The holders of our common stock and series A preferred stock are
entitled to receive dividends when, and if, declared by our board of directors.
Our board of directors does not intend to pay cash dividends in the foreseeable
future, but instead intends to retain any and all earnings to finance the growth
of the business. To date, we have not paid any cash dividends on the common
stock or series A preferred stock. Although we issued a special stock dividend
in August 1995 consisting of one-third of a share of common stock for each share
of outstanding series A preferred stock, there can be no assurance that cash
dividends will ever be paid on the common stock.
In addition, our articles of incorporation prohibit the declaration of
any dividends on the common stock unless and until all unpaid and accumulated
dividends on the series A preferred stock have been declared and paid. Through
June 30, 2001, the unpaid and cumulative dividends on the series A preferred
stock equal $4,621,150. The unpaid and cumulative dividends on the series A
preferred stock are convertible into shares of common stock at the rate of
$10.00 per share. Through June 30, 2001, $2,352,214 of unpaid and cumulative
dividends on the Series A preferred stock were converted into 255,398 shares of
common stock. See "Description of Securities-Series A Convertible Preferred
Stock."
8. We may fail to gain market acceptance of our products.
On June 30, 2001, we have installed 1,474 control devices at commercial
locations and revenues, although growing, have been limited. There can be no
assurance that demand for our products will be sufficient to enable us to become
profitable. Likewise, no assurance can be given that we will be able to install
the credit card activated control systems at enough locations or sell equipment
utilizing our control systems to enough locations to achieve significant
revenues or that our operations can be conducted profitably. Alternatively, the
locations which would utilize the control systems may not be successful
locations and our revenues would be adversely affected. We may in the future
lose locations utilizing our products to competitors, or may not be able to
install our products at competitor's locations. Even if our current products
would prove to be commercially viable, there can be no assurance that they can
evolve or be improved to meet the future needs of the market place.
8
9. The lack of an established trading market may make it difficult to
transfer our stock.
Our common stock is traded on the OTC Bulletin Board. Although there is
limited trading in the common stock, there is no established trading market.
Until there is an established trading market, holders of the common stock may
find it difficult to dispose of, or to obtain accurate quotations for the price
of the common stock. See "Description of Securities - Shares Eligible For Future
Sale" and "Market For Common Stock."
10. There are rules governing low-priced stocks that may affect your
ability to resell your shares.
Our common stock is currently considered a "penny stock" under federal
securities laws since its market price is below $5.00 per share. Penny stock
rules generally impose additional sales practice and disclosure requirements on
broker-dealers who sell our shares to certain investors.
Broker-dealers who sell penny stock to certain types of investors are
required to comply with the SEC's regulations concerning the transfer of penny
stock. If an exemption is not available, these regulations require
broker-dealers to:
o make a suitability determination prior to selling penny stock to
the purchaser;
o receive the purchaser's written consent to the transaction; and
o provide certain written disclosures to the purchaser.
These rules may affect the ability of broker-dealers to make a market
in or trade our shares. This, in turn, may affect your ability to resell those
shares in the public market.
11. We are unable to predict the effect that future sales may have on
the market price of our common stock.
We are unable to predict the effect that sales may have on the market
price of our common stock prevailing at the time of such sales. See "Description
of Securities--Shares Eligible for Future Sale" and "Market for Securities".
9
Number of Shares Issued and Outstanding
as of June 30, 2001 Transferability
--------------------------------------- ---------------
21,450,755 shares of common stock 18,589,781 are freely
transferable without
restriction or further
registration (other than
shares held by affiliates
of USA);
2,860,974 are restricted
securities and under
certain circumstances may
be sold without
registration; and
555,284 shares of preferred stock all 555,284 are freely
transferable without
restriction or further
registration (other than
shares held by affiliates
of USA).
As of June 30, 2001, there were:
o 4,000 shares of common stock issuable to the holders of the
1996-B warrants;
o 1,500 shares of common stock issuable to the holders of the
1997 warrants;
o 2,500 shares of common stock issuable to the holders of the
1998-A warrants;
o 1,436,667 shares of common stock issuable to the holders of the
management options;
o 3,000,000 issuable upon exercise of Marconi options (which expired
in September 2001)
o 100,000 shares of common stock issuable upon the exercise of the
GEM warrants;
o 4,621,200 shares issuable upon conversion of the senior notes;
o 200,400 shares issuable upon exercise of the consultant warrants;
o 5,000 shares of common stock issuable to the holders of the
1998-B warrants;
o 1,580,828 shares issuable upon exercise of Swartz warrants;
o 1,000,000 shares issuable upon exercise of AMS warrants; and
o 5,338,800 shares issuable upon exercise of 2001-B warrants.
10
The common stock, if issued, will be freely tradeable under the Act.
See "Description of Securities".
12. We are obligated to make substantial principal and interest
payments to the holders of the senior notes.
As of June 30, 2001 we had $240,000 of unsecured senior notes payable
December 31, 2001 and $5,656,500 of unsecured senior notes payable on December
31, 2003. These notes accrue cash interest at the rate of twelve percent (12%)
per year. Currently, we are required to make quarterly interest payments
totaling $158,220, or $632,880 each year.
In an effort to reduce the debt payments, we authorized the voluntary
conversion of the senior notes due December 2003 into shares of common stock at
the rate of $1.25 per share, at any time until maturity and the senior notes due
December 2001 into shares of common stock at the rate of $2.50 per share. If all
of the senior notes that were outstanding at June 30, 2001 which are due
December 2003 are converted, we will issue 4,525,200 shares of common stock. We
have agreed to use our best efforts to register for resale under the Act the
shares of common stock into which the senior notes are convertible.
In the event that no additional senior notes are converted, on December
31, 2001, we are obligated to repay the $240,000 remaining principal amount of
senior notes and $5,656,500 of senior notes on December 31, 2003. Until the
senior notes have been paid by us, they will be reflected as a liability on our
financial statements, net of the related unamortized discount and other issuance
costs.
Our ability to satisfy the debt obligations is dependent on
our future performance, the success of our product lines and on our
ability to raise capital. Our performance is also subject to financial, business
and market factors affecting our business and operations.
We anticipate that the senior notes will be paid from cash from
operations, as well as proceeds from securities offerings. However, there can be
no assurance that we will meet our obligations to pay quarterly interest on or
the principal amount of the senior notes at maturity.
The senior notes are unsecured and thus, in effect, will rank junior to
any senior indebtedness. See "Description of Securities - 12% senior notes." The
payment of the senior notes is subordinated to the prior payment in full of all
existing and future senior indebtedness. In the event of our liquidation,
dissolution, reorganization or similar proceedings, our assets will be available
to pay obligations on the senior notes only after all of the senior indebtedness
has been paid in full, and there can be no assurance that sufficient assets to
pay amounts due on the senior notes will remain.
11
USE OF PROCEEDS
We will not receive any of the proceeds from the sales of our common
stock by the selling shareholders. The list of the selling shareholders entitled
to receive the net proceeds from any sales of our common stock appears on page
43 of this prospectus. We will, however, receive proceeds from the exercise of
any options or warrants by the selling shareholders and proceeds from sales of
the shares to be sold by Ratner & Prestia, P.C. will be applied by Ratner on
account of our debt due to Ratner.
12
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
This prospectus contains certain forward looking statements regarding,
among other things, our anticipated financial and operating results. Forward
looking statements are statements that are not of historical fact and include,
but are not limited to, those preceded by or that include the words, "believes,"
"expects," "anticipates," 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 our actual
results to differ materially from those projected, include, for example:
o our ability to generate sufficient sales to generate operating
profits, or to sell products at a profit;
o our ability to raise funds in the future through sales of
securities;
o whether we are able to enter into binding agreements with third
parties to assist in product or network development;
o our ability to commercialize our developmental products, or if
actually commercialized, to obtain commercial acceptance thereof;
o our ability to compete with our competitors and obtain market
share; or
o our ability to obtain sufficient funds through operations or
otherwise to repay our debt obligations or to fund development and
marketing of our products.
Although we believe that the forward looking statements contained in
this prospectus are reasonable, we can give no assurance that our expectations
will be met.
13
Introduction
The Company had a net loss during the years ended June 30, 2001 and
2000 of $10,956,244 and $8,404,481, respectively, and anticipates incurring
operating losses through fiscal 2002.
Results of Operations
Fiscal year ended June 30, 2001:
For the fiscal year ended June 30, 2001, the Company had a net loss of
$10,956,244. The loss applicable to common shares of $11,792,785 or $.70 loss
per common share (basic and diluted) was derived by adding the $10,956,244 net
loss, the $836,541 of cumulative preferred dividends, and dividing by the
weighted average shares outstanding of 16,731,999.
Revenues for the fiscal year ended June 30, 2001 were $1,451,002, a
decrease of $603,339 or 29% from the prior year, primarily due to a decrease of
$745,000 or 55% in equipment and installation sales of our higher priced
Business Express(R) or MBE Business Express(R) and Business Express(R) Limited
Service Series (LSS). Offsetting this decrease were increases in the sale of the
Company's standalone TransAct(R) control system of $129,000 or 462% and the
initial sales of the non-media e-Port(TM) control system of $19,000 or 100%.
Operating expenses for the fiscal year ended June 30, 2001 were
$9,620,675, representing a $746,333 or 8% increase over the prior year. The
primary contributors to these increases were compensation expense and general
and administrative expense offset by reductions in cost of sales, as detailed
below.
Cost of sales decreased by $442,555 from the prior year, primarily
reflecting the decrease in the Business Express(R) or MBE Business Express(TM)
and Business Express(R) LSS centers sold. General and administrative expenses of
$5,628,014 increased by $626,182 or 13%. This increase was due to increased
product development costs of $450,000, public relations expenses of $188,000,
license expense for DoubleClick Adserver software of $120,000, market research
expenses of $88,000, trade show and related travel expenses of $74,000, offset
by a decrease in legal expenses of $238,000, primarily associated with the MBE
litigation which has been settled in fiscal year 2001.
Compensation expense was $2,966,776, an increase of $463,611 or 19%
from the previous year. The increase was due to an increase in executive bonus
expense of $234,000 or 66%, of which $201,000 of this increase was non-cash.
Additional increases in salaries and related employee benefits of $169,000 or
9%, are due to increased personnel activities in all areas of the Company and an
increase of $51,000 in the matching 401K Company contributions instituted in
July 2000.
14
Depreciation expense of $209,646 increased by $99,095, which is
directly attributable to the increased depreciable asset base.
Other income and expense decreased by $481,909, primarily as a result
of the extension of the amortization period of the debt discount due to the
exchange of certain 1999 Senior Notes into 2000 Senior Notes, which is a
non-cash expense.
In November 2000, the Emerging Issues Task Force (EITF) of the
Financial Accounting Standards Board (FASB) required companies to adopt a new
methodology for computing the beneficial conversion feature of convertible
securities, which is to be applied retroactively for commitments entered into on
or after May 20, 1999. Accordingly, a one-time, non-cash charge of $821,000 has
been recorded for the cumulative effect of accounting change as required under
the guidance provided by the EITF.
The exchange of the 1999 Senior Notes to the 2000 Senior Notes was
determined to be a substantial modification of the terms of the original debt
instrument and, accordingly, the Company wrote-off the unamortized debt discount
and other issuance costs associated with the exchange of the 1999 Senior Notes
in the amount of $863,000. Such amount has been reported as a non-cash
extraordinary item in the fiscal year 2001 statement of operations.
Fiscal year ended June 30, 2000:
For the fiscal year ended June 30, 2000, the Company had a net loss of
$8,404,481. The loss applicable to common shares of $9,334,559 or $.92 loss per
common share (basic and diluted) was derived by adding the $8,404,481 net loss
and the $930,078 of cumulative preferred dividends and dividing by the weighted
average shares outstanding of 10,135,905.
Revenues for the fiscal year ended June 30, 2000 were $2,054,341, a
decrease of $1,836,175 or 47% under the prior year, reflecting the large Prime
Hospitality rollout of the MBE Business Express(R) in fiscal year 1999.
Operating expenses for the fiscal year ended June 30, 2000 were
$8,874,342, representing a $1,578,714 or 22% increase over the prior year. The
primary contributors to this increase were general and administrative expenses
and compensation expense offset by a reduction in cost of equipment sales, as
detailed below.
Cost of sales decreased by $1,704,128 from the prior year, primarily
reflecting the decrease in the Business Express(R) or MBE Business Express(R)
centers sold. General and administrative expenses of $5,001,832 increased by
$2,314,088 or 86%. This increase is primarily due to legal expenses associated
with the pending MBE litigation, which amounted to approximately $1,600,000 an
increase of $1,000,000 over the prior year. All but approximately $150,000 of
these expenses were non-cash as the legal counsel was paid for services by the
issuance of the Company's common stock. Other general and administrative
expenses increased by approximately $1,300,000. Components of this increase
include an increase in research and development costs of $356,280, increases in
outside marketing and operational services of $654,381, increased charges for
consulting and professional fees of $300,436 primarily to fund public relations,
increases in costs related to the rental and maintenance of the company's
corporate office of $98,496 and one time expenses for relocation of personnel of
$55,418. Offsetting these increases was a decrease in trade show costs of
$26,630, or 37%.
Compensation expense was $2,503,165, an increase of $949,976 or 61%
from the previous year. The increase was due to the non-cash expense of $293,700
relating to the compensation charge recorded for bonuses to employees for work
performed in fiscal year 2000, and increases in salaries of $656,276, or 42%,
which is due to increased personnel activities in all areas of the Company.
15
Other expenses increased by $1,337,968. Of this increase, $976,380 was
non-cash, due to amortization of debt discount relating to the outstanding
Senior Notes. Cash interest expense accounted for an increase of $493,462 offset
by an increase in interest income of $82,707.
Depreciation expense of $110,551 increased by $18,778, which is
directly attributable to the increased depreciable asset base.
Plan of Operations
As of June 30, 2001, the Company had a total of 1,474 credit card
activated control systems installed in the field as follows: Business Express(R)
or MBE Business Express(R) 1,066, Business Express(R) Limited Service (LSS) 170,
Copy Express(TM) 23, Debit Express(TM) 10, Public PC(R) 3, Fax/Printer
Express(TM) 6, standalone TransAct(TM) 122 and non-media e-Port(TM) 74. Through
June 30, 2001 total license and transaction fees earned by the Company from
these systems were $647,317, an increase of $6,976 or 1% over the prior year.
During the past year the Company has focused on presenting the multiple
capabilities of its new e-port(TM) by developing several product lines of
e-Port(TM). The "audit plus credit" version contains all the functionality of
the current TransAct(TM) terminal for credit card processing, control and data
management, plus the added ability to audit vending product usage and vending
machine status. Through August, 2001, over 100 pre-production units have been
distributed to test sites, distributors and operators. Some minor refinements
are being worked on, and limited production quantities are scheduled for
delivery in late September and November 2001.
The Company believes that the media capable version of e-Port(TM) is
nearing completion. This proposed product would offer capability for public
access electronic commerce and advertising using the Internet, in addition to
the capabilities of the audit plus credit version. For this web enabled version,
the Company is working with RadiSys, a contract manufacturer providing value
added design, development, fulfillment and product warranty services. The
Company anticipates that limited quantities of this Internet ready e-Port(TM)
may be delivered during the second quarter of fiscal year 2002.
Concurrent with the above developments to the e-Port(TM) product line,
IBM is working with the Company to develop an internet capable version of the
existing network, which is designed to support transaction processing,
advertising and e-commerce on a worldwide basis with enhanced security features.
Expenditures have been made to recode our existing system in an internet
friendly programming language and to use a more appropriate operating system.
In June 2001, the Company and IBM signed an Agreement which establishes
the basis for a strategic alliance between the two companies. The two companies
will combine their respective products and capabilities to target sales to the
intelligent vending, retail point of sale, and networked home applications
markets. Cooperation is currently underway to identify customers, trade shows,
and marketing avenues.
The Company has also been cultivating relationships in the vending
marketplace. Coca Cola has contracted with Marconi Online Systems, Inc., a
subsidiary of Marconi plc, a British telecommunications company, to provide
"intelligent vending" solutions for portions of its vending machines. Through
our Company's business alliance with Marconi, executed in April of 2001, our
e-Port(TM) and associated network could be used in connection with Marconi's
fulfillment of the Coca Cola contract. Other major soda vending players are also
being
16
cultivated, including most of the manufacturers of vending machines and
electronic components, vending product manufacturers and distributors, and large
operators of major vending franchise routes. Vending companies who deal with
other vended products are also being contacted, including those who vend prepaid
phone cards and hot meals.
Additional plans for the coming fiscal year include further activity in
the advertising and media arenas and development of strategic partnering
relationships. Recently, the Company has signed a contract with United Taxi
Alliance of New York, Inc., a newly formed New York non-profit corporation, to
sell media capable e-Ports to UTA over a three year period.
Liquidity and Capital Resources
During the fiscal year ended June 30, 2001, the Company completed
several financing transactions. Net proceeds of $2,722,536 were realized from
private placement offerings of Common Stock and $2,112,100 was realized from the
exercise of Common Stock Purchase Warrants. As of June 30, 2001, the Company had
a working capital deficit of $2,390,543, which included cash and cash
equivalents of $817,570 and inventory of $560,410.
During the fiscal year ended June 30, 2001, net cash of $3,568,924 was
used by operating activities, primarily due to the net loss of $10,956,244,
offset by a non-cash charge of $974,222 for Common Stock, options and warrants
issued for services and interest in lieu of cash payments, and $764,736 of non-
cash amortization of the debt discount relating to the Senior Notes. During the
fiscal year ended June 30, 2001, net cash used in investing activities was
$3,318,466, principally due to the increase in software development costs of
$2,938,111 relating to the e-Port(TM). The net cash provided by financing
activities of $5,845,600 was attributable primarily to net proceeds generated
from the issuance of Common Stock through private placements and exercise of
Common Stock Purchase Warrants described in the prior paragraph and $1,174,818
of net proceeds generated through the issuance of 2000 Senior Notes.
During fiscal 2002, the Company anticipates additional capitalization
of approximately $1.6 million for software development on its network.
During fiscal year 2001 and through September 2001, the Company sold a
total of 739.5 Units in a private placement offering at a price of $6,000 per
unit. Each unit consisted of 10,000 shares of Common Stock and warrants to
purchase up to 20,000 shares of Common Stock at $.50 per share. One-half of the
warrants are exercisable on or before December 31, 2001 and the balance are
exercisable on or before June 30, 2002. Of the units sold, 615.6 were for cash
and 123.9 were issued in exchange for services rendered to the Company. Of the
units sold, 472.56 were sold subsequent to June 30, 2001.
During July 2001, the Company issued to an investor a warrant to
purchase up to 500,000 shares of Common Stock. The warrant can be exercised at
any time in whole or in part within one year following the effectiveness of the
registration statement covering the resale of the shares issuable upon exercise
of the warrant. The exercise price of the warrant is the lower of $1.00 or 80%
of the lowest closing bid price of the Common Stock during the 20 trading days
prior to exercise. The Company has agreed to prepare and file at its cost and
expense a registration statement covering the resale by the investor of the
shares underlying the warrant. At the time of the issuance of the warrant, the
investor paid to the Company a non-refundable fee of $50,000 to be credited
towards the exercise price under the warrant. A broker-dealer received a
commission of $3,500 in connection with this warrant.
17
During August 2001, the Company issued to La Jolla a $225,000
Convertible Debenture bearing 9 3/4 percent interest with a maturity date of
August 2, 2003. Interest is payable by the Company monthly in arrears. The
Debenture is convertible at any time after the earlier of the effectiveness of
the registration statement referred to below or 90 days following issuance at
the lower of $1.00 per share or 80% of the lowest closing bid price of the
Common Stock during the 20 days preceding exercise. If on the date of conversion
the closing bid price of the shares is $.40 or below, the Company shall have the
right to prepay the portion being converted at 150% of the principal amount
being converted. In such event, La Jolla shall have the right to withdraw its
conversion notice. At the time of conversion of the Debenture, the Company has
agreed to issue to La Jolla warrants to purchase an amount of Common Stock equal
to ten times the number of shares actually issued upon conversion of the
Debenture. The warrants are exercisable at any time for two years following
issuance and at the related conversion price of the Debenture. The Company has
agreed to prepare and file at its expense a registration statement covering the
resale of the shares of Common Stock underlying the Debenture as well as the
related warrants issuable upon conversion of the Debenture. La Jolla paid to the
Company the sum of $100,000 at the time of the issuance of the Debenture and has
agreed to pay $125,000 at the time of the effective date of the registration
statement.
In August 2001, the Company issued a warrant to a consultant, to
purchase up to 150,000 shares of Common Stock at $.70 per share. The warrant is
exercisable at any time prior to two years following issuance. The Company has
agreed to prepare and file at its expense a registration statement covering the
resale of the shares of Common Stock underlying the warrant.
During September 2001 and through October 19, 2001, the Company sold
4,212,350 shares of Common Stock at $.50 per share. The offering was exempt from
the registration requirements of the Act pursuant to Section 4(2) and Rule 506
thereunder and was offered and sold only to accredited investors. For each share
purchased, the investor also received a warrant to purchase one share of Common
Stock at $.50 per share at any time prior to March 31, 2002. The Company has
agreed to prepare and file at its expense a registration statement covering the
resale of the shares of Common Stock and the shares of Common Stock underlying
the warrants. Of the 4,212,350 shares sold in the offering, 637,500 were issued
in exchange for services rendered and 3,574,850 for cash ($1,787,425). As of the
date of this Prospectus, we have received cash of $497,344 and have subscription
agreements for $2,066,175.
In September 2001, the Company (i) extended the expiration date of the
warrants to purchase up to 1,000,000 shares issued to a consultant from August
31, 2001 until September 30, 2001; (ii) issued 200,000 options to an employee,
and 100,000 options to each of two consultants. The options are fully vested and
are exercisable at $.70 per share at any time prior to June 30, 2003; and (iii)
reduced the purchase price for the shares of Common Stock which can be purchased
with the quarterly interest payments made on the Senior Notes from $1.00 to $.50
for the quarters ending September 30, 2001 and December 31, 2001. In June 2001,
the Company reduced the purchase price for the Common Stock from $1.00 to $.80
for the interest payment due for the quarter ended June 30, 2001.
In October 2001, we issued 200,000 shares to Ratner & Prestia, P.C.,
our intellectual property counsel. The proceeds of the sales of these shares
will be applied towards the unpaid professional fees due to them by us which as
of October 22, 2001 were $214,855. We have agreed to register these shares for
resale under the Act at our expense.
To date, the Company has received nominal funds from Swartz Private
Equity, LLC under its equity credit line with Swartz. The Company does not
anticipate any significant use of the Swartz credit line in the future.
18
The Company has incurred net losses of $11.0 million and $8.4 million
during each of the fiscal years ending June 30, 2001 and 2000, respectively, and
an accumulated deficit from inception through June 30, 2001 amounting to $39.2
million and a shareholders deficit at June 30, 2001 of $2.8 million. The Company
anticipates that for the year ending June 30, 2002 there will be a negative cash
flow from operations in excess of $3 million thus, the Company will require
additional debt or equity financing which may not be readily available. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. The Company's independent auditors have included an explanatory
paragraph in their report on the Company's June 30, 2001 financial statements.
The Company believes that the funds available at June 30, 2001 combined with
events anticipated to occur including the anticipated revenues to be generated
during fiscal year 2002, the potential capital to be raised from the exercise of
the Common Stock Purchase Warrants, the funds anticipated to be received in
future private placements, and the ability to reduce anticipated expenditures,
if required, will allow the Company to continue as a going concern.
Commitments
The Company leases approximately 10,000 square feet in Wayne,
Pennsylvania for a monthly rental of $12,705 plus utilities and operating
expenses. The lease expires on June 30, 2002.
The Company has acquired inventory financing using IBM Global
Financing. The debt to IBM is secured primarily by the inventory being financed
and bears an annual interest rate of 10%, subject to adjustments if the
outstanding balance is outstanding greater than 180 days. As of June 30, 2001,
$45,785 of debt is outstanding under this arrangement.
BUSINESS
USA Technologies, Inc., a Pennsylvania corporation (the "Company"), was
founded in January 1992. Our vision is to be a major player in the 'Digital,
Networked Economy' by providing the marketplace with embedded technology and
associated network and on-line financial services that will help transform their
businesses. The ultimate goal is to position the Company as the preferred method
and industry standard for cashless micropayments and automated retailing, and to
become a leading point-of-sale, interactive media and network services company.
The Company intends to accomplish this by building on its market
position in networked, unattended consumer payment systems through a new
e-Business solution called e-Port(TM). To this end, the Company has focused on
developing e-Port(TM) - its new credit card payment system. The non-media
version of the e-Port is a device that is integrated with copiers, vending
machines or other host equipment that gathers information about sales and
operations of the host equipment and also allows a consumer to use a credit card
to make a purchase. The media version of the e-Port is currently being
engineered and would enable consumers to view interactive advertising/media, and
to conduct simple, secure and direct e-commerce while making routine purchases
anywhere. The non-media version of the e-Port contains all the functionality of
USA Technologies' current TransAct(TM) system for credit card processing,
micropayments, control and data management and would offer data management and
auditing capability for vending operators, kiosk operators and others wishing to
place equipment or products on a network via embedded computing capability.
The media capable version of the e-Port(TM) would be a non-PC device
offering consumers the opportunity to view interactive advertising and to
conduct e-commerce transactions while making routine purchases with a credit
card, smart card or any other payment device such as a cellular phone, at
vending machines, convenience stores, gas pumps and other high-traffic retail
points-of-sale. The media capable e-Port(TM) also would allow advertisers the
opportunity to operate non-PC electronic storefronts that could provide
consumers with promotional offers at actual retail locations.
The Company is a leading provider and licensor of unattended, credit
card activated control systems for the copying, debit card and personal computer
industries. USA Technologies' devices make available unattended credit card
payment technology in connection with the sale of a variety of products and
services. USA Technologies has historically generated its revenues from the
direct sale of its control systems and the resale of configured office products,
plus network service fees, plus by retaining a portion of the monies generated
from all credit card transactions conducted through its control systems.
We have been granted fourteen patents related to our technology. One of
these is in the area of networked vending machines and credit card technology -
including the use of smart cards. Another is a patented method of batch
processing which enables consumers to engage in cashless micropayments.
Fifty-three other foreign and domestic patents are pending.
19
The Company has entered into a corporate agreement with Promus Hotel
Corporation (Embassy Suites, Hampton, and Doubletree brands) which establishes
itself as a preferred supplier of business center products for those brands. The
Company's Business Express(R) has been approved and recommended as a solution
for business center needs by Marriott for its hotels. The Company is the
exclusive provider of business center solutions to over 100 properties owned by
MeriStar, and the preferred provider of business center products to over 100
additional properties managed by MeriStar. MeriStar is the largest independent
hotel management company in the United States, operating over 200 hotels and
resorts under such known brand names as Hilton, Holiday Inn and Wyndham. As of
June 30, 2001, business centers have been installed at 14 MeriStar locations.
The Company has a national reseller agreement in place with Xerox.
USA Technologies is a market leader in making self-serve, credit card
activated products and services available to consumers everywhere. The Company
has achieved this with the sale and installation of its product, Business
Express(R) or MBE Business Express(R), at nearly 400 hotel, library and retail
locations nationwide. Business Express(R) and MBE Business Express(R) offer
thousands of business travelers and consumers the opportunity to conduct
e-business/e-commerce 24 hours a day with the swipe of a credit card. The
Business Express(R) gives consumers self-serve, public access to the Internet,
copy and fax services, and other 'e-Business services'. At the heart of this
product line is USA Technologies' networked payment solution TransAct(TM), an
automated, credit card consumer payment system which has been utilized with
photocopying machines, facsimile machines, computer printers, vending machines
and debit and smart card purchase/revalue stations. The Company retains all
rights to software and proprietary technology that it licenses to location
operators for their exclusive use. As of June 30, 2001, 367 Business Express(R)
or MBE Business Express(R) units are installed. The Company also markets a
product line extension to the Business Express(R), called the Business
Express(R) Limited Service Series (LSS). The LSS has copier and fax capabilities
plus laptop printing, dataport capabilities and credit card activated phone. The
LSS is targeted to the hospitality mid-market, limited service and economy
properties. As of June 30, 2001, 100 LSS units are included in the total of 367
Business Express(R) or MBE Business Express(R) units installed. The Company also
sells its TransAct(R) credit card device and payment system as a standalone
offering to the world's leading office equipment manufacturers and distributors.
The Company established a TransAct(R) Authorized Reseller Program to sign up
various independent and national dealers and distributors. As of June 30, 2001,
22 dealers are participating in the program.
Currently, the Company has as its core business three components:
unattended credit card control systems; a financial services and auditing
network; and a proposed interactive media and ad serving network.
The first component is our credit card activated control systems. The
current version of the Company's technology is TransAct(TM). This product, as
outlined above, is currently installed in locations throughout North America.
The latest generation of technology that the Company introduced is called the
e-Port(TM). It was unveiled in October 2000 at the National Automatic
Merchandising Association convention in New Orleans, the world's largest vending
trade event.
20
The e-Port(TM) is designed to be a flexible and versatile embedded
system device. While initially targeted to the vending industry, the technology
that has been developed may be applied in many other industries such as copiers,
retail point of sale, mass transit, etc; wherever pervasive computing, embedded
systems and credit card and other cashless payment systems are used.
The e-Port(TM) hardware consists of a circuit board, RAM, Flash Memory,
modem, ports, credit card reader, and propriety software. The Company is in the
process of engineering a media capable e-Port featuring an LCD color touch
screen. The version of e-Port(TM) with the LCD color touch screen is built to
USA's specifications by RadiSys, a leader in developing and mass-producing
embedded systems. The Company entered into a Development and Manufacturing
Agreement ("DMA") with RadiSys Corporation in June, 2000. RadiSys has
significant manufacturing expertise in the embedded chip market and is partially
owned by Intel. The Company also contracts with Masterwork Electronics
Corporation, a leader in the manufacture of electronics for the vending
industry, for the non-media version of e-Port(TM) without the LCD color touch
screen.
Additionally, e-Port(TM) uses the connectivity features developed by
the Company. These include the ability to send and receive data via land lines,
radio waves (like a home cordless phone), wireless modems, always-on phone
connections, etc. The Telecom and Internet connections offered by Sprint support
the hardware developed by the Company. USA Technologies and Sprint have agreed
to a partnership allowing its customers access to many connectivity options at
superior service levels and pricing.
e-Port(TM) technology is anticipated to be available in three primary
configurations. By offering these options, the Company believes that it would
provide a complete set of solutions and applications to solve the needs of
customers and industries from the smallest to the largest, and most demanding.
o e-Port(TM) - Audit. The audit only e-Port(TM) is an embedded
device that is integrated with existing copiers, vending machines
or other 'host' equipment. The auditing feature captures supply
chain data (units sold, what sold, price of units sold, etc.) and
other machine information. It will send the information back to
either a customer's network or to the USA network for reporting.
o e-Port(TM) - Audit/Credit. The Audit/Credit version of the
e-Port(TM) is an embedded device that, in addition to gathering
information about the sales and operation in the host equipment
(the auditing portion) also allows a user to use a credit card or
other cashless method to make a purchase. It will work with cash
and credit as well as credit only. This version will allow a user
to make multiple purchases with one credit card transaction. This
unit relays both the credit and cash sales information back to a
network along with the other audit information.
o e-Port(TM) - Audit/Credit/Interactive. The Audit/Credit/
Interactive version of e-Port(TM) is also known as the media
capable e-Port and is currently being engineered by the Company.
It would allow a user to take advantage of the benefits that
network control and remote monitoring provide, the increased sales
opportunity that the credit cards provides and the potential for
revenue generation that the LCD screen with its interactive ad
could possibly provide.
21
Our customers' terminals are currently networked together using
USALive(TM) - a network service that enables terminal users to easily access
basic audit information, conduct unattended credit card transactions, turnkey
banking, and micropayments. The Company together with IBM Global Services is
currently developing an enhanced network which should provide interactive media
and advertising at point of sale. The Company anticipates that an additional
$1.6 million will be incurred in this regard in the first half of fiscal 2002.
The second component involves financial services and auditing. This
capability provides users with auditing capability as well as turnkey credit
card and banking capability.
o USA utilizes a patented method of batch processing in order to conduct
affordable credit card transactions of as little as $1.00.
o USA provides users of the e-Port(TM) and TransAct(TM) with the ability to
instantly accept credit cards in an unattended location.
o USA acts as a 'super merchant' for its customers - thereby helping them to
avoid getting certified with credit card processors to do unattended
transactions.
o USA provides all the refunds, payments, and reporting of the credit card
transactions.
o The auditing capability of the network provides customers with detailed
information on location or host equipment operation, sales, security, etc.
The third component would involve serving targeted, interactive ads to
our proposed media capable e-Ports. In addition to being able to provide highly
targeted ads, it would possibly serve these ads to a more captive audience than
is possible with traditional web based advertising. The targeting of media via
the Company's proposed network may be possible because the data base would be
constantly updated concerning information about each e-Port(TM): state, city,
zip code, make up of users from standpoint of: income, vocation, location of the
machine (school, mall, convention center, movie theater, super market, etc.) A
potential advertiser could possibly select the group they want to target to
advertise to and the USA Ad Serving network could possibly send the ads to the
targeted e-Ports.
The Company has been designated as an authorized equipment reseller by
International Business Machines Corporation and Hewlett-Packard. The Company
believes that it benefits from the association of its control systems with the
well-known brands of business equipment manufactured by these companies.
On September 24, 1997, the Company entered into a Joint Venture
Agreement ("JV") with Mail Boxes Etc. ("MBE"), in order to sell automated,
credit card activated business centers under the name MBE(TM) Business
Express(R). The JV was terminated in May 1999, but the Company continues to
service all MBE(TM) Business Express(R) field installations.
For the years ended June 30, 2001 and 2000, the Company has expensed
approximately $1,260,000 and $554,000, respectively for the development of its
proprietary technology. These amounts include the expense of outside consultants
and contractors as well as compensation paid to certain of the Company's
employees and is reflected in compensation and general and administrative
22
expense in the accompanying financial statements. In addition, the Company has
capitalized approximately $3.1 million since May, 2000 for the services of IBM,
to program the enhanced version of the Company's proprietary "USAlive" network.
See Note 2 to the Financial Statements.
As of June 30, 2001, the Company had a total installed base of 1,400
control systems, distributed as follows: 1,066 Business Express(R) or MBE
Business Express(R) control systems, 170 Business Express(R) Limited Service
(LSS) control systems, 23 Copy Express(TM) control systems, 10 Debit Express(TM)
control systems, 6 Fax/Printer Express(TM) control systems, 3 Public PC(R)
control systems and 122 standalone TransAct(R) control systems located at
various hotels and libraries throughout the United States and Canada. In
addition, there were 74 non-media e-Port(TM) control systems located at vending
locations in the United States. Through June 30, 2001 total license and
transaction fee revenues received by the Company from these systems, although
growing, has not been sufficient to cover operating expenses.
Industry Trends
USA Technologies believes it has positioned itself to claim a piece of
three important market spaces within the new Internet economy: interactive
advertising, electronic commerce and pervasive computing. USA Technologies
intends to continue to leverage its proprietary technologies, e-Port(TM) and
TransAct(TM) payment systems, which put credit card activated goods and
services, e-business and e-commerce at 'arms reach' of consumers. The Company
will attempt to take advantage of four powerful trends:
1. Growth in credit card/cashless transactions
- Transaction volume nearly quadrupled from 1990 to 2000
- 1.3 billion credit cards in circulation
- $2.24 trillion in purchase volume in 2000
- $3.17 trillion in total volume* in 2000
- Preferred method of payment for US consumers
This important trend is driving impressive growth in purchases of credit card
devices, as well as the network services that support use of those terminals
(e.g., credit card processing). Source: The Nilson Report.
(*Total volume includes purchases of goods and services, cash
advances/withdrawals, and commercial funds transfers from business in China.)
2. Growth in cashless micropayments
Visa estimates that in the United States cash transactions below $10 total
nearly $400 billion annually - an attractive market which is virtually untouched
by credit cards. Furthermore research firm Ovum predicts that wireless
micropayments - transactions of less than $10 - will total $200 billion
worldwide by 2005.
