As filed with the Securities and Exchange Commission on November 5, 2002.
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. [ ]
1
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. [ ]
======================================================================
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(35) Offering Price Fee
---------- ------------ --------------- ------------- ------------
Common Stock,
no par value
2,475,318 shares(1) $.165 $ 408,427 $ 37.57
22,762,341 shares(2) $ .40 $9,104,936 $ 837.65
234,600 shares(3) $ .25 $ 58,650 $ 5.40
125,000 shares(4) $ .20 $ 25,000 $ 2.30
6,000,000 shares(5) $ .16 $ 960,000 $ 88.32
22,857,145 shares(6) $ .16 $3,657,143 $ 336.45
4,500,000 shares(7) $ .16 $ 720,000 $ 66.24
400,000 shares(8) $ .16 $ 64,000 $ 5.88
6,105,000 shares (9) $ .16 $ 976,800 $ 89.86
11,631,253 shares (10) $ .40 $4,652,501 $ 428.03
29,988,062 shares (11) $ .20 $5,997,612 $ 551.78
20,720,051 shares (12) $ .16 $3,472,922 $ 319.51
1,009,445 shares (13) $ .16 $ 161,511 $ 14.86
2,534,714 shares (14) $ .16 $ 405,554 $ 37.31
3,560,000 shares (15) $2.88 $10,252,800 $ 2,809.27
1,200,000 shares (16) $2.25 $ 2,700,000 $ 712.80
895,000 shares (17) $1.31 $ 1,172,450 $ 293.11
7,395,440 shares (18) $ .69 $ 5,102,854 $ 1,275.71
4,069,184 shares (19) $ .69 $ 2,807,736 $ 701.93
318,000 shares (20) $2.88 $ 915,840 $ 228.96
449,000 shares (21) $5.00 $ 2,245,000 $ 561.25
463,800 shares (22) $5.00 $ 2,319,000 $ 579.75
2
33,400 shares (23) $4.00 $ 133,600 $ 33.40
158,500 shares (24) $4.00 $ 634,000 $ 158.50
375,000 shares (25) $3.90 $ 1,462,500 $ 482.62
139,000 shares (26) $4.00 $ 556,000 $ 161.94
893,600 shares (27) $1.72 $ 1,536,992 $ 384.25
2,340,450 shares (28) $2.88 $ 6,740,496 $ 1,685.12
5,751,080 shares (29) $ .69 $ 3,968,245 $ 992.06
467,692 shares (30) $ .69 $ 322,707 $ 80.67
2,472,500 shares (31) $2.11 $ 5,212,440 $ 1,268.35
8,831,840 shares (32) $1.15 $11,039,800 $ 2,759.95
1,480,000 shares (33) $ .16 $ 236,800 $ 21.78
690,000 shares (34) $ .16 $ 110,400 $ 10.16
Total 173,326,415 shares $90,134,716 $18,022.74 (36)
=========== ==========
(1) Represents shares underlying stock options granted to holders of options to
purchase shares of Stitch Networks corporation.
(2) Represents shares exchanged for shares of Stitch Networks Corporation.
(3) Represents shares issued to employees as severance compensation.
(4) Represents shares issued to Karl Mynyk in settlement of litigation.
(5) Represents shares and shares underlying warrants issued to Yodi Rodrig.
(6) Represents shares and shares underlying warrants issued to Kazi Management
VI, Inc.
(7) Represents shares and shares underlying warrants issued to Alpha Capital.
(8) Represents shares issued to Ratner & Prestia, P.C.
(9) Represents shares to be issued to La Jolla Cove Capital under Convertible
Debenture and related warrant.
(10) Represents shares underlying senior notes due December 31, 2004.
(11)Represents shares underlying senior notes due December 31, 2005 and shares
issued to each noteholder as part of the senior note offering.
(12) Represents shares underlying warrants issued to holders of all senior
notes.
(13) Represents shares and warrants issued to holders of senior notes in lieu
of cash interest payment for quarter ended September 30, 2002.
(14) Represents shares and warrants issuable to holders of senior notes in lieu
of cash interest payment for quarter ended December 31, 2002.
(15)This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-72302, 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. 333-72302, and pursuant to Rule 429 of the Securities Act of
1933, as amended, carries forward 1,200,000 shares of 2000-A restricted common
stock. A filing fee of $712.80 was paid in connection with the filing of the
previous registration statement.
(17) This registration statement amends our registration statement on Form SB-2,
3
Commission File No. 333-72302, 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.
(18)This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-72302, and pursuant to Rule 429 of the Securities Act of
1933, as amended, carries forward 7,395,440 shares of 2001-B restricted common
stock. A filing fee of $1,275.71 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. 333-72302, and pursuant to Rule 429 of the Securities Act of
1933, as amended, carries forward 4,069,184 shares of 2001-C restricted common
stock. A filing fee of $701.93 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. 333-72302, and pursuant to Rule 429 of the Securities Act of
1933, as amended, carries forward 318,000 shares of common stock underlying the
notes due in 2001. A filing fee of $228.96 was paid in connection with the
filing of the previous registration statement.
(21) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-72302, and pursuant to Rule 429 of the Securities Act of
1933, as amended, carries forward 449,000 shares of common stock underlying 1995
warrants. A filing fee of $561.25 was paid in connection with the filing of the
previous registration statement.
(22) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-72302, and pursuant to Rule 429 of the Securities Act of
1933, as amended, carries forward 463,800 shares of common stock underlying 1996
warrants. A filing fee of $579.75 was paid in connection with the filing of the
previous registration statement.
(23) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-72302, and pursuant to Rule 429 of the Securities Act of
1933, as amended, carries forward 33,400 shares of common stock underlying
1996-B Warrants. A filing fee of $33.40 was paid in connection with the filing
of the previous registration statement.
(24) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-72302, and pursuant to Rule 429 of the Securities Act of
1933, as amended, carries forward 158,500 shares of common stock underlying 1997
warrants. A filing fee of $158.50 was paid in connection with the filing of the
previous registration statement.
(25)This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-72302, and pursuant to Rule 429 of the Securities Act of
1933, as amended, carries forward 375,000 shares of common stock underlying
1998-A warrants. A filing fee of $482.62 was paid in connection with the filing
of the previous registration statement.
(26) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-72302, 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.
4
(27) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-72302, and pursuant to Rule 429 of the Securities Act of
1933, as amended, carries forward 893,600 shares of common stock underlying
1999-A warrants. A filing fee of $384.25 was paid in connection with the filing
of the previous registration statement.
(28)This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-72302, and pursuant to Rule 429 of the Securities Act of
1933, as amended, carries forward 2,340,450 shares of common stock underlying
1999-B warrants. A filing fee of $1,685.12 was paid in connection with the
filing of the previous registration statement.
(29) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-72302, and pursuant to Rule 429 of the Securities Act of
1933, as amended, carries forward 5,751,080 shares of common stock underlying
2001-B warrants. A filing fee of $992.06 was paid in connection with the
filing of the previous registration statement.
(30) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-72302, and pursuant to Rule 429 of the Securities Act of
1933, as amended, carries forward 467,692 shares of common stock underlying
2001-C warrants. A filing fee of $80.67 was paid in connection with the filing
of the previous registration statement.
(31) This registration statement amends our registration statement on Form SB-2,
Commission File No. 333-72302, and pursuant to Rule 429 of the Securities Act of
1933, as amended, carries forward 1,922,500 shares of common stock as well as
550,000 additional shares underlying the management options. A filing fee of
$1248.11 was paid in connection with the filing of the previous registration
statement and a new fee of $20.24 is paid herewith.
(32) This registration
statement amends our registration statement on Form SB-2, Commission File No.
333-61662, and pursuant to Rule 429 of the Securities Act of 1933, as amended,
carries forward 8,831,840 shares of common stock underlying senior notes due
December 31, 2003 as well as the common stock issued to the holders of those
notes. A filing fee of $2,759.95 was paid in connection with the filing of the
previous registration statement.
(33) Represents shares issued to employees and consultants in November 2002 for
services to be rendered in the future.
(34) Represents shares issued to investors in October 2002 for $.10 per share.
(35)Pursuant to Rule 457(g), the registration fee has been calculated at the
higher of the exercise price of the warrants (or other convertible securities)
relating to the above common stock or the average of the bid and asked price
within 5 days prior to the date of the initial filing of the registration
statement.
(36)A filing fee of $15,149.40 was paid in connection with the filing of the
previous registration statements. The balance of $2,873.34 has been paid in
connection with the filing of this registration statement.
5
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.
6
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.
173,326,415 shares of Common Stock
THE OFFERING
The resale of up to 173,326,415 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
November 4, 2002 was $.15 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 3.
Neither the Securities and Exchange Commission 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 November 5, 2002.
