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| USAT > SEC Filings for USAT > Form 10-Q on 11-May-2009 | All Recent SEC Filings |
11-May-2009
Quarterly Report
Forward Looking Statements
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 March 31, 2009
Revenues for the three months ended March 31, 2009 were $2,308,932 compared to $4,263,512 for the corresponding three-month period in the previous fiscal year. This $1,954,580 or 46% decrease was due to a decrease in equipment sales of $2,337,079, offset by an increase in license and transaction fees of $382,499. The decrease in equipment sales was due to a decrease in sales of approximately $1,532,000 in e-Port vending equipment and approximately $498,000 in energy conservation equipment, as well as a decrease in other equipment sales of approximately $307,000. 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 the availability of the e-Port G8 and e-Port Edge™ products. The e-Port G8 product was available for sale to our customers at the end of the third quarter of fiscal 2009, and the e-Port Edge™ product is anticipated to be available for sale to our customers during the fourth quarter of fiscal 2009. The increase in license and transaction fees was primarily due to the increase in the number of e-Port units on our USALive® network.
In regards to license fees, as of March 31, 2009, the Company had approximately 48,000 devices connected to our USALive® network as compared to approximately 31,000 devices as of March 31, 2008.
In regards to transaction fees, during the quarter ended March 31, 2009, the Company processed approximately 5.7 million transactions totaling over $11.2 million as compared to approximately 3.2 million transactions totaling over $8.9 million during the quarter ended March 31, 2008, an increase of 78% in transaction volume and 26% in dollars processed.
Cost of sales for the period consisted of equipment costs of $608,943 and network and transaction services related costs of $1,108,805. The decrease in total cost of sales of $1,650,042 or 49% over the same period in the prior year was due to a decrease in equipment costs of $1,954,653, offset by an increase in network and transaction services related costs of $304,611.
Gross profit for the three months ended March 31, 2009 was $591,184, compared to a gross profit of $895,722 for the corresponding three-month period in the previous fiscal year. During the same periods, percentage based gross profit increased to 26% from 21%; this increase is primarily due to an increase in the profit margin of e-Port vending equipment sales as a result of lower production costs primarily due to offshore production.
Selling, general and administrative expense of $3,755,245 decreased by $637,047 or 15% primarily due to decreases in compensation expense of approximately $367,000, professional and consulting services of approximately $107,000, employee recruitment and relocation expenses of approximately $85,000, trade show expenses of approximately $73,000, and travel and entertainment expenses of approximately $53,000, offset by an increase in bad debt expense of approximately $56,000. The overall decrease was due to cost reduction measures taken by the Company during the third and fourth quarters of fiscal year 2008.
Compensation expense decreased by approximately $367,000 primarily due to decreases of approximately $244,000 in salary expenses, approximately $93,000 in commission expenses, and approximately $28,000 in other compensation expenses.
Depreciation and amortization expense of $381,388 decreased by $108,705 or 22% primarily due to completion of the amortization of a non-compete agreement during the quarter ended September 30, 2008.
The quarter ended March 31, 2009 resulted in a net loss of $3,530,553 (including approximately $0.6 million of non-cash charges) compared to a net loss of $3,760,546 (including approximately $0.3 million of non-cash charges) for the quarter ended March 31, 2008.
Nine months ended March 31, 2009
Revenues for the nine months ended March 31, 2009 were $8,374,040 compared to $11,078,571 for the corresponding nine-month period in the previous fiscal year. This $2,704,531 or 24% decrease was primarily due to a decrease in equipment sales of $4,334,795, offset by an increase in license and transaction fees of $1,630,264. The decrease in equipment sales was due to a decrease in sales of approximately $3,235,000 of e-Port vending equipment and approximately $1,003,000 in energy conservation equipment, as well as a net decrease in other equipment sales of approximately $96,000. 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 the availability of the e-Port G8 and e-Port Edge™ products. The e-Port G8 product was available for sale to our customers at the end of the third quarter of fiscal 2009, and the e-Port Edge™ product is anticipated to be available for sale to our customers during the fourth quarter of fiscal 2009. The increase in license and transaction fees was primarily due to the increase in the number of e-Port units on our USALive® network.
In regards to transaction fees, during the nine months ended March 31, 2009, the Company processed approximately 15.5 million transactions totaling over $33.4 million compared to approximately 7.4 million transactions totaling over $23.9 million during the nine months ended March 31, 2008, an increase of 109% in transaction volume and 40% in dollars processed.
Cost of sales for the period consisted of equipment costs of $2,939,529 and network and transaction services related costs of $3,274,789. The decrease in total cost of sales of $2,406,445 or 28% over the same period in the prior year was due to a decrease in equipment costs of $3,652,559 and an increase in network and transaction services related costs of $1,246,114.