3. Emergence of pervasive computing/'Internet Everywhere' appliances (source,
IDC).
Growth in pervasive computing devices is expected to fuel unprecedented
growth of Internet/e-Commerce. These intelligent or 'smart' devices (e.g.
vending machines, personal digital assistants, credit card readers etc.) are
embedded with microprocessors that allow users to gain direct, simple and secure
access to relevant information and services via the Internet without the need
for a PC.
23
It is projected that two billion people will be accessing the web with 'non-PC'
Internet appliances which are simple to use and less costly than a conventional
PC (e.g. digital assistants, intelligent cell phones, game devices). Billions of
vending machines, television set top boxes, automobiles, telephones and payment
devices of all types are anticipated to be embedded with computational ability
and connected to the Internet.
4. Growth in interactive advertising
Interactive advertising is expected to grow from an annual $2 billion industry
in 1999 to over $12 Billion by 2003 (source: Forester and IAB Internet Ad
Revenue Report).
5. Growth in electronic commerce.
By the year 2003, it is projected by IDC ("Information Industry Technology
Update 1999-2000" p. 29-30, p.i.) that 500 million Internet users will be
accessing information and conducting commerce over the net (versus 160 million
users in 1998). This increased use would amount to two new users per second. As
a consequence, consumer e-commerce is predicted to hit almost $1.3 trillion a
year by 2003 ("Information Industry Technology Update 1999-2000", p. 16).
Credit Card Processing
Each of the Company's credit card activated control systems records and
transmits all transaction data to the Company, and the Company then forwards
such data to the credit card processor. After receiving transaction information
from the Company, the credit card processor electronically transfers the funds
(less the credit card processor's charge) to the Company. The Company then
forwards to the location its share of the funds.
The Company and each location have agreed on a percentage split of the
gross proceeds from the Company's device. The credit card processor's fees and
cost to forward the location's share of the gross proceeds are all paid for out
of the Company's portion of the gross revenue.
The Company currently retains a portion of the gross revenues from each
control system. If the Company has sold the equipment to the location, the
portion retained is generally 5% of the gross revenues. In cases where the
Company continues to own the equipment, the portion retained can be as high as
90% of gross revenues. In addition the Company charges a fixed monthly
management fee which is generally $20-$25 per control system for existing
hospitality locations.
24
Product Lines
The Business Express(R)
The hotel/motel hospitality industry has become more competitive as
chains increase efforts to attract the most profitable customer: the business
traveler or conference attendee, who accounts for the majority of hotel
occupancy, stays longer and spends more per visit than the leisure traveler. For
these reasons, hotels have become very responsive to the needs of the business
traveler. The Business Express(R) enables a hotel to address some of these
needs, while offering the possibility of generating incremental revenue.
The Business Express(R) utilizes the Company's existing applications
for computers, copiers, and facsimile equipment, and combines them into a
branded product. The Business Express(R) bundles the Public PC(R) unit, the Copy
Express(TM) unit, and the Fax Express(TM) unit, into a functional kiosk type
workstation. All devices are credit card activated, therefore eliminating the
need for an attendant normally required to provide such services.
The MBE(TM) Business Express(R)
The MBE(TM) Business Express(R) bundles together the same components as
the Business Express(R): Public PC(R), Copy Express(TM), and Fax Express(TM),
but under the MBE brand name. In addition, the MBE(TM) Business Express(R)
includes a dial-through service to a nearby MBE store making available the
products and services of the store. The Company terminated the Joint Venture in
May 1999.
The Copy Express(TM)
The Copy Express(TM) provides a cashless method to pay for the use of
photocopying machines. The device is attached to the photocopying machine,
computer printer, or microfilm/fiche printer in a similar manner as attaching a
standard coin acceptor. The device can be attached to either existing or new
equipment. The control system enables customers to photocopy documents with the
use of a credit card.
The Debit Express(TM)
The Company's Debit Express(TM) enables customers to purchase or revalue
their debit cards with the swipe of a credit card and eliminates the need for
cash or for an attendant to handle cash or provide change. The Debit Express(TM)
eliminates any reliance on cash by allowing customers to use a valid credit card
to purchase or place additional value on a debit card.
The Public PC(R)
The Public PC(R) enables the public to utilize functions of a personal
computer on an "as-needed" basis in the public domain. Our system controls
access to the computer and charges for time in use, printed output, and any
modem activity.
TransAct(R) as a Stand Alone Product
USA Technologies produced and patented TransAct(R), a cashless
transaction terminal that enables secure, low cost credit transactions to take
place. As the nerve center for USA's Business Express(R) product line,
TransAct(R) currently enables all business center locations to provide 24/7
business center accessibility, secure transaction settlements and voice and
display instructions for users. TransAct(R) works effectively to transform a la
carte office components into automated, credit card-operated, revenue centers.
To penetrate effectively the "pay as you go" business service markets
within the retail, university, transportation and apartment communities, three
standardized TransAct(R) packages have been developed, priced and launched to
office component dealers who already service these markets. The Company
anticipates that the development of a dealer channel to sell TransAct(R) units
will increase licensing and usage revenue streams.
25
The e-Port(TM)
The e-Port(TM) has two basic versions, both of which contain all the
functionality of the current TransAct(R) terminal for credit card processing,
control and data management. The non-media version of the e-Port is a device
that is integrated with copiers, vending machines or other host equipment that
gathers information about sales and operations of the host equipment and also
allows a consumer to use a credit card to make a purchase. The media capable
version which is currently being engineered would offer, in addition, capability
for public access electronic commerce and advertising using the Internet. With
the media capable e-Port(TM), the Company believes it has positioned itself to
claim a piece of two important market spaces within the new "Internet" economy -
electronic commerce and pervasive computing. This version would enable
e-commerce to be transacted away from the computer and would offer Internet
merchants an extension of their business without brick and mortar outlays. It
could be considered a low cost "physical" location for "virtual" merchants. The
media capable e-Port(TM) would possibly give consumers the opportunity to engage
in interactive advertising and e-commerce while making routine purchases at
millions of points of sale - including our Business Express(R) locations,
vending machines, and convenience stores.
Marketing
As of June 30, 2001, the Company was marketing its products through its
full time staff consisting of six salespeople. The company is primarily focused
on the vending, hospitality and office equipment industries, but has expanded
product distribution into new industries, including transportation, laundry and
multi-housing.
In the vending industry, the non-media e-Port product line is now
commercialized and being used by vending operators and soft drink bottlers in
the USA and Canada. In April 2001, the Company formed a business alliance with
Marconi, who holds the global agreement with the Coca-Cola Company for
intelligent vending. The Company continues to work with the top vending machine
manufacturers, including Automatic Products, AMS, U-Select-It, Rowe
International, Vendtronics, Vendo, Royal and Dixie Narco; expand its authorized
resellers, including Betson Enterprises, State Sales & Service and Weymouth
Distributing; and intends to implement the non-media version of the e-Port with
major national vending operators.
As for the hospitality industry, Business Express continues to be one
of the premier solutions for automated business centers. The Company has
relationships with the two most recognized global hotel chains, Marriott and
Hilton Hotels and two of the largest hotel management companies in the USA,
MeriStar Hotels and Prime Hospitality.
In the office equipment industry, the Company continues to work with
Xerox, its largest authorized reseller on new distribution opportunities. In
addition to Xerox, the Company has added a major new reseller in Canada, Global
Technologies, which has increased the distribution of our TransAct products.
In June, 2001, the Company and IBM signed an Agreement which
establishes the basis for a strategic alliance between the two companies. The
two companies will combine their respective products and capabilities to target
sales to the intelligent vending, retail point of sale, and networked home
applications markets. Cooperation is currently underway to identify customers,
trade shows, and marketing avenues.
26
Procurement
The Company's media capable e-Port(TM) is currently being engineered to
be internet and media capable and easily mass producible, by an independent
contract manufacturer, RadiSys. The Company believes that work is nearing
completion and test units have been received. Product orders to RadiSys are
governed by the Design and Manufacturing Agreement signed in June, 2000.
In March, 2001, a manufacturing agreement between the Company and
Masterwork Electronics was signed, to provide the Company with manufacturing
capability for the non-media version of e-Port(TM). In April, 2001 the Company
placed an order with Masterwork for 500 non-media units. In August, 2001, 100
were received, in September, 2001, 200 were received, and the remainder are due
in November 2001.
The Company anticipates obtaining the other components of its business
center (computers, printers, fax and copy machines) through CompuCom, a
distributor of IBM products, Hewlett Packard, and copier and fax manufacturers.
Orders are regularly placed for quantities required for expected orders several
months in advance.
Competition
There are currently other businesses offering or announcing unattended,
credit card activated control systems for use in connection with copiers,
printers, personal computers, fax machines, Internet and e-mail access, vending,
retail point of sale, and debit card purchase/revalue stations. In addition, the
businesses which have developed unattended, credit card activated control
systems currently in use in connection with gasoline dispensing, public
telephones, prepaid telephone cards, ticket dispensing machines, vending
machines, or facsimile machines, are capable of developing products or utilizing
their existing products in direct competition with the Company. Many of these
businesses are well established, have substantially greater resources than the
Company and have established reputations for success in the development, sale
and service of high quality products. The Company is aware of businesses that
have developed an unattended, credit card activated control system to be used in
connection with vending machines. Any such increased competition may result in
reduced sales and/or lower percentages of gross revenues being retained by the
Company in connection with its licensing arrangements, or otherwise may reduce
potential profits or result in a loss of some or all of its customer base. The
Company is also aware of several businesses that make available use of the
Internet and use of personal computers to hotel guests in their hotel rooms.
Such services might compete with the Company's Business Express(R), and the
locations may not order the Business Express(R), or if ordered, the hotel guest
may not use it. The Company is aware that credit card activated personal
computer kiosks have been developed and are in the marketplace.
27
Patents, Trademarks and Proprietary Information
We received federal registration approval of our trademarks Business
Express(R), C3X(R), and Public PC(R), and have applied for federal registration
of Copy Express(TM), e-Port(TM), and TransAct(TM).
Much of the technology we have developed is subject to trade secret
protection. To reduce the risk of loss of trade secret protection through
disclosure, we have entered into confidentiality agreements with our key
employees. There can be no assurance that we will be successful in maintaining
such trade secret protection, that they will be recognized as trade secrets by a
court of law, or that others will not capitalize on our technology.
As of June 30, 2001, we have thirty-seven pending patent applications
as well as sixteen pending foreign patents. Through June 30, 2001, twelve United
States patents have been issued to us:
o U.S. Patent No. 5,619,024 entitled "Credit Card and Bank Issued
Debit Card Operating System and Method for Controlling and
Monitoring Access of Computer and Copy Equipment";
o U.S. Patent No. 5,637,845 entitled "Credit and Bank Issued Debit
Card Operating System and Method for Controlling a Prepaid Card
Encoding/Dispensing Machine";
o U.S. Patent No. D423,474 entitled "Dataport";
o U.S. Patent No. D415,742 entitled "Laptop Dataport Enclosure";
o U.S. Patent No. D418,878 entitled "Sign Holder";
o U.S. Patent No. 6,056,194 entitled "System and Method for
Networking and Controlling Vending Machines";
o U.S. Patent No. D428,047 entitled "Electronic Commerce Terminal
Enclosure";
o U.S. Patent No. D428,444 entitled "Electronic Commerce Terminal
Enclosure for a Vending Machine";
o U.S. Patent No. 6,119,934 entitled "Credit Card, Smart Card and
Bank Issued Debit Card Operated System and Method for Processing
Electronic Transactions";
o U.S. Patent No. 6,152,365 entitled "Credit and Bank Issued Debit
Card Operated System and Method for Controlling a Vending
Machine";
o U.S. Patent No. D437,890 entitled "Electronic Commerce Terminal
Enclosure with a Hooked Fastening Edge for a Vending Machine"; and
o U.S. Patent No. D441,401 entitled "Electronic Commerce Terminal
Enclosure with Brackets".
In addition, two foreign patents, Canadian Patent No. D87998 entitled
"Sign Holder" and Canadian Patent No. D91645 entitled "Laptop Data Port
Enclosure" have been issued to USA.
Employees
On June 30, 2001, we had twenty-eight full-time employees.
Properties
We lease our principal executive offices, consisting of approximately
10,000 square feet, at 200 Plant Avenue, Wayne, Pennsylvania for a monthly
rental of $12,705 plus utilities and operating expenses. The lease expires on
June 30, 2002.
28
Where to get more information
We file annual, quarterly and special reports and other information
with the SEC. You may read and copy any document we file with the SEC at the
SEC's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549. You
may obtain information on the operation of the public reference room by calling
the SEC at 1-800-SEC-0330. The same information may be obtained at the following
Regional Office of the SEC: 7 World Trade Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can also be obtained from
the Public Reference Section of the SEC's Washington, D.C. office at prescribed
rates.
Our filings may also be accessed through the SEC's web site
(http://www.sec.gov). We will provide a copy of any or all documents
incorporated by reference herein (exclusive of exhibits unless such exhibits are
specifically incorporated by reference therein), without charge, to each person
to whom this prospectus is delivered, upon written or oral request to USA
Technologies, Inc., 200 Plant Avenue, Wayne, Pennsylvania 19087, Attn: George R.
Jensen, Jr., Chief Executive Officer (telephone (610) 989-0340).
We will furnish record holders of our securities with annual reports
containing financial statements audited and reported upon by our independent
auditors, quarterly reports containing unaudited interim financial information,
and such other periodic reports as we may determine to be appropriate or as may
be required by law.
MANAGEMENT
Directors and Executive Officers
Our Directors and executive officers, on June 30, 2001, together with
their ages and business backgrounds were as follows.
Name Age Position(s) Held
---- --- ----------------
George R. Jensen, Jr. 53 Chief Executive Officer,
Chairman of the Board of Directors
Stephen P. Herbert 38 President, Director
Haven Brock Kolls, Jr. 35 Vice President - Research and
Development
Leland P. Maxwell 54 Senior Vice President, Chief
Financial Officer, Treasurer
Michael K. Lawlor 39 Vice President - Marketing
and Sales
William W. Sellers (1)(2) 79 Director
Henry B. duPont Smith 39 Director
William L. Van Alen, Jr. (1)(2) 67 Director
Steven Katz (1) 52 Director
Douglas M. Lurio (2) 44 Director
Edwin R. Boynton 46 Director
(1) Member of Compensation Committee
(2) Member of Audit Committee
29
Each Director holds office until the next Annual Meeting of
shareholders and until his successor has been elected and qualified.
George R. Jensen, Jr., has been our Chief Executive Officer and a
Director since our inception in January 1992. Mr. Jensen was Chairman, Director,
and Chief Executive Officer of American Film Technologies, Inc. ("AFT") from
1985 until 1992. AFT was in the business of creating color imaged versions of
black-and-white films. From 1979 to 1985, Mr. Jensen was Chief Executive Officer
and President of International Film Productions, Inc. Mr. Jensen was the
Executive Producer of the twelve hour miniseries, "A.D.", a $35 million dollar
production filmed in Tunisia. Procter and Gamble, Inc., the primary source of
funds, co-produced and sponsored the epic, which aired in March 1985 for five
consecutive nights on the NBC network. Mr. Jensen was also the Executive
Producer for the 1983 special for public television, "A Tribute to Princess
Grace". From 1971 to 1978, Mr. Jensen was a securities broker, primarily for the
firm of Smith Barney, Harris Upham. Mr. Jensen was chosen 1989 Entrepreneur of
the Year in the high technology category for the Philadelphia, Pennsylvania area
by Ernst & Young LLP and Inc. Magazine. Mr. Jensen received his Bachelor of
Science Degree from the University of Tennessee and is a graduate of the
Advanced Management Program at the Wharton School of the University of
Pennsylvania.
Stephen P. Herbert was elected a Director in April 1996, and joined USA
on a full-time basis on May 6, 1996. Prior to joining us and since 1986, Mr.
Herbert had been employed by Pepsi-Cola,the beverage division of PepsiCo, Inc.
From 1994 to April 1996, Mr. Herbert was a Manager of Market Strategy. In such
position he was responsible for directing development of market strategy for the
vending channel and subsequently the supermarket channel for Pepsi-Cola in North
America. Prior thereto, Mr. Herbert held various sales and management positions
with Pepsi-Cola. Mr. Herbert graduated with a Bachelor of Science degree from
Louisiana State University.
Haven Brock Kolls, Jr., joined USA on a full-time basis in May 1994 and
was elected an executive officer in August 1994. From January 1992 to April
1994, Mr. Kolls was Director of Engineering for International Trade Agency,
Inc., an engineering firm specializing in the development of control systems and
management software packages for use in the vending machine industry. Mr. Kolls
was an electrical engineer for Plateau Inc. from 1988 to December 1992. His
responsibilities included mechanical and electrical computer-aided engineering,
digital electronic hardware design, circuit board design and layout, fabrication
of system prototypes and software development. Mr. Kolls is a graduate of the
University of Tennessee with a Bachelor of Science Degree in Engineering.
Leland P. Maxwell joined USA on a full-time basis on February 24, 1997
as Chief Financial Officer, Senior Vice President and Treasurer. Prior to
joining us, Mr. Maxwell was the corporate controller for Klearfold, Inc., a
privately-held manufacturer of specialty consumer packaging. From 1992 to 1996,
Mr. Maxwell was the regional controller for Jefferson Smurfit/Container
Corporation of America, a plastic packaging manufacturer, and from 1986 to 1992
was the divisional accounting manager. Prior thereto, he held financial
positions with Safeguard Business Systems and Smithkline-Beecham. Mr. Maxwell
received a Bachelor of Arts degree in History from Williams College and a Master
of Business Administration-Finance from The Wharton School of the University of
Pennsylvania. Mr. Maxwell is a Certified Public Accountant.
30
Michael K. Lawlor joined USA on a full-time basis in 1997 and was
promoted to Senior Vice President, Sales and Marketing in September 1999. Prior
to joining us, Mr. Lawlor worked with Aladdin Industries, a leading manufacturer
of promotional drinkware, as Director of Restaurant Sales. From 1986 to 1995,
Mr. Lawlor was employed in various sales capacities by Pepsi-Cola and was
National Accounts Sales Manager when he departed in 1995. Mr Lawlor received an
undergraduate degree in Marketing from the University of Texas.
William W. Sellers joined the Board of Directors of USA in May 1993.
Mr. Sellers founded The Sellers Company in 1949 which has been nationally
recognized as the leader in the design and manufacture of state-of-the-art
equipment for the paving industry. Mr. Sellers has been awarded five United
States patents and several Canadian patents pertaining to this equipment. The
Sellers Company was sold to Mechtron International in 1985. Mr. Sellers is
Chairman of the Board of Sellers Process Equipment Company which sells products
and systems to the food and other industries. Mr. Sellers is actively involved
in his community. Mr. Sellers received his undergraduate degree from the
University of Pennsylvania.
Henry B. duPont Smith joined the Board of Directors of USA in May 1994.
Since January 1992, Mr. Smith has been a Vice President of The Rittenhouse Trust
Company and since September 1991 has been a Vice President of Rittenhouse
Financial Services, Inc. From September 1991 to December 1992, he was a
registered representative of Rittenhouse Financial Securities, Inc. Mr. Smith
was an Assistant Vice President of Mellon Bank, N.A. from March 1988 to July
1991, and an investment officer of Provident National Bank from March 1985 to
March 1988. Mr. Smith received a Bachelor of Arts degree in Accounting in 1984
from Franklin & Marshall College.
William L. Van Alen, Jr., joined the Board of Directors of USA in May
1993. Mr. Van Alen is President of Cornerstone Entertainment, Inc., an
organization engaged in the production of feature films of which he was a
founder in 1985. Since 1996, Mr. Van Alen has been President and a Director of
The Noah Fund, a publicly traded mutual fund. Prior to 1985, Mr. Van Alen
practiced law in Pennsylvania for twenty-two years. Mr. Van Alen received his
undergraduate degree in Economics from the University of Pennsylvania and his
law degree from Villanova Law School.
Steven Katz joined the Board of Directors in May 1999. He is President
of Steven Katz & Associates, Inc., a management consulting firm specializing in
strategic planning and corporate development for technology and service-based
companies in the health care, environmental, telecommunications and Internet
markets. Mr. Katz's prior experience includes five years with Price Waterhouse &
Co. in audit, tax and management advisory services; two years of corporate
planning with Revlon, Inc.; five years with National Patent Development
Corporation (NPDC) in strategic planning, merger and acquisition, technology
in-licensing and out-licensing, and corporate turnaround experience as President
of three NPDC subsidiaries; and two years as a Vice President and General
Manager of a non-banking division of Citicorp, N.A.
31
Douglas M. Lurio joined the Board of Directors of USA in June 1999. Mr.
Lurio is President of Lurio & Associates, P.C., attorneys-at-law, which he
founded in 1991. He specializes in the practice of corporate and securities law.
Prior thereto, he was a partner with Dilworth, Paxson LLP. Mr. Lurio received a
Bachelor of Arts Degree in Government from Franklin & Marshall College, a Juris
Doctor Degree from Villanova Law School, and a Masters in Law (Taxation) from
Temple Law School.
Edwin R. Boynton joined the Board of Directors in July 1999. He is a
partner of Stradley Ronon Stevens & Young LLP, and is a member of and currently
the chair of the firm's estates department. Mr. Boynton received his bachelor of
arts degree from Harvard University in 1976 and his Juris Doctor degree from
Duke University in 1979.
Executive Compensation
The following table sets forth certain information with respect to
compensation paid or accrued by the Company during the fiscal years ended June
30, 1999, June 30, 2000 and June 30, 2001 to each of the executive officers and
the other employee of the Company named below. Except as set forth below, no
individual who was serving as an executive officer of the Company at the end of
the fiscal years ended June 30, 1999, June 30, 2000 or June 30, 2001 received
salary and bonus in excess of $100,000 in any such fiscal year.
Summary Compensation Table
Fiscal
Name and Principal Position Year Annual Compensation Long Term Compensation
------------------------------------------------------------------------------------------------------
Salary Bonus Other Restricted Securities
(1) Annual Stock Underlying
Compensation Awards Options
------------------------------------------------------------------------------------------------------
George R. Jensen, Jr., 2001 $135,000 $140,000 -- -- 300,000
Chief Executive Officer, 2000 $117,500 $ 0 -- $80,000 (2) 180,000
1999 $100,000 $ 0 -- --
Stephen P. Herbert, 2001 $125,000 $134,400 -- -- 80,000
President 2000 $107,500 $ 94,000 -- $80,000 (2) 45,000
Leland P. Maxwell, Chief 2001 $108,000 $ 44,240 -- -- 50,000
Financial Officer,Treasurer 2000 $ 99,000 $ 29,000 -- -- 15,000
H. Brock Kolls, Senior Vice 2001 $120,000 $ 97,440 -- -- 80,000
President, Research& 2000 $105,000 $ 44,000 -- $80,000 (2) 30,000
Development
Michael K. Lawlor, Senior 2001 $100,000 $ 38,640 -- 50,000
Vice President, Sales and 2000 $ 83,200 $ 35,500 $43,000 (3) 20,000
Marketing
Adele H. Hepburn 2001 $ 91,000 $171,700 -- --
Director of Investor 2000 $ 91,000 $147,800 -- --
Relations 1999 $ 91,000 $ 51,500 -- --
32
(1) For fiscal year 2000, represents shares of Common Stock issued to the
executive officers valued at $2.00 per share, the closing bid price on the
date of issuance. For Mr. Lawlor, the bonus also includes a $5,500 sales
commission. For fiscal year 2001, represents shares of Common Stock issued
to the executive officers valued at $1.12, the closing price on the
effective day of authorization. For Mr. Lawlor, the bonus also includes a
$1,265 sales commission. The bonus amounts for all fiscal years for
Adele Hepburn consist of cash payments from the Company.
(2) Represents shares of Common Stock issued to such executive officers if
employed by the Company on June 30, 2002. The shares have been valued at
$2.00 per share, the closing bid price on the date of grant.
(3) Represents payment by the Company of relocation expenses.
The following table sets forth information regarding stock options
granted during the fiscal year 2001 to the Company's executive officers named
below:
OPTION GRANTS DURING FISCAL YEAR ENDED JUNE 30, 2001
Name Number of Percent of Exercise Expiration
Securities Total Options Price Date
Underlying Granted to Per
Options Employees in Share
Granted Fiscal Year
George R. Jensen, Jr. 200,000 47.2% $1.50 June 30, 2003
33,333 $1.00 October 20, 2006
33,333 $1.00 July 20, 2007
33,334 $1.00 April 20, 2008
Stephen P. Herbert 26,667 12.6% $1.00 October 20, 2006
26,667 $1.00 July 20, 2007
26,666 $1.00 April 20, 2008
H. Brock Kolls 26,667 12.6% $1.00 October 20, 2006
26,667 $1.00 July 20, 2007
26,666 $1.00 April 20, 2008
Leland P. Maxwell 16,667 7.9% $1.00 October 20, 2006
16,667 $1.00 July 20, 2007
16,666 $1.00 April 20, 2008
Michael K. Lawlor 16,667 7.9% $1.00 October 20, 2006
16,667 $1.00 July 20, 2007
16,666 $1.00 April 20, 2008
Executive Employment Agreements
The Company has entered into an employment agreement with Mr. Jensen
which expires June 30, 2002. The Agreement is automatically renewed from year to
year unless canceled by Mr. Jensen or the Company. The agreement provides for an
annual base salary of $135,000 effective March 1, 2000. Mr. Jensen is entitled
to receive such bonus or bonuses as may be awarded to him by the Board of
Directors. In determining whether to pay such a bonus, the Board would use its
subjective discretion. The Agreement requires Mr. Jensen to devote his full time
and attention to the business and affairs of the Company, and obligates him not
to engage in any investments or activities which would compete with the Company
during the term of the Agreement and for a period of one year thereafter. The
agreement provides that if Mr. Jensen is employed by the Company on June 30,
2002, the Company will issue to him 40,000 shares of Common Stock.
33
The agreement also grants to Mr. Jensen in the event a "USA
Transaction" (as defined below) occurs after the date thereof that number of
shares of Common Stock as shall when issued to him equal five percent (increased
in June 1999 to eight percent) of all the then issued and outstanding shares of
Common Stock (the "Rights"). Mr. Jensen is not required to pay any additional
consideration for such shares. At the time of any USA Transaction, all of the
shares of Common Stock underlying the Rights are automatically deemed to be
issued and outstanding immediately prior to any USA Transaction, and are
entitled to be treated as any other issued and outstanding shares of Common
Stock in connection with such USA Transaction.
The term USA Transaction is defined as (i) the acquisition of fifty-one
percent or more of the then outstanding voting securities entitled to vote
generally in the election of Directors of the Company by any person, entity or
group, or (ii) the approval by the shareholders of the Company of a
reorganization, merger, consolidation, liquidation, or dissolution of the
Company, or the sale, transfer, lease or other disposition of all or
substantially all of the assets of the Company.
The Rights are irrevocable and fully vested, have no expiration date,
and will not be affected by the termination of Mr. Jensen's employment with the
Company for any reason whatsoever. If a USA Transaction shall occur at a time
when there not a sufficient number of authorized but unissued shares of Common
Stock, then the Company shall as a condition of such USA Transaction promptly
take any and all appropriate action to make available a sufficient number of
shares of Common Stock. In the alternative, the Company may structure the USA
Transactions so that Mr. Jensen would receive the same amount and type of
consideration in connection with the USA Transaction as any other holder of
Common Stock.
On January 21, 1999, Mr. Jensen purchased ten (10) units of the 1999
Senior Note placement offering for $100,000. In full payment for such Units, Mr.
Jensen has agreed to forego any base salary otherwise payable to him under his
employment agreement during the period of time commencing on April 1, 1999 and
ending on June 30, 2000, or such longer period of time as may be required based
upon his monthly net base salary after all applicable withholding taxes and
other deductions. At June 30, 2000, $12,199 was outstanding. Subsequent to year
end, the $12,199 has been received in full.
The Company has entered into a one-year employment agreement with Mr.
Herbert which expires on April 30, 2002. The agreement is automatically renewed
from year to year thereafter unless canceled by Mr. Herbert or the Company. The
Agreement provides for an annual base salary of $125,000 per year effective
March 1, 2000. Mr. Herbert is entitled to receive such bonus or bonuses as the
Board of Directors may award to him. The Agreement requires Mr. Herbert to
devote his full time and attention to the business and affairs of the Company
and obligates him not to engage in any investments or activities which would
compete with the Company during the term of the agreement and for a period of
one year thereafter. The agreement provides that if Mr. Herbert is employed by
the Company on June 30, 2002, the Company will issue to him 40,000 shares of
Common Stock.
Mr. Kolls has entered into a one-year employment agreement with the
Company which expires on April 30, 2002, and is automatically renewed from year
to year thereafter unless canceled by Mr. Kolls or the Company. The agreement
provides for an annual base salary of $120,000 per year effective March 1, 2000.
Mr. Kolls is also entitled to receive such bonus or bonuses as may be awarded to
him by the Board of Directors. The Agreement requires Mr. Kolls to devote his
full time and attention to the business and affairs of the Company, and
obligates him not to engage in any investments or activities which would compete
with the Company during the term of his agreement and for a period of one year
thereafter. The agreement provides that if Mr. Kolls is employed by the Company
on June 30, 2002, the Company will issue to him 40,000 shares of Common Stock.
Mr. Maxwell has entered into an employment agreement with the Company
which expires on June 30, 2002, and is automatically renewed from year to year
thereafter unless cancelled by Mr. Maxwell or the Company. The agreement
provides for an annual base salary of $108,000 per year effective March 1, 2000.
Mr. Maxwell is also entitled to receive such bonus or bonuses as the Board of
Directors may award to him. The Agreement requires Mr. Maxwell to devote his
full time and attention to the business and affairs of the Company, and
obligates him not to engage in any investments or activities which would compete
with the Company during the term of the agreement and for a period of one year
thereafter.
34
Mr. Lawlor has entered into an employment agreement with the Company
which expires on June 30, 2002, and is automatically renewed from year to year
thereafter unless cancelled by Mr. Lawlor or the Company. The agreement provides
for an annual base salary of $100,000 per year effective March 1, 2000. Mr.
Lawlor is also entitled to receive such bonus or bonuses as the Board of
Directors may award to him. The Agreement requires Mr. Lawlor to devote his full
time and attention to the business and affairs of the Company, and obligates him
not to engage in any investments or activities which would compete with the
Company during the term of the agreement and for a period of one year
thereafter.
Director Compensation and Stock Options
Members of the Board of Directors do not currently receive any cash
compensation for serving on the Board of Directors or any Committee thereof.
In July 1993, the Company issued to each of Messrs. Kapourelos,
Sellers, and Van Alen fully vested options to purchase 10,000 shares of Common
Stock at an exercise price of $2.50 per share. In March 1998, the expiration
date of these options was extended from June 30, 1998 to June 30, 2000 and in
April 1998, the exercise price was reduced from $2.50 to $1.50.
In March 1995, the Company issued to Mr. Smith fully vested options to
purchase 10,000 shares of Common Stock, to Mr. Sellers fully vested options to
purchase 5,500 shares of Common Stock, to Mr. Kapourelos fully vested options to
purchase 7,000 shares of Common Stock, and to Mr. Van Alen fully vested options
to purchase 2,500 shares of Common Stock. The exercise price of these options is
$2.50 per share and they must be exercised on or before February 29, 2000. In
April 1998, the exercise price of these options was reduced from $2.50 to $1.50.
In March 1998, the Company extended the expiration date of the
following options to purchase shares of Common Stock from June 30, 1998 to the
close of business on June 30, 2000: Peter G. Kapourelos - 10,000 options;
William W. Sellers - 10,000 options; Keith L. Sterling - 10,000 options; and
William L. Van Alen, Jr. - 10,000 options.
In April 1998, the Company reduced from $2.50 to $1.50 the exercise
price of the following options to purchase Common Stock issued to the following
Directors of the Company: Peter G. Kapourelos - 17,000 options; William W.
Sellers - 15,500 options; William L. Van Alen, Jr. - 12,500 options; and Henry
B. duPont Smith - 10,000 options.
During June and July 1999, the Company granted 10,000 options to each
of the seven Directors who were not executive officers of the Company. Each
option is exercisable at $2.00 per share at any time for five years following
the vesting thereof.
In February 2001, the Board of Directors granted a total of 300,000
options to purchase Common Stock at $1.00 per share to outside members of the
Board. Of these, 120,000 options vested immediately; 90,000 options vested on
June 30, 2001; and 90,000 will vest on June 30, 2002. The options may be
exercised at any time within five years following the vesting.
All of the Common Stock underlying the options held by all Directors
was registered by the Company under the Act, for resale by the holder thereof.
Such registration was at the Company's cost and expense.
35
The Board of Directors is responsible for awarding stock options. Such
awards are made in the subjective discretion of the Board. Other than the
repricing of the options by the Company in April 1998, the exercise price of all
the above options represents on the date of issuance of such options an amount
equal to or in excess of the market value of the Common Stock issuable upon the
exercise of the options. In connection with the April 1998 repricing of stock
options, the exercise prices of all these fully vested options were below the
fair market value on the date or repricing, therefore, the Company recorded a
charge to compensation expense during fiscal year 1998.
All of the foregoing options are non-qualified stock options and not
part of a qualified stock option plan and do not constitute incentive stock
options as such term is defined under Section 422 of the Internal Revenue Code,
as amended, and are not part of an employee stock purchase plan as described in
Section 423 thereunder.
Executive Stock Options
In August 1999, the Company issued to an executive officer fully vested
options to acquire up to 20,000 shares of Common Stock at $2.00 per share. The
options are exercisable at any time within five years following issuance. The
Company issued the options pursuant to the exemption from registration set forth
in Section 4(2) of the Act. The Company registered for resale under the Act the
Common Stock underlying the options.
In November 1999, the Company issued fully vested options to purchase
an aggregate of 90,000 shares of Common Stock to its executive officers as
follows: Stephen P. Herbert - 45,000 options; Haven Brock Kolls - 30,000
options; and Leland Maxwell - 15,000 options. Each option is exercisable at
$2.00 per share at any time within five years following issuance.
In October 2000, the Company issued to George R. Jensen, Jr., fully
vested options to acquire up to 200,000 shares of Common Stock at $1.50 per
share. The options were exercisable at any time within two years following
issuance. In February 2001, the Company extended the expiration date of these
options until June 30, 2003.
In April 2001, the Company issued the following options to purchase an
aggregate of 360,000 shares of Common Stock to its executive officers as
follows: George R. Jensen, Jr. - 100,000; Stephen P. Herbert - 80,000 options;
Haven Brock Kolls - 80,000 options; Leland Maxwell - 50,000 options; and Michael
Lawlor - 50,000 options. Each option is exercisable at $1.00 per share at any
time within five years following vesting. The options vest one-third in October
2001, one-third in July 2002 and the balance in April 2003.
The Board of Directors is responsible for awarding stock options. Such
awards are made in the subjective discretion of the Board. The exercise price of
all the above options represents on the date of issuance of such options an
amount equal to or in excess of the market value of the Common Stock issuable
upon the exercise of the options.
All of the foregoing options are non-qualified stock options and not
part of a qualified stock option plan and do not constitute incentive stock
options as such term is defined under Section 422 of the Internal Revenue Code,
as amended, and are not part of an employee stock purchase plan as described in
Section 423 thereunder.
36
PRINCIPAL SHAREHOLDERS
Common Stock
The following table sets forth, as of June 30, 2001, the beneficial
ownership of the common stock of our directors and executive officers, both
individualy and as a group. Except as set forth below, we are not aware of any
beneficial owner of more than five percent of the common stock. Except as
otherwise indicated, we believe that the beneficial owners of the common stock
listed below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community
property laws where applicable.
