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| USAT > SEC Filings for USAT > Form 10-Q on 9-Feb-2009 | All Recent SEC Filings |
9-Feb-2009
Quarterly Report
This Form 10-Q contains certain forward looking statements regarding, among other things, the anticipated financial and operating results of the Company. For this purpose, forward looking statements are any statements contained herein that are not statements of historical fact and include, but are not limited to, those preceded by or that include the words, "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 the Company's actual results to differ materially from those projected, include, for example (i) the ability of the Company to generate sufficient sales to generate operating profits, or to sell products at a profit, (ii) the ability of the Company to raise funds in the future through sales of securities, (iii) whether the Company is able to enter into binding agreements with third parties to assist in product or network development, (iv) the ability of the Company to commercialize its developmental products, or if actually commercialized, to obtain commercial acceptance thereof, (v) the ability of the Company to compete with its competitors to obtain market share, (vi) the ability of the Company to obtain sufficient funds through operations or otherwise to repay its debt obligations or to fund development and marketing of its products, (vii) the ability of the Company to obtain approval of its pending patent applications or the risk that its technologies would infringe patents owned by others, (viii) the ability of the Company to satisfy its trade obligations included in accounts payable and accrued liabilities, (ix) the ability of the Company to predict or estimate its future quarterly or annual revenues given the developing and unpredictable market for its products and the lack of established revenues, (x) the ability of the Company to retain key customers as a significant portion of its revenues is derived from a limited number of key customers, (xi) the ability of a key customer to reduce or delay purchasing products from the Company, and (xii) as a result of the slowdown in the economy and/or the tightening of the capital and credit markets, our customers may modify, delay or cancel plans to purchase our products or services, and suppliers may increase their prices, reduce their output or change their terms of sale. Although the Company believes that the forward looking statements contained herein are reasonable, it can give no assurance that the Company's expectations will be met.
Results of Operations
Three months ended December 31, 2008
Revenues for the three months ended December 31, 2008 were $2,670,229 compared to $3,459,403 for the corresponding three-month period in the previous fiscal year. This $789,174 or 23% decrease was due to a decrease in equipment sales of $1,386,367, offset by an increase in license and transaction fees of $597,193. The decrease in equipment sales was due to a decrease in sales of approximately $1,186,000 in e-Port vending equipment and approximately $383,000 in energy conservation equipment, offset by an increase in other equipment sales of approximately $183,000. The decrease in e-Port vending equipment sales was primarily related to a decrease in capital spending by some of our customers due to the current economic slowdown, as well as key customers awaiting release of the e-Port G8 and e-Port Edge™ products, anticipated to occur during the third quarter of fiscal 2009. The increase in license and transaction fees was due to the increase in the number of e-Port units on our USALive® network, primarily as a result of the recurring revenues being generated by the e-Port units connected to our network.
In regards to license fees, as of December 31, 2008, the Company had approximately 43,000 devices connected to our USALive® network as compared to approximately 25,000 devices as of December 31, 2007.
In regards to transaction fees, during the quarter ended December 31, 2008, the Company processed approximately 5.1 million transactions totaling over $10.6 million as compared to approximately 2.4 million transactions totaling over $7.7 million during the quarter ended December 31, 2007, an increase of 113% in transaction volume and 38% in dollars processed.
Cost of sales for the period consisted of equipment costs of $896,742 and network and transaction services related costs of $1,108,358. The decrease in total cost of sales of $411,393 or 17% over the same period in the prior year was due to a decrease in equipment costs of $859,258, offset by an increase in network and transaction services related costs of $447,865.
Gross profit for the three months ended December 31, 2008 was $665,129, compared to a gross profit of $1,042,910 for the corresponding three-month period in the previous fiscal year. This $377,781 or 36% decrease is primarily due to a decrease in sales of both energy conservation equipment as well as e-Port vending equipment, offset by an increase in the gross profit from license and transaction fees. The decrease in equipment sales is primarily due to a decrease in capital spending by some of our customers due to the current economic slowdown.
Selling, general and administrative expense of $3,776,302 decreased by $666,344 or 15% primarily due to a decrease in compensation expense of approximately $769,000, a decrease in employee recruitment and relocation expenses of approximately $215,000, and a decrease in bad debt expense of approximately $143,000, offset by an increase in professional and consulting services of approximately $370,000 and an increase in product development costs of approximately $140,000. The overall decrease was due to focused cost reduction measures taken by the Company during the third and fourth quarters of fiscal year 2008. The increase in product development costs and consulting services is directly attributable to the costs incurred in connection with the development of our new e-Port G-8 and e-Port Edge products which are anticipated to be released during the third quarter of this fiscal year.
Compensation expense decreased by approximately $769,000 primarily due to a decrease of approximately $221,000 in non-cash charges related to the Long-Term Equity Incentive Program for fiscal year 2008 as compared to the program for 2007, specifically due to a decrease in the market value of the Company's stock, as well as a $515,000 decrease in salary expense.
Depreciation and amortization expense of $388,252 decreased by $118,796 or 23% primarily due to completion of amortization of a non-compete agreement during the quarter ended September 30, 2008.
The quarter ended December 31, 2008 resulted in a net loss of $3,429,033 (approximately $0.3 million of non-cash charges) compared to a net loss of $3,639,666 (approximately $0.4 million of non-cash charges) for the quarter ended December 31, 2007.