Gross profit for the nine months ended March 31, 2009 was $2,159,722 compared to gross profit of $2,457,808 for the corresponding nine-month period in the previous fiscal year. During the same periods, percentage based gross profit increased to 26% from 22%; this increase is primarily due to an increase in the profit margin of e-Port vending equipment sales as a result of lower production costs primarily due to offshore production.
Selling, general and administrative expense of $11,971,078, decreased by $2,255,895 or 16% primarily due to decreases in compensation expense of approximately $2,135,000, recruiting fees of approximately $337,000, trade show expenses of approximately $183,000, travel and entertainment expenses of approximately $131,000, and bad debt expense of approximately $97,000, offset by increases in professional and consulting services of approximately $219,000, product development costs of approximately $215,000, and facilities expenses of approximately $75,000. The overall decrease was due to 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.
Compensation expense decreased by approximately $2,135,000 primarily due to a decrease of approximately $1,529,000 in non-cash charges related to the LTIP Program (See Notes 1 and 4 of the Consolidated Financial Statements), as well as a $607,000 decrease in compensation and benefits expense.
The nine-month period ended March 31, 2009 resulted in a net loss of $10,813,481 (including approximately $2.0 million of non-cash charges) compared to a net loss of $12,663,201 (including approximately $2.9 million of non-cash charges) for the nine-month period ended March 31, 2008.
Liquidity and Capital Resources
For the nine months ended March 31, 2009, net cash of $7,090,941 was used by operating activities, primarily due to the net loss of $10,813,481 offset by non-cash charges totaling $2,031,978 for transactions involving the vesting and issuance of common stock for employee and officer compensation, 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 $1,641,984 primarily due to decreases in accounts and finance receivables, inventory, and prepaid expenses, offset by decreases in accounts payable and accrued expenses.
The Company used cash of $1,144,048 in financing activities during the nine months ended March 31, 2009 as a result of the repayment of $691,403 of long-term debt, the purchase in the open market of $88,048 of Preferred Stock and $320,703 of Common Stock which was subsequently canceled and retired, and the cancellation and retirement of $43,894 of Common Stock which had been held by our executive officers in order to satisfy payroll withholding tax obligations of our executive officers in connection with shares of Common Stock which vested during September 2008 under their employment agreements.
The Company has incurred losses since inception. Our accumulated deficit through March 31, 2009 is composed of cumulative losses amounting to approximately $173,000,000 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 March 31, 2009 the Company had $8,440,255 of cash and cash equivalents on hand.
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. Prior to these reductions our cash-based selling, general and administrative expenses were approximately $4,753,000 during the second quarter of fiscal year 2008. Primarily as a result of these cost reduction measures, our cash-based selling, general and administrative expenses during the quarter ended March 31, 2009 were approximately $3,518,000. During the first nine months of the 2009 fiscal year, the Company's average monthly cash used in operating activities was $787,882 resulting in net cash used during the nine-month period of $7,090,941.
In addition to the above reductions, during the quarter ended March 31, 2009, the Company reduced the number of its employees by 22 individuals and implemented other cost saving measures. Due to severance charges related to the reductions in staff and the timing of other cost reductions, the majority of these cost reductions will not be reflected until the fourth quarter of fiscal year 2009. As a result of these reductions, our cash-based selling, general and administrative expenses are expected to further decrease to approximately $2,800,000 during the fourth quarter of fiscal year 2009. Assuming that the Company's operating assets and liabilities remain constant and its average monthly gross profit of $240,000 earned during the nine months ended March 31, 2009 would continue, the Company's average monthly cash used in operating activities would be approximately $693,000. Based on the foregoing assumptions, the Company's existing cash and cash equivalents as of March 31, 2009 should provide sufficient funds to meet the Company's cash requirements, including capital expenditures and repayment of long-term debt, through at least March 31, 2010.
The Company had expected to eliminate additional development costs during the quarter ended March 31, 2009 as a result of the anticipated completion of our e-Port G-8 and e-Port Edge products, as well as enhancements to our e-Port Connect Service. The Company has not reduced these expenses as anticipated, as the completion of the e-Port Edge and several e-Port Connect Service enhancements continued beyond the third quarter. In addition, during and subsequent to the third quarter, the Company commenced additional development projects relating to customer requested enhancements to our e-Port Connect service. Following the completion of the e-Port Edge product and the e-Port Connect service enhancements, the Company may nevertheless determine to engage in additional development efforts and maintain the development costs in question. The decision of whether to eliminate or continue these development efforts will depend upon, among other things, our business and customer opportunities, financial results and capital raising opportunities.
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