Number of Shares
Name and Address of Common Stock Percent
of Beneficial Owner Beneficially Owned(1) of Class(2)
------------------- --------------------- --------
George R. Jensen, Jr. 755,000 shares(3) 1.90%
517 Legoin Road
West Chester, Pennsylvania 19382
Stephen P. Herbert 378,050 shares(4) *
536 West Beach Tree Lane
Strafford, Pennsylvania 19087
Haven Brock Kolls, Jr. 328,850 shares(5) *
1573 Potter Drive
Pottstown, PA 19464
Leland P. Maxwell 137,050 shares(6) *
401 Dartmouth Road
Bryn Mawr, Pennsylvania 19010
Michael K. Lawlor 99,550 shares(7) *
131 Lisa Drive
Paoli, PA 19301
Edwin R. Boynton 140,500 shares(8) *
104 Leighton Drive
Bryn Mawr, Pennsylvania 19010
Steven Katz 45,000 shares(9) *
20 Rebel Run Drive
East Brunswick, New Jersey 08816
Douglas M. Lurio 113,713 shares(10) *
2005 Market Street, Suite 2340
Philadelphia, Pennsylvania 19103
William W. Sellers 519,075 shares(11) 1.31%
394 East Church Road
King of Prussia, Pennsylvania 19406
Henry B. duPont Smith 77,000 shares(12) *
350 Mill Bank Road
Bryn Mawr, Pennsylvania 19010
William L. Van Alen, Jr. 77,500 shares(13) *
Cornerstone Entertainment, Inc.
P.O. Box 727
Edgemont, Pennsylvania 19028
Marconi Online Systems, Inc. 3,000,000 shares(14) 7.55%
120 Interstate North Parkway
Suite 118
Atlanta, GA 30339
All Directors and Executive Officers
As a Group (11 persons) 2,671,288 shares(15) 6.72%
---------
*Less than one percent (1%)
37
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and derives from either voting or investment power with respect to securities.
Shares of common stock issuable upon conversion of the preferred stock, or
shares of common stock issuable upon exercise of options currently exercisable,
or exercisable within 60 days of June 30, 2001, are deemed to be beneficially
owned for purposes hereof.
(2) On June 30, 2001 there were 21,450,755 shares of common stock and 555,284
shares of series A preferred stock issued and outstanding. For purposes of
computing the percentages under this table, it is assumed that all shares of
issued and outstanding preferred stock have been converted into 555,284 shares
of common stock, that all of the options to acquire common stock which have been
issued and are fully vested as of June 30, 2001 (or within 60-days of June 30,
2001) have been converted into 4,436,667 shares of common stock. For purposes of
computing such percentages it has also been assumed that all of the remaining
common stock purchase warrants have been exercised for 8,233,028 shares; that
all of the senior notes have been converted into 4,621,200 shares of common
stock; and that all of the accrued and unpaid dividends on the preferred stock
as of June 30, 2001 have been converted, into 462,115 shares of common stock.
Therefore, for purposes of computing the percentages under this table, there are
39,759,049 shares of common stock issued and outstanding.
(3) Includes 380,000 shares of common stock issuable upon the exercise of
options, 160,000 shares issuable upon conversion of senior notes, and 10,000
shares owned by his spouse. Does not include the right granted to Mr. Jensen
under his employment agreement to receive eight percent (8%) of the issued and
outstanding common stock upon the occurrence of a USA Transaction (as defined
therein). See "Executive Employment Agreements".
(4) Includes 210,000 shares of common stock issuable to Mr. Herbert upon the
exercise of options, and 1,000 shares of common stock beneficially owned by his
child.
(5) Includes 170,000 shares of common stock issuable to Mr. Kolls upon the
exercise of options, 18,000 shares of common stock owned by his spouse, and
24,000 shares issuable to his spouse upon conversion of her senior note.
(6) Includes 70,000 shares of common stock issuable to Mr. Maxwell upon the
exercise of options.
38
(7) Includes 50,000 shares of common stock issuable to Mr. Lawlor upon exercise
of options.
(8) Includes 5,500 shares of common stock issuable upon conversion of the 5,500
shares of series A preferred stock. Includes 45,000 vested shares of common
stock issuable upon exercise of options, and 16,000 shares issuable upon
conversion of his senior note. Does not include any shares of common stock
issuable upon conversion of any accrued and unpaid dividends in the series A
preferred stock.
(9) Includes 45,000 shares of common stock issuable upon exercise of options.
(10) Includes 42,213 shares of common stock held jointly with Mr. Lurio's
spouse, 45,000 shares of common stock issuable upon exercise of options, and
24,000 shares issuable upon conversion of senior notes.
(11) Includes 21,245 shares of common stock owned by the Sellers Pension Plan of
which Mr. Sellers is a trustee, 4,651 shares of common stock owned by Sellers
Process Equipment Company of which he is a Director, and 9,929 shares of common
stock owned by Mr. Seller's wife. Includes 60,500 shares of common stock
issuable upon exercise of options, and 40,000 shares issuable upon conversion of
senior notes.
(12) Includes 12,000 shares of common stock issuable upon conversion of the
12,000 shares of preferred stock beneficially owned by Mr. Smith. Includes
55,000 shares of common stock issuable upon exercise of options. Does not
include any shares of common stock issuable upon conversion of any accrued and
unpaid dividends on the series A preferred stock.
(13) Includes 57,500 shares of common stock issuable to Mr. Van Alen upon
exercise of options.
(14) Pursuant to the Alliance Agreement entered into between Marconi and USA,
Marconi had the option to purchase up to 3,000,000 shares at $1.25 per share.
These options expired on September 5, 2001.
(15) Includes all shares of common stock described in footnotes (2) through (13)
above.
Preferred Stock
The following table sets forth, as of June 30, 2001 the beneficial
ownership of the preferred stock by our directors and executive officers, both
individiually and as a group. Except as set forth below, we are not aware of any
beneficial owner of more than five percent of the preferred stock as of June 30,
2001. Except as otherwise indicated, we believe that the beneficial owners of
the preferred stock listed below, based on information furnished by such owners,
have sole investment and voting power with respect to such shares, subject to
community property laws where applicable.
39
Number of Shares
Name and Address of of Preferred Stock Percent
Beneficial Owner Beneficially Owned of Class(l)
------------------- ------------------ ---------
Edwin R. Boynton
104 Leighton Avenue
Bryn Mawr, Pennsylvania 19010 5,500 *
Henry B. duPont Smith
350 Mill Bank Road
Bryn Mawr, Pennsylvania 19010 12,000(2) 2.2%
All Directors and
Executive Officers
As a Group (11 persons) 17,500 3.2%
--------------
*Less than one percent (1%)
(1) There were 555,284 shares of preferred stock issued and outstanding as of
June 30, 2001.
(2) Includes 2,000 shares of preferred stock held by trusts for the benefit of
Mr. Smith's children of which he is a trustee.
CERTAIN TRANSACTIONS
On January 21, 1999, Mr. Jensen purchased ten units pursuant to the
Company's private placement offering of Senior Notes for $100,000. In full
payment, Mr. Jensen has agreed to forgo any base salary otherwise payable to him
under his employment agreement during the period of time commencing on April 1,
1999 and ending on June 30, 2000, or such longer period as required. Mr. Jensen
made full payment by June 30, 2000.
In July 1999, the Company extended the expiration dates until June 30,
2001 of the options to acquire Common Stock held by the following directors,
officers, and employees: Adele Hepburn - 77,000 options; H. Brock Kolls - 20,000
options; Henry duPont Smith - 10,000 options; William Sellers - 15,500 options;
Peter Kapourelos - 17,000 otions; and William Van Alen - 12,500 options. All of
the foregoing options would have expired in the first two calendar quarters of
the year 2000 or the first calendar quarter of year 2001. In February, 2001, all
these options were further extended until June 30, 2003, and in addition the
expiration dates of the following additional options were also extended to June
30, 2003: H. Brock Kolls - 20,000 options; Stephen Herbert - 40,000 options;
Michael Lawlor - 3,750 options; and George Jensen - 200,000 options.
During the fiscal year ended June 30, 2000 and June 30, 2001, the
Company paid Lurio & Associates, P.C., of which Mr. Lurio is President,
professional fees of approximately $196,000 and $220,000 respectively, for legal
services rendered to the Company by such law firm.
In November 1999, the Company issued fully vested options to purchase
an aggregate of 90,000 shares of Common Stock to its executive officers as
follows: Stephen P. Herbert - 45,000 options; Haven Brock Kolls - 30,000
options; and Leland Maxwell - 15,000 options. Each option is exercised at $2.00
per share of Common Stock at any time within five years following issuance. The
Company has agreed to register the Common Stock underlying these options for
resale under the Act.
40
During February 2000, the Company issued an aggregate of 87,500 shares
of Common Stock to five executive officers: George Jensen - 25,000 shares;
Stephen Herbert - 20,000 shares; Haven Brock Kolls - 20,000 shares; Leland
Maxwell - 12,500 shares; Michael Lawlor - 10,000 shares. Such shares were issued
as a bonus for services rendered and to be rendered for the calendar year 2000.
The shares were valued at $2.00 per share, the closing bid price on the date of
issuance. The Company has registered these shares under the Act.
In February 2000, in connection with his relocation to the
Philadelphia, Pennsylvania area, the Company agreed to pay the costs of
relocation for Michael Lawlor, Vice President of the Company. As of June 30,
2000, a total of approximately $43,000 has been paid for this purpose.
In April, 2000, the Board of Directors authorized the Company to issue
up to 25,000 shares of Common Stock to current or future employees, directors or
consultants as compensation or bonus. Through June 30, 2001, all shares have
been issued.
In October 2000, the Company issued to George R. Jensen, Jr., fully
vested options to acquire up to 200,000 shares of Common Stock at $1.50 per
share. The options were exercisable at any time within two years following
issuance. In February 2001, the Company extended the expiration date of these
options until June 30, 2003.
In February 2001, the Board of Directors granted a total of 300,000
options to purchase Common Stock at $1.00 per share to outside members of the
Board. Of these, 120,000 options vested immediately; 90,000 options vested on
June 30, 2001; and 90,000 will vest on June 30, 2002. The options may be
exercised at any time within five years following the vesting.
In April 2001, the Company issued the following options to purchase an
aggregate of 360,000 shares of Common Stock to its executive officers as
follows: George R. Jensen, Jr. - 100,000; Stephen P. Herbert - 80,000 options;
Haven Brock Kolls - 80,000 options; Leland Maxwell - 50,000 options; and Michael
Lawlor - 50,000 options. Each option is exercisable at $1.00 per share at any
time within five years following vesting. The options vest one-third in October
2001, one-third in July 2002 and the balance in April 2003. The Company also
issued the following shares of Common Stock to its executive officers as
follows: George R. Jensen, Jr. - 125,000 shares; Stephen P. Herbert - 120,000
shares; Haven Brock Kolls - 87,000 shares; Leland Maxwell - 39,500 shares; and
Michael Lawlor - 34,500 shares.
In September 2001, the Company paid a fiscal year 2002 bonus to Adele
Hepburn in the amount of $200,000 consisting of 33.33 units of the 2001-B
private placement offering which closed on September 14, 2001.
As of the date of this Prospectus, the following executive officers
have signed subscription agreements but have not paid the amounts due thereunder
to the Company in connection with the private placement offering of common stock
and 2001-B Warrants that closed in September 2001: George R. Jensen, Jr. --
$33,846; and Stephen P. Herbert -- $33,846.
As of the date of this Prospectus, the following executive officers
have signed subscription agreements but have not paid the amounts due thereunder
to the Company in connection with the private placement offering of common stock
and 2001-C Warrants that closed in October 2001: George R. Jensen, Jr. --
$108,125; Stephen P. Herbert -- $108,125; Haven Brock Kolls -- $50,000; Leland
P. Maxwell -- $32,500; and Michael Lawlor -- $32,500.
41
SELLING SHAREHOLDERS
Each of the selling shareholders listed below is, as of the date
hereof, the holder of our common stock or has the right to acquire the number of
shares of common stock set forth opposite such selling shareholder's name. The
issuance of the common stock to the selling shareholders as well as the issuance
of the common stock to the selling shareholders upon exercise of the warrants or
options or upon conversion of the senior notes or convertible debentures was or
will be a transaction exempt from the registration requirements of the Act and
various state securities laws.
We have agreed, at our expense, to register all of the common stock for
resale by the selling shareholders under the Act. We expect to incur expenses of
approximately $40,000 in connection with the registration statement of which
this prospectus is a part.
The number of shares that may be actually sold by the selling
shareholder will be determined by the selling shareholder. Because the selling
shareholder may sell all, some or none of the shares of common stock that the
selling shareholder holds, and because the offering contemplated by this
prospectus is not currently being underwritten, no estimate can be given as to
the number of shares of our common stock that will be held by the selling
shareholder upon termination of the offering.
The following tables set forth information with respect to each selling
shareholder and the respective amounts of common stock that may be offered
pursuant to this prospectus. None of the selling shareholders has, or within the
past three years has had, any position, office or other material relationship
with us, except as noted below. Except as specifically set forth below,
following the offering, and assuming all of the common stock offered hereby has
been sold, none of the selling shareholders will beneficially own one percent
(1%) or more of the common stock.
42
1999-B RESTRICTED COMMON STOCK
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
Gunter Beyer 5,000
Deborah L. Witte, custodian for Corey Witte 1,000
Robert G. Padrick & Robert Balic 20,000
Steven N. Hollaway 10,000
Donald R. Jones Jr 5,000
Julie Carlson 15,000
Gary R. Bourassa 10,000
Lois H. & David F. Zeyher 10,000
Daniel Laitner 10,000
Joseph J. Bolitsky 20,000
Henry J. Fieldman(1) 30,000 182,567 *
Anthony B. Ullman(1) 20,000 182,567 *
John J. Hay(1) 20,000 182,567 *
Frances Young(2) 150,000 946,000 1.53%
Richard S. Schonwald 50,000
William Robert Johnston 20,000
G. Ellard Mccarthy & Joan R. Bennett 5,000
Adele H. Hepburn(3) 80,000 2,133,356 3.44%
Austin B. Hepburn(3) 5,000 2,133,356 3.44%
Shelley & James Leroux 5,000
George Jensen & Andrew David Jensen (JTWOS) (4) 50,000 1,156,730 1.87%
George Jensen & Burton Jensen (JTWOS)(4) 50,000 1,156,730 1.87%
George Jensen & Ron Jensen (JTWOS)(4) 50,000 1,156,730 1.87%
George Jensen & Julie E. Johnston (JTWOS)(4) 50,000 1,156,730 1.87%
Clifton B Currin, Trust 5,000
Earl D & Nancy A. Besch 10,000
August B Castle, Jr. 30,000
Al Migliaccio, Custodian for Ashlee Migliaccio, Under UGMA 10,000
Sheri-Lynn Demaris 50,000
Marthe Burlingame 4,000
Douglas Lurio & Margaret Sherry Lurio (JTWOS)(5) 10,000 253,713 *
Brooke Ann Adamson 10,000
Betty A. Harris 20,000
Charles C. Kelleher 10,000
James E. Hamilton 10,000
43
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
Karl C. & Natalie C. Mynyk 60,000
Randall C. Rolfe 1,000
Noma Ann Roberts 10,000
Gina & John C. Nostrant 10,000
Edwin R. Boynton(6) 20,000 220,500 *
Nancy Krook 50,000
Kathleen J. Mason 50,000
John R. Green 10,000
Richard F. Murphy 10,000
Maureen C. Costello 10,000
John E. & Sandra J. Krafton 10,000
Sheila & Thomas Garbellotto 10,000
Barbara K. Kluver & Ronald D Lawler 1,000
Jonathan A. Desouza 500
David S. D'Angelo 10,000
Karl F. Rugart 10,000
Barbara J Murray & Emerson E Kolesnikoff 10,000
Susan A Rodeheaver 5,000
Jackson L Anderson 15,000
Pamela Ann Townsend 10,000
Richard G & Laura J Parker 10,000
Kathy N & Douglas A. Parker 10,000
Hrubala Associates, a Partnership David R Molumphy,
Partner 10,000
Francis J Guzzetta 10,000
Howard H Wolfe 2,000
Claudine W Wolfe 2,000
Leon M Kruger 10,000
Barbara J Osborne 2,000
Howard K & Elizabeth L Penn 10,000
Sarah B & Paul A. Salois 50,000
Donald W Mackenzie 10,000
Janet K Catino 10,000
John A Chistolini 10,000
Richard D & Mary R.B. Roderick 20,000
Ann Elizabeth Shaheen 30,000
George H & June Y Kilmarx 10,000
Charles F Glomb 10,000
Nancy E Ranson 1,000
Frances N Luppino 10,000
Israel & Nesia Lichtenstein 10,000
Solomon & Toby Lichtenstein 10,000
James R Boynton Md Pc Pen Tr 10,000
Richard Bleaman 2,500
Trinity Associates 80,000
Mary Ann Sentner 750
44
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
Leo J Dolan 5,000
Robert A Kilgore 20,000
James F Merriman 5,000
Rachel & Israel Lichtenstein 10,000
Shirley K Knerr 50,000
Alexander R Beard 1,000
F Stanton Moyer 50,000
John B & Solveig W Stetson IV 10,000
Patricia H Jacobs 4,000
Harry Renner IV 10,000
Arthur L Wheeler 20,000
James M Holmwood 20,000
Margaret R Geddis 2,500
Christine F Hughes 2,500
Homer N Stewart 1,000
William F Harrity, Jr 20,000
Donald J Zelenka 25,000
Judy B & John R Hargett 2,500
Cliff G Frisby 2,500
Derrick J Luppino 10,000
Elizabeth L. Nelson 10,000
Louis J & Janet L Shaheen 5,000
Ralph H Knode 3,000
Wayne A Anderson 10,000
Marc A. Cohen 10,000
Terri G Mills 2,100
Brook & Harley Miller 5,000
Linda Moran Evans 5,000
Joseph Singer 10,000
Martha L. Demedio 1,000
Timothy H Pelter 500
David M. Demedio(7) 3,000 27,974 *
John D Wright 5,000
Priscilla A. Stitt 10,000
Eileen B Lang 500
Lee R & Lisa Roper 10,000
Nancy M & William T Baycroft 10,000
Dr. James E. Meeks 12,500
Gideon Trading Ltd 275,000
Yeshiva Shearith Hapleta 20,000
Thomas F & Lisa H Horgan 10,000
Andrea Havens 5,000
Charles S Greth & Ronnie M Neff 10,000
Elizabeth & Steve Illes 100,000 3,075,001 4.96%
Alan Alpert 10,000
45
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
Robert G Giddens 10,000
Harold N Gray 10,000
Donald R & Joan F Jones Sr 5,000
Dr. William P Burks 5,000
Salvatore Marino 10,000
Michael Hyman 10,000
Solomon Ellner 10,000
Cong. Kolel Mateh Efraim 20,000
Robert A. Hamilton Fbo IRA(11) 20,000 49,995 *
William W. Sellers(8) 130,000 669,076 1.08%
Virginia W Harrity 10,000
Harriet & Cary Glickstein 10,000
Robert Gueriera, Jr. 10,000
Scott Schotter 5,000
Anthony & Joan M Popoff 1,000
Peter B Pakradooni 10,000
William Recktenwald 10,000
L David & Jill H Spealler 10,000
Barry C Arndt 1,000
Julia B Holloway 3,000
William K & Linda S Curtis 30,000
A. Kenneth & William K Curtis 20,000
William L. Van Alen, Jr.(9) 10,000 107,501 *
Vincent J Calvarese 10,000
Joanne C Calvarese 10,000
John W Ponton, Jr. 5,000
Wayne A. Frye 2,500
Steve J Niewinski 10,000
Phillip S Krombolz 20,000
Leroy M Lewis, Jr. 10,000
Pearl & Edwin J Coggeshall 2,000
Clark D & Caroline S Stull, Jr. 5,000
Patrick Lopez 15,000
Barbara D Hauptfuhrer 10,000
Robert P Hauptfuhrer Family Partnership 5,000
Leland P. Maxwell(10) 10,000 257,050 *
Paul J Rafferty 10,000
Marion Douglas & Teddie Earline Belin 20,000
Jane Hanscom 1,000
Carolyn Wojcik 5,000
Castor Group Ltd. 200,000
Jack M Heald 10,000
Barbara H. Miller 5,000
Patricia Jill Smith 73,500
James Dailey 10,000
Stephen M. Luce(12) 2,000 8,261 *
Michael Wusinich 5,000
Julie Herbert, custodian for Lucas H. Herbert 1,000
Deborah L. Witte, custodian for Clare Witte 1,000
Wanda S. Moffitt 5,000
George W. Yocum 10,000
Nisha Mehta Investments Ltd. 60,000
Deborah & Gene Witte 1,500
Larry D. Tate 12,500
46
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
Nancy H Hansen 30,000
Robert B & Mary Lou Jacoby 10,000
Kenneth J Wallace, Jr. 4,000
Robert F Jones & Deborah L Jones (Jtwros) 30,000
Judy Ann Ciesielski 10,000
John P Ayers 20,000
Jerrold Carl & Susan E Cohen 50,000
T Sean Brooks Ttee, T Sean Brooks Rev. Trust
Dated 7/27/99 20,000
Worden Family Partnership 10,000
Geoffrey F Worden 25,000
Andrew B Hebenstreit 10,000
Julie E Johnston 50,650
Gary Papa 10,000
Daniel P Quinn 20,000
Jean W Eason 2,000
Jason Bradley Harris 20,000
Michael A. Parker 5,000
---------
Total 3,560,000
=========
_____________
* Less than one percent (1%).
(1) Messrs. Fieldman, Hay, and Ullman, are members of the law firm of Fieldman,
Hay & Ullman, LLP, which currently represents USA in connection with pending
litigation.
(2) Ms. Young is a former employee of USA.
(3) Adele and Austin Hepburn are husband and wife. Adele Hepburn is the Director
of Public Relations of USA.
(4) George R. Jensen, Jr., is the Chairman and Chief Executive Officer of USA.
Excludes the right granted to him under his employment agreement to receive
eight percent of the issued and outstanding common stock upon the occurrence of
a USA Transaction (as defined therein). See "Management - Executive Employment
Agreements."
(5) Mr. Lurio is a Director and his law firm, Lurio & Associates, P.C., is
general counsel to USA.
47
(6) Mr. Boynton is a Director of USA.
(7) Mr. DeMedio is an employee of USA.
(8) Mr. Sellers is a Director of USA.
(9) Mr. Van Alen is a Director of USA.
(10) Mr. Maxwell is the Chief Financial Officer of USA.
(11) Mr. Hamilton is an employee of USA.
(12) Mr. Luce is an employee of USA.
1999-B COMMON STOCK PURCHASE WARRANTS
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
----------------------- --------------------------- --------------------
Number Percent
------ -------
ADAMSON, BROOKE ANN 3,800
ALEX CONSULTING, INC. (1) 30,000 270,000 *
ALPERT, ALAN 5,000
ANDERSON, JACKSON L 15,000
ANDERSON, WAYNE 10,000
ARNDT, BARRY 1,000
AYERS, JOHN P 10,000
BEARD, ALEXANDER 500
BELIN, MARION & TEDDIE 20,000
BESCH, NANCY & EARL 5,000
BEYER, GUNTER 2,500
BOLITSKY, JOSEPH 20,000
BOYNTON, EDWIN (2) 20,000 220,500 *
BOYNTON, JAMES R 10,000
BURKS, WILLIAM P 2,500
CALVARESE, JOANNE 10,000
CALVARESE, VINCENT 10,000
CARL, JERROLD & SUSAN COHEN 50,000
CASTLE JR, AUGUST 30,000
CASTOR GROUP LTD 100,000
CATINO, JANET K 5,000
CHISTOLINI, JOHN 10,000
CIESIELSKI, JUDY ANN 10,000
COHEN, MARC 10,000
COSTELLO, MAUREEN 10,000
CURRIN, CLIFTON 5,000
CURTIS, A KENNETH & WILLIAM K 20,000
CURTIS, WILLIAM K & LINDA S 30,000
DAILEY, JAMES 10,000
D'ANGELO, DAVID 10,000
DEMEDIO, DAVID (3) 3,000 27,974 *
DEMEDIO, MARTHA 1,000
DOLAN, LEO 5,000
EASON, JEAN 2,000
FIELDMAN, HAY & ULLMAN (4) 225,000 300,000 *
FRYE, WAYNE 1,250
GEDDIS, MARGARET 2,500
GIDDENS, ROBERT G 10,000
GIDEON TRADING LTD 275,000
GLICKSTEIN, HARRIET & CARY 10,000
GLOMB, CHARLES F 5,000
GREEN, JOHN R 5,000
GRETH, CHARLES & RONNIE NEFF 5,000
HAMILTON FBO IRA, ROBERT (5) 20,000 49,995 *
HAMILTON, JAMES 5,000
HANSCOM, JANE 1,000
HANSEN, NANCY 15,000
HARGETT, JUDY & JOHN 2,500
HARRIS IRA, BETTY 17,500
48
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
----------------------- --------------------------- --------------------
Number Percent
------ -------
HARRIS, JASON BRADLEY 20,000
HARRITY, VIRGINIA 5,000
HARRITY, WILLIAM 10,000
HAUPTFUHRER FAMILY PARTNER 5,000
HAUPTFUHRER, BARBARA 10,000
HAVENS, ANDREA 5,000
HEALD, JACK & CYNTHIA 10,000
HEBENSTREIT, ANDREW 10,000
HEPBURN, AUSTIN B (6) 5,000 2,213,356 3.57%
HOLLAWAY, STEVEN 10,000
HOLMWOOD, JAMES 20,000
HORGAN, THOMAS & LISA 10,000
HRUBALA ASSOC. A PARTNERSHIP 10,000
HUGHES, CHRISTINE 2,500
HYMAN, MICHAEL 5,000
IW MILLER GROUP (7) 100,000 468,750 1.00%
JACOBY, ROBERT & MARY LOU 10,000
JOHNSTON, WILLIAM ROBERT 10,000
JONES SR, DONALD & JOAN 5,000
JONES, DONALD R 2,500
JOSHI, RICK 8,400
KELLEHER, CHARLES 10,000
KILGORE, ROBERT 20,000
KILMARX, GEORGE & JUNE 10,000
KNERR, SHIRLEY 50,000
KOLESNIKOFF, EMERSON 10,000
KRAFTON, JOHN & SANDRA 5,000
KROMBOLZ, PHILLIP 20,000
KRUGER, LEON M 5,000
LANG, EILEEN 500
LICHTENSTEIN, ISRAEL & NESIA 5,000
LOPEZ, PATRICK 7,500
LUCE, STEPHEN (8) 5,000 5,261 *
LUPPINO, FRANCES 10,000
LURIO, DOUG AND MARGARET (9) 5,000 258,713 *
MARINO, SALVATORE 5,000
MASON, KATHLEEN 50,000
MAXWELL, LELAND (10) 5,000 262,050 *
MCCARTHY, G ELLARD 5,000
MCCARTY, THOMAS (11) 69,000 130,000 *
MCGARRAH, BOB 25,000
MEEKS, DR. JAMES E 12,500
MERRIMAN, JAMES F 5,000
MIGLIACCIO, AL 10,000
MILLER, HARLEY 5,000
MILLIGAN, DAVID 1,000
MOFFITT, WANDA S 5,000
NELSON, ELIZABETH 10,000
NISHA MEHTA INVESTMENTS 60,000
PAKRADOONI, PETER 10,000
PAPA, GARY 10,000
PARKER, KATHY & DOUGLAS 2,000
49
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
----------------------- --------------------------- --------------------
Number Percent
------ -------
PARKER, MICHAEL 5,000
PARKER, RICHARD & LAURA 10,000
PELTER, TIMOTHY 500
PONTON JR., JOHN W 5,000
QUINN, DANIEL 20,000
RAFFERTY, PAUL 10,000
RECKTENWALD, WILLIAM 10,000
RENNER IV, HARRY 10,000
ROBERTS, NOMA ANN 5,000
ROLFE, RANDALL C 1,000
ROPER, LEE & LISA 5,000
RUGART, KARL 10,000
SELLERS, WILLIAM (12) 130,000 669,076 1.08%
SHAHEEN, LOUIS & JANET 5,000
SMITH, PATRICIA JILL 73,500
STETSON IV, JOHN & SOLVEIG 5,000
STEWART, HOMER 1,000
STITT, PRISCILLA 10,000
STULL, CLARK & CAROLYN 2,500
WHEELER, ARTHUR 20,000
WOLFE, CLAUDINE W 2,000
WOLFE, HOWARD H 1,500
WORDEN FAMILY PARTNERSHIP 5,000
WORDEN, GEOFFREY 12,500
WRIGHT, JOHN D 5,000
YOCUM, GEORGE 4,000
YOUNG, FRANCES (13) 130,000 966,000 1.56%
ZELENKA, DONALD 25,000
ZEYHER, LOIS & DAVID 5,000
---------
TOTAL 2,340,450
=========
------------
* Less than one percent (1%).
(1) Alex Consulting, Inc. is a consultant to USA on public relations and
financial matters.
(2) Mr. Boynton is a Director of USA.
(3) Mr. DeMedio is an employee of USA.
(4) Fieldman, Hay & Ullman, LLP, represented USA in connection with prior
litigation.
(5) Mr. Hamilton is an employee of USA.
(6) Adele Hepburn (the wife of Austin Hepburn) is the Director of Public
Relations of USA.
(7) I.W. Miller Group, Inc. is our public relations firm.
(8) Mr. Luce is an employee of USA.
(9) Mr. Lurio is a Director and his law firm, Lurio & Associates, P.C., is
general counsel to USA.
(10) Mr. Maxwell is the Chief Financial Officer of USA.
(11) Mr. McCarty is the President of Vista Marketing Research, Inc. which serves
as a consultant to USA.
(12) Mr. Sellers is a Director of USA.
(13) Ms. Young is a former employee of USA.
50
COMMON STOCK UNDERLYING SENIOR NOTES
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
------------------- -------------------- --------------------
Number Percent
------- -------
EDWIN R. BOYNTON (1) 20,000 220,500 *
MARGARET L. BROADWELL (2) 4,000 5,000 *
HULL OVERSEAS, LTD. 80,000
EDWARD J. CARNEY 4,000
JAMES M. CLENDENIN AND JENNIFER S. CLENDENIN 16,000
WILLIAM P. DUNHAM 4,000
HAROLD B. ERDMAN 2,000
AVERELL H. FISK 20,000
LINDA GARDNER 4,000
MARGARET R. GEDDIS 1,000
SUSAN J. GERRITY 2,000
MIKLOS GOTTLIEB 4,000
YESHIVA SHEARITH HAPLETA 4,000
JOHN R. GREEN 8,000
CHARLES S. GRETH AND RONNIE M. NEFF 2,000
ANN HEBENSTREIT REVOCABLE TRUST 4,000
MARC A. HEMBROUGH 4,000
F/B/O ELWOOD HERBERT JR., IRA 2,000
JULIA B. HOLLOWAY 4,000
JAY T. HUFFMAN 2,000
MORRIS KAUFMAN 4,000
ROBERT A. KILGORE 20,000
KATHLEEN COUGHLIN KILGORE 4,000
GEORGE H. KILMARX AND JUNE Y. KILMARX 20,000
ANTHONY Y. K. KIM 20,000
HARRIETTE D. KLANN 4,000
SHIRLEY K. KNERR 4,400
DAVID A. KRA 4,000
LEON M. KRUGER 16,000
LEROY M. LEWIS 8,000
ISRAEL AND NESIA LICHTENSTEIN 4,000
ISRAEL AND RACHEL LICHTENSTEIN 2,000
THE WORDEN FAMILY LIMITED PARTNERSHIP 8,000
GORDON E. MONTGOMERY 4,000
JOHN J. MORGENTHALER 4,000
RONNIE M. NEFF 2,000
ELIZABETH LARRABEE NELSON 6,000
BRIAN G. NELSON 4,000
ROBERT G. PADRICK, TRUSTEE FBO ROBERT G. PADRICK
PROFIT SHARING PLAN 4,000
GARY PAPA 8,000
DANIEL P. QUINN 4,000
ROGER RADPOUR 4,000
PAUL J. RAFFERTY AND D. JOAN RAFFERTY 24,000
WILLIAM RECKTENWALD 4,000
THOMAS V. SEDLACEK 4,000
JOSEPH SINGER 4,000
-------
Total 318,000
=======
-----------------
* Less than one percent (1%).
(1) Mr. Boynton is a Director of USA.
(2) Ms. Broadwell is a former employee of USA.