7
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 . . . . . . . . . . . . . . 9
Risk Factors . . . . . . . . . . . . . . . . . 14
Use of Proceeds . . . . . . . . . . . . . . . . .20
Managements Discussion And Analysis of
Financial Condition And Results
of Operations . . . . . . . . . . . . . . . . 21
Business . . . . . . . . . . . . . . . . . . . .30
Management . . . . . . . . . . . . . . . . . . .41
Principal Shareholders . . . . . . . . . . . . . 49
Certain Transactions . . . . . . . . . . . . . 52
Selling Shareholders . . . . . . . . . . . . . 53
Market for Common Stock . . . . . . . . . . . . 140
Description of Securities . . . . . . . . . . . 144
Plan of Distribution . . . . . . . . . . . . . 151
Legal Matters . . . . . . . . . .. . . . . . . 152
Experts . . . . . . . . . . . . . . . . . . . 152
Financial Statements . . . . . . . . . .. . . .F-1
8
PROSPECTUS SUMMARY
OUR COMPANY
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,
including wireless payment processing, 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 . To this end, the Company has focused on
developing e-Port - its cashless payment system. At a basic level, the e-Port
integrates with copiers, vending machines or other host equipment and gathers
information about sales and operations of the host equipment and also allows a
consumer to use a credit card to make a purchase. There are capabilities for
multiple forms of cashless payment processing including "micropayments", control
and data management, and auditing capability for vending operators, kiosk
operators and others wishing to place equipment or products on a network. With
the acquisition of Stitch Networks (see below), the Company has acquired
wireless connectivity in addition to the above capabilities. At an enhanced
level, the e-Port contains additional capabilities, such as a display screen
which could display interactive advertising/media, and could, with some
additional development, allow simple e-commerce transactions while the consumer
is making routine purchases from the vending machine, whether by using a credit
card, smart card or any other payment device such as a cellular phone, at
vending machines, convenience stores, gas pumps and other retail points-of-sale.
Thus, advertisers could operate virtual electronic storefronts that could
provide consumers with promotional offers at actual retail locations.
As part of its strategy to be a broad provider of network and
financial services, the Company acquired Stitch Networks in May 2002 as a wholly
owned subsidiary. The Company acquired Stitch to strengthen its position as a
leading provider of wireless remote monitoring and cashless and mobile commerce
solutions. Stitch designs and employs embedded connectivity solutions that
enable network servers to monitor and control vending machines and appliances
over the internet. Prior to the acquisition, on December 31, 2000, Stitch
executed a Vending Placement, Supply and Distribution Agreement with Eastman
Kodak Company, Maytag Corporation and Dixie Narco, Inc., which formed a
strategic alliance to market and execute a national vending program for the sale
of one-time use camera and film products. The Agreement provides for an initial
term of three years ending December 31, 2003, with additional provisions for
early termination and extensions as defined. Furthermore, the Agreement also
provides for exclusivity among the parties for the term of the Agreement
relating to the sale of camera and film products from vending machines within
the Continental United States.
9
The Company is also a leading provider and licensor of unattended,
credit card activated control systems for the hospitality industry (business
centers). 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 the retention of a portion of the monies
generated from all credit card transactions conducted through its control
systems.
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 has been approved and recommended as a solution for
business center needs by Marriott for its hotels.
USA Technologies is the 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 or MBE Business Express , at nearly 400 hotel, library and
retail locations nationwide. Business Express and MBE Business Express offer
thousands of business travelers and consumers the unprecedented opportunity to
conduct e-business/e-commerce 24 hours a day with the swipe of a credit card.
The Business Express 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 , 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, 2002, 394 Business Express
or MBE Business Express locations are installed. The Company also markets a
product line extension to the Business Express , called the Business Express
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, 2002, 99 LSS units are included in the total of 394
Business Express or MBE Business Express locations installed. The Company also
sells its TransAct 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 Authorized Reseller Program to sign up
various independent and national dealers and distributors. As of June 30, 2002,
13 dealers are participating in the program.
As of June 30, 2002, the Company had a total installed base of 1,309
control systems, primarily 727 Business Express control systems, 168 Business
Express Limited Service (LSS) control systems, and 229 standalone TransAct
control systems located at various hospitality locations throughout the United
States and Canada. In addition, there were 157 e-Port control systems located at
vending locations in the United States and 323 Kodak vending machines. Through
June 30, 2002 total license and transaction fee revenues received by the Company
from these systems, although growing, has not been sufficient to cover operating
expenses.
10
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.
We have been granted 15 patents related to our technology, and our
wholly owned subsidiary, Stitch Networks, has been granted one. One patent 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 other domestic and
foreign patents are pending.
Currently, the Company has as its core business two key components:
cashless control systems (basically, the hardware); and a financial services and
auditing network. A third future component is a proposed interactive media and
ad serving network.
The FIRST component is our cashless control system, e-Port , or its
predecessor technology, TransAct . TransAct , as outlined above, is currently
installed in locations throughout North America while e-Port was unveiled in
October 2000 at the National Automatic Merchandising Association (NAMA)
convention in New Orleans, the world's largest vending trade event.
The e-Port is designed to be a flexible and versatile embedded system
device. While initially targeted to the vending industry, our technology may be
applied in other industries such as copiers, retail point of sale, mass transit,
and wherever pervasive computing, embedded systems and other cashless payment
systems are used. e-Port technology is 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.
- Audit. The audit only e-Port is an embedded device that can be integrated
-----
with existing copiers, vending machines or other 'host' equipment. The auditing
feature would capture supply chain data (units sold, what sold, price of units
sold) and other machine information, and send the information back to either a
customer's network or to the USA network for reporting.
- Audit/Cashless. This version of e-Port can, in addition to gathering
--------------
information about the sales and operation in the host equipment (the auditing
portion), allow a user to use a credit card or other cashless method to make a
purchase (as well as cash). 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 audit information. The
acquisition of Stitch Networks has added multiple forms of wireless connectivity
to the above capabilities, including RFID (radio frequency identification) and
cell phone.
- Audit/Cashless/Interactive. In addition to the above benefits of network
--------------------------
control and remote monitoring, increased sales opportunity provided by the
credit cards, and wireless connectivity, this interactive capability provides
potential for revenue generation through interactive advertising on the LCD
screen.
e-Port features multiple connectivity options. These include the
ability to send and receive data via land lines, radio waves (like a home
cordless phone), wireless modems, and always-on phone connections. 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.
11
The Company has contracted with two manufacturers for e-Port .
Masterwork Electronics Corporation, a leader in the manufacture of electronics
for the vending industry, manufactures the version of e-Port without the LCD
color touch screen. The other manufacturer, RadiSys Corporation, is a leader in
developing and mass-producing embedded systems, and has produced the e-Port
with the LCD screen and internet and advertising capability. The Company entered
into a Development and Manufacturing Agreement ("DMA") with RadiSys in June,
2000. RadiSys has significant manufacturing expertise in the embedded chip
market and is partially owned by Intel. This e-Port client uses programming
developed by IBM simultaneously with IBM's work to enhance the "USAlive" server
network, all of which became available as an integrated package as of April,
2002, offering internet connectivity and screen capability in addition to the
audit and cashless functions.
Our customers' terminals are currently integrated into a network 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 has developed an enhanced network,
which is IP compliant and has wireless capability. The Company anticipates that
an additional $0.5 million may be incurred and expensed for legacy integration
and specific vending machine integration in the first half of fiscal 2003.
The SECOND component involves financial services and auditing. This
capability provides users with auditing capability as well as turnkey credit
card and banking capability.
- USA utilizes a patented method of batch processing in order to conduct
affordable credit card transactions of as little as $1.00.
- USA provides users of the e-Port and TransAct with the ability to
instantly accept credit cards in an unattended location.
- USA acts as a 'super merchant' for its customers - thereby helping them to
avoid getting certified with credit card processors to do unattended
transactions.
- USA provides all the refunds, payments, and reporting of the credit card
transactions.
- 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.
These ads would be served to a more captive audience than is possible with
traditional web based advertising. The targeting of media via the Company's
network may be possible because the data base could be constantly updated
concerning information about each e-Port : state, city, zip code, make up of
users from standpoint of: income, vocation, location of the machine (school,
mall, convention center, movie theater, supermarket). The Company has secured a
license from DoubleClick for its advertising software for use in this regard.
For the years ended June 30, 2002 and 2001, the Company has expensed
approximately $1,187,000 and $1,260,000, 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
expense in the accompanying consolidated financial statements. Through March 31,
2002 the Company capitalized approximately $5.3 million for the services of IBM,
to program the enhancements to the Company's proprietary "USAlive" server
network and to the e-Port client. During the fourth quarter of fiscal 2002, the
e-Port product and related network became available for general release to the
Company's customers. Management performed an evaluation of the commercial
success and preliminary market acceptance of the e-Port product and network
pursuant to SFAS 121 during the fourth quarter of 2002. Accordingly, during the
fourth quarter, the Company recorded an impairment charge of approximately $2.7
million to reflect the software development costs at fair value of approximately
$2.3 million.
12
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.
As of September 30, 2002 we had 1,171 hospitality related control systems
installed in the field, which included:
o 746 Business Express(R) or MBE Business Express(R) control systems;
o 164 Business Express(R) Limited Service control systems; and
o 261 TransAct(TM) control systems.
In addition, we have shipped and billed 627 e-Port(TM) control
systems of which approximately 175 have been installed at vending
locations in the United States. There are also 333 Cash Free 200 Kodak
terminals installed.
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: 173,326,415
Total shares of common stock outstanding prior
to the offering, as of September 30, 2002: 72,736,205
13
Total shares of common stock outstanding after
the offering and exercise of all options/warrants: 195,974,876 (includes
shares issuable
subsequent to
September 30, 2002)
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
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.