Six months ended December 31, 2008
Revenues for the six months ended December 31, 2008 were $6,065,108 compared to $6,815,059 for the corresponding six-month period in the previous fiscal year. This $749,951 or 11% decrease was primarily due to a decrease in equipment sales of $1,997,716, offset by an increase in license and transaction fees of $1,247,765. The decrease in equipment sales was due to a decrease in sales of approximately $1,703,000 of e-Port vending equipment and approximately $505,000 in energy conservation equipment, offset by an increase in other equipment sales of approximately $210,000. The decrease in e-Port vending equipment sales was primarily related to a decrease in capital spending by some of our customers due to the current economic slowdown, as well as key customers awaiting release of the e-Port G8 and e-Port Edge™ products, anticipated to occur during the third quarter of fiscal 2009. The increase in license and transaction fees was due to the increase in the number of e-Port units on our USALive® network, primarily as a result of the recurring revenues being generated by the e-Port units connected to our network.
In regards to transaction fees, during the six months ended December 31, 2008, the Company processed approximately 9.8 million transactions totaling over $22.2 million as compared to approximately 4.2 million transactions totaling over $15.0 million during the six months ended December 31, 2007, an increase of 133% in transaction volume and 48% in dollars processed.
Cost of sales for the period consisted of equipment costs of $2,330,586 and network and transaction services related costs of $2,165,984. The decrease in total cost of sales of $756,403 or 14% over the same period in the prior year was due to a decrease in equipment costs of $1,697,906 and an increase in network and transaction services related costs of $941,503.
Gross profit for the six months ended December 31, 2008 was $1,568,538 compared to gross profit of $1,562,086 for the corresponding six-month period in the previous fiscal year. This slight increase is primarily due to an increase in the profit margin of e-Port vending equipment sales as a result of an increase in the average sales price and producing more of the product components at a lower cost primarily due to offshore production.
Selling, general and administrative expense of $8,215,833, decreased by $1,618,847 or 16% primarily due to a decreases in compensation expense of approximately $1,768,000, recruiting fees of approximately $252,000, bad debt expense of approximately $153,000, and advertising expense of approximately $110,000, offset by increases in professional and consulting services of approximately $326,000, and product development costs of approximately $220,000. The overall decrease was due to focused cost reduction measures taken by the Company during the third and fourth quarters of fiscal year 2008. The increase in product development costs and consulting services is directly attributable to the costs related to the development of our new e-Port G-8 and e-Port Edge products which are anticipated to be released during the third quarter of this fiscal year.
Compensation expense decreased by approximately $1,768,000 primarily due to a decrease of approximately $1,515,000 in non-cash charges related to the Long-Term Equity Incentive Program for fiscal year 2008 as compared to the program for fiscal year 2007, specifically due to a decrease in the market value of the Company's stock, as well as a $229,000 decrease in salaries expense.
The six-month period ended December 31, 2008 resulted in a net loss of $7,282,928 (approximately $1.4 million of non-cash charges) compared to a net loss of $8,902,655 (approximately $2.5 million of non-cash charges) for the six-month period ended December 31, 2007.
Liquidity and Capital Resources
For the six months ended December 31, 2008, net cash of $4,842,694 was used by operating activities, primarily due to the net loss of $7,282,928 offset by non-cash charges totaling $1,391,216 for transactions involving the vesting and issuance of common stock for employee and officer compensation, the vesting of stock options, bad debt expense and the depreciation and amortization of assets. In addition to these non-cash charges, the Company's net operating assets decreased by $1,049,018 primarily due to decreases in prepaid expenses, and accounts and finance receivables, offset by an increase in inventory and decreases in accounts payable and accrued expenses.
The Company used cash of $871,260 in financing activities for the six months ended December 31, 2008 due to the repayment of $467,908 of long-term debt and cash used to purchase and retire of $315,304 and $88,048 in Common Stock and Preferred Stock, respectively.
The Company has incurred losses since inception. Our accumulated deficit through December 31, 2008 is composed of cumulative losses amounting to approximately $169,000,000 and preferred dividends converted to common stock of approximately $2,700,000. The Company has continued to raise capital through equity offerings to fund operations.
As of December 31, 2008 the Company had $6,111,637 of cash and cash equivalents on hand and $4,850,000 of available-for-sale securities, which were classified as current assets due to their purchase at par value, on January 2, 2009 by the broker-dealer who sold the ARS to the Company. As a result of these purchases, as of January 2, 2009, the Company had cash and cash equivalents of approximately $11,000,000.
In order to attempt to improve our operating results, we took appropriate actions during the third and fourth quarters of fiscal year 2008 to reduce our cash-based selling, general and administrative expenses. These actions consisted of staff reductions and related costs and reductions in our controllable costs. As a result, our cash-based selling, general and administrative expenses decreased from approximately $4,753,000 during the second quarter of fiscal year 2008 to approximately $4,445,000 during the third quarter of fiscal year 2008, to approximately $4,000,000 during the fourth quarter of fiscal year 2008, to approximately $3,758,000 during the first quarter of fiscal year 2009 and further decreased to approximately $3,547,000 during the second quarter of fiscal year 2009. As a result of these reductions, during the first six months of the 2009 fiscal year, the Company's average monthly cash used in operating activities was $807,116 resulting in net cash used during the six month period of $4,842,694.
On January 5, 2009, the Company reduced the number of its employees by 22 individuals and implemented other cost savings measures. The Company also intends to eliminate costs during the third quarter of this fiscal year related to product development projects that are expected to be completed by the end of the third fiscal quarter. These actions are anticipated to have the effect of reducing the Company's monthly cash-based operating expenses to approximately $800,000 commencing in the fourth quarter of fiscal year 2009. Assuming that the Company's anticipated monthly cash-based operating expenses would be $800,000 and that its average monthly gross profit of $261,000 earned during the six months ended December 31, 2008 would continue, the Company's average monthly cash requirements would be approximately $539,000.
Based on the assumptions above, the Company believes its existing cash and cash equivalents as of January 2, 2009, totaling approximately $10,962,000, would provide sufficient funds to meet its cash requirements, including capital expenditures and repayment of long-term debt, through at least July 1, 2010.
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