51
1999-A COMMON STOCK PURCHASE WARRANTS
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
------------------- -------------------- --------------------
Number Percent
------- -------
JOSIAH DAVID ADAMSON 400
ANNA KATE ADAMSON 400
MICAH PAUL ADAMSON 400
BROOKE ANN ADAMSON 400
PETER JOHN ADAMSON 400
ROBERT M. AGANS 14,000
ALAN ALPERT AND NANCY ALPERT 1,000
WAYNE A. ANDERSON 2,000
CHARLES W. APPLE AND KATHERINE K. APPLE 2,000
BARRY C. ARNDT 1,000
JOHN P. AYERS 2,000
CHARLES M. BARCLAY AND NANCY P. BARCLAY 4,000
ROBERT E. BECK 400
MARION DOUGLAS BELIN AND TEDDIE EARLINE BELIN 4,000
NANCY A. BESCH AND EARL D. BESCH 2,000
ALEXANDRA O. BJORKLUND, TRUSTEE U/A DATED 11-14-88 4,000
LOUISE D. BODINE 4,000
JOSEPH BOLITSKY 8,000
CHARLES L. BOLLING 1,000
GARY BOURASSA 1,000
EDWIN R. BOYNTON (11) 10,000 230,500 *
JAMES R. BOYNTON, PENSION PLAN 6,000
MARGARET L. BROADWELL (8) 2,000 7,000 *
GORDON L. BRODINE 4,000
CAROLINDA BROOKS 4,000
WILLIAM P. BURKS, MD 6,000
SUSAN L. BUTLER 3,000
SMEDLEY D. BUTLER 4,000
JOANNE C. CALVARESE AND VINCENT J. CALVARESE 2,000
WILLIAM A. CAMPBELL 1,000
HULL OVERSEAS, LTD. 40,000
FIRST DOWNING CAPITAL CORPORATION 10,000
RALPH A. CARABASI 1,000
EDWARD J. CARNEY 2,000
AUGUS F.B. CASTLE JR. 4,000
MICHAEL CHIECO 5,000
BARBARA L. CHIMICLES 2,000
JUDY A. CIESIELSKI 4,000
GORDON S. CLAUSEN AND MARY LOU C. CLAUSEN 4,000
JAMES M. CLENDENIN AND JENNIFER S. CLENDENIN 8,000
DIANE E. CLOUTIER 10,000
MARC A. COHEN 4,000
HELEN A. CRECRAFT 2,000
J. DAVID CUNNINGHAM, M.D. 2,000
CLIFTON B. CURRIN 2,600
CLIFTON B. CURRIN, TRUST 3,400
A. KENNETH CURTIS AND WILLIAM K. CURTIS 4,000
DAVID S. D'ANGELO 4,000
BENJAMIN DEACON 1,000
RICHARD J. DELLARUSSO 2,000
SHERI-LYNN DEMARIS 14,000
DAVID M. DEMEDIO (1) 1,000 29,974 *
52
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
------------------- -------------------- --------------------
Number Percent
------- -------
LOUIS E. DI RENZO AND ROSE M. DI RENZO 1,000
LEO J. DOLAN 4,000
MITCHELL DRESSLER 2,000
WILLIAM P. DUNHAM 2,000
JUSTIN G. DURYEA 1,500
HAROLD B. ERDMAN 1,000
HEALD FAMILY TRUST 4,000
HENRY J. FIELDMAN (9) 6,000 206,567 *
AVERELL H. FISK 10,000
LINDA GARDNER 2,000
MARGARET R. GEDDIS 500
SUSAN J. GERRITY 1,000
ROBERT G. GIDDENS 10,000
SEP-IRA OF ROBERT G. GIDDENS 2,000
HARRIET GLICKSTEIN AND CARY GLICKSTEIN 4,000
WILLIAM M. GOLDSTEIN 2,000
GREGORY R. GOMES 10,000
MIKLOS GOTTLIEB AND
YESHIVA SHEARITH HAPLETA 4,000
HAROLD N. GRAY 6,000
JOHN R. GREEN 4,000
CHARLES S. GRETH AND RONNIE M. NEFF 1,000
ROBERT GUERIERA JR. 2,000
JOHN E. HAMILTON 600
ROBERT A. HAMILTON (2) 1,400 68,595 *
NANCY H. HANSEN 4,000
KENNETH R. HARRIS AND BETTY A. HARRIS 4,000
R. JOHNSTONE HARRITY 2,000
WILLIAM F. HARRITY, JR. 4,000
BARBARA D. HAUPTFUHRER 3,000
53
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
------------------- -------------------- --------------------
Number Percent
------- -------
ROBERT P. HAUPTFUHRER FAMILY PARTNERSHIP 2,000
JOHN HAY (9) 6,000 196,567 *
ANN HEBENSTREIT REVOCABLE TRUST 2,000
MARC A. HEMBROUGH 2,000
AUSTIN B. HEPBURN (3) 3,000 2,200,356 3.55%
ADELE H. HEPBURN (3) 15,000 2,200,356 3.55%
JULIE H. HERBERT (10) 2,000 977,780 1.58%
JOYCE HODGES 1,000
JULIA B. HOLLOWAY 2,000
JAMES M. HOLMWOOD 4,000
A PARTNERSHIP HRUBALA ASSOCIATES 2,000
DAVID W. HUBBERT 3,000
WILBUR E. HUDSON 1,000
JAY T. HUFFMAN 1,000
CHRISTINE F. HUGHES 500
MICHAEL HYMAN 2,000
F/B/O FRED KARAGOSIAN KEOGH INDEPENDENT TRUST CORP, TRUSTEE 2,000
JANNEY MONTGOMERY SCOTT IRA FOR ROBERT E. WAGNER 2,000
ROBERT B. JACOBY AND MARY LOU JACOBY 2,000
WILLIAM ROBERT JOHNSTON 1,000
GLORIA S. KARN AND FRED S. KARN 200
MORRIS KAUFMAN 2,000
MAUDE WOOD KENT AND THOMAS D. KENT JR. 2,000
ROBERT A. KILGORE 10,000
KATHLEEN COUGHLIN KILGORE 2,000
GEORGE H. KILMARX AND JUNE Y. KILMARX 10,000
ANTHONY KIM 10,000
HARRIETTE D. KLANN 2,000
SHIRLEY K. KNERR 2,200
CHRISTINE C. KOLLS (4) 6,000 522,850 *
DAVID A. KRA 2,000
PHILLIP S. KROMBOLZ AND ROCHELLE KROMBOLZ 6,000
NANCY KROOK 14,000
LEON M. KRUGER 8,000
JEFFREY R. LAND 2,000
PAUL G. LANNI 2,000
SHERRILL F. LEBOUTILLIER 18,000
JOHN N. LEE 6,000
JENNIFER BEIRNES LEENE 2,000
FBO DENNIS L. GILBERT R-IRA LEGG MASON CUSTODIAN ACCT #397-70859 2,000
AARON LEHMANN 2,000
SHELLEY LEROUX AND JAMES LEROUX, III 4,000
LEROY LEWIS 4,000
ISRAEL LICHENSTEIN AND NESIA LICHENSTEIN 2,000
TOBY AND SOLOMON LICHTENSTEIN 1,000
ISRAEL AND RACHEL LICHTENSTEIN 1,000
THE WORDEN FAMILY LIMITED PARTNERSHIP 4,000
E.H. ROGERS, JR. FAMILY LIMITED PARTNERSHIP 4,000
BIRTZ REVOCABLE LIVING TRUST (DATED 8-15-94) 4,000
PATRICK LOPEZ 2,000
DOUGLAS M. LURIO AND MARGARET SHERRY LURIO (5) 6,000 257,713 *
JAMES P. MacCAIN 2,000
DONALD W. MACKENZIE 4,000
ALBERT P. MALISCHEWSKI AND MARY E. MALISCHEWSKI 2,000
SALVATORE MARINO 2,000
DR. IRWIN MARKOWITZ 10,000
CHARLES A. MAYER 2,000
G. ELLARD MCCARTHY AND JOAN R. BENNETT 1,000
ROBERT F. McCARTNEY 2,000
JAMES F. MERRIMAN 3,000
HARLEY MILLER AND BROOK MILLER 600
THOMAS J. MOLUMPHY 1,000
GORDON E. MONTGOMERY 2,000
ROBERT H. MONTGOMERY AND ROSEMARY M. MONTGOMERY 2,000
MILTON K. MORGAN, JR. AND LOIS T. MORGAN 2,000
JOHN J. MORGENTHALER 2,000
MAC G. MORRIS AND JANDELLE C. MORRIS 1,000
RICHARD F. MURPHY 4,000
RONNIE M. NEFF 1,000
ELIZABETH LARRABEE NELSON 3,000
JOHN BRADLEY NIX AND CAROL NIX 400
BRIAN G. NELSON 2,000
ALEX ORLIK 800
ROBERT G. PADRICK, TRUSTEE FBO ROBERT G. PADRICK
PROFIT SHARING PLAN 2,000
54
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
------------------- -------------------- --------------------
Number Percent
------- -------
PETER B. PAKRADOONI 2,000
GARY PAPA 4,000
RICHARD G. PARKER 2,000
PANORAMA PARTNERS 10,000
WILLIAM R. PERRY AND MATTIE A. PERRY 7,000
ROY T. PIRHALA 4,000
JOHN W. PONTON, JR. 2,000
J STEVE POWELL 600
MOLUMPHY CAPITAL MGMT PROFIT SHARING 2,000
DANIEL P. QUINN 2,000
ROGER RADPOUR 2,000
PAUL J. RAFFERTY AND D. JOAN RAFFERTY 12,000
ERNEST L. RANSOME III 1,000
WILLIAM RECKTENWALD 2,000
HARRY RENNER IV 2,000
WANDA S. MOFFITT REVOCABLE TRUST 2,000
NOMA ANN ROBERTS 5,000
GARDINER ROGERS 800
DOYLE ROGERS 2,000
MARIE G. ROPER 1,000
LEE R. ROPER AND LISA A. ROPER 4,000
GEORGE PARKE ROUSE, III 2,000
PETER S. RUBEN 2,000
KARL F. RUGART AND PATRICIA E. RUGART 2,000
JOHN S. RUPP 3,000
VALENTINA SAS AND ALEX ORLIK 400
WILLIAM F. SCHOENHUT, JR. 8,000
RICHARD S. SCHONWALD 21,000
THOMAS V. SEDLACEK 2,000
THOMAS A. SELDERS AND KRISTIN M. SELDERS 1,000
WILLIAM W. SELLERS (6) 14,000 785,076 1.27%
NICHOLAS SELLERS 2,000
SCOTT SELTZER 1,000
CELIA E. SHEVLIN 400
LEONARD H. SICHEL, JR. 2,000
JOSEPH SINGER 2,000
LESLIE SINGER AND ETHEL SINGER 2,000
ELINOR M. STEINHILBER 2,000
MICHAEL K. STERN 20,000
SOLVEIG W. STETSON 2,000
ERIC W. STETSON 1,000
JOHN B. STETSON, IV 4,000
AND SOLVEIG W. STETSON
HOMER N. STEWART 2,000
PRISCILLA STITT 4,000
EDWARD B. STOKES 4,000
CLARK D. STULL 4,000
TERRY L. SWANTON AND MOLLY B. SWANTON 4,000
STEPHEN S. TURESKY 1,000
ANTHONY B. ULLMAN (9) 6,000 196,567 *
JOHN H. VESPER, JR. 1,000
SANZONE VINCENT 2,000
BORJE WAHLSTROM 2,000
JEAN STEEL WAHLSTROM 2,000
HENRY W. WESSELLS, III 500
ARTHUR L. WHEELER 10,000
DR. J EDWARD WILLARD 10,000
GEOFFREY F. WORDEN 4,000
WILLIAM M. WRIGHT 2,000
JOHN D. WRIGHT 1,000
SAMUEL D. WYMAN, JR. 2,000
JONI CARLEY YAMAGUCHI 2,000
KEIJI YAMAGUCHI 2,000
FRANCES YOUNG (7) 90,000 1,006,000 1.62%
DONALD J. ZELENKA 10,000
RUTH ZWEIGBAUM 800
HARMONIC RESEARCH, INC. (12) 9,400 34,000 *
-------
Total 903,000
=======
-----------------
* Less than one percent (1%).
(1) Mr. DeMedio is an employee of USA.
55
(2) Mr. Hamilton is an employee of USA.
(3) Adele and Austin Hepburn are husband and wife. Adele Hepburn is the
Director of Public Relations of USA.
(4) Christine Kolls is the spouse of Haven Brock Kolls, Jr., the Senior Vice
President of USA.
(5) Mr. Lurio is a Director and his law firm, Lurio & Associates, P.C., is
general counsel to USA.
(6) William W. Sellers is a Director of USA.
(7) Ms. Young is a former employee of the Company.
(8) Ms. Broadwell is a former employee of USA.
(9) Messrs. Fieldman, Hay, and Ullman, are members of the law firm of Fieldman,
Hay & Ullman, LLP, which currently represents USA in connection with
pending litigation.
(10) Julie Herbert is the spouse of Stephen Herbert, the President of USA.
(11) Mr. Boynton is a Director of USA.
(12) Harmonic Research, Inc. acted as a broker-dealer in connection with the
original senior note offering.
56
1998-B COMMON STOCK PURCHASE WARRANTS
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
------------------- -------------------- --------------------
Number Percent
------- -------
Barclay, Charles and Nancy 5,000
Bird, Benjamin Lee 1,250
Bjorkland, Trustee, Alexandra O. 5,000
Bolitsky, Joseph J. 20,000
Bourassa, Kim 10,000
Burks, William P. 2,500
Currin, Clifton B. 1,250
Delta Western Company 5,000
Geddis, Margaret R. 1,250
Hepburn, Adele H. 2,500 2,215,856(1) 3.57%
Jones, Robert 2,500
Klann, Hariette D. 2,500
Krook, Nancy 15,000
Moffit, Richard W. 5,000
Roberts, Noma Ann 2,500
Rubin, Peter 2,500
Selders, Thomas A. 2,500
Seltzer, Helen E. 250
Sullivan, Robert D. 2,500
Young, Frances 50,000 1,046,000(2) 1.69%
--------
Total 139,000
--------
---------------
(1) Adele Hepburn is the Director of Public Relations of USA.
(2) Former employee of USA.
57
1998-A COMMON STOCK PURCHASE WARRANTS
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
------------------- -------------------- --------------------
Number Percent
------- -------
Adams, Vanda G. 5,000
Allen, R. Kendall 25,000
Andrejak, Frank R. 2,500
Atkins, Darryl 5,000
Boynton, Edwin R. 5,000 235,500(5) *
Calvarese, Vincent J. 2,500
Civitella, Peter 1,665
Civitella, Matthew 1,665
Civitella, Michael J. 1,670
Cohen, Neils & Betsy D. 2,500
Cohen, Marc A. 15,000
Currin, Trust, Clifton B. 2,500
De Maris, Sheri-Lynn 5,000
Di Renzo, Louis & Rose 5,000
Donahue, Jean 2,500 17,717(1) *
Ernst & Company 25,000
First Downing Capital Corp. 25,000
Fox, Louise L. 3,500
Generation Capital Association 15,000
Glickstein, Harriet 5,000
Gray, Harold N. 5,000
Harrity Jr., William F. 10,000
Hauptfuhrer, Barbara 7,500
Heald Family Trust 2,500
Harvey, Andrea B. 2,500
Hepburn, Adele H. 5,000 2,210,856(2) 3.57%
Hepburn, Austin B. 2,500 2,210,856(2) 3.57%
Kent, Maude Wood 5,000
Kilmark, George 5,000
Leroux, Shelley 5,000
Ludington, Nicholas S. 5,000
Merriman, James F. 2,500
Moffitt, Richard W. 5,000
Pollack, Robert L. 5,000
Potts, Robert H. 5,000
Powell, J. Steve 1,000
Proctor III, Charles W. 500
Ransome III, Ernest L. 5,000
Rettew III, John B. 5,000
Roberts, Noma Ann 2,500
Rosenthal, G.B. 80,000
Rubins, Joel 2,500
Rugart, Karl F. 2,500
Sedlacek, Thomas V. 2,500
Selders, Thomas & Kristii 2,500
Sellers, William W. 5,000 794,076(3) 1.28%
Schonwald, Richard S. 5,000
Smith, Jill 2,500
Stull, Clark D 2,500
S. W. Ryan & Co. 10,000
Van Alen, Judith F. 10,000 107,501(4) *
Wagner, Robert E. 2,500
Wyman Jr., Samuel D. 5,000
---------
Total 375,000
=========
---------------
(1) Jean Donahue is the wife of Joseph Donahue, a former Vice President of USA.
(2) Adele and Austin Hepburn are husband and wife. Adele Hepburn is the Director
of Public Relations of USA.
(3) William W. Sellers is a Director of USA.
(4) Judith F. Van Alen is the wife of William L. Van Alen, a Director of USA.
(5) Mr. Boynton is a Director of USA.
58
1997 COMMON STOCK PURCHASE WARRANTS
-----------------------------------
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
------------------- -------------------- ---------------------
Number Percent
------ -------
Mr. Charles A. Mayer 800
Ms. Harriette Klann 4,000
Mr. and Mrs. Richard W. Moffitt 2,000
Mr. Edwin R. Boynton 4,000 236,500(2) *
Ernst & Company FBO Fred Karagosian 4,000
Mr. & Mrs. Daniel P. Mannix V 16,000
Daniel P. Mannix, as Custodian for Alexandra G. Mannix 4,000
Ms. Janet J. Hewes 4,000
Delaware Charter Gty. & Trust Co. for Paul M. Russell 4,000
Ernst & Company FBO Fred Karagosian 2,000
John DiSante 2,000
Vot Investments 2,000
Ernst & Company FBO Arthur Rogovin 2,000
Robert H. Potts 4,000
Noma Ann Roberts 4,000
Clifton B. Currin, Trustee 1,600
Louis E. Direnzo 4,000
Austin B. Hepburn 2,000 2,216,356(1) 3.58%
Elinor M. Steinhilber 2,000
Wilbur E. Hudson 1,000
Harvey J. Eliason 600
Susan E. Cohen 4,000
Gail D. Zimmerman 4,000
G. Keith Funk, Jr. 1,000
Susan E. Cohen 2,000
Henry C. Carlson 800
William P. Dunham 4,000
S. W. Ryan & Co. Inc. 3,000
Vanda G. Adams 1,000
Warren Palitz 4,000
Helen E. Seltzer 400
Sonja Pettingill 400
Risky Investment Group 4,000
Ernst & Company FBO D. Henry and Diane Tintorer 4,000
59
W. F. Harrity 4,000
Mr. John Berukoff 1,000
Joan B. Stuart 1,200
Evalyn Kadish 2,000
Stephen S. Turesky 2,000
Gurumantra S. Khalsa 800
Richard Fradkin 2,000
Roy T. Pirhala 1,000
Peggy Longstreth Bayer 800
Clark D. & Carolyn S. Stull, Jr. 2,000
Rosalind Robbins 4,000
Eric Robbins 4,000
William C. Martindale, Jr. 2,000
Andrew B. Hebenstreit 4,000
Father R. S. H. Green 80
Nancy Hansen 2,000
Adele H. Hepburn 3,000 2,215,356(1) 3.57%
Patricia Jill Smith custodian for Burton Jensen 1,120
Bullseye Marketing Inc. 20,000
Nancy Haun 400
---------
Total 160,000
=========
60
---------------
(1) Adele and Austin Hepburn are husband and wife. Adele Hepburn is a Director
of Public Relations of USA.
(2) Mr. Boynton is a Director of USA.
1996 - B COMMON STOCK PURCHASE WARRANTS
----------------------------------------
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
------------------- -------------------- ---------------------
Number Percent
------ -------
Ms. Vanda G. Adams 1,000
Mr. William S. Campbell 2,000
William R. Crothers 2,000
Mr. Benjamin H. Deacon 2,000
Sheri-Lynn Demaris 2,000
Mr. Robert R. Frey 400
Harold N. Gray 2,000
Ms. Jane C. Macelree 4,000
Lily L. McCartney Trust 2,000
Robert F. McCartney Trust 2,000
Mr. Eric Pagh 2,000
Ms. Noma Ann Roberts 2,000
Dr. Karl F. Rugart 2,000
Richard S. Schonwald 4,000
Mr. G. Morraw Smith 4,000
Mr. & Mrs. Clark D. Stull 4,000
------
Total 37,400
======
61
1996 COMMON STOCK PURCHASE WARRANTS
-----------------------------------
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
------------------- -------------------- --------------------
Number Percent
------- --------
Gilbert Abramson 2,000
Vanda Adams 4,000
Ann M. Allegrini 1,200
Eleanor S. Allshouse 2,000
John and Celia Alvanos 400
Costa and Michelle Alvanos 400
J. Stone Bagby 4,000
Alan and Judith Ballard 8,000
William Bauder 4,000
Robert E. Beck 1,200
Stephen A. Bell 4,000
John Berukoff 2,000
Benjamin and Diana Bird 4,000
Alexandra O. Bjorkland 4,000
Donald F. Blackburn 4,000
Clyde and Charlotte Blount 800
Frederick L. Bowden 1,000
Edwin R. Boynton 2,000 238,500(3) *
Edward S. Brockie 4,000
Kathleen D. Buffum 400
William P. and Judith Burks 4,000
Jerrold Carl 4,000
Jeffrey C. Carlson 400
D. Zeke Carlson 400
L.E. Carlson 400
Henry and Jean Carlson 2,800
Charles Abbott Carter III 4,000
Marc A. Cohen 16,000
William R. Crothers 4,000
Gary L. Cunha 4,000
Marie Bradlyn Currin 1,200
Clifton B. Currin, Trustee 4,000
Nancy B. Davis 2,000
Jack and Helen Davis 5,000
Benjamin Deacon 2,000
Sheri Lynn DeMaris 8,000
Jill Smith cust. for Ron Jensen 13,600
Sheri Demaris cust. for Burt Jensen 10,000
Sheri Demaris cust.
for Andrew David Jensen 10,000
Desert Investment Grp.-D Crockett 4,000
William P. Dunham 400
62
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
------------------- -------------------- --------------------
Number Percent
------- --------
Jean W. Eason 6,000
Dr. Mallory Eisenman 400
John Faust 2,000
Richard and Isabel Fradkin 4,000
Harriet and Cary Glickstein 8,000
E.J. and M.K. Golightly 4,000
Harold N. Gray 4,000
Wendel C. and Roma Roy Lynch Green 1,000
Loring S. Grove 1,000
Ruth Hall 400
Thomas F. Hall 8,000
S. Hansen and K. Heiuschel 4,000
Armason Harrison 800
William F. Harrity, Jr. 8,000
Robert Hauptfuhrer Family Partnership 10,000
Austin B. Hepburn 8,000 2,202,356(1) 3.55%
Adele H. Hepburn 8,000 2,202,356(1) 3.55%
David W. Hubbert 2,000
Wilbur E. Hudson 2,000
Robert M. Ihrig 2,000
Bernard Millis 4,000
Fred Karagosian 4,000
Harold and Lois Kauffman 3,000
George H. Kilmarx 4,000
Rocco and Sandra La Penta 9,000
Fred Langguth 4,000
Robert E. Leiser 2,000
Peggy Longstreth Bayer 1,200
Nicholas S. Ludington 4,000
Douglas M. Lurio and Margaret Lurio (JTWOS) 4,000 259,713(4) *
Robert M. Madonna 4,000
Alberta and J. Grant McCabe 400
Philip S. Meckley 4,000
James F. Merriman 4,000
Richard D. Mierley 4,000
Richard Moffitt 2,000
Robert H. and Rosemary Montgomery 4,000
Thomas Motl 4,000
Eunice Carter Nute 2,000
Harry Ohannesian 8,000
Janet and Sudhir Patel 4,000
George M. Pflaumer 8,000
Bernard Pincus 1,000
Genevieve Pondo 1,200
J. Steve and Carol Powell 2,000
63
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
------------------- -------------------- --------------------
Number Percent
------- --------
John B. Rettew III 4,000
Melissa C. Rike 1,200
Eric J. Robbins 4,000
Noma Ann Roberts 4,000
Dorothy S. Rodgers 4,000
Edmund H. Rogers, Jr. Trust UA 06-21-88 12,000
Gardiner Rogers 800
Joel M. Rubins 4,000
Scott W. Ryan 4,000
Joseph P. Sawka 4,000
Richard S. Schonwald 2,000
William W. Sellers 16,000 783,076(2) 1.26%
Nancy F. Sellers 4,000(2)
Sellers Pension Plan 8,000(2)
Helen E. Seltzer 400
Robert Silverman 2,000
Clarence E. Sterling 4,000
Dorothy A. Stone 4,000
Ben Wallace and J.A. Hatcherson 8,000
Howard Waxman 4,000
Peter S. Whitney 4,000
Peter S. Whitney SEP/IRA 4,000
Wilmington Trust Company, Trustee for
Allison Eleuthera Smith 4,000
Wilmington Trust Company, Trustee
for Isabelle duPont Smith 4,000
Dr. David W. Wood 4,000
Joni Carley Yamaguchi 8,000
Keiji Yamaguchi 4,000
Thomas J. Zaucha 4,000
V. Scott Zelov 4,000
Peter Zelov 4,000
Patricia and Robert Zimmerman 2,000
-------
Total.................... 463,800
=======
---------------
(1) Adele and Austin Hepburn are husband and wife. Adele Hepburn is a Director
of Public Relations of USA.
64
(2) William W. Sellers is a Director of USA. Mr. Sellers is a trustee of
the Sellers Pension Plan and a Director of Sellers Process Equipment Company.
Nancy F. Sellers is the spouse of William W. Sellers.
(3) Mr. Boynton is a Director of USA.
(4) Mr. Lurio is a Director of USA and his law firm is general counsel
to USA. Margaret Lurio is his spouse.
1995 COMMON STOCK PURCHASE WARRANTS
-----------------------------------
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
------------------- -------------------- ---------------------
Number Percent
------ -------
Vanda G. Adams 1,500
George M. Ahrens 3,000
Mr. and Mrs. James Allen, Jr. 3,000
Eleanor S. Allshouse 3,000
Mr. and Mrs. Gordon L. Angell 6,000
Charles W.& Katherine K. Apple Trust 2,400
Robert S. Appleby 6,000
Richard M. Appleby 6,000
John P. Ayers 2,400
Jody Marjorie Baker 1,500
Judy Ballard, IRA 1,500
Alan A. Ballard 3,000
Judith C. Ballard 3,750
Mr. and Mrs. Charles M. Barclay 6,000
Mr. and Mrs. Thomas B. Basile 3,000
Robert R. Batt, Jr. 600
William Bauder 3,150
Dr. C. Gottfried Baumann 3,000
65
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
------------------- -------------------- ---------------------
Number Percent
------ -------
Peggy Longstreth Bayer 900
Alexander R. Beard 600
Robert E. Beck 300
Wanda K. Benbow, IRA 900
William E. Benbow, IRA 2,100
Kathlyne K. Birdsall 3,000
Alexandra O. Bjorklund Trust 3,000
Donald F. Blackburn 3,000
Mr. & Mrs. Louis Bodo 6,000
Frederick L. Bowden 750
Edwin R. Boynton 1,500 239,000(3) *
Dr. James R. Boynton, M.D., P.C.,
Pension Trust 6,000
Paul J. Braun 3,000
Dr. Kent D.W. Bream 1,200
Carolyn C. Bream 1,200
Gwen A. Brewster 1,500
Mr. & Mrs. James H. Burdick 6,000
Mr. & Mrs. David O. Burdick 3,000
Mr. & Mrs. James H. Burdick, Jr. 3,000
Dr. James A. Burke 300
Natasha A. Canavarro 1,500
Herman Canavarro 3,000
Christian B. Canavarro 1,200
Mr. & Mrs. Peter R. Canavarro 1,500
Cindy Cannupp 300
Mr. & Mrs. Henry C. Carlson 600
Charles Abbott Carter, III 15,000
Edward E. Chandlee, Jr. 1,050
Mr. & Mrs. Gordon S. Clausen 750
Mr. & Mrs. Frederick Cooper 1,800
Mr. & Mrs. Andrew Cooper 1,500
Jason Cooper 1,500
Donald W. Cooper 1,500
Mr. & Mrs. Mark A. Costanzo 300
Marina Leigh Costanzo 500
Sally S. Costanzo 900
Susan B. Coughlin 4,500
Richard G. Crecraft 8,400
David Crockett 900
Clifton B. Currin 3,900
John D'Avico 600
W. Corkran Darlington 1,500
66
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
------------------- -------------------- ---------------------
Number Percent
------ -------
F. Eugene Dixon, Jr. 3,000
James M. Dorsey 1,500
Mr. & Mrs. Gary G. Dougherty 600
William P. Dunham 300
Jean W. Eason 600
Edmund H. Rogers, Jr., Trustee 6,000
D. Diane Fiers 1,500
Mr. & Mrs. Harry S. Finerfrock 2,400
Ruth S. Flagg 1,500
Mr. & Mrs. Richard Fradkin 3,000
Robert Ross Frey 600
Ronald V. Futerman 3,000
Margaret R. Geddis 750
Dr. George P. Glauner 1,500
Harriet Glickstein 4,500
Robert P. Gombar 450
Mr. & Mrs. Wenpel C. Green 300
Jacques C. Guequierre 1,500
Joni Southard Guffey 300
Ruth E. Hall 300
Dianna Hall 300
Thomas E. Hall 750
Nancy S. Hallett 1,500
Zelda S. Hansell 300
Susan J. Hansen 900
Gisela K. Harmelin 300
William F. Harrity, Jr. 6,000
Col. & Mrs. Russell D. Hartz 1,500
Robert P. Hauptfuhrer Family Partnership 6,000
Jack M. Heald 600
Mr. & Mrs. Clifford J. Heath 3,000
Emma K. Heed 22,575
Austin B. Hepburn 3,000 2,211,906(1) 3.57%
Adele H. Hepburn 3,450 2,211,906(1) 3.57%
A.D. Hodges 3,000
Michael J. Hodges 3,000
Julia B. Holloway 3,000
David W. Hubbert 1,500
Wilbur E. Hudson 3,000
Christine F. Hughes 750
Robert M. Ihrig 1,500
67
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
------------------- -------------------- ---------------------
Number Percent
------ -------
Janney Montgomery Scott, Inc.
Custodian FBO R.E. Wagner, IRA 1,500
John C. Jubin 600
Hugo Kappler, Jr. 3,000
Mr. & Mrs. Harold F. Kauffman 1,500
William G. Kay, III 300
Caroline W. Kay 300
Sanford S. Kay 300
Mr. & Mrs. Ralph Kiper 3,000
Harriette D. Klann 3,000
Wayne H. Klapp 1,500
Edward M.K. Klapp 4,500
Carlyle Klise 900
Deborah A. Krull 1,500
Frederick K. Langguth 3,000
Mr. & Mrs. Gary E. Lasher 3,000
John N. Lee 3,000
Mr. & Mrs. Michael S. Lehnkering 1,500
Lucia E. Lugton 750
Mr. & Mrs. Albert Malischewski 3,000
Mr. & Mrs. William B. Malischewski 1,500
Alvan Markle 1,500
D. Edward McAllister 3,000
James F. Merriman 3,000
Alfred J. Migliaccio, Custodian for
Ashlee C. Migliaccio, UGMA
of Pennsylvania 3,000
Harley E. Miller 750
Bernard Millis 3,000
Mr. & Mrs. A. Harry Moffett 600
Wanda S. Moffitt 3,000
Mr. & Mrs. Robert H. Montgomery 900
Gordon E. Montgomery 3,000
Mr. & Mrs. Milton K. Morgan, Jr. 3,000
Mr. & Mrs. Ronald L. Noll 600
David Gregory Nute 300
Kay B. Otterstrom 3,000
Sara Otterstrom 1,500
Lisa Otterstrom 1,500
Victor L. Pack 600
Robert G. Padrick 3,000
Eric Pagh 1,500
Janet P. Patel 3,000
68
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
------------------- -------------------- ---------------------
Number Percent
------ -------
Walter C. Patterson 300
Mary E. Petro 3,000
George M. Pflaumer 6,000
Robert L. Pollack 750
Genevieve Pondo 1,500
John W. Ponton, Jr. 3,000
J. Steve Powell 1,200
Ernest L. Ransome, III 1,500
Myradean A. Ransome 1,500
Stephen D. Reim 3,000
John B. Rettew, III 1,500
Rosalind Robbins 3,000
Mr. & Mrs. Eric J. Robbins 3,000
Dr. Donald Robbins 3,000
Ms. Noma Ann Roberts 1,500
Mr. & Mrs. Gregg F. Robinson 3,000
Dorothy S. Rodgers 3,000
Thelma T. Romig 1,500
Mr. & Mrs. John E. Roshelli 3,000
Patricia E. Rugart 3,000
Dr. Karl F. Rugart 1,500
Cedric C. Scarlett 3,000
Eloise R. Schaper 1,500
Peter G. Schaper, Jr. 3,000
Christine M. Schuler 3,000
Candice Scialabbo 1,500
Carissa Scialabbo 1,500
Thomas V. Sedlacek 3,000
Mr. & Mrs. Thomas A. Selders 1,500
Mr. & Mrs. Frank R.S. Sellers 1,500
Nicholas Sellers 900
Nancy F. Sellers 3,000 780,401(2) 1.26%
William W. Sellers 6,675 780,401(2) 1.26%
Sellers Pension Plan 6,000 780,401(2) 1.26%
Sellers Process Equipment Company 3,000 780,401(2) 1.26%
Helen E. Seltzer 750
Mr. & Mrs. Horace B. Spackman 750
Carolyn Stallworth 300
Clarence A. Sterling 3,000
69
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
------------------- -------------------- ---------------------
Number Percent
------ -------
Edward B. Stokes 3,000
Mr. & Mrs. Jack D. Stratton 3,000
Mrs. Ruth M. Strock 1,500
Sun Bank N.A. as Trustee for
Ally, Meuss, Rogers and Lindsay
PA, Profit Sharing 401(k) FBO
Doyle Rogers 3,000
Mr. & Mrs. John M. Taylor 600
Judith Ann Taylor 450
John M. Taylor 1,050
Ruth L. Troster 1,500
Roland G.E. Ullman, Jr. 300
Varo Technical Services, Inc.-
Pension Plan 3,000
Coleman Seller VI, Custodian for Sabine M.W. Sellers 600
Mr. & Mrs. Robert M. Whitbread 1,500
Darry Withers 600
Patricia P. Zimmerman 600
----------
Total.......................................... 449,000
==========
---------------
(1) Adele and Austin Hepburn are husband and wife. Adele Hepburn is a Director
of Public Relations of USA.
70
(2) William W. Sellers is a Director of USA. Mr. Sellers is a trustee of
the Sellers Pension Plan and a Director of Sellers Process Equipment Company.
Nancy F. Sellers is the spouse of William W. Sellers.
(3) Mr. Boynton is a Director of USA.
MANAGEMENT OPTIONS
------------------
Beneficial Ownership
After Offering
---------------------------
Selling Shareholder Common Stock Offered Hereby Number Percent
------------------- --------------------------- ------ ----------
Options
Mr. George R. Jensen, Jr. 380,000 976,730(10) 1.58%
Mr. Henry B. duPont Smith 20,000 57,000(1) *
Mr. Stephen P. Herbert 210,000 769,780(2) 1.24%
Mr. Haven Brock Kolls, Jr. 170,000 358,850(3) *
Mr. William W. Sellers 25,500 773,575(4) 1.25%
Mr. Peter G. Kapourelos 27,000 8,013(5) *
Mr. William L. Van Alen, Jr. 22,500 95,000(6) *
Mr. Steven Katz 10,000 35,000(13) *
Mr. Douglas M. Lurio 10,000 253,713(11) *
Mr. Edwin R. Boynton 10,000 230,500(12) *
Ms. Adele Hepburn 277,000 2,213,079(7) 3.57%
Mr. Austin Hepburn 5,000 2,213,079(7) 3.57%
Mr. Robert Leiser 2,000
Mr. Doug Annette 2,500
Mr. and Mrs. Alan A. Ballard 1,500
Ms. Helen Estes Seltzer 1,200
Ms. Peg Longstreth Bayer 940
Mr. Clifton B. Currin 962.50
Mr. Rick Crecraft 2,235
Mr. Edward M.Taylor 950
Mr. Joseph Etris, Jr. 825
Ms. Emma K. Heed 815
Ms. Mary Farrow Evans 512.50
Mr. Jack D. Davis 342.50
71
Beneficial Ownership
After Offering
---------------------------
Selling Shareholder Common Stock Offered Hereby Number Percent
------------------- --------------------------- ------ ----------
Options
Ms. Joy L. Punchur 272.50
Mr. Robert Cryan 250
Mr. Lawrence R. Malcolm 225
Ms. Elizabeth E. Logan 200
Mr. and Mrs. Ralph Cochran 175
Mr. Clark Stull 127.50
Ms. Anna Lincoln 60
Ms. Ruth E. Hall 55
Ms. Rosemary Marshall 40
Ms. Nancy Victor 20
Mr. Daniel A. Padden 17.50
Mr. Jeffrey M. McGarry 25
Ms. Susan H. Cortese 250
Mrs. Robert Leiser 2,000
Mr. Michael Lawlor 50,000 179,550 (8) *
Mr. Leland P. Maxwell 80,000 187,050 (9) *
Ms. Cecil Ledesma 2,000 7,500 (14) *
Ms. Amy Thigpen 2,000 8,550 (14) *
Ms. Vivian Stroud 1,000 9,628 (14) *
Mr. Dave DeMedio 1,000 29,974 (14) *
Mr. James Tierney 1,000 2,432 (15) *
Larry Gershman 150,000 0 (16) *
Frances Young 100,000 996,000 (17) 1.61%
George O'Connell 100,000
---------
Total 1,672,500
=========
------------------
*Less than one percent (1%)
72
(1) Mr. Smith currently serves as a Director of USA.
(2) Mr. Herbert currently serves as President and as a Director of USA.
(3) Mr. Kolls currently serves as Vice President - Research and Development.
(4) Mr. Sellers currently serves as a Director of USA.
(5) Mr. Kapourelos is a former Director of USA.
(6) Mr. Van Alen currently serves as a Director of USA.
(7) Adele and Austin Hepburn are husband and wife. Adele Hepburn serves as
Director of Public Relations of USA. Includes 200,000 shares underlying
options issued in September 2001.
(8) Mr. Lawlor is the Vice President-Marketing and Sales of USA.
73
(9) Mr. Maxwell is the Senior Vice President, Chief Financial Officer and
Treasurer of USA.
(10) Mr. Jensen is the Chief Executive Officer and Chairman of USA. Does not
reflect the right granted to him under his employment agreement to receive
eight percent of the issued and outstanding common stock upon the
occurrence of a USA Transaction (as defined therein). See "Management -
Executive Employment Agreements."
(11) Mr. Lurio is a Director and his law firm, Lurio & Associates, P.C., is
general counsel to USA.
(12) Mr. Boynton is a Director of USA.
(13) Mr. Katz is a Director of USA.
(14) Employee of USA.
(15) Former employee of USA.
(16) Currently serves as our financial and marketing consultant. Represents
shares underlying options issued during September 2001.
(17) Former employee of USA. Represents shares underlying options issued during
September 2001.
CONSULTANT WARRANTS
Beneficial
Ownership After
Offering
------------------
Selling Shareholder Common Stock Offered Hereby Number Percent
------------------- --------------------------- ------ -------
I. W. Miller Group, Inc. (1) 100,000 468,750 *
Harmonic Research, Inc. (2) 34,000 9,400 *
-------
Total 134,000
=======
-----------
* Less than one percent.
(1) Currently serves as our public relations firm.
(2) Performed investment banking services for us through December 1999.
74
2000-A RESTRICTED COMMON STOCK
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
Gary Oakland 100,000
Voyager Securities Limited 250,000
George O'Connell 100,000
John Mastropolo 12,500
Norman G. Shields 12,500
Steve & Elizabeth Illes 175,000 3,350,002 5.40%
Ira W. Miller(1) 12,500 556,250 *
Robert Allen Pett 100,000 450,000 *
I.W. Miller Group, Inc.(2) 6,250 561,500 *
John Vasquez 18,750
Gregg J. Newhuis 150,000 250,000 *
Nicholas Walker(3) 25,000 0 *
Michael J. Bachich 100,000 1,075,000 1.73%
Adam Sherman(4) 25,000 0 *
PNC Brokerage Custodian for Stephen P. Herbert IRA(5) 25,000 954,780 1.54%
Patricia A. Smith 25,000
Gerard W. Cooney 25,000
Lisa F. King 1,000
Thomas D. & Valerie Stanton Smith 5,000
James Alan French 12,500
Thomas McCarty (6) 17,500 0 *
Patricia Jill Smith 1,500
---------
Total 1,200,000
=========
___________
* Less than one percent (1%).