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 2003 as we expend substantial resources on sales,
marketing, and research and development of our products. From our inception
through June 30, 2002, we have incurred cumulative losses of
$53.3 million. For our fiscal years ended June 30, 2001 and 2002, we have
incurred net losses of $10,956,244 and $17,314,807, 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, 2002 consolidated financial statements
indicating that as of June 30, 2002, there is substantial doubt about our
ability to continue as a going concern. Subsequent to June 30, 2002 we have sold
additional securities pursuant to our 2002-A private placement offering in the
amount of $1,915,424 as well as issuing convertible debenture and warrants to
a private placement
14
investment company for gross proceeds to the Company of $210,000. 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.
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 30, 2004. 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.
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
15
Government granted us fifteen patents as of October 15, 2002. 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.
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). We have contracted with IBM to host
our network in a secure, 24/7 environment to ensure reliability of our network
services. If these business relationships are terminated, the implementation of
our business plan may be delayed until an
16
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. 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
September 30, 2002, the unpaid and cumulative dividends on the series A
preferred stock equal $5,572,263. 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 September 30, 2002, $2,620,354 of unpaid and
cumulative dividends on the Series A preferred stock were converted into 282,212
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 September 30, 2002, we have an installed base of 1,346 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.
17
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".
18
Number of Shares Issued and Outstanding
as of September 30, 2002
Transferability
---------------------------------------- -----------------------------------
72,736,205 shares of common stock all are freely transferable
without restriction or further
registration (other than shares
held by affiliates of USA); and
529,282 shares of preferred stock all are freely transferable
without restriction or further
registration (other than shares
held by affiliates of USA).
As of September 30, 2002, there were:
* 72,736,205 shares of Common Stock actually issued and outstanding;
* 529,282 shares issuable upon conversion of the currently issued and
outstanding Series A Preferred Stock;
* 557,253 shares issuable upon conversion of the accrued and unpaid dividends on
the Series A Preferred Stock of $5,572,533;
* 5,290,485 shares issuable upon exercise of outstanding options (of which
5,170,487 were vested as of such date);
* 7,332,408 shares issuable upon exercise of outstanding warrants (assuming
a share price of $.40 for purposes of calculating the conversion rate);
* 6,105,000 shares issuable to La Jolla Cove Investors, Inc. pursuant to
conversion of Convertible Debenture and exercise of related conversion warrants;
* 4,027,200 shares reserved for issuance upon the conversion of the outstanding
12% Convertible Senior Notes due 2003;
* 11,631,253 shares reserved for issuance upon the conversion of the outstanding
12% Convertible Senior Notes due 2004; and
* 29,148,063 shares reserved for issuance upon the conversion of the outstanding
12% Convertible Senior Notes due 2005 and related shares.
The common stock, if issued, will be freely tradeable under the Act. See
"Description of Securities".
19
12. We are obligated to make substantial principal and interest payments
to the holders of the senior notes.
As of September 30, 2002 we had $5,034,000 of unsecured senior notes due on
December 31, 2003, approximately $4,652,000 of unsecured senior notes due on
December 31, 2004, and $4,164,000 of unsecured notes due on December 31, 2005.
These notes accrue cash interest at the rate of twelve percent (12%) per year.
As of September 30, 2002, we are required to make quarterly interest payments
totaling approximately $359,000, or $1,436,000 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, the senior notes due
December 2004 into shares of common stock at the rate of $.40 per share through
matturity, and the senior notes due December 31, 2005 into shares of common
stock at the rate of $.20 per share. If all of the senior notes that were
outstanding at September 30, 2002 are converted, we will issue 36,478,498
shares. 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,
2004, we are obligated to repay the $4,652,000 of the senior notes, $5,034,000
of the senior notes on December 31, 2003, and $4,164,000 of the senior notes on
December 31, 2005. 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.
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 begins on page 53
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 by Ratner & Prestia, P.C., will be applied by them on account of our debt
due to them.
20
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
GENERAL
The preparation of consolidated 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 the accompanying notes. Actual results could differ
from those estimates. We believe the following accounting policies include the
estimates that are the most critical and could have the most potential impact on
our results of operations.
REVENUE RECOGNITION
Revenue from the sale of equipment is recognized upon shipment, or if
installation services are purchased, upon installation of the equipment of the
related equipment. License and transaction fee revenue (including transaction
processing revenue) is recognized upon the usage of the Company's credit card
activated control systems. Revenue from the sale of products from the Company's
vending machines is recognized upon the acceptance by the customer of the
products. Monthly fees for the use of vending machines equipped with embedded
Internet connectivity technology is recognized upon usage of the equipment.
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 control system and related network and, accordingly, the Company
commenced capitalization of software development costs related to this product.
Costs capitalized were approximately $2,239,000 and $2,938,000 during the years
ended June 30, 2002 and 2001, respectively. Amortization of software development
costs commence when the product becomes available for general release to
customers. 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 commences when the
product becomes available for general release to it customers. 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.
During the fourth quarter of fiscal 2002, the e-Port product and related
network became available for general release to the Company's customers.
Management performed an evaluation of the commercial success and preliminary
market acceptance of the e-Port product and network pursuant to SFAS 121 during
the fourth quarter. As a result the Company wrote down to fair value $2,663,000
of software development costs related to the e-Port and the related network.
The unamortized balanced is being amortized over an estimated useful life of
two years. Amortization expense during the year ended June 30, 2002, including
the above impairment adjustment of $2,663,000, was $2,996,000.
21
FORWARD LOOKING STATEMENTS
This Form SB-2 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, including the e-Port , 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 (viii) the ability of the Company to satisfy its accounts
payable and accrued liabilities. 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.
INTRODUCTION
The Company has a net loss during the years ended June 30, 2002 and
2001 of $17,314,807 and $10,956,244, respectively, and anticipates incurring
operating losses into fiscal 2003.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED JUNE 30, 2002:
For the fiscal year ended June 30, 2002, the Company had a net loss of
$17,314,807. The loss applicable to common shares of $18,137,368 or $0.50 loss
per common share (basic and diluted) was derived by adding the $17,314,807 net
loss, the $822,561 of cumulative preferred dividends, and dividing by the
weighted average shares outstanding of 35,994,157.
22
Revenues for the fiscal year ended June 30, 2002 were $1,682,701
an increase of $231,699 or 16% from the prior year, primarily due to the sales
of Kodak disposable cameras and film from Stitch Networks.
Operating expenses for the fiscal year ended June 30, 2002 were
$16,999,478, representing a $7,378,803 or 77% increase over the prior year. The
primary contributors to this increase were compensation expense, general and
administrative expense and depreciation and amortization expense, as detailed
below.
Cost of sales increased by $102,709 from the prior year, primarily
reflecting the cost of product relating to Stitch Networks Corporation. General
and administrative expenses of $7,989,651 increased by $2,361,637 or 42%. This
increase was due to increased consultant fees of $1,125,724, promotion expense
of $1,574,252 and public relations expenses of $454,812 offset by a decrease in
legal expenses of $992,181, primarily associated with the MBE litigation which
was settled in fiscal year 2001.
Compensation expense was $4,654,662, an increase of $1,687,886 or 57% from
the previous year. The increase was due to an increase in officer stock bonus
expense of $905,624 or 151%. Included in bonus expense was $1,264,135 of
non-cash expense. In addition, compensation expense increased due to an increase
in corporate salaries of $342,921 or 113%. A total of $475,682 of corporate
salaries were non-cash.
Depreciation and amortization expense of $3,436,217 increased by
$3,226,571, which is directly attributable to the non cash amortization of
software development costs. The amortization was primarily due to a $2,663,000
impairment adjustment taken to write down the capitalized costs to fair value
in the 4th quarter of the fiscal year.
Other income and expense increased by $895,459, primarily as a result
of the amortization to interest expense of the beneficial conversion feature of
the 2001-D Convertible Senior Note, which is a non-cash expense.
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 and Business Express Limited Service Series (LSS). Offsetting
this decrease were increases in the sale of the Company's standalone TransAct
control system of $129,000 or 462% and the initial sales of the non-media e-Port
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 and Business Express 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.
23
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 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.
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.
PLAN OF OPERATIONS
As of June 30, 2002, the Company had a total of 1,632 credit card
terminals installed in the field as follows: Hospitality related, 923
(consisting of Business Express , MBE Business Express, Business Express Limited
Service (LSS), and other); standalone TransAct 229; e-Port 157; and Cash Free
200 (Kodak) 323. Through June 30, 2002 total license and transaction fees earned
by the Company from these systems were $778,906, an increase of $131,589 or 20%
over the prior year.
During the past year the Company has focused on presenting the
multiple capabilities of the e-port by developing several product lines of
e-Port and by the acquisition of Stitch Networks. The "audit plus cashless"
version contains all the functionality for multiple forms of cashless payment
processing including credit card processing, control and data management, plus
the added ability to audit vending product usage and vending machine status.
Through June 30 2002, over 525 units have been sold to distributors, soft drink
bottlers and operators. Additional in-house work continues, to enable the e-Port
to be compatible with the largest feasible portion of the installed base of 8
million vending machines in the United States, many of which have slightly
different connectivity requirements. With the acquisition of Stitch Networks,
the Company has acquired a wireless "audit plus cashless" product line and is
pursuing and securing customers for that product.
An enhanced version of e-Port offers capability for internet and
wireless connectivity, in addition to the capabilities of the audit plus credit
version. For this product, the Company is working with RadiSys, a contract
manufacturer providing value added design, development, fulfillment and product
warranty services.