(1) Mr. Miller is the owner of I.W. Miller Group, Inc. which currently serves
as our public relations firm.
(2) I.W. Miller Group, Inc. is our public relations firm.
(3) Mr. Walker's firm acts as an engineering consultant to USA.
(4) Mr. Sherman's firm acts as an engineering consultant to USA.
(5) Mr. Herbert is the President, Chief Operating Officer and a Director of USA.
(6) Mr. McCarty is a software and technology consultant to USA.
75
2000-B RESTRICTED COMMON STOCK
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
AHP Holdings, L.P. 50,000
Robert A. Pett 50,000 580,000 *
George O'Connell 100,000
John Bachich 50,000
Steve & Elizabeth Illes 200,000 3,325,002 5.36%
Michael Bachich 200,000 975,000 1.57%
Gregg J. Newhuis 125,000 275,000 *
Peter J. McGuire 50,000
Shugart Corporation 25,000
I.W. Miller Group, Inc. (1) 35,000 763,750 1.23%
Julie H. Herbert (2) 10,000 668,050 1.08%
---------
895,000
=========
(1) I.W. Miller Group, Inc. is our public relations firm.
(2) Julie Herbert is the spouse of Stephen Herbert, the President of USA.
76
2000-B COMMON STOCK PURCHASE WARRANTS
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
Julie H. Herbert (1) 10,000 668,050 1.08%
---------
10,000
=========
(1) Julie Herbert is the spouse of Stephen Herbert, the President of USA.
LA JOLLA COMMON STOCK
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
------------------- ------ --------------
Number Percent
------ -------
La Jolla Cove Investors, Inc. 500,000 0 *
La Jolla Cove Investors, Inc. 225,000 0 *
La Jolla Cove Investors, Inc. 2,250,000 0 *
---------
TOTAL 2,975,000
=========
--------
*Less than one percent (1%).
SWARTZ COMMON STOCK
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
------------------- ------ --------------
Number Percent
------ -------
Swartz Private Equity, LLC 1,580,828 0 *
--------
*Less than one percent (1%).
RATNER & PRESTIA COMMON STOCK
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
------------------- ------ --------------
Number Percent
------ -------
Ratner & Prestia, P.C.,(1) 200,000 0 *
--------
* Less than one percent (1%).
(1) Ratner & Prestia is our intellectual property counsel.
77
2001 - B RESTRICTED COMMON STOCK
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
KATHLEEN FERLAND CUST. FOR ALEXANDRA ANTOINETTE FERLAND 134
MICHELLE H & COSTA J ALVANOS 2,334
MICHELLE H ALVANOS 5,000
WAYNE A ANDERSON 16,667
CHARLES W APPLE 30,000
BARRY ARNDT 167
COLEEN AYERS 3,000
DANIEL C AYERS 1,334
JOHN P AYERS 40,000
JOHN R BACHICH 100,000
MICHAEL BACHICH 225,000 950,000 1.53%
VIRGINIA S BALTZELL 3,334
CHARLES M & NANCY P BARCLAY 15,000
GUNTER J BEYER 16,667
DAVID C BLACKBURN 50,000
JOSEPH J BOLITSKY 106,667
GARY BOURASSA 6,667
E DOUGLAS & CAROLYN BRITTAIN 13,334
VERNON & DELLAVE BRITTAIN 11,667
VINCENT J CALVARESE 6,667
RONALD J CAMMAROTA 6,667
JERROLD CARL & SUSAN E COHEN 50,000
JULIE CARLSON 132,000
GORDON S & MARYLOU C CLAUSEN 10,000
DIANE CLOUTIER 15,000
MARC A COHEN 70,000
GINO F COLOMBO 16,667
GINO F. COLOMBO & JIM CROSS 6,667
COLUMBIA MARKETING LTD 100,000
GERARD W COONEY 15,000
78
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
JOHANNA CRAVEN 4,167
WILLIAM R CROTHERS 5,000
CLIFTON B CURRIN 33,334
WILLIAM K & LINDA S CURTIS 66,667
DAVID S D'ANGELO 43,334
HRUBALA ASSOCIATES, A PARTNERSHIP DAVID R MOLUMPHY, PARTNER 16,667
SOFIA R DIN 20,000
LEO J DOLAN 13,334
ROBERT F & MELANIE J DRESS 18,334
HOWARD P EFFRON 25,000
KATHLEEN FERLAND CUST. FOR ELLIOT RAYMOND FERLAND 134
SOLOMON ELLNER 13,334
ANTHONY J FANELLI 30,000
KATHLEEN FERLAND 1,667
JOHN S FOSTER 26,667
ROBERT R FREY 5,125
MARGARET R GEDDIS 3,334
RONALD C & BONNIE H GIBSON 13,334
CHARLOTTE GIVEN 30,000
HARRIET & CARY GLICKSTEIN 30,000
JULIUS GOLDEN 10,000
WILLIAM M GOLDSTEIN 20,000
PETER GRAHM 58,334
ROBERT GRAY 30,000
DIAN GRIESEL 46,667
BRUCE H HALE 11,667
BILL HALSTENRUD 15,000
DEVIN HANSEN 15,000
NANCY HANSEN 10,000
NANCY HANSEN 13,334
NANCY HANSEN 187,334
CONG. SHARIT HAPLETA 175,000
79
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
WILLIAM F HARRITY JR 63,334
ROBERT P HAUPTFUHRER FAMILY PARTNERSHIP 20,000
JACK M HEALD 11,667
ANDREW B HEBENSTREIT 23,334
ANN HEBENSTREIT 10,000
ADELE H HEPBURN(1) 333,334 1,885,022 3.04%
STEPHEN P. HERBERT(2) 56,410 923,370 1.49%
JANET J HEWES 15,000
AHP HOLDINGS, LP 93,334
MICHELLE R HOLLENSHEAD 4,167
DAVID W HUBBERT 10,000
GORDON F HUDSON 15,000
MARK J HUDSON 15,000
NICHOLAS HUDSON 11,667
CHRISTINE F HUGES 5,834
HULL OVERSEAS, LTD 85,000
I.W. MILLER GROUP(3) 150,000 418,750 *
STEVE ILLES 116,667 2,575,001 4.15%
STEVE & ELIZABETH ILLES 833,334 2,575,001 4.15%
ROBERT B & MARY LOU JACOBY 6,667
PATRICIA E. RUGART CUST. FOR JACQUELINE RUGART 5,000
GEORGE R. JENSEN, JR.(4) 56,410 1,300,320 2.10%
WILLIAM ROBERT JOHNSTON 50,000
DONALD R & JOAN F JONES SR 16,667
MICHAEL KATCHER 15,000
THOMAS A KATCHUR 100,000
KAUFMAN & ASSOCIATES 90,000
ROBERT G. PADRICK, TRUSTEE FBO KELLIE NICOLE PADRICK 16,667
GEORGE H & JUNE Y KILMARX 13,334
HARRIETTE D KLANN 6,667
SHIRLEY K KNERR 15,000
PHILLIP S KROMBOLZ 33,334
JOE LABRUM 167
80
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
KATE LABRUM 167
SARA LABRUM 167
AARON LEHMANN 13,334
SHELLEY & JAMES LEROUX 20,000
WARREN D LEWIS 11,667
H MATHER & MARGARET W LIPPINCOTT 1,667
DOUGLAS M LURIO(5) 50,000 213,713 *
CORNERSTONE PUBLIC RELATIONS GROUP INC 3,750
JAMES P MACCAIN 23,334
AIMEE MARCHAND 2,500
MARIEL MARCHAND 2,500
ROBIN H MARCHAND 11,667
KATHLEEN J MASON 153,334
G DIEHL MATEER JR. 11,667
MICHAEL JOHN MCGONOUGH CUST. FOR MATTHEW MICHAEL MCDONOUGH 134
CHARLES A MAYER 13,334
THOMAS E MCCARTY(6) 33,334 166,666 *
ROBERT G MCGARRAH(7) 50,000 150,000 *
PETER J MCGUIRE 160,000
JAMES F MERRIMAN 20,000
MICHAEL W MILES 20,000
BARBARA HOWARD MILLER 18,334
HARLEY & BROOK MILLER 13,334
GEORGE W MOFFITT JR 45,000
KENNETH G MOLTA 6,667
ROBERT & ROSEMARY MONTGOMERY 13,334
LOUIS J & KAREN M MUTH 11,667
ELIZABETH L NELSON 50,000
GREGG J NEWHUIS 293,334
JEFFREY M NEWHUIS 53,334
NEWS USA INC 100,000
PAUL NORDIN 6,667
81
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
GEORGE O'CONNELL 160,000
SUSAN ODELL 23,334
ERIC PAGH 15,000
MICHAEL A PARKER 13,334
NEIL L PARKER 10,000
DOUGLAS A PERRY 4,167
LARRY R PERRY 4,167
MATTIE A & WILLIAM R PERRY 8,334
RICHARD D PERRY 4,167
HELEN PETLOWANY 3,334
ROY T PIRHALA 6,667
RANDY J POST 3,334
ROBERT H POTTS 11,667
BARBARA L PRESCOTT 2,500
CHARLES W & MARIA O PROCTOR III 1,667
JEANNE S QUIST 13,334
PAUL RAFFERTY 33,334
PAUL J & D JOAN RAFFERTY 30,000
ROSAMOND P RANKIN & BYRD M HOWIE 3,334
WILLIAM RECKTENWALD 40,000
HARRY RENNER IV 67,500
JOHN B RETTEW III 16,667
GEORGE B RICHARDSON 41,667
PATRICIA E. RUGART CUST. FOR ROBERT TURNER RUGART 5,000
GARDINER ROGERS 10,000
ROBERT ROGGIO 6,667
JOHN E HAMILTON ROTH IRA WITH WACHOVIA SECURITIES 16,667
PETER S RUBEN 30,000
KARL F RUGART 15,000
82
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
JOHN S RUPP 12,500
CHARLES SCHWAB & CO FBO PETER A SANDS IRA ACCT 7780-9057 13,334
WILLIAM F SCHOENHUT JR 13,334
RICHARD SCHONWALD 250,000 1,065,000 1.72%
MARY L SCRANTON 11,667
BEN SIDES 3,334
JOSEPH SINGER 13,334
LESLIE & ETHEL SINGER 11,667
ROBERT G & ROCIO SINGER 13,334
RICHARD O SMITH 10,000
STEVEN W & MARIE E SMITH 15,000
STEVEN W SMITH SSB AS IRA CUSTODIAN 30,000
DANIEL E SPEALMAN 46,667
BB SECURITIES CO FBO DANIEL E SPEALMAN IRA 29,167
MICHAEL & ELLEN STEIR 28,334
HOMER N & NATHALIE W STEWART 10,000
PRISCILLA STITT 2,000
EDWARD B STOKES 10,000
MARCUS B & EMIKO M STRINGFELLOW 40,000
CAROLYN S & CLARK D STULL JR JTWROS 15,834
JEAN TURNER~ 3,334
WILLIAM L VAN ALEN JR(8) 13,334 104,167 *
VIRTUAL CONCEPTS CORP(9) 120,000 300,000 *
LOIS M WAGNER 7,500
ROBERT E WAGNER 27,857
C ANTHONY WAINWRIGHT 15,000
JOHN WECKERLING 26,667
HENRY W WESSELLS III 1,667
DELTA WESTERN COMPANY 150,000
83
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
ARTHUR L WHEELER 33,334
ARTHUR A WIENER 2,017
J EDWARD WILLARD 26,667
WILLIAM W SELLERS TR UA 11/20/00 WILLIAM W SELLERS REV TRUST(10) 26,667 772,409 1.25%
MARGARET S WILLIAMS 34,334
ROBERT H WILLIAMS DDS ASSOC PROFIT SHARING PLAN 50,000
DONALD J ZELENKA 90,000
RUTH ZWEIGBAUM 7,084
---------
TOTAL 7,395,440
=========
--------
* Less than one percent (1%).
(1) Mrs. Hepburn is the Director of Public Relations of USA.
(2) Mr. Herbert is the President of USA.
(3) I.W. Miller Group is our public relations firm.
(4) Mr. Jensen is the Chairman and CEO of USA.
(5) Mr. Lurio is a Director and his law firm, Lurio & Associates, P.C., is
general counsel to USA.
(6) Mr. McCarty is a consultant to USA.
(7) Mr. McGarrah is a consultant to USA.
(8) Mr. Van Allen is a Director of USA.
(9) Acts as a consultant to USA.
(10) Mr. Sellers is a Director of USA.
84
2001 - B COMMON STOCK PURCHASE WARRANTS
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
KATHLEEN FERLAND CUST. FOR ALEXANDRA ANTOINETTE FERLAND 268
MICHELLE H & COSTA J ALVANOS 4,668
MICHELLE H ALVANOS 10,000
WAYNE A ANDERSON 33,334
CHARLES W APPLE 60,000
BARRY ARNDT 334
COLEEN AYERS 6,000
DANIEL C AYERS 2,668
JOHN P AYERS 80,000
JOHN R BACHICH 200,000
MICHAEL BACHICH 450,000
VIRGINIA S BALTZELL 6,668
CHARLES M & NANCY P BARCLAY 30,000
GUNTER J BEYER 33,334
DAVID C BLACKBURN 100,000
JOSEPH J BOLITSKY 213,334
GARY BOURASSA 13,334
E DOUGLAS & CAROLYN BRITTAIN 26,668
VERNON & DELLAVE BRITTAIN 23,334
VINCENT J CALVARESE 13,334
RONALD J CAMMAROTA 13,334
JERROLD CARL & SUSAN E COHEN 100,000
JULIE CARLSON 264,000
GORDON S & MARYLOU C CLAUSEN 20,000
DIANE CLOUTIER 30,000
MARC A COHEN 140,000
GINO F COLOMBO 33,334
GINO F. COLOMBO & JIM CROSS 13,334
COLUMBIA MARKETING LTD 200,000
GERARD W COONEY 30,000
85
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
JOHANNA CRAVEN 8,334
WILLIAM R CROTHERS 10,000
CLIFTON B CURRIN 66,668
WILLIAM K & LINDA S CURTIS 133,334
DAVID S D'ANGELO 86,668
HRUBALA ASSOCIATES, A PARTNERSHIP DAVID R MOLUMPHY, PARTNER 33,334
SOFIA R DIN 40,000
LEO J DOLAN 26,668
ROBERT F & MELANIE J DRESS 36,668
HOWARD P EFFRON 50,000
KATHLEEN FERLAND CUST. FOR ELLIOT RAYMOND FERLAND 268
SOLOMON ELLNER 26,668
ANTHONY J FANELLI 60,000
KATHLEEN FERLAND 3,334
JOHN S FOSTER 53,334
ROBERT R FREY 10,250
MARGARET R GEDDIS 6,668
RONALD C & BONNIE H GIBSON 26,668
CHARLOTTE GIVEN 60,000
HARRIET & CARY GLICKSTEIN 60,000
JULIUS GOLDEN 20,000
WILLIAM M GOLDSTEIN 40,000
PETER GRAHM 116,668
ROBERT GRAY 60,000
DIAN GRIESEL 93,334
BRUCE H HALE 23,334
BILL HALSTENRUD 30,000
DEVIN HANSEN 30,000
NANCY HANSEN 20,000
NANCY HANSEN 26,668
NANCY HANSEN 374,668
CONG. SHARIT HAPLETA 350,000
86
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
WILLIAM F HARRITY JR 126,668
ROBERT P HAUPTFUHRER FAMILY PARTNERSHIP 40,000
JACK M HEALD 23,334
ANDREW B HEBENSTREIT 46,668
ANN HEBENSTREIT 20,000
ADELE H HEPBURN(1) 666,668 1,551,688 2.50%
STEPHEN P. HERBERT(2) 112,820 866,960 1.40%
JANET J HEWES 30,000
AHP HOLDINGS, LP 186,668
MICHELLE R HOLLENSHEAD 8,334
DAVID W HUBBERT 20,000
GORDON F HUDSON 30,000
MARK J HUDSON 30,000
NICHOLAS HUDSON 23,334
CHRISTINE F HUGES 11,668
HULL OVERSEAS, LTD 170,000
I.W. MILLER GROUP(3) 300,000 268,750 *
STEVE ILLES 233,334 1,625,000 2.62%
STEVE & ELIZABETH ILLES 1,666,668 1,625,000 2.62%
ROBERT B & MARY LOU JACOBY 13,334
PATRICIA E. RUGART CUST. FOR JACQUELINE RUGART 10,000
GEORGE R. JENSEN, JR.(4) 112,820 1,243,910 2.01%
WILLIAM ROBERT JOHNSTON 100,000
DONALD R & JOAN F JONES SR 33,334
MICHAEL KATCHER 30,000
THOMAS A KATCHUR 200,000
KAUFMAN & ASSOCIATES 180,000
ROBERT G. PADRICK, TRUSTEE FBO KELLIE NICOLE PADRICK 33,334
GEORGE H & JUNE Y KILMARX 26,668
HARRIETTE D KLANN 13,334
SHIRLEY K KNERR 30,000
PHILLIP S KROMBOLZ 66,668
JOE LABRUM 334
87
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
KATE LABRUM 334
SARA LABRUM 334
AARON LEHMANN 26,668
SHELLEY & JAMES LEROUX 40,000
WARREN D LEWIS 23,334
H MATHER & MARGARET W LIPPINCOTT 3,334
DOUGLAS M LURIO(5) 100,000 163,713 *
CORNERSTONE PUBLIC RELATIONS GROUP INC 7,500
JAMES P MACCAIN 46,668
AIMEE MARCHAND 5,000
MARIEL MARCHAND 5,000
ROBIN H MARCHAND 23,334
KATHLEEN J MASON 306,668
G DIEHL MATEER JR. 23,334
MICHAEL JOHN MCGONOUGH CUST. FOR MATTHEW MICHAEL MCDONOUGH 268
CHARLES A MAYER 26,668
THOMAS E MCCARTY(6) 66,668 133,332 *
ROBERT G MCGARRAH(7) 100,000 100,000 *
PETER J MCGUIRE 320,000
JAMES F MERRIMAN 40,000
MICHAEL W MILES 40,000
BARBARA HOWARD MILLER 36,668
HARLEY & BROOK MILLER 26,668
GEORGE W MOFFITT JR 90,000
KENNETH G MOLTA 13,334
ROBERT & ROSEMARY MONTGOMERY 26,668
LOUIS J & KAREN M MUTH 23,334
ELIZABETH L NELSON 100,000
GREGG J NEWHUIS 586,668
JEFFREY M NEWHUIS 106,668
NEWS USA INC 200,000
PAUL NORDIN 13,334
88
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
GEORGE O'CONNELL 320,000
SUSAN ODELL 46,668
ERIC PAGH 30,000
MICHAEL A PARKER 26,668
NEIL L PARKER 20,000
DOUGLAS A PERRY 8,334
LARRY R PERRY 8,334
MATTIE A & WILLIAM R PERRY 16,668
RICHARD D PERRY 8,334
HELEN PETLOWANY 6,668
ROY T PIRHALA 13,334
RANDY J POST 6,668
ROBERT H POTTS 23,334
BARBARA L PRESCOTT 5,000
CHARLES W & MARIA O PROCTOR III 3,334
JEANNE S QUIST 26,668
PAUL RAFFERTY 66,668
PAUL J & D JOAN RAFFERTY 60,000
ROSAMOND P RANKIN & BYRD M HOWIE 6,668
WILLIAM RECKTENWALD 80,000
HARRY RENNER IV 135,000
JOHN B RETTEW III 33,334
GEORGE B RICHARDSON 83,334
PATRICIA E. RUGART CUST. FOR ROBERT TURNER RUGART 10,000
GARDINER ROGERS 20,000
ROBERT ROGGIO 13,334
JOHN E HAMILTON ROTH IRA WITH WACHOVIA SECURITIES 33,334
PETER S RUBEN 60,000
KARL F RUGART 30,000
89
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
JOHN S RUPP 25,000
CHARLES SCHWAB & CO FBO PETER A SANDS IRA ACCT 7780-9057 26,668
WILLIAM F SCHOENHUT JR 26,668
RICHARD SCHONWALD 500,000 815,000 1.31%
MARY L SCRANTON 23,334
BEN SIDES 6,668
JOSEPH SINGER 26,668
LESLIE & ETHEL SINGER 23,334
ROBERT G & ROCIO SINGER 26,668
RICHARD O SMITH 20,000
STEVEN W & MARIE E SMITH 30,000
STEVEN W SMITH SSB AS IRA CUSTODIAN 60,000
DANIEL E SPEALMAN 93,334
BB SECURITIES CO FBO DANIEL E SPEALMAN IRA 58,334
MICHAEL & ELLEN STEIR 56,668
HOMER N & NATHALIE W STEWART 20,000
PRISCILLA STITT 4,000
EDWARD B STOKES 20,000
MARCUS B & EMIKO M STRINGFELLOW 80,000
CAROLYN S & CLARK D STULL JR JTWROS 31,668
JEAN TURNER 6,668
WILLIAM L VAN ALEN JR(8) 26,668 90,833 *
VIRTUAL CONCEPTS CORP(9) 240,000
LOIS M WAGNER 15,000
ROBERT E WAGNER 55,714
C ANTHONY WAINWRIGHT 30,000
JOHN WECKERLING 53,334
HENRY W WESSELLS III 3,334
DELTA WESTERN COMPANY 300,000
90
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
ARTHUR L WHEELER 66,668
ARTHUR A WIENER 4,034
J EDWARD WILLARD 53,334
WILLIAM W SELLERS TR UA 11/20/00 WILLIAM W SELLERS REV TRUST(10) 53,334 745,742 1.21%
MARGARET S WILLIAMS 68,668
ROBERT H WILLIAMS DDS ASSOC PROFIT SHARING PLAN 100,000
DONALD J ZELENKA 180,000
RUTH ZWEIGBAUM 14,168
----------
TOTAL 14,790,880
==========
-------------
* Less than one percent (1%).
(1) Mrs. Hepburn is the Director of Public Relations of USA.
(2) Mr. Herbert is President of USA.
(3) I.W. Miller Group is our public relations firm.
(4) Mr. Jensen is Chairman and CEO of USA.
(5) Mr. Lurio is a Director and his law firm, Lurio & Associates, P.C., is
general counsel to USA.
(6) Mr. McCarty is a consultant to USA.
(7) Mr. McGarrah is a consultant to USA.
(8) Mr. Van Alen is a Director of USA.
(9) Acts as our consultant.
(10) Mr. Sellers is a Director of USA.
91
2001 - C RESTRICTED COMMON STOCK
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
JACKSON L ANDERSON 12,000
CHARLES W APPLE 40,000
REBA A BEESON 10,000
MARION DOUGLAS BELIN & TEDDIE EARLINE BELIN 40,000
GUNTER J BEYER 10,000
KATHLYNE K BIRDSALL 5,000
RICHARD & MARY BIRTZ 12,000
JOSEPH J BOLITSKY 60,000
EDWIN R BOYNTON (1) 50,000 190,500 *
NEAL BOZENTKA 40,000
WILLIAM P BURKS MD 5,000
AUGUST B CASTLE JR 62,716
GARY CELLA 15,000
ROBERT J CLARKE 20,000
JOHANNA CRAVEN 6,000
HELENA CRECRAFT 10,000
CLIFTON B CURRIN 6,000
BENJAMIN H DEACON 10,000
SHERI LYNN DEMARIS 30,000
DONALD M & DIANNE M DENLINGER 36,000
LOUIS E & ROSE M DI RENZO 10,000
JAMES W EFFRON 14,000
SOLOMON ELLNER 90,000
ANTHONY J FANELLI 4,000
FIN MAP CORPORATION 150,000
FIRST VARICK CAPITAL CORP 150,000
JOHN S FOSTER MD 60,000
ROBERT R FREY 9,900
ELLEN GIMBEL 6,000
HAROLD N GRAY 10,000
JAMES P & JOYCE M GREAVES 20,000
92
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
KENNETH R HARRIS 4,800
ANDREW B HEBENSTREIT 60,000
CYNTHIA LOCKHART HEBERTON 2,000
MAUREEN E HENDRON 25,000
ADELE H HEPBURN (2) 102,000 2,106,356 3.40%
AUSTIN HEPBURN (2) 10,000 2,106,356 3.40%
STEPHEN P HERBERT (3) 216,250 763,530 1.23%
ELWOOD E HERBERT 10,000
BJ HOLMES 5,000
ROBERT B & MARY LOU JACOBY 12,000
JOAN S. JAY 20,000
GEORGE R JENSEN JR (4) 216,250 1,140,480 1.84%
DONALD R & JOAN F JONES 12,000
ROBERT F & DEBORAH L JONES JTWROS 100,000
THOMAS A KATCHUR 20,000
HARRIETTE D KLANN 10,000
HAVEN BROCK KOLLS (5) 100,000 428,000 *
LOIS A LANDIS 4,000
MICHAEL LAWLOR (6) 65,000 164,550 *
SHELLEY & JAMES LEROUX III 12,000
LYLA CAPITAL 100,000
LELAND P MAXWELL (7) 65,000 202,050 *
LILY L MCCARTNEY 8,000
THOMAS E MCCARTY (8) 50,000 149,999 *
ROBERT G MCGARRAH 100,000
AL MIGLIACCIO CUSTODIAN FOR ASHLEE MIGLIACCIO 20,000
MICHAEL W MILES 20,000
HARLEY & BROOK MILLER 5,000
MULL & PAIGE ASSOCIATES LLC 100,000
ELIZABETH L NELSON 20,000
SUSAN ODELL 40,000
ROBERT G PADRICK 100,000
ROBERT G. PADRICK TRUSTEE FOR ROBERT G. PADRICK P/S/P AND TRUST 100,000
ERIC PAGH 20,000
RICHARD G & LAURA J PARKER 24,000
ROBERT A PETT 200,000
93
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
ROY T PIRHALA 6,634
ROGER RADPOUR 56,000
JOHN S RUPP 2,000
RICHARD S SCHONWALD 180,000
RAYMOND K SHOTWELL 2,000
GEORGE H SORRELL 6,000
DANIEL E SPEALMAN 18,000
ROBERT SPEARS 100,000
MICHAEL K STERN 30,000
HOMER N & NATHALIE W STEWART 6,000
PRISCILLA STITT 2,000
STRATEGIC INVESTMENT MANAGEMENT SA 400,000
CLARK D & CAROLYN S STULL JR JTWROS 4,800
TECHNOLOGY PARTNERS (HOLDINGS)LLC 120,000
ALFRED HUNTER & SUSAN MARY THOMPSON 3,000
ANDREW ANDERSON & MARY LYNN THOMPSON 2,000
DANIEL G THOMPSON 4,000
ROSALIE H THOMPSON 20,000
SAMUEL REEVES THOMPSON 4,000
JAMES L VAN ALEN 6,000
WILLIAM W SELLERS TR UA 11/20/00 WILLIAM W SELLERS REV TRUST (9) 100,000 699,076 1.13%
MARGARET S WILLIAMS 18,000
ROBERT H WILLIAMS DDS ASSOC PROFIT SHARING PLAN 24,000
DEBORAH WITTE 90,000
MIKE WUSINICH 20,000
RUTH ZWEIGBAUM 6,000
---------
TOTAL 4,212,350
=========
-------------
* Less than one percent (1%).
(1) Mr. Boynton is a Director of USA.
(2) Adele Hepburn and Austin Hepburn are husband and wife. Mrs. Hepburn is the
Director of Public Relations of USA.
(3) Mr. Herbert is a Director, President and Chief Operating Officer of USA.
(4) Mr. Jensen is Chairman of the Board and Chief Executive Officer of USA.
(5) Mr. Kolls is Senior Vice President of Research and Development of USA.
(6) Mr. Lawlor is the Vice President of Marketing and Sales of USA.
(7) Mr. Maxwell is the Treasurer and Chief Financial Officer of USA.
(8) Mr. McCarty is an employee of USA.
(9) Mr. Sellers is a Director of USA.
94
2001 - C COMMON STOCK PURCHASE WARRANTS
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
JACKSON L ANDERSON 12,000
CHARLES W APPLE 40,000
REBA A BEESON 10,000
MARION DOUGLAS BELIN & TEDDIE EARLINE BELIN 40,000
GUNTER J BEYER 10,000
KATHLYNE K BIRDSALL 5,000
RICHARD & MARY BIRTZ 12,000
JOSEPH J BOLITSKY 60,000
EDWIN R BOYNTON (1) 50,000 190,500 *
NEAL BOZENTKA 40,000
WILLIAM P BURKS MD 5,000
AUGUST B CASTLE JR 62,716
GARY CELLA 15,000
ROBERT J CLARKE 20,000
JOHANNA CRAVEN 6,000
HELENA CRECRAFT 10,000
CLIFTON B CURRIN 6,000
BENJAMIN H DEACON 10,000
SHERI LYNN DEMARIS 30,000
DONALD M & DIANNE M DENLINGER 36,000
LOUIS E & ROSE M DI RENZO 10,000
JAMES W EFFRON 14,000
SOLOMON ELLNER 90,000
ANTHONY J FANELLI 4,000
FIN MAP CORPORATION 150,000
FIRST VARICK CAPITAL CORP 150,000
JOHN S FOSTER MD 60,000
ROBERT R FREY 9,900
ELLEN GIMBEL 6,000
HAROLD N GRAY 10,000
JAMES P & JOYCE M GREAVES 20,000
95
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
KENNETH R HARRIS 4,800
ANDREW B HEBENSTREIT 60,000
CYNTHIA LOCKHART HEBERTON 2,000
MAUREEN E HENDRON 25,000
ADELE H HEPBURN (2) 102,000 2,106,356 3.40%
AUSTIN HEPBURN (2) 10,000 2,106,356 3.40%
STEPHEN P HERBERT (3) 216,250 763,530 1.23%
ELWOOD E HERBERT 10,000
BJ HOLMES 5,000
ROBERT B & MARY LOU JACOBY 12,000
JOAN S. JAY 20,000
GEORGE R JENSEN JR (4) 216,250 1,140,480 1.84%
DONALD R & JOAN F JONES 12,000
ROBERT F & DEBORAH L JONES JTWROS 100,000
THOMAS A KATCHUR 20,000
HARRIETTE D KLANN 10,000
HAVEN BROCK KOLLS (5) 100,000 428,000 *
LOIS A LANDIS 4,000
MICHAEL LAWLOR (6) 65,000 164,550 *
CECIL LEDESMA 40,000
SHELLEY & JAMES LEROUX III 12,000
LYLA CAPITAL 100,000
LELAND P MAXWELL (7) 65,000 202,050 *
LILY L MCCARTNEY 8,000
THOMAS E MCCARTY (8) 50,000 149,999 *
ROBERT G MCGARRAH 100,000
AL MIGLIACCIO CUSTODIAN FOR ASHLEE MIGLIACCIO 20,000
MICHAEL W MILES 20,000
HARLEY & BROOK MILLER 5,000
MULL & PAIGE ASSOCIATES LLC 100,000
ELIZABETH L NELSON 20,000
SUSAN ODELL 40,000
ROBERT G PADRICK 100,000
ROBERT G. PADRICK TRUSTEE FOR ROBERT G. PADRICK P/S/P AND TRUST 100,000
ERIC PAGH 20,000
RICHARD G & LAURA J PARKER 24,000
ROBERT A PETT 200,000 390,000 *
96
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
------------------- --------------------------- --------------------
Number Percent
------ -------
ROY T PIRHALA 6,634
ROGER RADPOUR 56,000
JOHN S RUPP 2,000
RICHARD S SCHONWALD 180,000
THOMAS SHANNON 30,000
RAYMOND K SHOTWELL 2,000
GEORGE H SORRELL 6,000
DANIEL E SPEALMAN 18,000
ROBERT SPEARS 100,000
MICHAEL K STERN 30,000
HOMER N & NATHALIE W STEWART 6,000
PRISCILLA STITT 2,000
STRATEGIC INVESTMENT MANAGEMENT SA 400,000
CLARK D & CAROLYN S STULL JR JTWROS 4,800
TECHNOLOGY PARTNERS (HOLDINGS)LLC 120,000
ALFRED HUNTER & SUSAN MARY THOMPSON 3,000
ANDREW ANDERSON & MARY LYNN THOMPSON 2,000
DANIEL G THOMPSON 4,000
ROSALIE H THOMPSON 20,000
SAMUEL REEVES THOMPSON 4,000
JAMES L VAN ALEN 6,000
WILLIAM W SELLERS TR UA 11/20/00 WILLIAM W SELLERS REV TRUST (9) 100,000 699,076 1.13%
MARGARET S WILLIAMS 18,000
ROBERT H WILLIAMS DDS ASSOC PROFIT SHARING PLAN 24,000
DEBORAH WITTE 90,000
MIKE WUSINICH 20,000
RUTH ZWEIGBAUM 6,000
---------
TOTAL 4,212,350
=========
-------------
* Less than one percent (1%).
(1) Mr. Boynton is a Director of USA.
(2) Adele Hepburn and Austin Hepburn are husband and wife. Mrs. Hepburn is the
Director of Public Relations of USA.
(3) Mr. Herbert is a Director, President and Chief Operating Officer of USA.
(4) Mr. Jensen is Chairman of the Board and Chief Executive Officer of USA.
(5) Mr. Kolls is Senior Vice President of Research and Development of USA.
(6) Mr. Lawlor is the Vice President of Marketing and Sales of USA.
(7) Mr. Maxwell is the Treasurer and Chief Financial Officer of USA.
(8) Mr. McCarty is an employee of USA.
(9) Mr. Sellers is a Director of USA.
97
MARKET FOR COMMON STOCK
The Common Stock is currently traded on the OTC Electronic Bulletin
Board under the symbol USTT.
The high and low bid prices on the OTC Electronic Bulletin Board for
the Common Stock were as follows:
Fiscal
------
2000 High Low
---- ---- ---
First Quarter (through September 30, 1999) $ 2.94 $1.63
Second Quarter (through December 31, 1999) $ 6.56 $1.63
Third Quarter (through March 31, 2000) $ 4.50 $2.19
Fourth Quarter (through June 30, 2000) $ 3.38 $1.31
2001
----
First Quarter (through September 30, 2000) $ 1.75 $0.91
Second Quarter (through December 31, 2000) $ 1.78 $0.66
Third Quarter (through March 31, 2001) $ 1.78 $0.88
Fourth Quarter (through June 30, 2001) $ 1.28 $0.74
2002
----
First Quarter (through September 30, 2001) $ 1.09 $0.52
Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
At June 30, 2001, there are 4,886,667 shares of Common Stock issuable
upon exercise of outstanding options. Of the 4,886,667 options, 5,000 are
exercisable at $.50 per share, 735,000 are exercisable at $1.00 per share,
3,000,000 are exercisable at $1.25 per share, 310,000 are exercisable at $1.50
per share, 656,167 are exercisable at $2.00 per share, 84,000 are exercisable at
$2.50 per share, 81,500 are exercisable at $4.50 per share, and 15,000 are
exercisable at $5.00 per share. Subsequent to year end, 3,000,000 of the
outstanding options expired unexercised. The Company has registered for resale
under the 1933 Act all of the Common Stock underlying the options. All of the
aforesaid options have been issued by the Company to employees, Directors,
officers and consultants.
As of June 30, 2001, the following Warrants were outstanding:
4,000 1996-B Warrants;
1,500 1997 Warrants;
2,500 1998-A Warrants;
5,000 1998-B Warrants;
200,400 consultant warrants;
1,580,828 Swartz Private Equity, LLC warrants;
1,000,000 Automated Merchandising Systems, Inc. warrants;
5,338,800 2001-B Warrants; and
100,000 GEMA Warrants.
As of June 30, 2001, the Company has registered for resale under the
1933 Act all of the Common Stock underlying these warrants (other than those
underlying the GEMA Warrants and 2001-B Warrants).
As of June 30, 2001, there are $5,896,500 face value of Senior Notes
Outstanding which are convertible into 4,621,200 shares of Common Stock, of
these, $5,656,500 are due December 31, 2003, with the remainder due December 31,
2001.
On June 30, 2001 there were 1,167 record holders of the Common Stock
and 596 record holders of the Preferred Stock.
The holders of the Common Stock are entitled to receive such dividends
as the Board of Directors of the Company may from time to time declare out of
funds legally available for payment of dividends. Through the date hereof, no
cash dividends have been declared on the Company's securities. No dividend may
be paid on the Common Stock until all accumulated and unpaid dividends on the
Preferred Stock have been paid. As of June 30, 2001, such accumulated unpaid
dividends amount to $4,621,150 and an additional $413,219 of dividends accrued
on August 1, 2001.
During fiscal year 2001, certain holders of the Company's Preferred
Stock converted 11,160 shares into 11,160 shares of Common Stock. Certain of
these shareholders also converted cumulative preferred dividends of $87,030 into
8,703 shares of Common Stock.
98
As of June 30, 2001, there were 555,284 shares of Common Stock issuable
upon conversion of the outstanding Preferred Stock and 462,115 shares issuable
upon the conversion of cumulative Preferred Dividends, which when and if issued
would be freely tradeable under the Act.
Subsequent to June 30, 2001 the following equity activity occurred:
On September 14, 2001, the Company completed the 2001-B Private
Placement. An additional $2,116,054 has been received in cash from July 1, 2001
through September 28, 2001 related to this Private Placement. A total of
7,395,440 shares were sold, with 14,790,880 warrants exercisable at $.50 per
share. See -- "Certain Transactions."
Subsequent to June 30, 2001, the Company executed a Securities Purchase
Agreement with a private placement investment company for the purchase of
$225,000 of Convertible Debentures bearing 9 3/4 percent interest with a
maturity date of August 3, 2003. Interest is payable by the Company monthly in
arrears. The Debenture is convertible at any time after the earlier of the
effectiveness of the registration statement or 90 days following issuance, at
the lower of $1.00 per share or 80% of the lowest closing bid price of the
Common Stock during the 30 days preceding exercise. As of September 20, 2001,
the Company has received $100,000 with the remainder to be received when the
Company completes the registration of the conversion shares. In July 2001, the
investment company also paid gross proceeds of $50,000 to the Company to secure
the right to exercise up to 500,000 warrants for a one year period commencing on
the date on which the Registration Statement is first declared effective. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
On October 19, 2001 the Company completed the 2001-C Private Placement,
with 4,212,350 shares sold pursuant to the offering. Of the shares sold, 637,500
were issued in exchange for services rendered and 3,574,850 for cash
($1,787,425). As of the date of this Prospectus, we have received cash of
$497,344 and have subscription agreements for $2,066,175. See -- "Certain
Transactions."
During October 2001, we issued 200,000 shares to Ratner & Prestia,
P.C., our intellectual property counsel. The proceeds of the sales of these
shares will be applied towards the unpaid professional fees due to them by us
which as of October 22, 2001 were $214,855. We have agreed to register these
shares for resale under the Act at our expense.
Certain holders of the Company's Preferred Stock converted 4,325 shares
into 4,325 shares of Common Stock; certain of these shareholders also converted
cumulative preferred dividends of $38,920 into 3,892 shares of Common Stock.
99
DESCRIPTION OF SECURITIES
General
We are authorized to issue up to 62,000,000 shares of common stock, no
par value, and 1,800,000 shares of undesignated preferred stock. As of the date
hereof, 900,000 shares have been designated as series A convertible preferred
stock, no par value.
As of June 30, 2001, there were 21,450,755 shares of common stock
issued and outstanding and 555,284 shares of series A preferred stock issued and
outstanding which are convertible into 555,284 shares of common stock. Through
June 30, 2001, a total of 555,866 shares of preferred stock have been converted
into 632,310 shares of common stock and $2,352,214 of accrued and unpaid
dividends thereon have been converted into 255,398 shares of common stock.
100
Consultant Warrants
We entered into a consulting agreement with Harmonic Research, Inc.
pursuant to which we issued to Harmonic fully vested warrants to acquire up to
150,000 shares of common stock at $2.50 per share. The warrants are exercisable
at any time for two years following issuance. The warrants were issued to
Harmonic pursuant to Rule 506 under the Act, and the shares of common stock
underlying the warrants will be issued to Harmonic pursuant to such exemption.
Pursuant to the consulting agreement, we retained Harmonic as a consultant for a
three month period ending December 1, 1999, and agreed to pay Harmonic a fee of
$5,000 per month. During February 2000, Harmonic exercised warrants for 34,000
shares at $2.50 per share. In April, 2000, we permanently reduced the exercise
price of the remaining warrants to $1.00 per share. The remainder of these
options (116,000) expired in August 2001.
In April 2001, we issued warrants to purchase up to 75,000 shares to
the Investor Relations Group. The warrants are exercisable at any time for
five years at $1.25 per share.
101
We have at our expense registered for resale under the Act all of the
common stock underlying the consultant warrants.
Management Options
As of June 30, 2001, we had issued to our employees and consultants
options to acquire up to:
o 15,000 shares at $5.00 per share;
o 81,500 shares at $4.50 per share;
o 84,000 shares at $2.50 per share;
o 656,167 shares at $2.00 per share;
o 310,000 shares at $1.50 per share;
o 735,000 shares at $1.00 per share;
o 3,000,000 shares at $1.25 per share (which expired unexercised
in September 2001); and
o 5,000 shares at $.50 per share.
In connection with the management options, we have, at our cost and
expense, filed a registration statement under the Act covering the resale of all
the common stock underlying the options.
La Jolla Debenture and Warrants
During July 2001, the Company issued to La Jolla Cove Investors, Inc. a
warrant to purchase up to 500,000 shares of Common Stock. The warrant can be
exercised at any time in whole or in part within one year following the
effectiveness of the registration statement covering the resale of the shares
issuable upon exercise of the warrant. The exercise price of the warrant is the
lower of $1.00 or 80% of the lowest closing bid price of the Common Stock during
the 20 trading days prior to exercise. The Company has agreed to prepare and
file at its cost and expense a registration statement covering the resale by La
Jolla of the shares underlying the warrant. At the time of the issuance of the
warrant, La Jolla paid to the Company a non-refundable fee of $50,000 to be
credited towards the exercise price under the warrant. A broker-dealer received
a commission of $3,500 in connection with this warrant.
During August 2001, the Company issued to La Jolla a $225,000
Convertible Debenture bearing 9 3/4 percent interest with a maturity date of
August 2, 2003. Interest is payable by the Company monthly in arrears. The
Debenture is convertible at any time after the earlier of the effectiveness of
the registration statement referred to below or 90 days following issuance at
the lower of $1.00 per share or 80% of the lowest closing bid price of the
Common Stock during the 20 days preceding exercise. If on the date of conversion
the closing bid price of the shares is $.40 or below, the Company shall have the
right to prepay the portion being converted at 150% of the principal amount
being converted. In such event, La Jolla shall have the right to withdraw its
conversion notice. At the time of conversion of the Debenture, the Company has
agreed to issue to La Jolla warrants to purchase an amount of Common Stock equal
to ten times the number of shares actually issued upon conversion of the
Debenture. The warrants are exercisable at any time for two years following
issuance and at the related conversion price of the Debenture. The Company has
agreed to prepare and file at its expense a registration statement covering the
resale of the shares of Common Stock underlying the Debenture as well as the
related warrants issuable upon conversion of the Debenture. La Jolla paid to the
Company the sum of $100,000 at the time of the issuance of the Debenture and has
agreed to pay $125,000 at the time of the effective date of the registration
statement.
SWARTZ INVESTMENT AGREEMENT
On September 15, 2000, we entered into an investment agreement with
Swartz Private Equity, LLC. The investment agreement entitles us to issue and
sell our common stock for up to an aggregate of $20 million from time to time
during a three-year period following the effective date of this registration
statement. This is also referred to as a put right. To date, Swartz has
purchased a nominal amount of our shares and we do not anticipate any
significant purchases in the future.
In order to invoke a put right, we must have an effective registration
statement on file with the SEC registering the resale of the common shares which
may be issued as a consequence of the invocation of that put right.
Additionally, we must give at least ten but not more than twenty business days
advance notice to Swartz of the date on which we intend to exercise a particular
put right and we must indicate the number of shares of common stock we intend to
sell to Swartz. At our option, we may also designate a maximum dollar amount of
102
common stock (not to exceed $2 million) which we will sell to Swartz during the
put and/or a minimum purchase price per common share at which Swartz shall
purchase shares during the put. The number of shares of common stock sold to
Swartz in a put may not exceed the lesser of (i) 1,500,000 shares of our common
stock, (ii) the maximum put amount set forth in our advance put notice, (iii)
$2,000,000 worth of common stock, (iv) 15% of the aggregate daily reported
trading volume of our common shares, excluding block trades of 20,000 or more
shares of our common stock, during the 20 business days after the date of our
put notice, excluding any trading days in which the common stock trades below a
minimum price, if any, that we specify in our put notice; (v) 15% of the
aggregate daily reported trading volume of our common shares, excluding block
trades of 20,000 or more shares of our common stock, during the 20 business days
before the put date, or (vi) a number of shares that, when added to the number
of shares acquired by Swartz under the investment agreement during the 31 days
preceding the put date, would not exceed 9.99% of our total number of shares of
common stock outstanding (as calculated under Section 13(d) of the Securities
Exchange Act of 1934).
For each share of common stock, Swartz will pay us the lesser of the
market price for each share, minus $0.075, or 91% of the market price for each
share. However, Swartz may not pay us less than the designated minimum per share
price, if any, that we indicate in our notice.
Market price is defined as the lowest closing bid price for the common
stock during the applicable pricing period which consists of twenty consecutive
business days following the date notice of the put was provided to Swartz.
However, the market price may not be less than the designated minimum per share
price, if any, that we indicated in our notice.
On August 29, 2000 we issued and delivered to Swartz a warrant to
purchase 1,200,000 shares of common stock. The warrants are currently
exercisable at $1.00 per share and have a term of ten years. The exercise price
of the warrant is subject to semi-annual reset provisions. In April 2001, the
exercise price of these warrants was reduced to $.91 per share. In April 2001,
we also issued to Swartz additional warrants to purchase up to 377,927 shares
for $1.00 at any time within 10 years.
Within five business days after the end of each pricing period, we are
required to issue and deliver to Swartz a warrant to purchase a number of shares
of common stock equal to 10% of the common shares issued to Swartz in the
applicable put. Each warrant will initially be exercisable at the market price
for the applicable put, and will have semi-annual reset provisions. Each warrant
will be immediately exercisable and have a term beginning on the date of
issuance and ending ten years thereafter.
103
Swartz and its affiliates are prohibited from engaging in short sales
of our common stock unless they have received a put notice and the amount of
shares involved in a short sale does not exceed the number of shares specified
in the put notice.
We may terminate our right to initiate further puts or terminate the
investment agreement by providing Swartz with notice of such intention to
terminate; however, any such termination will not affect any other rights or
obligations we have concerning the investment agreement or any related
agreement.
During the term of the investment agreement and for a period of sixty
days after the agreement is terminated, we are prohibited from engaging in
certain transactions without first obtaining the approval of Swartz. These
include:
o the issuance of any debt or equity securities convertible into or
which carry the right to receive additional shares of common
stock, for cash in a private transaction;
o entering into a private equity line agreement similar to the
Investment Agreement; or
o the issuance of equity securities at a price which is discounted
20% or more below market price.
Swartz has a right of first refusal to purchase any equity securities
offered by us in any private transaction which closes on or prior to sixty days
after the termination of the investment agreement.
Common Stock
The holder of each share of common stock:
o is entitled to one vote on all matters submitted to a vote of the
shareholders of USA, including the election of directors. There is
no cumulative voting for directors;
o does not have any preemptive rights to subscribe for or purchase
shares, obligations, warrants, or other securities of USA; and
o is entitled to receive such dividends as the Board of Directors
may from time to time declare out of funds legally available for
payment of dividends.
No dividend may be paid on the common stock until all accumulated and
unpaid dividends on the series A preferred stock have been paid. Upon any
liquidation, dissolution or winding up of USA, holders of shares of common stock
are entitled to receive pro rata all of the assets of USA available for
distribution, subject to the liquidation preference of the series A preferred
stock of $10.00 per share and any unpaid and accumulated dividends on the series
A preferred stock.
104
Series A Convertible Preferred Stock
The holders of shares of series A preferred stock:
o have the number of votes per share equal to the number of shares
of common stock into which each such share is convertible (i.e., 1
share of series A preferred stock equals 1 vote);
o are entitled to vote on all matters submitted to the vote of the
shareholders of USA, including the election of directors; and
o are entitled to an annual cumulative cash dividend of $1.50 per
annum, payable when, as and if declared by the Board of Directors.
The record dates for payment of dividends on the series A preferred
stock are February 1 and August 1 of each year. Any and all accumulated and
unpaid cash dividends on the series A preferred stock must be declared and paid
prior to the declaration and payment of any dividends on the common stock. Any
unpaid and accumulated dividends will not bear interest. As of June 30, 2001 the
accumulated and unpaid dividends were $4,621,150.
Each share of series A preferred stock is convertible at any time into
1 share of fully issued and non-assessable common stock. Accrued and unpaid
dividends earned on shares of series A preferred stock being converted into
common stock are also convertible into common stock at the rate $10.00 per share
of common stock at the time of conversion and whether or not such dividends have
then been declared by USA. As of June 30, 2001, a total of 555,866 shares of
series A preferred stock have been converted into common stock and accrued and
unpaid dividends thereon have been converted into 255,398 shares of common
stock. The conversion rate of the series A preferred stock (and any accrued and
unpaid dividends thereon) will be equitably adjusted for stock splits, stock
combinations, recapitalizations, and in connection with certain other issuances
of common stock by USA. Upon any liquidation, dissolution, or winding-up of USA,
the holders of series A preferred stock are entitled to receive a distribution
in preference to the common stock in the amount of $10.00 per share plus any
accumulated and unpaid dividends.
We have the right, at any time, to redeem all or any part of the issued
and outstanding series A preferred stock for the sum of $11.00 per share plus
any and all unpaid and accumulated dividends thereon. Upon notice by USA of such
call, the holders of the series A preferred stock so called will have the
opportunity to convert their shares and any unpaid and accumulated dividends
thereon into shares of common stock. The $11.00 per share figure was the
redemption price approved by the Directors and shareholders of USA at the time
the series A preferred stock was created and first issued. We currently have no
plans to redeem the preferred stock.
We issued a special stock dividend consisting of one-third of a share
of common stock for each share of series A preferred stock issued and
outstanding on August 1, 1995. The stock dividend consisted of an aggregate of
190,860 shares of common stock.
105
12% Senior Notes
The principal amount of each 12% senior note which is not voluntarily
converted shall be payable on December 31, 2001, at which time any unpaid and
accrued interest shall also become due. Interest shall accrue at the rate of 12%
per annum from and after the date of issuance and shall be payable quarterly in
arrears on December 31, March 31, June 30, and September 30 of each year until
December 31, 2001. The senior notes are senior to all existing equity securities
of USA, including the series A preferred stock. As of June 30, 2001, a total of
$240,000 of these senior notes remain outstanding.
During October 1999, the Company authorized voluntary conversion of all
or any part of the 12% senior notes into shares of common stock at the rate of
$2.50 per share, at any time until the maturity date of December 31, 2001. If
all of the $4,618,000 principal amount of the notes are converted, we would
issue 1,847,200 shares of common stock. We have registered for resale under the
Act the shares of common stock into which the senior notes are convertible.
During the fiscal year ended June 30, 2001 and 2000, an aggregate principal
amount of $10,000 and $545,000, respectively of the senior notes were converted
into 4,000 and 218,000 shares of common stock.
In fiscal 2001, we sold another $5,681,500 of senior notes due December
31, 2003. Of this amount $3,823,000 were purchased through the exchange of
$3,823,000 of the old senior notes (leaving $240,000 of the old senior notes
outstanding). These notes bear interest at 12% per annum. The principal amount
of these notes is convertible at any time into shares of common stock at the
rate of $1.25 per share. The interest paid on these notes is also convertible
into shares of common stock at the rate of $0.50 per share for the quarter
ending September 30, 2001 and December 31, 2001, and at the rate of $1.00 per
share thereafter.
The indebtedness evidenced in the senior note is subordinated to the
prior payment when due of the principal of, premium, if any, and interest on all
"Senior Indebtedness", as defined herein, of USA as follows: Upon any
distribution of its assets in a liquidation or dissolution of USA, or in
bankruptcy, reorganization, insolvency, receivership or similar proceedings
relating to USA, the Lender shall not be entitled to receive payment until the
holders of Senior Indebtedness are paid in full. Until a payment default occurs
with respect to any Senior Indebtedness, all payments of principal and interest
due to Lender under the senior note shall be made in accordance with this senior
note. Upon the occurrence of any payment default with respect to any Senior
Indebtedness then, upon written notice thereof to USA and Lender by any holder
of such Senior Indebtedness or its representative, no payments of principal or
interest on the senior note shall be made by USA until such payment default has
been cured to the satisfaction of the holder of such Senior Indebtedness or
waived by such holder, provided, however, that if during the 180 day period
following such default, the holder of Senior Indebtedness has not accelerated
its loan, commenced foreclosure proceedings or otherwise undertaken to act on
such default, then USA shall be required to continue making payments under the
senior note, including any which had not been paid during such 180 day period.
In the event that any institutional lender to USA at any time so requires, the
Lender shall execute, upon request of USA, any intercreditor or subordination
agreement(s) with any such institutional lender on terms not materially more
adverse to the Lender then the subordination terms contained in this senior
note.
The term "Senior Indebtedness" shall mean (a) all direct or indirect,
contingent or certain indebtedness of any type, kind or nature (present or
future) created, incurred or assumed by USA with respect to any future bank or
other financial institutional indebtedness of USA or (b) any indebtedness
created, incurred, or assumed, by USA secured by a lien on any of our assets.
106
Notwithstanding anything herein to the contrary, Senior Indebtedness
does not include:
o unsecured accounts payable to trade creditors of USA incurred in
the ordinary course of business;
o any debt owed by USA to any officer, director or stockholder of
USA;
o any obligation of Borrower issued or contracted for as payment in
consideration of the purchase by USA of the capital stock or
substantially all of the assets of another person or in
consideration for the merger or consolidation with respect to
which USA was a party;
o any operating lease obligations of USA;
o any other indebtedness which by its terms is subordinated to the
senior note; or
o any "other indebtedness" which is subordinated to all indebtedness
to which the senior note is subordinated in substantially like
terms as the senior note; which such "other indebtedness" shall be
treated as equal with the indebtedness evidenced by the senior
note.
Convertible Securities and GEM Warrants
During June 1997, we issued an aggregate of $500,000 of convertible
securities pursuant to an agreement with Gem Advisors Inc. ("GEM") which
provided GEM with the exclusive right to place the convertible securities with
qualified purchasers. Through December 31, 1997, the holders of all $500,000 of
convertible securities converted their securities into 191,574 shares of common
stock at an average price of $2.60 per share. The convertible securities were
issued by USA pursuant to Regulation S promulgated under the Act.
Affiliates and/or consultants to GEM received non-redeemable warrants
to purchase up to 200,000 shares of our common stock at a price of $2.00 per
share at any time prior to June 23, 2002 ("GEM warrants"). These warrants have
been issued by USA pursuant to Regulation S. Through June 30, 2001, 100,000 GEM
warrants had been exercised, leaving a balance of 100,000 GEM warrants.
Common Stock Purchase Warrants
o Each 2001-B warrant entitles its holder to immediately purchase one
share for $.50 subject to reduction at any time. One-half of each holder's
warrants are exercisable at any time prior to December 31, 2001 and the balance
at any time prior to June 30, 2002 (or such later date as may be determined by
USA).
o Each 2001-C warrant entitles its holder to immediately purchase one
share for $ .50 subject to reduction at any time. Each warrant expires on March
31, 2002 (or such later date as may be determined by USA).
o Each 1999-A warrant entitles its holder to immediately purchase one
share of common stock. The exercise price is $1.00 per share, except that
through May 31, 2001, the exercise price had been reduced to $.50 per share. The
1999-A warrants are exercisable at any time on or prior to December 31, 2001, or
such later date as may be determined by USA.
107
o Each 1998-B warrant entitles its holder to immediately purchase one
share of common stock. The exercise price is $4.00 per share, subject to
reduction at any time by USA. The 1998-B warrants are exercisable at any time
prior to August 17, 2003, or such later date as may be determined by USA. We
had reduced the exercise price of the warrants to $1.00 through May 31, 2001.
o Each 1998-A warrant entitles its holder to immediately purchase one
share of common stock. The exercise price is $4.00 per share, subject to
reduction at any time by USA. The 1998-A warrants are exercisable at any time
prior to March 5, 2003 or such later date as may be determined by USA. We had
reduced the exercise price of the warrants to $1.00 through May 31, 2001.
o Each 1997 warrant entitles its holder to immediately purchase one
share of common stock. The exercise price is $4.00 per share, subject to
reduction at any time by USA. The 1997 Warrants are exercisable at any time
prior to July 3, 2002, or such later date as may be determined by USA. We had
reduced the exercise price of the warrants to $1.00 through May 31, 2001.
o Each 1996-B warrant entitles its holder to immediately purchase one
share of common stock. The exercise price is $3.00 per share, subject to
reduction at any time by USA. The 1996-B warrants are exercisable at any time
prior to February 28, 2002 or such later date as may be determined by USA. We
had reduced the exercise price of the warrants to $1.00 through May 31, 2001.
108
On May 31, 2001 all of the unexercised 2000-B Warrants, 1999-B
Warrants, 1996 Warrants, 1995 Warrants and purchase rights expired.
The warrants have been issued pursuant to warrant agreements by and
between USA and American Stock Transfer & Trust Company, the warrant agent.
We have registered for resale the common stock underlying the above
warrants under the Act.
The exercise price of the warrants and the number of shares of common
stock issuable upon exercise of the warrants are subject to adjustment in
certain circumstances, including a stock split of, stock dividend on, or a
subdivision, combination or recapitalization of the common stock. Upon the
merger, consolidation, sale of substantially all the assets of USA, or other
similar transaction, the warrant holders shall, at the option of USA, be
required to exercise the warrants immediately prior to the closing of the
transaction, or such warrants shall automatically expire. Upon such exercise,
the warrant holders shall participate on the same basis as the holders of common
stock in connection with the transaction.
The warrants do not confer upon the holder any voting or any other
rights of a shareholder of USA. Upon notice to the warrant holders, USA has the
right, at any time and from time to time, to reduce the exercise price or to
extend the warrant termination date.
109
Shares Eligible for Future Sale
Of the 21,450,755 shares of common stock issued and outstanding on June
30, 2001, 18,589,781 are freely transferable without registration under the Act
(other than shares held by "affiliates" of USA), and the remaining 2,860,974 are
"restricted securities". As of June 30, 2001, there were 555,284 shares of
preferred stock issued and outstanding, all of which are freely transferable
without further registration under the Act (other than shares held by
"affiliates" of USA). The shares of preferred stock issued and outstanding as of
June 30, 2001 are convertible into 555,284 shares of common stock all of which
would be fully transferrable without further registration under the Act (other
than shares held by "affiliates" of USA).
110
As set forth in the prior paragraph, there were 2,860,974 shares of
common stock which are "restricted securities" and cannot be resold without
registration. All of such shares would become eligible for sale during calendar
year 2003 without further registration under the Act pursuant to Rule 144
promulgated thereunder.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated), including any affiliate of USA, who
beneficially owns "restricted securities" for a period of at least one year is
entitled to sell within any three-month period, shares equal in number to the
greater of (i) 1% of the then outstanding shares of the same class of shares, or
(ii) the average weekly trading volume of the same class of shares during the
four calendar weeks preceding the filing of the required notice of sale with the
SEC. The seller must also comply with the notice and manner of sale requirements
of Rule 144, and there must be current public information available about USA.
In addition, any person (or persons whose shares must be aggregated) who is not,
at the time of sale, nor during the preceding three months, an affiliate of the
USA, and who has beneficially owned restricted shares for at least two years,
can sell such shares under Rule 144 without regard to the notice, manner of
sale, public information or the volume limitations described above.
Limitation of Liability; Indemnification
As permitted by the Pennsylvania Business Corporation Law of 1988
("BCL"), our By-laws provide that Directors will not be personally liable, as
such, for monetary damages for any action taken unless the Director has breached
or failed to perform the duties of a Director under the BCL and the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.
This limitation of personal liability does not apply to any responsibility or
liability pursuant to any criminal statute, or any liability for the payment of
taxes pursuant to Federal, State or local law. The By-laws also include
provisions for indemnification of our Directors and officers to the fullest
extent permitted by the BCL. Insofar as indemnification for liabilities arising
under the Act may be permitted to Directors, officers and controlling persons of
USA pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our stock and warrants is American
Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
111
PLAN OF DISTRIBUTION
The selling shareholders are free to offer and sell the common
shares at such times, in such manner and at such prices as the selling
shareholders may determine. The types of transactions in which the common shares
are sold may include transactions in the over-the-counter market (including
block transactions), negotiated transactions, the settlement of short sales of
common shares, or a combination of such methods of sale. The sales will be at
market prices prevailing at the time of sale or at negotiated prices. Such
transactions may or may not involve brokers or dealers.
The selling shareholders may effect such transactions by selling common
stock directly to purchasers or through broker-dealers, which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the selling shareholders. They may
also receive compensation from the purchasers of common shares for whom such
broker-dealers may act as agents or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
The selling shareholders also may resell all or a portion of the common
shares in open market transactions in reliance upon Rule 144 under the
Securities and Exchange Act, provided they meet the criteria and conform to the
requirements of such Rule. We have agreed to bear all the expenses (other than
selling commissions) in connection with the registration and sale of the common
stock covered by this prospectus.
The proceeds from the 200,000 shares which may be sold hereunder by
Ratner & Prestia, P.C., will be applied by them towards the unpaid professional
fees due to them by us which as of October 22, 2001 equaled $214,855.
112
LEGAL MATTERS
The validity of the common stock has been passed upon for us by Lurio &
Associates, P.C., Philadelphia, Pennsylvania 19103.
EXPERTS
The financial statements of USA Technologies, Inc. at June 30, 2001 and
2000, and for each of the two years in the period ended June 30, 2001, appearing
in this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon (which contains
an explanatory paragraph describing conditions that raise substantial doubt
about our ability to continue as a going concern as described in Note 2 to the
financial statements) appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts in accounting
and auditing.
113
USA Technologies, Inc.
Financial Statements
Years ended June 30, 2001 and 2000
Contents
Report of Independent Auditors...............................................F-1
Financial Statements
Balance Sheets...............................................................F-2
Statements of Operations.....................................................F-3
Statements of Shareholders' Deficit..........................................F-4
Statements of Cash Flows.....................................................F-6
Notes to Financial Statements................................................F-7
Report of Independent Auditors
Board of Directors and Shareholders
USA Technologies, Inc.
We have audited the accompanying balance sheets of USA Technologies, Inc. as of
June 30, 2001 and 2000, and the related statements of operations, shareholders'
deficit, and cash flows for each of the two years in the period ended June 30,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of USA Technologies, Inc. at June
30, 2001 and 2000, and the results of its operations and its cash flows for each
of the two years in the period ended June 30, 2001, in conformity with
accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming USA
Technologies, Inc. will continue as a going concern. As discussed in Note 2 to
the financial statements, the Company has never been profitable and continues to
incur losses from operations and anticipates that it will require additional
debt or equity financing which may not be readily available. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets, including
software development costs, or the amounts and classification of liabilities
that might result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
September 7, 2001, except for Note 14,
as to which the date is September 20, 2001
F-1
USA Technologies, Inc.
Balance Sheets
June 30
2001 2000
-----------------------------
Assets
Current assets:
Cash and cash equivalents $ 817,570 $ 1,859,360
Accounts receivable, less allowance for uncollectible
accounts of $28,000 and $50,000 in 2001 and 2000,
respectively 64,752 603,171
Inventory 560,410 992,980
Prepaid expenses and other current assets 428,825 300,607
Deposits - 192,000
Subscriptions receivable 29,000 12,199
-----------------------------
Total current assets 1,900,557 3,960,317
Property and equipment, net 761,324 384,847
Software development costs, at cost 3,087,415 149,304
Other assets 31,765 14,740
-----------------------------
Total assets $ 5,781,061 $ 4,509,208
=============================
Liabilities and shareholders' deficit
Current liabilities:
Accounts payable $ 2,607,570 $ 1,194,391
Accrued expenses 1,355,595 554,243
Equipment line of credit 45,785 183,196
Convertible Senior Notes 211,704 -
Current obligations under capital leases 70,446 9,493
-----------------------------
Total current liabilities 4,291,100 1,941,323
Convertible Senior Notes, less current portion 4,236,281 2,688,402
Obligations under capital leases, less current portion 53,577 34,965
-----------------------------
Total liabilities 8,580,958 4,664,690
Shareholders' deficit:
Preferred Stock, no par value:
Authorized shares - 1,800,000
Series A Convertible Preferred - Authorized shares -
900,000
Issued and outstanding shares - 555,284 and 566,444 at
June 30, 2001 and 2000, respectively (liquidation
preference of $10,173,990 at June 30, 2001) 3,933,253 4,012,266
Common Stock, no par value:
Authorized shares - 62,000,000
Issued and outstanding shares - 21,450,755 and
13,375,291 at June 30, 2001 and 2000, respectively 32,977,922 24,204,050
Deferred compensation and other (502,000) (206,000)
Accumulated deficit (39,209,072) (28,165,798)
-----------------------------
Total shareholders' deficit (2,799,897) (155,482)
-----------------------------
Total liabilities and shareholders' deficit $ 5,781,061 $ 4,509,208
=============================
See accompanying notes.
F-2
USA Technologies, Inc.
Statements of Operations
Year ended June 30
2001 2000
---------------------------
Revenues:
Equipment sales $ 803,685 $ 1,414,000
License and transaction fees 647,317 640,341
---------------------------
Total revenues 1,451,002 2,054,341
Operating expenses:
Cost of sales 816,239 1,258,794
General and administrative 5,628,014 5,001,832
Compensation 2,966,776 2,503,165
Depreciation 209,646 110,551
---------------------------
Total operating expenses 9,620,675 8,874,342
---------------------------
(8,169,673) (6,820,001)
Other income (expense):
Interest income 60,034 91,054
Interest expense:
Coupon or stated rate (587,769) (598,239)
Non-cash amortization of debt discount (764,736) (1,011,874)
Less: Amounts capitalized 230,000 -
---------------------------
Total interest expense (1,122,505) (1,610,113)
Other income (expense) (40,100) (65,421)
---------------------------
Total other income (expense) (1,102,571) (1,584,480)
---------------------------
Loss before cumulative effect of accounting change and (9,272,244) (8,404,481)
extraordinary item
Cumulative effect of accounting change (821,000) -
---------------------------
Loss before extraordinary item (10,093,244) (8,404,481)
Extraordinary loss on exchange of debt (863,000) -
---------------------------
Net loss (10,956,244) (8,404,481)
Cumulative preferred dividends (836,541) (930,078)
---------------------------
Loss applicable to common shares $(11,792,785) $(9,334,559)
===========================
Loss per common share (basic and diluted):
Loss before cumulative effect of accounting change and
extraordinary item $ (0.60) $ (0.92)
Cumulative effect of accounting change (0.05) -
Extraordinary loss on exchange of debt (0.05) -
---------------------------
Loss per common share (basic and diluted) $ (0.70) $ (0.92)
===========================
Weighted average number of common shares outstanding (basic and
diluted) 16,731,999 10,135,905
===========================
See accompanying notes.
F-3
USA Technologies, Inc.
Statements of Shareholders' Deficit
Series A
Convertible
Preferred Common Deferred Subscriptions Accumulated
Stock Stock Compensation Receivable Deficit Total
----------------------------------------------------------------------------------------------------
Balance, June 30, 1999 $4,537,128 $14,277,763 $ - $ (83,983) $(19,374,437) $(643,529)
Issuance of 210,523 shares of
Common Stock to employees
as compensation - 505,746 - - - 505,746
Issuance of 578,000 shares of
Common Stock in exchange
for consulting services - 1,156,000 - - - 1,156,000
Conversion of 74,133 shares of
Preferred Stock to 74,133
shares of Common Stock (524,862) 524,862 - - - -
Conversion of $386,880 of
cumulative preferred
dividends into 38,688
shares of Common Stock at
$10.00 per share - 386,880 - - (386,880) -
Deferred compensation -
employee stock awards -
120,000 shares at $2.00 per
share - 240,000 (240,000) - - -
Compensation expense related
to deferred stock awards - - 34,000 - - 34,000
Exercise of 911,600 Common
Stock warrants at $.50 per
share - 455,800 - - - 455,800
Exercise of 252,750 Common
Stock warrants at $1.00 per
share - 252,750 - - - 252,750
Exercise of 110,000 Consultant
warrants at $2.00 per share - 220,000 - - - 220,000
Exercise of 34,000 Common
Stock warrants at $2.50 per
share - 85,000 - - - 85,000
Exercise of 10,000 Common
Stock options at $1.50 per
share - 15,000 - - - 15,000
Exercise of 6,500 Common Stock
options at $2.50 per share - 16,250 - - - 16,250
Issuance of 250,000 Common
Stock warrants in exchange
for professional services - 99,000 - - - 99,000
Issuance of 218,000 shares of
Common Stock from the
conversion of $545,000 of
the 12% Senior Notes - 352,881 - - - 352,881
Issuance of 3,560,000 shares
of Common Stock at $1.00
per share in connection
with the 1999-B Private
Placement, net of offering
costs of $96,058 - 3,463,942 - - - 3,463,942
Issuance of 1,200,000 shares of
Common Stock at $2.00 per
share in connection with the
2000-A Private Placement,
net of offering costs of
$222,647 - 2,177,353 - - - 2,177,353
Reduction of 20,000 shares of
Common Stock and 10,000
warrants issued in connection
with the cancellation of
$50,000 Senior Notes issued
in fiscal 1999 - (25,177) - - - (25,177)
Subscriptions receivable
collected - - - 83,983 - 83,983
Net loss - - - - (8,404,481) (8,404,481)
----------------------------------------------------------------------------------------------------
Balance, June 30, 2000 4,012,266 24,204,050 (206,000) - (28,165,798) (155,482)
F-4
USA Technologies, Inc.
Statements of Shareholders' Deficit (continued)
Series A
Convertible Deferred
Preferred Common Compensation Accumulated
Stock Stock and Other Deficit Total
-----------------------------------------------------------------------------
Conversion of 11,160 shares of
Preferred Stock to 11,160 shares
of Common Stock $ (79,013) $ 79,013 $ - $ - $ -
Conversion of $87,030 of cumulative
preferred dividends into 8,703
shares of Common Stock at $10.00
per share - 87,030 - (87,030) -
Issuance of 418,250 shares of Common
Stock to employees as compensation - 474,995 - - 474,995
Compensation expense related to
deferred stock awards - - 103,000 - 103,000
Issuance of 200,000 shares of Common
Stock in exchange for consulting
services - 200,000 - - 200,000
Exercise of 2,112,100 Common Stock
warrants at $1.00 per share - 2,112,100 - - 2,112,100
Issuance of 24,000 shares of Common
Stock from the conversion of
$35,000 Senior Notes - 28,024 - - 28,024
Issuance of 895,000 shares of Common
Stock at $1.00 per share in
connection with the 2000-B Private
Placement, net of offering costs
of $117,849 - 777,151 - - 777,151
Issuance of 450,000 shares of Common
Stock at $1.00 per share in
connection with the 2001-A Private
Placement, net of offering costs
of $22,500 - 427,500 - - 427,500
Issuance of 2,669,400 shares of
Common Stock at $0.60 per share in
connection with the 2001-B Private
Placement, net of offering costs
of $54,755 - 1,546,885 - - 1,546,885
Issuance of 1,136,300 shares of
Common Stock in connection with
the 2000 12% Convertible Senior
Note Offering - 1,215,843 - - 1,215,843
Debt discount relating to beneficial
conversion feature on the 2000 12%
Convertible Notes 409,104 409,104
Issuance of 121,541 shares of Common
Stock in lieu of cash payment for
interest on the 2000 12%
Convertible Senior Notes - 114,927 - - 114,927
Issuance of options to distributor 420,000 (420,000)
Expense associated with options
issued to distributor - - 21,000 - 21,000
Other - 60,300 - - 60,300
Issuance of 29,010 shares of Common
Stock at $1.05 per share in
connection with the $20 million
equity line Investment Agreement,
net of offering costs of $30,461 - - - - -
Issuance of 1,580,828 Common Stock
commitment warrants in connection
with $20 million Equity Line
Investment Agreement - - - - -
The cumulative effect of accounting
change related to the beneficial
conversion feature associated with
the 1999 Convertible Senior Notes - 821,000 - - 821,000
Net loss - - - (10,956,244) (10,956,244)
-----------------------------------------------------------------------------
Balance, June 30, 2001 $ 3,933,253 $ 32,977,922 $ (502,000) $ (39,209,072) $ (2,799,897)
=============================================================================
See accompanying notes.