24
Concurrent with the above developments to the e-Port product line,
IBM is working with the Company to enhance 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 are
combining their respective products and capabilities to target sales to the
intelligent vending, retail point of sale, and networked home applications
markets. Customers have been identified, and trade shows have been attended.
In the vending industry, the e-Port is being purchased by soft drink
bottlers and independent vending operators throughout the USA and Canada. On the
soft drink bottler side, heavy effort is being put into securing initial
distribution agreements with the top ten Coke and Pepsi bottlers. The initial
installations of e-Ports are already complete for a number of bottlers. At a
corporate level, the Dr. Pepper/7-Up Company announced in October 2002 at the
Dr. Pepper National Bottling meeting that it has selected USA Technologies to
make available its cashless payment services in its vending machines throughout
the United States. Dr. Pepper will offer our e-Port not only to its own
bottlers, but also to Coca-Cola and Pepsi bottlers that distribute Dr. Pepper
products. The Dr. Pepper Company has completed its first implementation of
e-Port with The Pepsi Cola Bottler of Central Virginia, with numerous vending
machines using e-Port, with a Sprint-enabled wireless solution.
Three of the premier national independent vending operators, Compass,
ARAMARK and Sodexho, have already installed e-Port in various locations, with
plans for additional purchases based on the success of the initial e-Ports. One
major vending operator, International Vending Management, has signed a contract
with the Company.
In March 2002, the Company signed an agreement with MEI (Mars Electronics),
a world leader in the manufacturing and supplier of electronic coin mechanisms
and dollar bill acceptors to the vending industry. MEI has agreed to sell and
distribute an MEI branded cashless payment system to be developed by the
Company, as part of its portfolio of vending solutions, which would include a
comprehensive suite of cashless payment services and vending software management
tools. The Company has performed its developmental work, and the combined
offering will be introduced at the fall NAMA in October (the primary annual
vending trade show) with commercial availability planned for early 2003. By
contract, MEI has committed to buy a minimum of 10,000 units of the USA product
over the course of 24 month agreement, or pay the Company $4.00 for each unit
less than 10,000. In addition, all MEI payment systems in the field would have
the option to connect to the Company's network and produce recurring revenues.
The Stitch Kodak program continues to install machines, with over 350 units
installed to date, including high profile locations like Yankee Stadium, Time
Square and Six Flags Amusement Parks. New Kodak machines are being installed
weekly, which collectively represent recurring revenues to the Company from
service fees as well as sales of disposable cameras and film.
The Company continues to work with the top vending machine manufacturers,
including Automatic Products, AMS, U-Select-It, Crane Merchandising Systems,
FastCorp and Dixie Narco, in order to incorporate our e-Port technology into
25
vending machines at the factory (OEM); and with authorized resellers, including
Betson Enterprises, HA Franz, Brady Distributing and Weymouth Distributing. The
Company's Vending Machines for the Kodak Program are purchased from Dixie Narco
and the film and cameras are purchased directly from Eastman Kodak Company.
In October 2002, the Company signed a Strategic Alliance Agreement
with ZiLOG Corporation, a semiconductor company which is the largest supplier of
microprocessors to the retail point of sale industry. The agreement allows the
Company's proprietary network software (USAlive) to be embedded on a chip
produced by ZiLOG. The Company would license its software to the purchaser and
would receive a fee from the licensing of each such chip. A second revenue
stream could be generated when those who buy the retail point of sales terminals
begin to use them, because they could elect to use the USA network which is
embedded on the chip. The Company believes that these fees could become the
primary driver of profitability for the Company in the intermediate and longer
term. The company believes that the cost of e-Port to our customers could
decline with this activity.
In the hospitality industry, Business Express continues to be one of
the premier solutions for automated business centers. The Company has
relationships with two of the most recognized global hotel chains, Marriott and
Hilton Hotels. The addition of e-Port technology for vending machines located
in hotels now offers a "one-stop shopping" experience to hotels who also have or
are considering purchasing a USA business center. Recently, the Company
completed development of an e-Port application using hotel room keys, and 40
vending machines are now operating successfully with such technology at the
1,400 room Gaylord Palms Resort Hotel in Florida.
In laundry, American Sales Inc. (ASI) signed a five year agreement to
purchase units of Stitch's e-Suds laundry solution for their university
locations in the Midwest, with initial installations to begin in December 2002.
The agreement provides that if ASI purchases at least 9,000 units over the
contract period, then ASI shall have exclusive rights to the units in Ohio,
Kentucky, Indiana, Michigan and Marshall University. The Company has
additionally began working with two of the premier laundry operators, Web
Services and the MacGray Company. These two companies have already implemented
the e-Port solution, with discussions underway to implement the e-Suds solution.
The Company continues to work with IBM, including a recent
installation of its wireless (802.11) e-Port in a prominent hotel vending
machine.
In September 2002, the Company signed an Agreement with IBM to host
its network at a remote location which is secure and equipped with 24/7 backup
protection. The Company believes that the security and professionalism of the
hosting arrangement will be a significant factor in assuring customers of the
liability of the financial and data management services which the Company is
providing.
LIQUIDITY AND CAPITAL RESOURCES
During the fiscal year ended June 30, 2002, the Company completed
several financing transactions. Net proceeds of $3,912,765 were realized from
private placement offerings of Common Stock including the exercise of Common
Stock Purchase Warrants and Options, and net proceeds of $3,944,233 were
26
realized from private placement offerings of Senior Notes. As of June 30, 2002,
the Company had a working capital deficit of $4,607,486, which included cash and
cash equivalents of $557,970 and inventory of $877,814.
During the fiscal year ended June 30, 2002, net cash of $6,133,766 was
used by operating activities, primarily due to the net loss of $17,314,807
offset by a non-cash charge of $4,532,533 for Common Stock, options and warrants
issued for services; $3,032,479 of non cash amortization primarily to record an
impairment charge of $2,663,000 to reduce such software development costs to
fair value; and $1,513,118 of non-cash amortization of the debt discount
relating to the Senior Notes. During the fiscal year ended June 30, 2002, net
cash used in investing activities was $63,459 principally due to the increase in
software development costs of $2,238,771 relating to the e-Port and associated
network, offset by the cash acquired in the Stitch acquisition. The
net cash provided by financing activities of $5,937,625 was attributable
primarily to net proceeds generated from the issuance of Common Stock through
private placements, exercise of Common Stock Purchase Warrants, and net proceeds
generated through the issuance of 2001 and 2002 Senior Notes, as described
in the prior paragraph, offset by the paydown during June 2002 of
$2,165,000 of debt assumed in the Stitch acquisition.
During fiscal 2003, the Company anticipates expensing additional
expenditures of approximately $0.5 - $1.0 million for enhancements to its
software development on its network.
In June 2002, the Company commenced a private placement offering (the
2002-A offering) of up to $4,000,000 of Convertible Senior Notes (later
increased to $4,300,000). The offering consists of up to 400 units at $10,000,
convertible into Common Shares at $.20 per share. Each noteholder initially was
to receive 20,000 Common Stock warrants for each unit purchased. However,
subsequent to June 30, 2002, the offering was amended to replace the warrants
with 20,000 shares of Common Stock for each unit. The offering is exempt from
the registration requirements of the Act pursuant to Section 4(2) and Rule 506
thereunder and is being offered and sold only to accredited investors. The
Company has agreed to prepare and file at its expense a registration statement
covering the resale of the shares of Common Stock. The offering terminated
October 31, 2002 with total subscriptions of $4.3 million received prior to any
shareholder conversion. Mr. Jensen and Mr. Herbert have each subscribed for
$100,000 into this offering, as compensation for services rendered and to be
rendered.
During August 2001, the Company issued to La Jolla Cove Investors a
$225,000 (increased by $100,000 on June 18, 2002) 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 the
lower of $1.00 per share or 80% (later lowered to 72%) of the lowest closing bid
price of the Common Stock during the 20 days preceding exercise. La Jolla is
limited to no more than 5% of the investment that is convertible during any
month. 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
27
Debenture. The Company has filed 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. At June
30, 2002, there were $243,000 Convertible Debentures outstanding with a due date
extended (by Agreement on June 18, 2002) to August 2, 2004. Subsequent to June
30, 2002 and through November 4, 2002, La Jolla converted $31,000 of Debentures
into 297,011 shares of Common Stock and exercised Warrants at an average price
of approximately $.104 per share to purchase 2,970,110 shares of Common Stock.
The investor utilized money previously remitted to the Company which was
reflected as a liability in the June 30, 2002 consolidated financial statements.
In connection with the Stitch acquisition (Note 3 to the Consolidated
Financial Statements), the Company assumed long term debt of $3,976,000 which
included a vending equipment borrowing facility and working capital loans. The
Company repaid $2,165,000 of the working capital loans in June 2002. All but
$225,000 of these working capital loans bear interest at a variable rate based
on the bank's prime rate. These loans are secured by the assets of Stitch. At
June 30, 2002 $275,000 of working capital loans are outstanding of which
$225,000, which bears interest at 6.75%, was payable on July 8, 2002 and $50,000
was payable on demand. Subsequent to June 30, 2002, the Company has made
interest only payments to the bank. On July 26, 2002, August 29, 2002 and
September 27, 2002 and October 31, 2002, the bank agreed to extend the due date
of these notes until September 1, 2002, October 1, 2002, November 1, 2002 and
December 1, 2002, respectively. In connection with this extension, the Company
paid $23,000 of fees to the bank.
At June 30, 2002 the Company also has a $1.5 million borrowing
facility available (the Facility) to fund the purchase of vending machines
placed at locations where Kodak film products are sold. Borrowings are made from
time to time under the facility, with repayment schedules set at the time of
each borrowing, including equal monthly payments over 36 months and an interest
rate based upon 495 basis points over the three year U.S. Treasury Notes. The
Company has granted the bank a security interest in the film products vending
machines. Repayment of principal is also insured by a Surety Bond issued by a
third-party insurer in exchange for an initial fee paid by the Company.
Subsequent to June 30, 2002, the Company has not borrowed any additional funds
under this facility.
The Company has incurred losses of $17.3 million and $11.0 million during
each of the fiscal years ending June 30, 2002 and 2001, respectively, and an
accumulated deficit from inception through June 30, 2002 amounting to $53.3
million. At June 30, 2002 the Company's working capital deficit is $4,607,486.
The Company believes that for the year ending June 30, 2003 there could be a
breakeven cash flow from operations; nevertheless, there is no guaranty
this will happen and the possibility exists that 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, 2002 financial statements.
The Company believes that the funds available at June 30, 2002 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
current and perhaps future private placements, and the ability to reduce
anticipated expenditures, if required, will allow the Company to continue as a
going concern.
At a special meeting of shareholders held on October 28, 2002
28
the shareholders approved a proposal to increase the authorized shares of Common
Stock from 150,000,000 to 200,000,000.
COMMITMENTS
The Company leases its principal executive offices, consisting of
approximately 10,000 square feet, at 200 Plant Avenue, Wayne, Pennsylvania for a
monthly rental of $14,000 plus utilities and operating expenses. The lease
expired on June 30, 2002, and subsequently the Company has leased these
facilities on a month to month basis. With the acquisition of Stitch Networks,
the Company acquired 12,225 square feet of rented space in Kennett Square, PA.
The rent is $11,153 per month and the lease expires on March 2005. The Company
is consolidating facilities, and therefore has vacated the rented space in
Kennett Square. For that reason, the Company has accrued for the remaining
payments of the lease of approximately $354,000 as part of the Stitch purchase
price as of June 30, 2002 (see Note 3 to the Consolidated Financial Statements).
The Company is attempting to secure a tenant to sublease the space for the
duration of the lease and is in default under the lease since August, 2002.
Subsequent to June 30, 2002, the Company also signed a lease for 16.5 months for
$4,000 per month for additional space in Malvern, PA for business activities.
Other Events
During September 2002, the Company sold 2,000,000 shares of restricted Common
Stock at $0.12 per share generating gross proceeds of $240,000. During October
2002, the Company granted the same investor 2,000,000 warrants to purchase the
Company's Common Stock at $0.10 per shares through November 30, 2002. If all
2,000,000 warrants are exercised, the investor has been granted another warrant
to purchase 2,000,000 shares of Common Stock at $0.10 per share through March
31, 2003.
On October 28, 2002, the shareholders voted to increase the number of authorized
shares of the Company's Common Stock to 200,000,000.
In October 2002, the Company sold to an investor 3,571,429 shares at $.07 per
share and issued the following common stock warrants: (1) warrants to purchase
up to 7,142,858 shares at $.07 at any time for a five year period; and (2)
warrants to purchase up to 7,142,858 shares, at $.07 per share and to purchase
up to 5,000,000 shares at $.10 per share, exercisable over a one year period.
In October 2002, the Company sold to an investor 1,500,000 shares at $.10 per
share and granted common stock warrants to purchase up to 750,000 shares at $.15
per share at any time for a five year period. Within seven days following the
effectiveness of the registration statement covering these shares, the Company
has agreed to sell to the investor an additional 1,500,000 shares at $.10 per
share and grant common stock warrants to purchase up to 750,000 shares at the
then closing price per share at any time for a five year period.
29
In October 2002, the Company issued 501,906 shares of Common stock to holders of
Senior Notes in lieu of cash for quarterly interest payments due September 30,
2002. Additionally, the Company issued warrants to purchase up to 501,906
shares of Common Stock at $.0.20 per shares through December 31, 2004.
In October 2002, the Company granted to the holders of all the 12% senior notes
common stock warrants to purchase that number of shares equal to 75% of the
dollar amount of the notes held by such holder. The total number of warrants is
10,360,025 and are exercisable at any time prior to November 30, 2002. If the
holder exercises all of such holder's warrants, the holder shall receive another
identical warrant exercisable at any time prior to March 31, 2003.
In November 2002, the Company agreed to issue an aggregate of 1,480,000 shares
to employees and consultants for services to be rendered. The shares were valued
at $.125 per share.
On October 31, 2002, the Company received an extension to December 1, 2002 of
the existing forbearance for repayment of approximately $225,000 of outstanding
debt owed to Wilmington Trust Bank.
In November 2002, the Company issued an aggregate of 690,000 shares to 4
investors at $.10 per share for an aggregate of $69,000.
The Company expects to incur a net loss for the quarter ended September 30, 2002
of approximately $3 million.
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,
including wireless payment processing, 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 cashless payment system. At a basic level, the e-Port (TM)
integrates with copiers, vending machines or other host equipment and gathers
information about sales and operations of the host equipment and also allows a
consumer to use a credit card to make a purchase. There are capabilities for
multiple forms of cashless payment processing including "micropayments", control
and data management, and auditing capability for vending operators, kiosk
operators and others wishing to place equipment or products on a network. With
the acquisition of Stitch Networks (see below), the Company has acquired
wireless connectivity in addition to the above capabilities. At an enhanced
level, the e-Port (TM) contains additional capabilities, such as a display
screen which could display interactive advertising/media, and could, with some
additional development, allow simple e-commerce transactions while the consumer
is making routine purchases from the vending machine, whether by using a credit
card, smart card or any other payment device such as a cellular phone, at
vending machines, convenience stores, gas pumps and other retail points-of-sale.
Thus, advertisers could operate virtual electronic storefronts that could
provide consumers with promotional offers at actual retail locations.
As part of its strategy to be a broad provider of network and financial
services, the Company acquired Stitch Networks in May 2002 as a wholly owned
30
subsidiary. The Company acquired Stitch to strengthen its position as a leading
provider of wireless remote monitoring and cashless and mobile commerce
solutions. Stitch designs and employs embedded connectivity solutions that
enable network servers to monitor and control vending machines and appliances
over the internet. Prior to the acquisition, on December 31, 2000, Stitch
executed a Vending Placement, Supply and Distribution Agreement with Eastman
Kodak Company, Maytag Corporation and Dixie Narco, Inc., which formed a
strategic alliance to market and execute a national vending program for the sale
of one-time use camera and film products. The Agreement provides for an initial
term of three years ending December 31, 2003, with additional provisions for
early termination and extensions as defined. Furthermore, the Agreement also
provides for exclusivity among the parties for the term of the Agreement
relating to the sale of camera and film products from vending machines within
the Continental United States. (See Note 3 to the consolidated financial
statements included herein).
The Company is also a leading provider and licensor of unattended, credit
card activated control systems for the hospitality industry (business centers).
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 the retention of a portion of the monies generated from all
credit card transactions conducted through its control systems.
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 has been approved and recommended as a solution for
business center needs by Marriott for its hotels.
USA Technologies is the 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 or MBE Business Express, at nearly 400 hotel, library and retail
locations nationwide. Business Express and MBE Business Express offer thousands
of business travelers and consumers the unprecedented opportunity to conduct
e-business/e-commerce 24 hours a day with the swipe of a credit card. The
Business Express 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 , 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, 2002, 394 Business Express or MBE Business Express
locations are installed. The Company also markets a product line extension to
the Business Express , called the Business Express 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,
2002, 99 LSS units are included in the total of 394 Business Express or MBE
Business Express locations installed. The Company also sells its TransAct 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 Authorized Reseller Program to sign up various independent and national
dealers and distributors. As of June 30, 2002, 13 dealers are participating in
the program.
31
As of September 30, 2002, the Company had a total installed base of 1,346
control systems, primarily 746 Business Express control systems, 164 Business
Express Limited Service (LSS) control systems, and 261 standalone TransAct
control systems located at various hospitality locations throughout the United
States and Canada. In addition, there were 175 e-Port (TM) control systems
located at vending locations in the United States and 261 Kodak vending
machines. Through June 30, 2002 total license and transaction fee revenues
received by the Company from these systems, although growing, has not been
sufficient to cover operating expenses.
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.
We have been granted 15 patents related to our technology, and our
wholly owned subsidiary, Stitch Networks, has been granted one. One patent 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.
Currently, the Company has as its core business two key components:
cashless control systems (basically, the hardware); and a financial services and
auditing network. A third future component is a proposed interactive media and
ad serving network.
The first component is our cashless control system, e-Port (TM) , or
its predecessor technology, TransAct. TransAct , as outlined above, is currently
installed in locations throughout North America while e-Port (TM) was unveiled
in October 2000 at the National Automatic Merchandising Association (NAMA)
convention in New Orleans, the world's largest vending trade event.