F-5
USA Technologies, Inc.
Statements of Cash Flows
Year ended June 30
2001 2000
--------------------------------
Operating activities
Net loss $ (10,956,244) $ (8,404,481)
Adjustments to reconcile net loss to net cash used in
operating activities:
Cumulative effect of accounting change 821,000 -
Extraordinary loss on exchange of debt 863,000 -
Charges incurred in connection with stock awards and the
issuance of Common Stock and Common Stock Purchase Warrants 859,295 1,696,846
Depreciation 209,646 110,551
Interest amortization relating to Senior Notes 764,736 1,011,874
Interest expense on the 2000 Senior Notes paid through the
issuance of Common Stock 114,927 -
Changes in operating assets and liabilities:
Accounts receivable 538,419 (241,708)
Inventory 345,009 131,642
Prepaid expenses, deposits, and other assets 356,757 (376,451)
Accounts payable 1,713,179 230,903
Accrued expenses 801,352 102,042
--------------------------------
Net cash used in operating activities (3,568,924) (5,738,782)
Investing activities
Purchase of property and equipment (380,355) (173,532)
Increase in software development costs (2,938,111) (149,304)
--------------------------------
Net cash used in investing activities (3,318,466) (322,836)
Financing activities
Net proceeds from the issuance of Common Stock and the exercise of
Common Stock Purchase Warrants and Options 4,834,636 6,686,095
Net repayment of equipment line of credit (137,411) (621,289)
Collection of subscriptions receivable 12,199 200,657
Repayment of principal on capital lease obligations (38,642) (9,501)
Proceeds from issuance of the 2000 Senior Notes, net of issuance
costs of $73,682 1,174,818 -
--------------------------------
Net cash provided by financing activities 5,845,600 6,255,962
--------------------------------
Net (decrease) increase in cash and cash equivalents (1,041,790) 194,344
Cash and cash equivalents at beginning of year 1,859,360 1,665,016
--------------------------------
Cash and cash equivalents at end of year $ 817,570 $ 1,859,360
================================
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 472,842 $ 593,472
================================
Issuance of New Senior Notes in exchange for services rendered $ 610,000 $ -
================================
Issuance of Common Stock options to distributor $ 420,000 $ -
================================
Conversion of Convertible Preferred Stock to Common Stock $ 79,013 $ 524,862
================================
Conversion of Cumulative Preferred Dividends to Common Stock $ 87,030 $ 386,880
================================
Prepaid stock expenses through issuance of Common Stock $ 42,000 $ 77,900
================================
Subscriptions receivable $ 29,000 $ -
================================
Conversion of Senior Notes to Common Stock $ 28,024 $ 352,881
================================
Transfer of inventory to property and equipment $ 87,561 $ 131,214
================================
Capital lease obligations incurred $ 118,207 $ 26,982
================================
Cancellation of Senior Notes $ - $ 50,000
================================
Property and equipment acquired with the issuance of
Common Stock $ - $ 20,000
================================
See accompanying notes.
F-6
USA Technologies, Inc.
Notes to Financial Statements
June 30, 2001
1. Business
USA Technologies, Inc., a Pennsylvania corporation (the "Company"), was
incorporated on January 16, 1992. The Company is a provider and licensor of
unattended, credit card activated control systems for the copy, fax, debit card,
personal computer and vending industries. The Company's customers are
principally located in the United States and are comprised of hotels, retail
locations, university libraries and public libraries. The Company generates its
revenues from the direct sale of its control systems and configured business
equipment utilizing its control systems, from retaining a percentage of the
gross licensing fees generated by the control systems, and from a monthly
administrative service fee.
The Company offers the Business Express(R) and Business Express(R) Limited
Service (LSS) principally to the hospitality industry. The Business Express(R)
and Business Express(R) Limited Service (LSS) combines the Company's business
applications for computers, copiers and facsimile machines into a business
center unit.
The Company's next generation control system (e-Port(TM)), which includes
capabilities for interactive multimedia and e-commerce, acceptance of other
forms of electronic payments and remote monitoring of host machine data is being
marketed and sold to operators, distributors and original equipment
manufacturers (OEM) primarily in the vending industry. No significant revenues
have been generated from the e-Port(TM) as the product has not been released in
the marketplace (Note 2).
During June 2001, the Company and IBM entered into a one year, non-exclusive
strategic marketing agreement in order to market and sell information technology
solutions to customers in the intelligent vending, retail point of sale and
networked home application markets. The product offerings would consist of the
Company's ePort(TM) and related network and IBM's products and services in the
United States and Canada.
2. Accounting Policies
Basis of Financial Statement Presentation
The financial statements of the Company have been prepared assuming the Company
will continue as a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business.
Accordingly, the financial statements do not include any adjustments to recorded
asset values, including software development costs, that might be necessary
should the Company be unable to continue in existence. The Company has never
been profitable, has incurred losses of $11.0 million and $8.4 million during
each of the fiscal years ending June 30, 2001 and 2000, respectively,
F-7
USA Technologies, Inc
Notes to Financial Statements (continued)
2. Accounting Policies (continued)
Basis of Financial Statement Presentation (continued)
and cumulative losses from its inception through June 30, 2001 amounting to
approximately $36 million. Losses have continued through September 2001 and are
expected to continue throughout fiscal year 2002. Further, the Company has a
shareholders' deficit of $2.8 million at June 30, 2001. The Company's ability to
meet its future obligations is dependent upon the success of its products in the
marketplace and its ability to raise capital, which may not be readily
available, until the Company's products can generate sufficient operating
revenues. These factors raise doubt about the Company's ability to continue as a
going concern. Management believes that actions presently being taken will allow
for the Company to continue as a going concern. Such actions include the
generation of revenues from operations, additional private placement offerings,
the exercise of Common Stock purchase warrants and options, and continued
efforts to reduce costs.
Cumulative Effect of Accounting Change
During fiscal year 1999, the Company issued $4,618,000 (as adjusted) of $10,000
principal amount of Senior Notes. The Notes also included detachable equity
instruments (see Note 9). During October 1999, the Company added a conversion
feature to the Senior Notes whereby the Senior Notes were immediately
convertible into Common Stock at $2.50 per share at the option of the holder. At
the time of the addition of the conversion feature, the Company determined that,
based on the fair value of the Company's Common Stock and specified conversion
prices, and, in accordance with the then applicable accounting pronouncements,
these Senior Notes did not contain an embedded conversion feature.
In November 2000, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board (FASB) reached a consensus on Issue 00-27,
Application of EITF Issue 98-5, "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios to
Certain Convertible Instruments," whereby it was concluded that an issuer should
calculate the intrinsic value of a conversion option using the effective
conversion price, based on the proceeds received allocated to the convertible
instrument instead of the specified conversion prices in the instrument. Issue
00-27 requires companies to apply the prescribed methodology for computing the
beneficial conversion feature of convertible securities through a cumulative
catch-up accounting change (in the quarter that includes November 2000) for any
such security issued after May 20, 1999, the effective date of EITF 98-5.
F-8
USA Technologies, Inc
Notes to Financial Statements (continued)
2. Accounting Policies (continued)
Cumulative Effect of Accounting Change (continued)
Accordingly, the Company recorded a one-time, non-cash charge during fiscal year
2001 of $821,000 to record the cumulative effect of an accounting change as
required by the EITF.
Use of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash Equivalents
Cash equivalents represent all highly liquid investments with original
maturities of three months or less. Cash equivalents are comprised of a money
market fund and certificates of deposit.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or market.
Property and Equipment
Property and equipment is recorded at cost. The straight-line method of
depreciation is used over the estimated useful lives of the related assets.
Concentration of Credit Risk
Financial instruments that subject the Company to a concentration of credit risk
consist principally of cash and accounts receivable. The Company maintains cash
with various financial institutions. The Company performs periodic evaluations
of the relative credit standing of those financial institutions, and the
Company's policy is designed to limit exposure to any one institution. The
Company does not require collateral or other security to support credit sales,
but provides an allowance for bad debts based on historical experience and
specifically identified risks.
F-9
USA Technologies, Inc
Notes to Financial Statements (continued)
2. Accounting Policies (continued)
Revenue Recognition
Revenue from the sale of equipment is recognized upon installation and customer
acceptance of the related equipment. License and transaction fee revenue is
recognized upon the usage of the Company's credit card activated control
systems.
Software Development Costs
The Company capitalizes software development costs after technological
feasibility of the software is established and through the product's
availability for general release to the Company's customers. All costs incurred
in the research and development of new software and costs incurred prior to the
establishment of technological feasibility are expensed as incurred. During May
2000, the Company reached technological feasibility for the development of the
e-Port(TM) control system that would offer capability for public access
electronic commerce and advertising using the Internet and, accordingly, the
Company commenced capitalization of software development costs related to the
e-Port(TM). Costs capitalized were approximately $2,938,000 and $149,000 during
the years ended June 30, 2001 and 2000, respectively.
Amortization of software development costs will be calculated as the greater of
the amount computed using (i) the ratio that current gross revenues for a
product bear to the total of current and anticipated future gross revenues of
that product or (ii) the straight-line method over the remaining estimated
economic life of the product. Amortization of such costs will commence when the
e-Port(TM) becomes available for general release to customers, which is
anticipated in fiscal year 2002. The Company reviews the unamortized software
development costs at each balance sheet date and, if necessary, will write down
the balance to net realizable value if the unamortized costs exceed the net
realizable value of the asset. The Company anticipates capitalization of an
additional $1.6 million during fiscal 2002 prior to the release of the
e-Port(TM) to the marketplace.
Research and Development Expenses
Research and development expenses are expensed as incurred. Research and
development expenses, which is included in general and administrative and
compensation expenses in the statement of operations, was $1,260,000 and
$554,000 for the years ended June 30, 2001 and 2000, respectively.
Accounting for Stock Options
Financial Accounting Standards Board Statement ("SFAS") No. 123, Accounting for
Stock-Based Compensation, provides companies with a choice to follow the
provisions of SFAS 123 in determination of stock-based
F-10
USA Technologies, Inc
Notes to Financial Statements (continued)
2. Accounting Policies (continued)
compensation expense or to continue with the provisions of Accounting Principles
Board Opinion No. 25 ("APB 25"). The Company has elected to follow the
provisions of APB 25. Under APB 25, if the exercise price of the Company's stock
options equals or exceeds the market price of the underlying Common Stock on the
date of grant, no compensation expense is recognized. The effect of applying
SFAS 123 to the Company's stock-based awards results in net loss and net loss
per common share that are disclosed on a pro forma basis in Note 12.
Loss Per Common Share
Basic earnings per share is calculated by dividing income (loss) applicable to
common shares by the weighted average common shares outstanding for the period.
Diluted earnings per share is calculated by dividing income (loss) applicable to
common shares by the weighted average common shares outstanding for the period
plus the dilutive effect (unless such effect is anti-dilutive) of equity
instruments. No exercise of stock options, purchase rights, stock purchase
warrants, or the conversion of preferred stock, cumulative preferred dividends
or Senior Notes was assumed during fiscal 2001 or 2000 because the assumed
exercise of these securities would be antidilutive.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts receivable, other
current assets, accounts payable and accrued expenses reported in the balance
sheets equal or approximate fair value due to their short maturities. The fair
value of the Company's Senior Notes approximates book value as such notes are at
market rates currently available to the Company.
3. Joint Venture
During September 1997, the Company entered into a five-year Joint Venture
Agreement with Mail Boxes Etc. ("MBE") to operate under the name "MBE Express
Joint Venture" (hereinafter referred to as "Joint Venture") and exclusively sell
and market the Company's Business Express(R) product under the name MBE Business
Express(TM). The Joint Venture Agreement outlined the terms for sharing costs
and profits. During September 1998, MBE commenced a legal action against the
Company in the Superior Court of the State of California, (subsequently removed
to the United States District Court for the southern District of California),
alleging that 195 terminals purchased by MBE were defective and a refund of
$141,260 plus lost profits (claimed to be several hundred thousand dollars) were
sought by MBE. MBE further claimed that it was not obligated to purchase 600
additional terminals ordered in April 1998. The Company filed a counterclaim
against MBE which claimed numerous areas where MBE breached the Joint Venture
Agreement, breached its fiduciary responsibility, and trade libel. On May 14,
1999, the Company notified MBE that the Company was terminating the Joint
Venture Agreement, citing the numerous breaches of the Joint Venture Agreement.
Obligations for continued servicing of MBE Business Express's were met by the
Company.
During June 2001, the Company and MBE settled the litigation between them. As
part of the settlement, MBE assigned to the Company all of the rights in the
Joint Venture. The Company also agreed to pay MBE $160,000 and the parties
agreed to mutually release all claims against one another.
F-11
USA Technologies, Inc
Notes to Financial Statements (continued)
4. Property and Equipment
Property and equipment consist of the following:
June 30
Useful Lives 2001 2000
----------------------------------------------------------
Control systems 3 years $ 533,055 $ 377,997
Computer equipment and purchased
software 3 years 609,775 205,270
Furniture and equipment 5 years 190,836 170,398
Leasehold improvements Lease term 90,313 86,628
Vehicles 5 years 10,258 10,258
--------------------------------------
1,434,237 850,551
Less accumulated depreciation 672,913 465,704
--------------------------------------
$ 761,324 $ 384,847
======================================
5. Accrued Expenses
Accrued expenses consist of the following:
June 30
2001 2000
---------------------------------------
Accrued consulting fees $ 435,000 $ -
Accrued professional fees 439,478 186,808
Accrued software license and support costs 154,229 159,268
Accrued compensation and related sales commissions 125,668 91,592
Accrued interest 91,585 -
Accrued product warranty costs 52,466 56,684
Accrued other 31,414 55,150
Advanced customer billings 25,755 4,741
---------------------------------------
$ 1,355,595 $ 554,243
=======================================
6. Related Party Transactions
At June 30, 2001 and 2000, approximately $70,000 and $19,000, respectively, of
the Company's accounts payable and accrued expenses were due to a Board member
for legal services performed. During the years ended June 30, 2001 and 2000, the
Company incurred approximately $271,000 and $193,000, respectively, for these
services.
7. Commitments
o During May 1999, the Company entered into an agreement with IBM whereby IBM
agreed to be the executional partner for certain aspects of the Company's
business, including project management services, asset procurement,
configuration and testing of equipment, site preparation, installation,
maintenance services, and
F-12
USA Technologies, Inc
Notes to Financial Statements (continued)
o asset management. The agreement provides for an increase from 1,000 to
5,000 locations and expanded the array of Company products which are
eligible for IBM installation. In connection with this agreement, the
Company has also entered into an inventory financing arrangement with IBM
Credit Corporation whereby IBM Credit Corporation granted the Company a
$1.5 million equipment line of credit. The outstanding balance is secured
by the underlying inventory. Interest accrues on the outstanding balance at
10% per annum, subject to adjustment if the outstanding balance is
outstanding greater than 180 days. At June 30, 2001 and 2000, respectively,
$45,785 and $183,196 was outstanding under this agreement.
o In connection with an employment agreement, expiring June 30, 2002, the
Company's Chief Executive Officer has been granted in the event of a "USA
Transaction," as defined, which among other events includes a change in
control of the Company, irrevocable and fully vested rights equal to that
number of shares of Common Stock that when issued to him equals eight
percent of all the then issued and outstanding shares of the Company's
Common Stock. The Chief Executive Officer is not required to pay any
consideration for such shares. The stock rights have no expiration and are
not affected by the Chief Executive Officer's termination of employment.
o At June 30, 2001, the Company has entered into purchase commitments with
vendors for inventory of approximately $1,300,000.
o The Company conducts its operations from various facilities under operating
leases. Rent expense under such arrangements was approximately $188,000 and
$140,000 during the years ended June 30, 2001 and 2000, respectively.
During the years ended June 30, 2001 and 2000, the Company entered into
agreements to lease $118,207 and $26,982, respectively, of computer
equipment that were accounted for as capital leases. This computer
equipment is included in property and equipment in the accompanying
financial statements. Capital lease amortization of $33,544 and $8,097 is
included in depreciation expense for the years ended June 30, 2001 and
2000, respectively.
o As discussed in Note 2, the Company anticipates spending an additional
$1.6 million during fiscal 2002 to complete the e-Port(TM) software
development.
Future minimum lease payments subsequent to June 30, 2001 under capital and
noncancelable operating leases are as follows:
Capital Leases Operating Leases
---------------------------------------
2002 $ 88,349 $ 174,000
2003 47,381 9,000
2004 11,689 3,000
---------------------------------------
Total minimum lease payments 147,419 $ 186,000
===================
Less amount representing interest 23,396
--------------------
Present value of net minimum lease payments 124,023
Less current obligations under capital leases 70,446
--------------------
Obligations under capital leases, less current portion $ 53,577
====================
F-13
USA Technologies, Inc
Notes to Financial Statements (continued)
8. Income Taxes
At June 30, 2001 and 2000, the Company had net operating loss carryforwards of
approximately $35,109,000 and $23,481,000, respectively, to offset future
taxable income expiring through approximately 2021. At June 30, 2001 and 2000,
the Company recorded a deferred tax asset of approximately $12,418,500 and
$9,374,000, respectively, which was reduced by a valuation allowance of the same
amount as the realization of the deferred tax asset is not certain.
The timing and extent in which the Company can utilize future tax deductions in
any year may be limited by provisions of the Internal Revenue Code regarding
changes in ownership of corporations.
The deferred tax assets arose primarily from the use of different accounting
methods for financial statement and income tax reporting purposes as follows:
June 30
2001 2000
--------------------------------------
Deferred tax asset:
Net operating loss carryforwards $ 13,237,000 $ 8,895,000
Compensation expense on stock option re-pricing 170,500 170,500
Deferred research and development costs 125,000 216,000
Other 131,000 152,000
--------------------------------------
13,663,500 9,433,500
Deferred tax liabilities:
Software Development Costs (1,245,000) (60,000)
--------------------------------------
12,418,500 9,373,500
Valuation allowance (12,418,500) (9,373,500)
--------------------------------------
Deferred tax asset, net $ - $ -
======================================
9. Senior Note Offerings
During September 1998, the Company's Board of Directors authorized a private
placement offering (the "1999 Senior Note Offering"). Each unit, as amended,
sold in the offering consisted of a 12% Senior Note in the principal amount of
$10,000, 2,000 1999-A Common Stock Purchase Warrants (each warrant entitled the
holder to purchase one share of Common Stock at $1.00 through December 31, 2001)
and 1,000 shares of Series B Equity Participating Preferred Stock (Series B). A
total of 461.8 units (as adjusted)
F-14
USA Technologies, Inc
Notes to Financial Statements (continued)
9. Senior Note Offerings (continued)
were sold in the Senior Note Offering. The Series B was converted into 1,847,200
shares of Common Stock in connection with the Company's fiscal year 1999 reverse
stock split. In October 1999, a conversion feature was added to the Senior Notes
whereby the Notes were convertible into Common Stock at the rate of $2.50 per
share any time through the Senior Notes maturity of December 31, 2001.
During October 2000, the Company authorized a $6,700,000 private placement
offering ("2000 Senior Note Offering") of 670 units at a unit price of $10,000.
Each unit consists of a 2000 12% Convertible Senior Note in the principal amount
of $10,000 maturing December 31, 2003 and 2,000 shares of Restricted Common
Stock. Each 2000 12% Senior Note is convertible into Common Stock at $1.25 per
share anytime through its maturity date. Holders of the 1999 12% Senior Notes
had the right to exchange their 1999 Notes into 2000 Senior Notes. All payments
of interest on the 2000 Notes can be used by the holder, at the holder's option,
to purchase shares of Common Stock at $1.00 per share (subsequently reduced in
June 2001 to $.80 per share and in September 2001 to $.60 per share). During the
year ended June 30, 2001, the Company issued 121,541 shares of Common Stock in
lieu of cash payment for interest on the 2000 Senior Notes. In connection with
the 2000 Senior Notes issued during fiscal year 2001, the Company issued
1,136,300 shares of Common Stock. The fair value of the Common Stock on the date
such shares were granted of $1,215,843 and the embedded beneficial conversion in
the 2000 Senior Notes of $409,104 was recorded as a debt discount. During fiscal
year 1999, 545,000 shares of such rates were converted into 218,000 shares of
Common Stock.
The Company sold 568.15 units in the 2000 Senior Note Offering during fiscal
year 2001 of which 382.3 units ($3,823,000) of the 1999 Senior Notes were
exchanged for 2000 Senior Notes, 124.85 units were purchased with cash,
resulting in gross proceeds of $1,248,500 and 61 units were issued in exchange
for services provided by consultants in the amount of $610,000. The exchange of
the 1999 Senior Notes to the 2000 Senior Notes was determined to be a
substantial modification of the terms of the original debt instrument and,
accordingly, the Company wrote-off the unamortized debt discount and other
issuance costs associated with the exchange of the 1999 Senior Notes in the
amount of $863,000. Such amount has been reported as a non-cash extraordinary
item in the fiscal year 2001 statement of operations.
F-15
USA Technologies, Inc
Notes to Financial Statements (continued)
9. Senior Note Offerings (continued)
A summary of the 1999 Senior Note and the 2000 Senior Note activities are as
follows:
1999 Senior 2000 Senior
Notes Notes
--------------------------------------
Outstanding at June 30, 1999 $ 4,668,000 $ -
Cancelled (50,000) -
Converted into Common Stock (545,000) -
--------------------------------------
Outstanding at June 30, 2000 4,073,000 -
Issued for cash and services - 1,858,500
Exchange 1999 Senior Notes for 2000 Senior Notes (3,823,000) 3,823,000
Converted into Common Stock (10,000) (25,000)
--------------------------------------
Outstanding at June 30, 2001 240,000 5,656,500
Less: Unamortized debt discount and other issuance costs (28,296) (1,420,219)
--------------------------------------
Balance at June 30, 2001 $ 211,704 $ 4,236,281
======================================
The unamortized debt discount and other issuance costs represents fees paid in
connection with these financings, the estimated fair value of the detachable
equity instruments issued in connection with these financings, and any
beneficial conversion embedded in the debt at the commitment date, which are
being amortized over the remaining life of the respective debt instruments. Debt
discount amortization, which has been reflected as interest expense in the
statements of operations, was approximately $765,000 and $1,012,000 for the
years ended June 30, 2001 and 2000, respectively.
10. Series A Preferred Stock
The authorized Preferred Stock may be issued from time to time in one or more
series, each series with such rights, preferences or restrictions as determined
by the Board of Directors. Each share of Series A Preferred Stock shall have the
right to one vote and is convertible at any time into one share of Common Stock.
Each share of Common Stock entitles the holder to one voting right. Series A
Preferred Stock provides for an annual cumulative dividend of $1.50 per share
payable to the shareholders of record in equal parts on February 1 and August 1
of each year. Cumulative unpaid dividends at June 30, 2001 and 2000 amounted to
$4,621,150 and $3,871,639, respectively. Cumulative unpaid
F-16
USA Technologies, Inc
Notes to Financial Statements (continued)
10. Series A Preferred Stock (continued)
dividends are convertible into common shares at $10.00 per common share at the
option of the shareholder. During the years ended June 30, 2001 and 2000,
certain holders of the Preferred Stock converted 11,160 and 74,133 shares,
respectively, into 11,160 and 74,133 shares of Common Stock, respectively.
Certain of these shareholders also converted cumulative preferred dividends of
$87,030 and $386,880, respectively, into 8,703 and 38,688 shares of Common Stock
during the years ended June 30, 2001 and 2000, respectively. The Series A
Preferred Stock may be called for redemption at the option of the Board of
Directors at any time on and after January 1, 1998 for a price of $11.00 per
share plus payment of all accrued and unpaid dividends. No such redemption has
occurred as of June 30, 2001. In the event of any liquidation, the holders of
shares of Series A Preferred Stock issued shall be entitled to receive $10.00
for each outstanding share plus all cumulative unpaid dividends. If funds are
insufficient for this distribution, the assets available will be distributed
ratably among the preferred shareholders.
11. Common Stock Transactions
During the year ended June 30, 2001, the Company's Board of Directors authorized
the following private placement offerings of the Company's Common Stock to
accredited investors:
o 2000-B offering for the issuance of 895,000 shares of Common Stock at
$1.00 per share generating net proceeds of $777,151 after deducting
related offering costs;
o 2001-A offering for the issuance of 450,000 shares of Common Stock at
$1.00 per share generating net proceeds of $427,500 after deducting
related offering costs;
o 2001-B offering for the issuance of 8,400,000 shares of Common Stock at
$.60 per share. Through June 30, 2001, the Company issued 2,669,400
shares of Common Stock generating net proceeds of $1,546,885 after
deducting related offering costs. Additionally, each dollar invested
entitled the purchaser to receive one Common Stock warrant at $.50 per
share expiring in December 2001 and one Common Stock warrant at $.50 per
share expiring in June 2002.
F-17
USA Technologies, Inc
Notes to Financial Statements (continued)
11. Common Stock Transactions (continued)
During April 2001, the Company granted 6,000,000 fully vested options to a
distributor in connection with the signing of a five-year distribution
agreement. The options were granted in two 3,000,000 increments. Options in the
first 3,000,000 increment had an exercise price of $1.00 and expired 90 days
after the parties entered into the distribution agreement. The second 3,000,000
had an exercise price of $1.25 and expired 180 days after the parties entered
into the distribution agreement. The estimated fair value of these options was
$420,000. The related pro rata charge will be recorded as a reduction of
revenues or as selling, general, and administrative expense, to the extent
revenues have not been earned, over the term of the distribution agreement.
During April 2001, the Company's Board of Directors authorized the granting of a
fully vested warrant to purchase 75,000 shares of Common Stock to a consultant.
The warrants are exercisable for a period of five years from the date of grant
at $1.25 per share. The warrants were issued in exchange for services and
resulted in consulting expense of $52,500, which was recorded during fiscal year
2001.
During March 2001, the Company issued a warrant to purchase 1,000,000 shares of
Common Stock in connection with an OEM agreement between the Company and a
distributor. The warrants initially had an exercise price of $1.50 per share and
were exercisable through June 30, 2001. This warrant was subsequently amended
and the current exercise price is $1.00 and the warrant expires on October 31,
2001 (as amended).
During February 2001, the Company's Board of Directors authorized the issuance
of 200,000 shares of Common Stock to a consultant for services previously
provided by the consultant to the Company. A charge of $200,000 was recorded
during fiscal year 2001 based on the fair value of the Company's Common Stock on
the date the shares were granted.
During the year ended June 30, 2001, the Company issued 418,250 shares of Common
Stock to certain employees and officers. The shares were fully vested on the
date of grant; accordingly, the Company recorded compensation expense of
$474,995 during fiscal year 2001 based on the fair value of the Company's Common
Stock on the date the shares were granted.
F-18
USA Technologies, Inc
Notes to Financial Statements (continued)
11. Common Stock Transactions (continued)
During September 2000, the Company entered into an Investment Agreement with
Swartz Private Equity, LLC for an equity line up to $20 million over a period
not to exceed three years. Investments are determined monthly based on the
current market prices of the Company's Common Stock in accordance with the terms
of the Agreement. The purchase price per share for Swartz would equal 91% of the
market price of the Common Stock at the time of purchase, and additional
warrants at the same price would be granted in an amount equal to 10% of the
number of shares actually purchased. Swartz received 1,200,000 Commitment
Warrants with 10 year terms at an initial exercise price of $1.00, adjusted to
lower market pricing if applicable, and will be granted additional Commitment
Warrants at the same price and term, if required, to keep the number of
Commitment Warrants equal to 5% (decreasing over a five year period to 0%) of
the outstanding Common Stock of the Company on a fully diluted basis. An
additional 380,828 warrants were granted during fiscal 2001 in connection with
this antidilution provision. During the year ended June 30, 2001, Swartz
purchased 29,010 shares of Common Stock pursuant to the Investment Agreement.
There were no net proceeds to the Company from the sale of these shares after
deducting the related cash offering expenses previously incurred.
During February 2000, the Company's Board of Directors awarded 120,000 shares of
the Company's Common Stock, at $2.00 per share, to certain executive officers.
Pursuant to their employment agreements, these officers will be issued the
Common Stock if employed by the Company on June 30, 2002. During fiscal year
2000, the Company recorded deferred compensation of $240,000 in connection with
these awards. Compensation expense of $103,000 and $34,000 has been recorded to
reflect the amortization of the shares earned during the years ended June 30,
2001 and 2000, respectively.
During January 2000, the Company's Board of Directors authorized a $2,000,000
private placement offering of 1,000,000 shares of restricted Common Stock at
$2.00 per share (the "2000-A" offering). This offering was later amended to
1,300,000 shares. During fiscal year 2000, 1,200,000 shares were sold,
generating net proceeds to the Company of $2,177,353.
During October 1999, the Company's Board of Directors authorized a private
placement offering (the "1999-B" offering) to accredited investors of 150 units
(later increased to 356 units by the Board of Directors) at a unit price of
$10,000. Each unit of the $3,560,000 Offering consists of 10,000 shares of
restricted Common Stock at $1.00 per
F-19
USA Technologies, Inc
Notes to Financial Statements (continued)
11. Common Stock Transactions (continued)
share, and 10,000 1999-B Common Stock purchase warrants. During fiscal year 2000
all 356 units were sold, resulting in net proceeds of $3,463,942 ($3,560,000
less offering costs of $96,058) to the Company. Each 1999-B Common Stock
purchase warrant entitled the holder to purchase one share of restricted Common
Stock for $2.00 at any time through March 31, 2000. The 1999-B Common Stock
purchase warrants were modified several times between January 2000 and August
2000 reducing their exercise price to $1.00 per share and extending the
expiration date of the warrants to December 31, 2000. Additionally, those 1999-B
Common Stock purchase warrant holders who exercised their purchase warrants on
or before December 31, 2000 were granted a further extension of the warrants'
expiration date to March 31, 2001. As a result of these reductions in the
exercise price, the Company's Board of Directors authorized the refunding of the
$1 reduction per warrant to those investors who exercised their warrants prior
to the exercise price reduction.
During July 1999, the Board of Directors granted fully vested warrants to
purchase 250,000 shares of the Company's Common Stock to two consultants. These
warrants were issued in exchange for financial and public relations consulting
services and resulted in consulting expense of $99,000. The warrants are
exercisable for two years from date of issuance. The exercise prices were
modified by the Company on various dates since their issuance. During fiscal
year 2000, the Company issued 134,000 shares of Common Stock upon the exercise
of these warrants, resulting in gross proceeds of $285,000. The exercise price
of the remaining 116,000 warrants is $1.00 per share.
A summary of Common Stock Warrant activity for fiscal years 2001 and 2000 is as
follows:
Warrants
-------------------
Outstanding at June 30, 1999 1,212,200
Issued 3,807,400
Exercised (1,308,350)
-------------------
Outstanding at June 30, 2000 3,711,250
Issued 8,889,628
Exercised (2,112,100)
Cancelled (2,255,750)
-------------------
Outstanding at June 30, 2001 8,233,028
===================
F-20
USA Technologies, Inc
Notes to Financial Statements (continued)
11. Common Stock Transactions (continued)
The exercise price and exercise dates of outstanding and exercisable warrants
outstanding at June 30, 2001 is as follows:
Outstanding and
Exercisable Exercise Price Expiration Date
----------------------------------------------------------------------------
2,669,400 $ 0.50 December 31, 2001
2,669,400 0.50 June 30, 2002
1,200,000 0.91 August 29, 2010
1,000,000 1.00 August 30, 2001
377,927 1.00 April 24, 2011
125,400 1.00 August 3, 2001
2,901 1.03 April 30, 2011
75,000 1.25 June 30, 2006
100,000 2.00 June 30, 2002
4,000 3.00 February 28, 2002
1,500 4.00 July 2, 2002
2,500 4.00 March 5, 2003
5,000 4.00 August 17, 2003
----------------------------
8,233,028
============================
During the years ended June 30, 2001 and 2000, the Company's Board of Directors
made numerous amendments to the outstanding Common Stock warrants whereby the
Company reduced the exercise price and extend the expiration terms. The above
table reflects the status of the warrants as of June 30, 2001.
At June 30, 2000, the Company had outstanding 11,740 Common Stock purchase
rights. These Common Stock purchase rights, issued in 1993 and expired in fiscal
2001, allowed the holder to purchase shares of the Company's Common Stock at
$10.00 per share.
12. Stock Options
The Company's Board of Directors has granted options to employees to purchase
shares of Common Stock at or above fair market value. The option term and
vesting schedule are established by the contract that granted the option.
F-21
USA Technologies, Inc
Notes to Financial Statements (continued)
12. Stock Options (continued)
The following table summarizes all stock option activity:
Common Shares
Under Options Exercise Price Per
Granted Share
------------------------------------------
Balance at June 30, 1999 917,100 $ .50-$5.00
Granted 120,000 $ 2.00
Canceled or Expired (35,833) $ 1.50-$4.50
Exercised (16,500) $ 1.50-$2.50
------------------------------------------
Balance at June 30, 2000 984,767 $ .50-$5.00
Granted 6,935,000 $ 1.00-$1.50
Canceled or expired (3,033,100) $ 1.00-$2.50
------------------------------------------
Balance at June 30, 2001 4,886,667 $ .50-$5.00
==========================================
As discussed in Note 11, 3,000,000 of the outstanding options at June 30, 2001
expired unexercised subsequent to year end.
The price range of the outstanding and exercisable Common Stock options at June
30, 2001 is as follows:
Weighted
Average
Remaining
Option Options Contract Life Options
Exercise Prices Outstanding (Yrs.) Exercisable
--------------------------------------------------------------------------------
$ 0.50 5,000 1.80 5,000
$ 1.00 735,000 5.54 285,000
$ 1.25 3,000,000 .18 3,000,000
$ 1.50 310,000 1.96 310,000
$ 2.00 656,167 3.45 656,167
$ 2.50 84,000 1.96 84,000
$ 4.50 81,500 1.35 81,500
$ 5.00 15,000 .56 15,000
---------------------- --------------------
4,886,667 4,436,667
====================== ====================
F-22
USA Technologies, Inc
Notes to Financial Statements (continued)
12. Stock Options (continued)
Pro forma information regarding net loss and net loss per common share
determined as if the Company is accounting for stock options granted under the
fair value method of SFAS 123 is as follows:
June 30
2001 2000
-----------------------------------------
Net loss applicable to common shares as reported $ (11,792,785) $ (9,334,559)
under APB 25
Stock option expense per SFAS 123 (524,845) (329,062)
-----------------------------------------
Pro forma net loss $ (12,317,630) $ (9,663,621)
=========================================
Loss per common share as reported $ (.70) $ (.92)
Pro forma net loss per common share $ (.74) $ (.95)
The fair value for the Company's stock options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for fiscal years 2001 and 2000; risk-free interest
rate of 5.5% and 6.0%, respectively, an expected life of 2 years; no expected
cash dividend payments on Common Stock and volatility factors of the expected
market price of the Company's Common Stock, based on historical volatility of
1.100 and 1.332, respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. As noted above, the Company's stock options are vested over an
extended period. In addition, option models require the input of highly
subjective assumptions including future stock price volatility. Because the
Company's stock options have characteristics significantly different from those
of traded options, and because changes in the subjective assumptions can
materially affect the fair value estimates, in management's opinion, the
Black-Scholes model does not necessarily provide a reliable measure of the fair
value of the Company's stock options. The Company's pro forma information
reflects the impact of the reduction in price of certain stock options. The pro
forma results above are not necessarily reflective of the effects of applying
SFAS 123 in future periods.