The e-Port (TM) is designed to be a flexible and versatile embedded
system device. While initially targeted to the vending industry, our technology
may be applied in other industries such as copiers, retail point of sale, mass
transit, and wherever pervasive computing, embedded systems and other cashless
payment systems are used. e-Port (TM) technology is 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.
- Audit. The audit only e-Port (TM) is an embedded device that can be
integrated with existing copiers, vending machines or other 'host'
equipment. The auditing feature would capture supply chain data (units
sold, what sold, price of units sold) and other machine information, and send
the information back to either a customer's network or to the USA network
for reporting.
- Audit/Cashless. This version of e-Port (TM) can, in addition to
gathering information about the sales and operation in the host equipment
(the auditing portion), allow a user to use a credit card or other cashless
method to make a purchase (as well as cash). 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
audit information. The acquisition of Stitch Networks has added multiple forms
of wireless connectivity to the above capabilities, including RFID
(radio frequency identification) and cell phone.
32
- Audit/Cashless/Interactive. In addition to the above benefits of network
control and remote monitoring, increased sales opportunity provided by the
credit cards, and wireless connectivity, this interactive capability
provides potential for revenue generation through interactive advertising on
the LCD screen.
e-Port (TM) features multiple connectivity options. These include the
ability to send and receive data via land lines, radio waves (like a home
cordless phone), wireless modems, and always-on phone connections. 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.
The Company has contracted with two manufacturers for e-Port (TM).
Masterwork Electronics Corporation, a leader in the manufacture of electronics
for the vending industry, manufactures the version of e-Port (TM) without the
LCD color touch screen. The other manufacturer, RadiSys Corporation, is a leader
in developing and mass-producing embedded systems, and has produced the e-Port
(TM) with the LCD screen and internet and advertising capability. The Company
entered into a Development and Manufacturing Agreement ("DMA") with RadiSys in
June, 2000. RadiSys has significant manufacturing expertise in the embedded chip
market and is partially owned by Intel. This e-Port (TM) client uses programming
developed by IBM simultaneously with IBM's work to enhance the "USAlive" server
network, all of which became available as an integrated package as of April,
2002, offering internet connectivity and screen capability in addition to the
audit and cashless functions.
Our customers' terminals are currently integrated into a network 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 has developed an enhanced network,
which is IP compliant and has wireless capability. The Company anticipates that
an additional $0.5 million may be incurred and expensed for legacy integration
and specific vending machine integration in the first half of fiscal 2003.
The second component involves financial services and auditing. This
capability provides users with auditing capability as well as turnkey credit
card and banking capability.
- USA utilizes a patented method of batch processing in order to conduct
affordable credit card transactions of as little as $1.00.
- USA provides users of the e-Port (TM) and TransAct with the ability to
instantly accept credit cards in an unattended location.
- USA acts as a 'super merchant' for its customers - thereby helping them to
avoid getting certified with credit card processors to do unattended
transactions.
- USA provides all the refunds, payments, and reporting of the credit card
transactions.
33
- 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. These
ads would be served to a more captive audience than is possible with traditional
web based advertising. The targeting of media via the Company's network may be
possible because the data base could 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, supermarket). The Company has secured a
license from DoubleClick for its advertising software for use in this regard.
For the years ended June 30, 2002 and 2001, the Company has expensed
approximately $1,187,000 and $1,260,000, 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
expense in the accompanying consolidated financial statements. Through March 31,
2002 the Company had capitalized approximately $5.3 million for the services of
IBM, to program the enhancements to the Company's proprietary "USAlive" server
network and to the e-Port (TM) client. During the fourth quarter of fiscal 2002,
the e-Port (TM) product and related network became available for general release
to the Company's customers. Management performed an evaluation of the commercial
success and preliminary market acceptance of the e-Port (TM) product and network
pursuant to SFAS 121 during the fourth quarter. Accordingly, during the fourth
quarter of fiscal 2002, the Company recorded an impairment charge of
approximately $2.7 million to reflect the software development costs at
its fair value. See Note 2 to the Consolidated Financial Statements.
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 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, with 27.3
billion credit/debit card transactions in 2001
- 1.7 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.)
34
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. Within this micropayment market, the largest single component
is vending, which is a $40 billion market.
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 nee for a PC.
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 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 will hit nearly $200 billion
annually by 2004.
CASHLESS PAYMENT PROCESSING
Each of the Company's cashless control systems records and transmits
all transaction data to the Company, which then forwards it to the credit card
processor and related system involving the banks and the credit card companies
such as Visa, MasterCard and American Express. Based on the transaction data,
the payment for services rendered or product purchased is then electronically
transferred to the Company's bank (less various financial charges). The
Company then forwards to the location its agreed upon share of the funds,
through check or EFT. In hospitality, if the Company has sold the business
center equipment to the location, the portion retained by the Company 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
the Kodak program, charges for product have been negotiated to give Stitch a
reasonable margin. In addition the Company charges a fixed monthly management
fee which is generally $20-$25 per control system for existing hospitality
locations.
PRODUCT LINES
THE E-PORT (TM) FOR VENDING
35
In general, our wireless vending service enables:
- cashless transactions including credit cards, smart cards, student
Ids, PDAs and cell phones;
- real-time access to monitor inventory, sales, audit (cash and credit)
and machine maintenance via the internet from any PC;
- the potential of an added revenue stream with the LCD color touch
screen for displaying interactive advertising and content.
With the acquisition of Stitch Networks, the Company has acquired vending
business with Eastman Kodak. This consists of locating specially designed Kodak
vending machines in high profile venues across the United States such as
amusement parks, zoos, and sports stadiums. The vending machines dispense
disposable cameras and associated film.
The e-Port (TM) allows a consumer to use a credit card or other forms of
cashless payment to make a purchase, and also gathers information about sales
and operations of the host equipment. Additional capabilities can include
internet connectivity and wireless communications. With some additional effort,
capability for public access electronic commerce and advertising is possible.
THE BUSINESS EXPRESS (R) FOR HOTELS
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 responsive to the needs of the business traveler. The
Business Express enables a hotel to address some of these needs, while offering
the possibility of generating incremental revenue.
The Business Express utilizes the Company's existing applications for
computers, copiers, and facsimile equipment, and combines them into a branded
product in a functional kiosk type workstation. All devices are cashless,
therefore eliminating the need for an attendant normally required to provide
such services.
Our hotel service enables:
- cashless transactions using credit cards and room cards for payment;
- access to unattended 24/7 business center services for hotel guests;
- access to vending machines for hotel guests with the use of their room
card.
E-SUDS (TM) FOR LAUNDRY
With the acquisition of Stitch Networks, the Company has acquired
additional product line enhancements. One such enhancement is our university
laundry services which enable:
36
- students to go on-line and check the availability of laundry machines
and receive email or a page when their laundry cycles are complete;
- students to charge the cost of their laundry to their credit card or
student account;
- laundry operators to access inventory, sales, audit and maintenance
via the internet from any PC;
- laundry operators to benefit from additional revenue through the sale
of detergent automatically added to the wash cycle.
MARKETING
As of June 30, 2002, the Company was marketing and selling its products
through its full time staff consisting of six people. The Company is primarily
focused on the vending, hospitality, office equipment and laundry industries,
but has expanded product distribution into new industries, including
transportation and multi-housing.
In the vending industry, the e-Port (TM) is being purchased by soft drink
bottlers and independent vending operators throughout the USA and Canada. On the
soft drink bottler side, heavy effort is being put into securing initial
distribution agreements with the top ten Coke and Pepsi bottlers. The initial
installations of e-Port (TM)s are already complete for a number of bottlers. At
a corporate level, the Dr. Pepper/7-Up Company announced in October 2002 at the
Dr. Pepper National Bottling meeting that it has selected USA Technologies to
make available its cashless payment services in its vending machines throughout
the United States. Dr. Pepper will offer our e-Port (TM) not only to its own
bottlers, but also to Coca-Cola and Pepsi bottlers that distribute Dr. Pepper
products. The Dr. Pepper Company has completed its first implementation of
e-Port (TM) with The Pepsi Cola Bottler of Central Virginia, with numerous
vending machines using e-Port (TM), with a Sprint-enabled wireless solution.
Three of the premier national independent vending operators, Compass,
ARAMARK and Sodexho, have already installed e-Port (TM) in various locations,
with plans for additional purchases based on the success of the initial e-Port
(TM)s. One major vending operator, International Vending Management, has signed
a contract with the Company.
In March 2002, the Company signed an agreement with MEI (Mars Electronics),
a world leader in the manufacturing and supplier of electronic coin mechanisms
and dollar bill acceptors to the vending industry. MEI has agreed to sell and
distribute an MEI branded cashless payment system to be developed by the
Company, as part of its portfolio of vending solutions, which would include a
comprehensive suite of cashless payment services and vending software management
tools. The Company has performed its developmental work, and the combined
offering will be introduced at the fall NAMA in October (the primary annual
vending trade show) with commercial availability planned for early 2003. By
contract, MEI has committed to buy a minimum of 10,000 unit of the USA product
over the course of 24 month agreement or pay the Company $4.00 per unit for any
shortfall. In addition, all MEI payment systems in the field would have the
option to connect to the Company's network and produce recurring revenues.
The Stitch Kodak program continues to install machines, with over 350 units
installed to date, including high profile locations such as Yankee Stadium, Time
Square and Six Flags Amusement Parks. New Kodak machines are being installed
weekly, which collectively represent recurring revenues to the Company from
service fees as well as sales of disposable cameras and film.
The Company continues to work with the top vending machine manufacturers,
including Automatic Products, AMS, U-Select-It, Crane Merchandising Systems,
37
FastCorp and Dixie Narco, in order to incorporate our e-Port (TM) technology
into vending machines at the factory (OEM); and with authorized resellers,
including Betson Enterprises, HA Franz, Brady Distributing and Weymouth
Distributing. The Company's Vending Machines for the Kodak Program are purchased
from Dixie Narco and the film and cameras are purchased directly from Eastman
Kodak Company. Dixie Narco is a large worldwide manufacturer of vending machines
owned by Maytag Corporation. Maytag Corporation owns Maytag Holdings, Inc., who
is also a shareholder of the Company (see Part III, Item 12).
In October, 2002, the Company signed a Strategic Alliance Agreement with
ZiLOG Corporation, a semiconductor company which is the largest supplier of
microprocessors to the retail point of sale industry. The agreement allows the
Company's proprietary network software (USAlive) to be embedded on a chip
produced by ZiLOG. The Company would license its software to the purchaser and
would receive a license fee. A second revenue stream could be generated when
those who buy the retail point of sales terminals begin to use them, because
they could elect to use the USA network which is embedded on the chip. The
Company believes that these fees could become the primary driver of
profitability for the Company in the intermediate and longer term. The Company
believes that the cost of e-Port (TM) to our customers could decline with this
activity.
In the hospitality industry, Business Express continues to be one of the
premier solutions for automated business centers. The Company has relationships
with two of the most recognized global hotel chains, Marriott and Hilton Hotels.
The addition of e-Port (TM) technology for vending machines located in hotels
now offers a "one-stop shopping" experience to hotels who also have or are
considering purchasing a USA business center. Recently, the Company completed
development of an e-Port (TM) application using hotel room keys, and 40 vending
machines are now operating successfully with such technology at the 1,400 room
Gaylord Palms Resort Hotel in Florida.
In laundry, American Sales Inc. (ASI) signed a five year agreement to
purchase units of Stitch's e-Suds laundry solution for their university
locations in the Midwest, with initial installations to begin in December 2002.
The Agreement provides that if ASI purchases at least 9,000 units over the
contract period, then ASI shall have exclusive rights to the units in Ohio,
Kentucky, Indiana, Michigan and Marshall University. The Company has
additionally begun working with two of the premier laundry operators, Web
Services and the MacGray Company. These two companies have already implemented
the e-Port (TM) solution, with discussions underway to implement the e-Suds
solution.
The Company continues to work with IBM, including recent installations of
its wireless (802.11) e-Port (TM) in prominent hotel vending machines.
PROCUREMENT
The Company's e-Port (TM) has been completed in a mass producible form
factor, by an independent contract manufacturer, RadiSys. 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 additional
manufacturing capability for e-Port (TM).
The Company anticipates obtaining the other components of its business
center (computers, printers, fax and copy machines) through Decision One and
CDW. Orders are regularly placed for expected orders weeks in advance.
38
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 , and the
locations may not order the Business Express , 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.
PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION
The Company received federal registration approval of its trademarks
Business Express , C3X, TransAct , and Public PC, and has applied for federal
registration of its trademarks Copy Express and e-Port (TM). Through its wholly
owned subsidiary, Stitch Networks, the Company has secured three trademarks:
eVend.Net, eSuds.Net and Stitch Networks.
Much of the technology developed or to be developed by the Company is
subject to trade secret protection. To reduce the risk of loss of trade secret
protection through disclosure, the Company has entered into confidentiality
agreements with its key employees. There can be no assurance that the Company
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 certain of the Company's technology.
Through October 15, 2002, fifteen 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";
39
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";
o U.S. Patent No. D441,401 entitled "Electronic Commerce Terminal
Enclosure with Brackets"; and
o U.S. Patent No. 6,321,985 entitled "System and Method for
Networking and Controlling Vending Machines."
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. The Company received a notice of allowance in October,
2002 for U.S. Patent entitled: "System for providing remote audit, cashless
payment, and interactive transactional capabilities in a vending machine."
Employees
On September 30, 2002, we had 37 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 $14,000 plus utilities and operating expenses. The lease expired on
June 30, 2002, and subsequently, the Company has leased these facilities on a
month-to-month basis. With the acquisition of Stitch Networks, the Company
acquired 12,225 square feet of rented space in Kennett Square, PA. The rent
is $11,153 per month and the lease expires on March 2005. The Company is
consolidating facilities, and therefore has vacated the rented space in
Kennett Square. For that reason, the Company has accrued for the remaining
payments of the lease of approximately $354,000 as part of the Stitch purchase
price as of June 30, 2002 (see Note 3 to the Consolidated Financial Statements).
The Company is attempting to secure a tenant to sublease the space for the
duration of the lease and is in default under the lease since August, 2002.
Subsequent to June 30, 2002, the Company also signed a lease for 16.5 months for
$4,000 per month for additional space in Malvern, PA for business activities.
40
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: 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 the date of this Prospectus,
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 39 President, Director
Haven Brock Kolls, Jr. 36 Vice President - Research and
Development
Leland P. Maxwell 55 Senior Vice President, Chief
Financial Officer, Treasurer
Michael K. Lawlor 40 Vice President - Marketing and
Sales
William W. Sellers (1)(2) 79 Director
William L. Van Alen, Jr. (1)(2) 67 Director
Steven Katz (1) 52 Director
Douglas M. Lurio (2) 45 Director
Edwin R. Boynton 47 Director
Kenneth C. Boyle 38 Director
(1) Member of Compensation Committee
(2) Member of Audit Committee
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
41
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.
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.
42
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.
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.
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.
Kenneth C. Boyle joined the Board of Directors in May 2002. Mr. Boyle
is the Vice President & General Manager - eBusiness of the Maytag Corporation.
He leads Maytag's global eBusiness unit, which explores and develops e-commerce
opportunities and Web enabled business models that support profitable growth
across Maytag's business units. He is responsible for all eBusiness efforts at
the corporate level as well as business and brand specific activities at the
operating unit level, inclusive of partnerships and strategy development. Prior
to Maytag, Mr. Boyle served as a director of business development with iXL, a
major global e-consulting firm. He was responsible for developing long-term,
strategic relationships with Global 2000 companies and assisting them with
consulting services to transform their traditional business models by leveraging
Internet technology. Mr. Boyle began his career with Delta Air Lines. His
ten-year career with Delta included management positions in sales and marketing
and founding Delta's e-commerce department. While there he led the development
and implementation of initiatives to drive sales via the Internet,
Internet-connected kiosks, smart card programs and other digital avenues.
43
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, 2000, June 30, 2001 and June 30, 2002 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, 2000, June 30, 2001 or June 30, 2002 received
salary and bonus in excess of $100,000 in any such fiscal year.
Summary Compensation Table
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., 2002 $135,000 $288,000 $80,000 (4) -- --
Chief Executive Officer, 2001 $135,000 $140,000 -- -- 300,000
2000 $117,500 $0 -- $80,000 (2) 180,000
Stephen P. Herbert, 2002 $125,000 $270,000 $80,000 (4) -- --
President 2001 $125,000 $134,400 -- 80,000
2000 $107,500 $94,000 -- $80,000 (2) 45,000
Leland P. Maxwell, Chief 2002 $110,308 $151,200 -- -- --
Financial Officer, Treasurer 2001 $108,000 $44,240 -- -- 50,000
2000 $99,000 $29,000 -- -- 15,000
H. Brock Kolls, Senior Vice 2002 $125,769 $180,000 $50,000 (4) -- 50,000
President, Research & 2001 $120,000 $97,440 -- -- 80,000
Development 2000 $105,000 $44,000 -- $80,000 (2) 30,000
Michael K. Lawlor, Senior 2002 $103,846 $151,200 -- -- --
Vice President, Sales and 2001 $100,000 $38,640 -- -- 50,000
Marketing 2000 $83,200 $35,500 $43,000 (3) -- 20,000
Adele H. Hepburn 2002 $91,000 $472,609 -- -- --
Director of Investor 2001 $91,000 $171,700 -- -- --
Relations 2000 $91,000 $147,800 -- -- --
(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. For fiscal year 2002, represents shares of Common
Stock issued to the executive officers valued at $.45 per share, which was
the market value on the date of grant. For Mr. Maxwell and Mr. Lawlor in
2002, the bonus also includes 90,000 shares of Common Stock valued at $.38,
which was the market price on the day of grant. This stock was awarded to
reimburse them for tax payments incurred as a result of the award of a
previous bonus. For Adele Hepburn in fiscal 2002, the bonus includes
$408,267 of non cash compensation, as follows: 435,334 shares of Common
Stock at $.60; 384,334 shares at $.10; and a $108,834 2001 - D 12% Senior
Notes due December 31, 2003.
(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.
(4) Represents cash payments authorized to reimburse certain executive officers
for tax payments incurred from the award of a previous bonus.