F-23
USA Technologies, Inc
Notes to Financial Statements (continued)
12. Stock Options (continued)
As of June 30, 2001, the Company has reserved shares of Common Stock for the
following:
Exercise of Common Stock options 4,886,667
Exercise of Common Stock warrants 8,233,028
Conversions of Preferred Stock and cumulative
Preferred Stock dividends 1,017,399
Conversions of Senior Notes 4,621,200
------------------
18,758,294
==================
13. Retirement Plan
The Company's Savings and Retirement Plan (the Plan) allows employees who have
attained the age of 21 and have completed six months of service to make
voluntary contributions up to a maximum of 15% of their annual compensation, as
defined in the Plan. Through June 30, 2000, the Plan did not provide for any
matching contribution by the Company, however, starting at the beginning of
fiscal year 2001, the Company has amended the Plan to include a Company matching
contribution of $.50 for each $1.00 contributed, up to 10% of an employees
contribution. The Company contribution for fiscal year ending June 30, 2001 was
approximately $51,000.
14. Subsequent Events
Through September 20, 2001, the Company completed the 2001-B Private Placement.
An additional $1,863,654 has been received in cash subsequent to June 30, 2001
related to this Private Placement.
Subsequent to June 30, 2001, the Company's Board of Directors initiated the
2001-C Private Placement for up to 2,000,000 shares to a limited number of
accredited investors consisting of restricted Common Stock at $.50 per share
with one associated warrant to purchase Common Stock at $.50 per share, expiring
in March 2002.
F-24
USA Technologies, Inc
Notes to Financial Statements (continued)
14. Subsequent Events (continued)
Subsequent to June 30, 2001, the Company executed a Securities Purchase
Agreement with a private placement investment company for the purchase of
$225,000 of Convertible Debentures due in August 2003. The debentures bear
interest at 9.75% and is payable monthly in arrears. The debenture is
convertible at a price equal to the lesser of $1.00 or 80% of the lowest closing
bid price of the Company's Common Stock during the 20 day period prior to the
conversion. At the time of conversion of the Debenture, the Company will issue
to the holder warrants to purchase an amount of Common Stock equal to ten times
the number of shares issued upon the conversion of the warrants. The warrants
are exercisable at the related conversion price of the debenture.
As of September 20, 2001, the Company received $100,000 of the $225,000
Convertible Debentures with the remainder to be received when the Company
completes the registration of the underlying conversion shares. The Company also
issued 500,000 Common Stock warrants to the purchaser for $50,000. These
warrants are exercisable at the same terms as the underlying debentures and
expire one year from the date a Registration Statement is declared effective.
Subsequent to June 30, 2001, the Company received $29,000 of cash related to the
subscription receivable recorded as an asset on the June 30, 2001 balance sheet.
15. Quarterly Financial Information (Unaudited)
The Company has restated its interim financial information for each of the
interim periods in the fiscal year ended June 30, 2001. The restated
financial statements reflect (i) the extraordinary loss on the exchange of
debt during the second quarter, which was the period in which the exchange
occurred, (ii) the cumulative effect of an accounting change during the
second quarter related to the calculation of the beneficial conversion of the
1999 Senior Notes, and (iii) the capitalization of interest on the Company's
sofware development project.
The following tables present unaudited quarterly information for the year ended
June 30, 2001 as reported and as restated:
As reported
-----------
Third Second First
Quarter Quarter Quarter
----------- ----------- -----------
Interest expense $ 370,314 $ 362,129 $ 363,258
=========== =========== ===========
Loss before cumulative effect of accounting
change and extraordinary item $(2,650,455) $(1,937,693) $(1,638,659)
Cumulative effect of accounting change - - -
Extraordinary loss on exchange of debt - - -
----------- ----------- -----------
Net loss $(2,650,455) $(1,937,693) $(1,638,659)
=========== =========== ===========
Net loss per common share (basic and diluted) $(0.18) $(0.12) $(0.14)
As Adjusted
-----------
Third Second First
Quarter Quarter Quarter
----------- ----------- -----------
Interest expense $ 244,996 $ 315,708 $ 340,009
=========== =========== ===========
Loss before cumulative effect of accounting
change and extraordinary item $(2,524,737) $(1,891,272) $(1,615,410)
Cumulative effect of accounting change - (821,000) -
Extraordinary loss on exchange of debt - (863,000) -
----------- ----------- -----------
Net loss $(2,524,737) $(3,575,272) $(1,615,410)
=========== =========== ===========
Net loss per common share (basic and diluted) $(0.17) $(0.23) $(0.14)
====== ====== ======
F-25
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 24. Indemnification of Officers and Directors.
Section 1746 of the Pennsylvania Business Corporation Law of 1988, as
amended ("BCL"), authorizes a Pennsylvania corporation to indemnify its
officers, directors, employees and agents under certain circumstances against
expenses and liabilities incurred in legal proceedings involving such persons
because of their holding or having held such positions with the corporation and
to purchase and maintain insurance of such indemnification. Our By-laws
substantively provide that we will indemnify our officers, directors, employees
and agents to the fullest extent provided by Section 1746 of the BCL.
Section 1713 of the BCL permits a Pennsylvania corporation, by so
providing in its By-laws, to eliminate the personal liability of a director for
monetary damages for any action taken unless the director has breached or failed
to perform the duties of his office and the breach or failure constitutes
self-dealing, willful misconduct or recklessness. In addition, no such
limitation of liability is available with respect to the responsibility or
liability of a director pursuant to any criminal statute or for the payment of
taxes pursuant to Federal, state or local law. Our By-laws eliminate the
personal liability of the directors to the fullest extent permitted by Section
1713 of the BCL.
Item 25. Other Expenses of Issuance and Distribution.
The following is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the registration of the
common stock, other than underwriting discounts and commissions.
Securities and Exchange Commission - Registration Fee . $ 5,924.34
Printing and Engraving Expenses . . . . . . . . . . . . $ 4,075.66
Accounting Fees and Expenses. . . . . . . . . . . . . . $15,000.00
Legal Fees and Expenses . . . . . . . . . . . . . . . . $15,000.00
----------
Total . . . . . . . . . . . . . . . . . . . . . $40,000.00
==========
Item 26. Recent Sales of Unregistered Securities.
During the three years immediately preceding the date of the filing of
this registration statement, the following securities were issued by USA without
registration under the Securities Act of 1933, as amended ("Act"):
II-1
I. Private Placements.
From September 1998 through June 23, 1999, we sold 461.8 units at
$10,000 each, for an aggregate of $4,618,000. Each unit consisted of a $10,000
principal amount 12% senior note, 2,000 1999-A common stock purchase warrants,
and 1,000 shares of series B equity participating preferred stock. The offering
was sold to 222 accredited investors, and did not involve any general
advertising or solicitation, and was therefore exempt from registration under
Rule 506 of Regulation D promulgated under the Act.
In June 1999, pursuant to the terms of the series B preferred stock,
each share of series B preferred stock was exchanged for 4 shares of common
stock, or an aggregate of 1,867,200 shares of common stock. Such exchange was
exempt from registration under the Act pursuant to Section 3(a)(9) of the Act.
The 1,867,200 shares of common stock are restricted securities as defined under
Rule 144 promulgated under the Act.
In June 1999, we issued 43,400 shares of common stock to Harmonic
Research, Inc., a broker-dealer, as part of its compensation in connection with
its assisting us to raise monies in a private placement offering. We also issued
to Harmonic Research, Inc. 9,400 1999-A common stock purchase warrants. The
shares and warrants are restricted securities as such term is defined in Rule
144 promulgated under the Act and were issued pursuant to Section 4(2) thereof.
In June 1999, we issued to Robert Flaherty 4,000 shares of common stock
in connection with public relations services rendered to us. Such shares were
exempt from registration under Section 4(2) promulgated under the Act.
In June 1999, we issued 10,000 shares of common stock to Rick Joshi in
consideration of consulting services performed on behalf of USA. The shares were
esxempt from registration pursuant to Section 4(2) promulgated under the Act.
In July 1999, we issued to I. W. Miller Group, Inc. fully vested
warrants to acquire up to 100,000 shares, 50,000 of which are exercisable at
$2.00 per share and 50,000 of which are exercisable at $3.00 per share. The
warrants are exercisable at any time for two years following issuance. The
warrants were issued to Miller pursuant to Rule 506 under the Act, and the
shares of common stock underlying the warrants will be issued pursuant to such
exemption.
In July 1999, we issued to Harmonic Research, Inc. fully vested
warrants to acquire up to 150,000 shares of common stock at $2.50 per share. The
warrants are exercisable at any time for two years following issuance. The
warrants were issued pursuant to Rule 506 under the Act, and the shares of
common stock underlying the warrants will be issued pursuant to such exemption.
II-2
In August 1999, we issued 3,000 shares of common stock to Robert
Flaherty in consideration of public relations services performed on behalf of
USA. The shares were exempt from registration under Rule 701 promulgated under
the Act.
During October, November and December, 1999, we sold 356 units at
$10,000 each, for an aggregate of $3,560,000. Each unit consisted of 10,000
shares of common stock and 10,000 1999-B common stock purchase warrants. The
offering was sold to 196 accredited investors, and did not involve any general
advertising or solicitation, and was therefore exempt from registration under
Rule 506 of Regulation D promulgated under the Act.
During February, March and April 2000, we sold an aggregate of
1,200,000 shares of common stock at $2.00 per share for a total of $2,400,000.
The offering was sold to 22 accredited investors, and did not involve any
general advertising or solicitation, and was therefore exempt from registration
under Rule 506 of Regulation D promulgated under the Act.
During September 2000 we received signed subscription agreements for
the sale of 11.5 units at $100,000 each, for an aggregate of $1,150,000. Each
unit consisted of 100,000 shares of common stock and 100,000 common stock
purchase warrants. The offering was sold to 12 accredited investors, and did not
involve any general advertising or solicitation, and was therefore exempt from
registration under Rule 506 of Regulation D promulgated under the Act.
On September 15, 2000, we signed an Investment Agreement with Swartz
Private Equity, LLC, a private equity fund, pursuant to which Swartz agreed to
purchase up to $20,000,000 of common stock. The purchases would be made at our
option over a three year period in amounts and at prices based upon market
conditions. The purchase by Swartz is subject to an effective registration
statement.
During early 2001, we sold 568.15 units or a total of $5,681,500
principal amount of 12% Convertible Senior Notes and 1,136,300 shares of common
stock. Of this amount, $3,823,000 of the senior notes were purchased through the
exchange of $3,823,000 of the old senior notes. Each unit consisted of a $10,000
principal amount Senior Note and 2,000 shares of common stock. Each 12%
Convertible Senior Note is convertible into Common Stock at $1.25 per share
anytime through its maturity date of December 31, 2003. Holders of the existing
12% Senior Notes due in December 2001 had the right in invest in the offering by
exchanging their existing Notes instead of paying cash. For each $10,000 face
amount existing Senior Note exchanged, the holder would receive one unit. The
offering was sold to accredited investors and did not involve any general
advertising or solicitation, and was therefore exempt from registration under
Rule 506 of Regulation D promulgated under the Act.
On April 20, 2001 the Company sold 450,000 shares of its Common Stock
to 9 accredited investors for $1.00 per share for an aggregate of $450,000. The
offering was sold to accredited investors and did not involve any general
advertising or solicitation, and was therefore exempt from registration under
Rule 506 of Regulation D promulgated under the Act.
In April 2001, the Company issued shares of common stock to our
executives as follows: George R. Jensen, Jr.- 125,000 shares; Stephen P. Herbert
- 120,000 shares; H. Brock Kolls, Jr.- 87,000 shares; Leland P. Maxwell - 39,500
shares; and Michael Lawlor - 34,500 shares. The Company issued the shares
pursuant to the exemption from registration set forth in Section 4(2) of the
Act.
During July 2001, the Company issued to La Jolla Cove Investors, Inc. a
warrant to purchase up to 500,000 shares of Common Stock. The warrant can be
exercised at any time in whole or in part within one year following the
effectiveness of the registration statement covering the resale of the shares
issuable upon exercise of the warrant. The exercise price of the warrant is the
lower of $1.00 or 80% of the lowest closing bid price of the Common Stock during
the 20 trading days prior to exercise. The Company has agreed to prepare and
file at its cost and expense a registration statement covering the resale of La
Jolla of the shares underlying the warrant. At the time of the issuance of the
warrant, La Jolla paid to the Company a non-refundable fee of $50,000 to be
credited towards the exercise price under the warrant. A broker-dealer received
a commission of $3,500 in connection with this warrant. The offering of the
warrant and the underlying shares was exempt from registration pursuant to
Section 4(2) of the Act.
During August 2001, the Company issued to La Jolla a $225,000
Convertible Debenture bearing 9 3/4 percent interest with a maturity date of
August 2, 2003. Interest is payable by the Company monthly in arrears. The
Debenture is convertible at any time after the earlier of the effectiveness of
the registration statement referred to below or 90 days following issuance at
the lower of $1.00 per share or 80% of the lowest closing bid price of the
Common Stock during the 20 days preceding exercise. If on the date of conversion
the closing bid price of the shares is $.40 or below, the Company shall have the
right to prepay the portion being converted at 150% of the principal amount
being converted. In such event, La Jolla shall have the right to withdraw its
conversion notice. At the time of conversion of the Debenture, the Company has
agreed to issue to La Jolla warrants to purchase an amount of Common Stock equal
to ten times the number of shares actually issued upon conversion of the
Debenture. The warrants are exercisable at any time for two years following
issuance and at the related conversion price of the Debenture. The Company has
agreed to prepare and file at its expense a registration statement covering the
resale of the shares of Common Stock underlying the Debenture as well as the
related warrants issuable upon conversion of the Debenture. La Jolla paid to the
Company the sum of $100,000 at the time of the issuance of the Debenture and has
agreed to pay $125,000 at the time of the effective date of the registration
statement. The convertible debenture was issued pursuant to the exemption from
registration set forth in Section 4(2) of the Act.
During the period from March 2001 through September 2001, we sold a
total of 739.54 units in a private placement offering at a price of $6,000 per
unit. Each unit consisted of 10,000 shares of common stock and 20,000 2001-B
common stock purchase warrants. The offering was sold to 193 accredited
investors, and did not involve any general advertising or solicitation, and was
therefore exempt from registration under Rule 506 of Regulation D promulgated
under the Act.
During the period from September 2001 through October 19, 2001, we sold
an aggregate of 4,212,350 shares of common stock at $.50 per share for a total
of $2,106,175. For each share of common stock purchased, each investor also
received a 2001-C warrant. The offering was sold to 102 accredited investors,
and did not involve any general advertising or solicitation, and was therefore
exempt from registration under Rule 506 of Regulation D promulgated under the
Act. Of the shares sold, 637,500 were issued in exchange for services rendered
and 3,574,850 for cash ($1,787,425). As of the date of this Prospectus, we have
received cash of $497,344 and have subscription agreements for $2,066,175.
During October 2001, the Company issued 200,000 shares to Ratner &
Prestia, P.C., an accredited investor. The offering did not involve any general
advertising or solicitation, and was therefore exempt from registration under
Section 4(2) of the Act. The proceeds from the sales of the shares will be
applied by Ratner & Prestia towards the unpaid professional fees due to them by
the Company.
II-3
II. Stock Options
In June 1999, we issued options to purchase an aggregate of 470,000
shares of common stock at $2.00 per share to our executive officers, as follows:
George R. Jensen, Jr. - 180,000 options; Stephen P. Herbert - 110,000 options;
Haven Brock Kolls - 100,000 options; Leland Maxwell - 40,000 options; Michael
Lawlor - 20,000 options; and Joseph Donahue - 20,000 options.
In June and July 1999, we issued options to purchase an aggregate of
70,000 shares of common stock at $2.00 per share to our outside directors, as
follows; Steven Katz - 10,000 options; Edwin R. Boynton - 10,000 options; Peter
Kapourelos - 10,000 options; William Sellers - 10,000 options; Henry Smith -
10,000 options; William Van Alen, Jr. - 10,000 options; and Douglas M. Lurio -
10,000 options.
In June 1999, we issued options to purchase an aggregate of 12,000
shares of common stock at $2.00 per share to six employees as follows: Margaret
Broadwell - 5,000 options; Cecil Ledesma - 2,000 options; Amy Thigpen - 2,000
options; Vivian Stroud - 1,000 options; Jim Tierney - 1,000 options; and Dave
DeMedio - 1,000 options.
In August 1999, we issued to Michael Lawlor options to purchase an
aggregate of 20,000 shares of common stock at $2.00 per share.
In November 1999, we issued fully vested options to purchase an
aggregate of 90,000 shares of common stock to our executive officers as follows:
Stephen P. Herbert - 45,000 options; Haven Brock Kolls - 30,000 options; and
Leland Maxwell - 15,000 options. Each option is exercisable at $2.00 per share.
In September 2000, we issued to Swartz Private Equity, LLC, a warrant
to purchase up to 1,200,000 shares at a purchase price of $1.00 per share. The
number of shares subject to the option and the exercise price are subject to
adjustment.
In October 2000, we issued to George R. Jensen, Jr., options to
purchase up to 200,000 shares of our common stock at $1.50 per share. In
February 2001, we extended the expiration date of those options until June 30,
2003.
During March 2001, the Company granted to Automated Merchandising
Systems, Inc. options to purchase up to 1,000,000 shares at $1.00 per share at
any time through June 30, 2001. The expiration date of these options was
extended until September 30, 2001. These options have expired.
During March 2001, the Company granted to each of the six Directors who
were not executive officers options to purchase up to 50,000 shares of Common
Stock for $1.00 at any time within five years of vesting.
During March 2001, the Company granted to employees of the Company who
were not executive officers fully vested options to purchase up to 85,000 shares
of Common Stock for $1.00 at any time within five years of vesting.
During April 2001, the Company issued options to the following
executives: George R. Jenson, Jr. - 100,000 options; Stephen P. Herbert - 80,000
options; H. Brock Kolls, Jr. - 80,000 options; Leland P. Maxwell - 50,000
options; and Michael Lawlor - 50,000 opions. The options are exercisable at any
time within five years following vesting at $1.00 per share.
During April 2001, the Company issued to Marconi Online Systems, Inc.
an option to purchase up to 6,000,000 shares, of which 3,000,000 are exercisable
at $1.00 per share through June 5, 2001, and 3,000,000 are exercisable at $1.25
through September 5, 2001. None of these options were exercised.
During April 2001, the Company issued to Swartz Private Equity, LLC, a
warrant to purchase up to 377,927 shares of common stock at $1.00 per share. The
exercise price is subject to semi-annual reset provisions.
In August 2001, we issued to Larry Gershman, a marketing and financial
consultant, fully vested warrants to purchase an aggregate of 150,000 shares of
our common stock at $.70 per share exercisable at any time through August 2,
2003.
In September 2001, we issued fully vested options to the following
employees or consultants: Adele Hepburn - 200,000 options; Frances Young -
100,000 options; and George O'Connell - 100,000 options. The options are
exercisable at $.70 per share at any time through June 30, 2003.
The issuance of all of the foregoing options was made in reliance upon
the exemption provided by Section 4(2) of the Act as all of the options were
issued to officers, directors, employees or consultants of USA, each of such
issuances were separate transactions not part of any plan, and none of the
issuances involved any general solicitation or advertising.
III. Common Stock-For Cash.
In December 1999, warrants to purchase 100,000 shares of common stock
at $2.00 per share were exercised by the holder thereof.
In February 2000, warrants to purchase 34,000 shares of common stock at
$2.50 per share were exercised by the holder thereof.
In February 2000, options to purchase 10,000 shares of common stock at
$1.50 per share were exercised by the holder thereof.
In February 2000, options to purchase 6,500 shares of common stock at
$2.50 per share were exercised by the holders thereof.
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All of the foregoing issuances were made in reliance upon the exemption
provided by Section 4(2) of the Act as all of the issuances were to existing
securityholders of USA, the securities issued contained restrictive legends, and
the issuance did not involve any general solicitation or advertising.
Item 27. Exhibits.
Exhibit
Number Description
-------------------------------------------------------
3.1 Articles of Incorporation of USA filed on January 16,
1992 (Incorporated by reference to Exhibit 3.1 to Form
SB-2 Registration Statement No. 33-70992).
3.1.1 First Amendment to Articles of Incorporation of USA filed
on July 17, 1992 (Incorporated by reference to Exhibit
3.1.1 to Form SB-2 Registration Statement No. 33-70992).
3.1.2 Second Amendment to Articles of Incorporation of USA
filed on July 27, 1992 (Incorporated by reference to
Exhibit 3.1.2 to Form SB-2 Registration Statement No.
33-70992).
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3.1.3 Third Amendment to Articles of Incorporation of USA filed
on October 5, 1992 (Incorporated by reference to Exhibit
3.1.3 to Form SB-2 Registration Statement No. 33-70992).
3.1.4 Fourth Amendment to Articles of Incorporation of USA
filed on October 18, 1993 (Incorporated by reference to
Exhibit 3.1.4 to Form SB-2 Registration Statement No.
33-70992).
3.1.5 Fifth Amendment to Articles of Incorporation of USA filed
on June 7, 1995(Incorporated by Reference to Exhibit 3.1
to Form SB-2 Registration Statement No. 33-98808).
3.1.6 Sixth Amendment to Articles of Incorporation of USA filed
on May 1, 1996 (Incorporated by Reference to Exhibit
3.1.6 to Form SB-2 Registration Statement No. 333-09465).
3.1.7 Seventh Amendment to Articles of Incorporation of USA
filed on March 24, 1997 (Incorporated by reference to
Exhibit 3.1.7 to Form SB-2 Registration Statement No.
333-30853).
3.1.8 Eighth Amendment to Articles of Incorporation of USA
filed on July 5, 1998 (Incorporated by reference to
Exhibit 3.1.8 to Form 10-KSB for the fiscal year ended
June 30, 1998).
3.1.9 Ninth Amendment to Articles of Incorporation of USA filed
on October 1, 1998 (Incorporated by reference to Exhibit
3.1.9 to Form SB-2 Registration Statement No. 333-81591).
3.1.10 Tenth Amendment to Articles of Incorporation of USA filed
on April 12, 1999 (Incorporated by reference to Exhibit
3.1.10 to Form SB-2 Registration Statement No.
333-81591).
3.1.11 Eleventh Amendment to Articles of Incorporation of USA
filed on June 7, 1999 (Incorporated by reference to
Exhibit 3.1.11 to Form SB-2 Registration Statement No.
333-81591).
3.2 By-Laws of USA (Incorporated by reference to Exhibit 3.2
to Form SB-2 Registration Statement No. 33-70992).
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4.1 Warrant Agreement dated as of June 21, 1995 between USA
and American Stock Transfer and Trust Company
(Incorporated by reference to Exhibit 4.1 to Form SB-2
Registration Statement N. 33-98808, filed October 31,
1995).
4.2 Form of Warrant Certificate (Incorporated by reference to
Exhibit 4.2 to Form SB-2 Registration Statement, No.
33-98808, filed October 31, 1995).
4.3 1996 Warrant Agreement dated as of May 1, 1996 between
USA and American Stock Transfer and Trust Company
(Incorporated by reference to Exhibit 4.3 to Form SB-2
Registration Statement No. 333-09465).
4.4 Form of 1996 Warrant Certificate (Incorporated by
reference to Exhibit 4.4 to Form SB-2 Registration
Statement No. 333-09465).
4.5 Form of 1997 Warrant (Incorporated by reference to
Exhibit 4.1 to Form SB-2 Registration Statement No.
333-38593, filed February 4, 1998).
4.6 Form of 12% Senior Note (Incorporated by reference to
Exhibit 4.6 to Form SB-2 Registration Statement No.
333-81591).
4.7 Warrant Certificate of I. W. Miller Group, Inc.
(Incorporated by reference to Exhibit 4.7 to Form SB-2
Registration Statement No. 84513).
4.8 Warrant Certificate of Harmonic Research, Inc.
(Incorporated by reference to Exhibit 4.8 to Form SB-2
Registration Statement No. 333-84513).
4.9 Registration Rights Agreement dated August 3, 2001 by and
between the Company and La Jolla Cove Investors, Inc.
(Incorporated by reference to Exhibit 4.9 to Form 10-KSB
filed on October 1, 2001).
4.10 Securities Purchase Agreement dated August 3, 2001
between the Company and La Jolla Cove Investors, Inc.
(Incorporated by reference to Exhibit 4.10 to Form 10-KSB
filed on October 1, 2001).
4.11 Form of Conversion Warrants to be issued by the Company
to La Jolla Cove Investors, Inc. (Incorporated by
reference to Exhibit 4.11 to Form 10-KSB filed on
October 1, 2001).
4.12 $225,000 principal amount 9 3/4% Convertible Debenture
dated August 3, 2001 issued by the Company to La Jolla
Cove Investors, Inc. (Incorporated by reference to
Exhibit 4.12 to Form 10-KSB filed on October 1, 2001).
4.13 Warrant certificate dated July 11, 2001 from the Company
to La Jolla Cove Investors, Inc. (Incorporated by
reference to Exhibit 4.13 to Form 10-KSB filed on
October 1, 2001).
4.14 August 2, 2001 letter from La Jolla Cove Investors, Inc.
to the Company (Incorporated by reference to Exhibit 4.14
to Form 10-KSB filed on October 1, 2001).
**4.15 Subscription Agreement dated October 26, 2001 by and
between the Company and Ratner & Prestia, P.C.
**5.1 Opinion of Lurio & Associates, P.C.
10.1 Employment and Non-Competition Agreement between USA and
Adele Hepburn dated as of January 1, 1993 (Incorporated
by reference to Exhibit 10.7 to Form SB-2 Registration
Statement No. 33-70992).
10.2 Adele Hepburn Common Stock Options dated as of July 1,
1993 (Incorporated by reference to Exhibit 10.12 to
Form SB-2 Registration Statement No. 33-70992).
10.3 Certificate of Appointment of American Stock Transfer &
Trust Company as Transfer Agent and Registrar dated
October 8, 1993 (Incorporated by reference to Exhibit
10.23 to Form SB-2 Registration Statement No. 33-70992).
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10.4 Employment and Non-Competition Agreement between USA and
H. Brock Kolls dated as of May 1, 1994 (Incorporated by
reference to Exhibit 10.32 to Form SB-2 Registration
Statement No. 33-70992).
10.4.1 First Amendment to Employment and Non-Competition
Agreement between USA and H. Brock Kolls dated as of May
1, 1994 (Incorporated by reference to Exhibit 10.13.1 to
Form SB-2 Registration Statement No. 333-09465).
10.4.2 Third Amendment to Employment and Non-Competition
Agreement between USA and H. Brock Kolls dated February
22, 2000 (Incorporated by reference to Exhibit 10.3 to
Form S-8 Registration Statement No. 333-341006).
10.5 H. Brock Kolls Common Stock Options dated as of May 1,
1994 (Incorporated by reference to Exhibit 10.42 to
Form SB-2 Registration Statement No. 33-70992).
10.5.1 H. Brock Kolls Common Stock Options dated as of March 20,
1996 (Incorporated by reference to Exhibit 10.19 to Form
SB-2 Registration Statement No. 33-70992)
10.6 Barry Slawter Common Stock Options dated as of August
25, 1994 (Incorporated by reference to Exhibit 10.43
to Form SB-2 Registration Statement No. 33-70992).
10.7 Employment and Non-Competition Agreement between USA and
Michael Lawlor dated June 7, 1996 (Incorporated by
reference to Exhibit 10.28 to Form SB-2 Registration
Statement No. 333-09465).
10.7.1 First Amendment to Employment and Non-Competition
Agreement between USA and Michael Lawlor dated February
22, 2000 (Incorporated by reference to Exhibit 10.5 to
Form S-8 Registration Statement No. 333-34106).
10.8 Michael Lawlor Common Stock Option Certificate dated as
of June 7, 1996 (Incorporated by reference to Exhibit
10.29 to Form SB-2 Registration Statement No.333-09465).
10.9 Employment and Non-Competition Agreement between USA and
Stephen P. Herbert dated April 4, 1996 (Incorporated by
reference to Exhibit 10.30 to Form SB-2 Registration
Statement No. 333-09465).
10.9.1 First Amendment to Employment and Non-Competition
Agreement between USA and Stephen P. Herbert dated
February 22, 2000 (Incorporated by reference to Exhibit
10.2 to Form S-8 Registration Statement No. 333-34106).
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10.10 Stephen P. Herbert Common Stock Option Certificate
dated April 4, 1996 (Incorporated by reference to
Exhibit 10.31 to Form SB-2 Registration Statement No.
333-09465).
10.11 RAM Group Common Stock Option Certificate dated as of
August 22, 1996 (Incorporated by reference to Exhibit
10.34 to Form SB-2 Registration No. 33-98808).
10.12 RAM Group Common Stock Option Certificate dated as of
November 1, 1996 (Incorporated by reference to Exhibit
10.35 to Form SB-2 Registration No. 33-98808).
10.13 Joseph Donahue Common Stock Option Certificate dated as
of September 2, 1996 (Incorporated by reference to
Exhibit 10.37 to Form SB-2 Registration No. 33-98808).
10.14 Employment and Non-Competition Agreement between USA and
Leland P. Maxwell dated February 24, 1997 (Incorporated
by reference to Exhibit 10.39 to Form SB-2 Registration
No. 33-98808)
10.14.1 Second Amendment to Employment and Non-Competition
Agreement between USA and Leland P. Maxwell dated
February 22, 2000 (Incorporated by reference to Exhibit
10.4 to Form S-8 Registration Statement No. 333-34106)
10.15 Leland P. Maxwell Common Stock Option Certificate dated
February 24, 1997 (Incorporated by reference to Exhibit
10.40 to Form SB-2 Registration No. 33-98808).
10.16 Letter between USA and GEM Advisers, Inc. signed May 15,
1997 (Incorporated by reference to Exhibit 10.1 to Form
8-K filed on May 22, 1997).
10.17 H. Brock Kolls Common Stock Option Certificate dated as
of June 9, 1997 (Incorporated by reference to Exhibit
10.43 to Form SB-2 Registration Statement 333-30853).
10.18 Stephen Herbert Common Stock Option Certificate dated as
of June 9, 1997 (Incorporated by reference to Exhibit
10.44 to Form SB-2 Registration Statement No. 333-30853).
10.19 Michael Feeney Common Stock Option Certificate dated as
of June 9, 1997 (Incorporated by reference to Exhibit
10.46 to Form SB-2 Registration Statement No. 333-30853).
10.20 Joint Venture Agreement dated September 24, 1997 between
USA and Mail Boxes Etc. (Incorporated by reference to
Exhibit 10.47 to Form 10-KSB filed on September 26,
1997).
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10.21 Employment and Non-competition Agreement between USA and
George R. Jensen, Jr. dated November 20, 1997
(Incorporated by reference to Exhibit 10.1 to Form 8-K
filed on November 26, 1997).
10.21.1 First Amendment to Employment and Non-Competition
Agreement between USA and George R. Jensen, Jr., dated as
of June 17, 1999.
10.21.2 Second Amendment to Employment and Non-Competition
Agreement between USA and George R. Jensen, Jr. dated
February 22, 2000 (Incorporated by reference to Exhibit
10.1 to Form S-8 Registration Statement No. 333-34106).
10.22 Agreement between USA and Promus Hotels, Inc. dated May
8, 1997 (incorporated by reference to Exhibit 10.49 to
Form SB-2 Registration Statement No. 333-38593, filed on
February 4, 1998).
10.23 Agreement between USA and Choice Hotels International,
Inc. dated April 24, 1997 (Incorporated by reference to
Exhibit 10.50 to Form SB-2 Registration Statement No.
333-38593, filed on February 4, 1998).
10.24 Agreement between USA and PNC Merchant Services dated
July 18, 1997 (Incorporated by reference to Exhibit 10.51
to Form SB-2 Registration Statement No. 333-38593, filed
on February 4, 1998).
10.25 Separation Agreement between USA and Keith L. Sterling
dated April 8, 1998 (Incorporated by reference to Exhibit
to Exhibit 10.1 to Form 10-QSB filed May 12, 1998).
10.26 Phillip A. Harvey Common Stock Option Certificate dated
as of April 22, 1999 (Incorporated by reference to
Exhibit 10.35 to Form SB-2 Registration Statement No.
333-81591).
10.27 Consulting Agreement between Ronald Trahan and USA dated
November 16, 1998 (incorporated by Reference to Exhibit
28 to Registration Statement No. 333-67503 on Form S-8
filed on November 18, 1998).
10.28 Consulting Agreement between Mason Sexton and USA dated
March 10, 1999 (incorporated by reference to Exhibit 28
to Registration Statement No. 333-74807 on Form S-8 filed
on March 22, 1999).
II-10
10.29 Financial Public Relations Agreement between USA and I.
W. Miller Group, Inc. dated August 1, 1999 (Incorporated
by reference to Exhibit 10.38 to Form SB-2 Registration
Statement No. 333-84513).
10.30 Consulting Agreement between Harmonic Research, Inc. and
USA dated August 3, 1999 (Incorporated by reference to
Exhibit 10.39 to Form SB-2 Registration Statement No.
333-84513).
10.31 Investment Agreement between USA and Swartz Private
Equity, LLC dated September 15, 2000 (incorporated by
reference to Exhibit 10.1 to Form 8-K dated September 21,
2000).
10.32 Commitment Warrant issued to Swartz Private Equity LLC
dated August 23, 2000 (incorporated by reference to
Exhibit 10.2 to Form 8-K dated September 21, 2000).
10.33 Warrant Anti-Dilution Agreement between USA and Swartz
Private Equity, LLC dated September 15, 2000
(incorporated by reference to Exhibit 10.3 to Form 8-K
dated September 21, 2000).
10.34 Registration Rights Agreement between USA and Swartz
Private Equity dated September 15, 2000 (incorporated by
reference to Exhibit 10.4 to Form 8-K dated September 21,
2000).
10.35 Agreement for Wholesale Financing and Addendum for
Scheduled Payment Plan with IBM Credit Corporation dated
May 6, 1999 (incorporated by reference to Exhibit 10.40
to Form 10-KSB for the fiscal year ended June 30, 1999).
10.36 Agreement dated August 29, 2001 between the Company and
United Taxi Alliance (Incorporated by reference to
Exhibit 10.1 to Form 8-K filed September 25, 2001).
**23.1 Consent of Ernst & Young LLP.
**24.1 Power of Attorney
--------------------------------------------------------------------------------
** -- Filed herewith.
Item 28. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
II-11
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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For purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 that is incorporated by reference
in this registration statement shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing this Form SB-2 and has duly caused this
registration statement on Form SB-2 to be signed on its behalf by the
undersigned, thereunto duly authorized, in Wayne, Pennsylvania, on October 26,
2001.
USA TECHNOLOGIES, INC.
By: /s/ George R. Jensen, Jr.
------------------------------------
George R. Jensen, Jr.,
Chairman and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints George R. Jensen, Jr. and Leland P.
Maxwell, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the SEC, granting unto such attorneys-in-fact and agents, full
power and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them or their or his
substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been duly signed below by the following persons
in the capacities and dates indicated.
II-13
Signatures Title Date
---------- ----- ----
/s/ George R. Jensen, Jr. Chairman of the Board, October 26, 2001
---------------------------- and Chief Executive
George R. Jensen, Jr. Officer (Principal
and Chief Executive
Officer) Director
/s/ Leland P. Maxwell Vice President, Chief October 26, 2001
---------------------------- Financial Officer
Leland P. Maxwell Treasurer (Principal
Accounting Officer)
/s/ Stephen P. Herbert President, Chief October 26, 2001
---------------------------- Operating Officer,
Stephen P. Herbert Director
/s/ William W. Sellers Director October 26, 2001
---------------------------
William W. Sellers
Director October __, 2001
----------------------------
Henry B. duPont Smith
/s/ William L. Van Alen, Jr. Director October 26, 2001
----------------------------
William L. Van Alen, Jr.
Director October __, 2001
----------------------------
Steven Katz
/s/ Douglas M. Lurio Director October 26, 2001
----------------------------
Douglas M. Lurio
Director October __, 2001
----------------------------
Edwin R. Boynton
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EXHIBIT INDEX
Exhibit
Number Description
------- -----------
4.15 Subscription Agreement dated October 26, 2001 by and between
the Company and Ratner & Prestia, P.C.
5.1 Opinion of Lurio & Associates
23.1 Consent of Independent Auditors
24.1 Power of Attorney (appears as part of signature page)
----------------
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