The following table sets forth information regarding stock options granted
during the fiscal year 2002 to the Company's executive officers named below:
44
OPTION GRANTS DURING FISCAL YEAR ENDED JUNE 30, 2002
OPTION GRANTS DURING FISCAL YEAR ENDED JUNE 30, 2002
Name Number of Percent of Exercise Expiration
Securities Total Options Price Date
Underlying Granted to Per
Options Employees in Share
Granted Fiscal Year
H. Brock Kolls 50,000 01.5% $0.40 April 15, 2005
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Mr. Jensen
which expires June 30, 2004. The agreement provides for an annual base salary of
$180,000 effective April 15, 2002. 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 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 (amended first to eight
percent and then reduced in November 2001 to seven 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.
During the year ended June 30, 2002 the Company issued to Mr. Jensen
640,000 shares of fully vested Common Stock as a bonus, and authorized payment
of $80,000 as reimbursement for income taxes payable due to an earlier Company
bonus. By an earlier agreement, Mr. Jensen was awarded 40,000 shares of Common
Stock of as June 30, 2002.
45
The Company has entered into an employment agreement with Mr. Herbert
which expires on June 30, 2004. The Agreement provides for an annual base salary
of $165,000 per year effective April 15, 2002. 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. In the year ended June
30, 2002, the Company issued to Mr. Herbert 600,000 shares of fully vested
Common Stock as a bonus, and authorized payment of $80,000 as reimbursement for
income taxes payable due to an earlier Company bonus. By an earlier agreement,
Mr. Herbert was awarded 40,000 shares of Common Stock as of June 30, 2002.
Mr. Kolls has entered into an employment agreement with the Company which
expires on June 30, 2004. The agreement provides for an annual base salary of
$150,000 per year effective April 15, 2002. 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. In the
fiscal year ended June 30, 2002, the Company issued to Mr. Kolls 400,000 shares
of fully vested Common Stock as a bonus, and authorized payment of $50,000 as
reimbursement for income taxes payable due to an earlier Company bonus. Mr.
Kolls was also granted, effective April 15, 2002, fully vested options to
purchase up to 50,000 shares of Common Stock at $ 0.40. By an earlier agreement,
Mr. Kolls was awarded 40,000 shares of Common Stock as of June 30, 2002.
Mr. Maxwell has entered into an employment agreement with the Company
which expires on June 30, 2003, and is automatically renewed from year to year
thereafter unless canceled by Mr. Maxwell or the Company. The agreement
provides for an annual base salary of $120,000 per year effective April 15,
2002. 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. In the fiscal year ended June 30, 2002, the Company issued to Mr.
Maxwell 260,000 shares of fully vested Common Stock as a bonus, and an
additional 90,000 shares of fully vested Common Stock to replace shares sold by
Mr. Maxwell to pay income taxes payable due to an earlier Company bonus.
Mr. Lawlor has entered into an employment agreement with the Company which
expires on June 30, 2003, and is automatically renewed from year to year
thereafter unless canceled by Mr. Lawlor or the Company. The agreement provides
for an annual base salary of $120,000 per year effective April 15, 2002. 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. In the fiscal year ended June 30, 2002, the Company issued to Mr.
Lawlor 260,000 shares of fully vested Common Stock as a bonus, and an additional
90,000 shares of fully vested Common Stock to replace shares sold by Mr. Lawlor
to pay income taxes payable due to an earlier Company bonus.
46
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.
In April 2002, the Board of Directors granted a total of 500,000 options to
purchase Common Stock at $.40 per share to outside directors of the Board, as
compensation for serving the one-year term which commenced March 21, 2002. The
options are fully vested and are exercisable at any time prior to April 12,
2005. Commencing on July 1, 2002 and at any and all times through June 30, 2003,
each Director has been granted the right, without the payment of the per share
exercise price of such options, to receive up to 50,000 shares represented by
those options.
In September 2002, Edwin P. Boynton elected to receive 50,000 shares in
lieu of the above options.
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.
47
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 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.
In April 2002, the Company issued to Haven Brock Kolls, fully vested
options to acquire up to 50,000 shares of Common Stock at $.40 per share. The
options are exercisable at any time until April, 2005.
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.
48
PRINCIPAL SHAREHOLDERS
COMMON STOCK
The following table sets forth, as of September 30, 2002, the
beneficial ownership of the Common Stock of each of the Company's directors
and executive officers, as well as by the Company's directors and executive
officers as a group. Except as set forth below, the Company is not aware of
any beneficial owner of more than five percent of the Common Stock.
Except as otherwise indicated, the Company believes 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. 1,150,666 shares(3) *
517 Legion Road
West Chester, Pennsylvania 19382
Stephen P. Herbert 1,031,384 shares(4) *
536 West Beach Tree Lane
Strafford, Pennsylvania 19087
Haven Brock Kolls, Jr. 884,184 shares(5) *
1573 Potter Drive
Pottstown, PA 19464
Leland P. Maxwell 323,384 shares(6) *
401 Dartmouth Road
Bryn Mawr, Pennsylvania 19010
Michael K. Lawlor 392,750 shares(7) *
131 Lisa Drive
Paoli, PA 19301
Edwin R. Boynton 386,750 shares(8) *
104 Leighton Drive
Bryn Mawr, Pennsylvania 19010
Steven Katz 160,000 shares(9) *
20 Rebel Run Drive
East Brunswick, New Jersey 08816
Douglas M. Lurio 381,713 shares(10) *
2005 Market Street, Suite 2340
Philadelphia, Pennsylvania 19103
William W. Sellers 986,577 shares(11) *
394 East Church Road
King of Prussia, Pennsylvania 19406
Ken Boyle
403 West Fourth Street North
Newton, Iowa 50208 126,188 shares(14) *
49
William L. Van Alen, Jr. 367,501 shares(12) *
Cornerstone Entertainment, Inc.
P.O. Box 727
Edgemont, Pennsylvania 19028
La Jolla Cove Investors, Inc. 12,488,951 shares(13) 9.1%
7817 Herschel Avenue, Suite 200
La Jolla, California 92037
David Goodman 9,616,077 shares 7.0%
31 Springbrook Lane
Newark, Delaware 19711
Maytag Holdings, Inc. 8,346,192 shares 6.1%
403 West Fourth Street North
Newton, Iowa 50208
PA Early Stage 4,926,260 shares 3.6%
435 Devon Park Drive Bldg. 500
Wayne, PA 19087
All Directors and Executive Officers
As a Group (11 persons) 6,191,097 shares(15) 4.5%
---------
*Less than one percent (1%)
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission 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
September 30, 2002, are deemed to be beneficially owned for purposes
hereof.
(2) On September 30, 2002 there were 72,736,205 shares of Common Stock and
529,282 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 529,282 shares
of Common Stock, that all of the options to acquire Common Stock which have been
issued and are fully vested as of September 30, 2002 (or within 60-days of
September 30, 2002) have been converted into 5,170,487 shares of Common Stock.
For purposes of computing such percentages it has also been assumed that all of
the remaining Warrants have been exercised for 7,332,408 shares of Common Stock;
that all of the Senior Notes have been converted into 36,478,498 shares of
Common Stock and the warrants associated with the Senior Notes due 2005 have
been exercised for 8,328,018 shares of Common Stock; that all of the Convertible
Debentures have been converted and related Warrants have been exercised into
6,105,000 shares of Common Stock; and that all of the accrued and unpaid
dividends on the Preferred Stock as of September 30, 2002 have been converted
into 557,253 shares of Common Stock. Therefore, for purposes of computing the
percentages under this table, there are 137,237,151 shares of Common Stock
issued and outstanding.
50
(3) Includes 446,666 shares of Common Stock issuable upon the exercise of
options, 160,000 shares issuable upon conversion of Senior Notes, and 14,000
shares of Common Stock beneficially owned by his spouse. Does not include the
right granted to Mr. Jensen under his Employment Agreement to receive seven
percent (7%) of the issued and outstanding Common Stock upon the occurrence of a
USA Transaction (as defined herein). See "Executive Employment Agreements".
(4) Includes 263,334 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 273,334 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 103,334 shares of Common Stock issuable to Mr. Maxwell upon the
exercise of options.
(7) Includes 83,334 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 160,000 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 160,000 shares of Common Stock issuable upon exercise of options.
(10) Includes 42,213 shares of Common Stock held jointly with Mr. Lurio's
spouse, 160,000 shares of Common Stock issuable upon exercise of options, and
99,000 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 175,500 shares of Common Stock
issuable upon exercise of options, 100,000 shares of Common Stock issuable upon
exercise of Warrants, and 56,000 shares issuable upon conversion of his Senior
Notes.
(12) Includes 172,500 shares of Common Stock issuable to Mr. Van Alen upon
exercise of options.
(13) Represents shares of Common Stock issued upon conversion of Convertible
Debentures and exercise of related Warrants.
(14) Includes 126,188 shares of Common Stock issuable upon exercise of options.
(15) Includes all shares of Common Stock described in footnotes (2) through (12)
above.
51
PREFERRED STOCK
The following table sets forth, as of September 30, 2002 the
beneficial ownership of the Preferred Stock by the Company's directors
and executive officers, as well as by the Company's directors and executive
officers as a group. Except as set forth below, the Company is not aware of
any beneficial owner of more than five percent of the Preferred Stock.
Except as otherwise indicated, the Company believes 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.
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 1.0%
All Directors and
Executive Officers
As a Group (11 persons) 5,500 1.0%
--------------
(1) There were 529,282 shares of Preferred Stock issued and outstanding as of
September 30, 2002.
CERTAIN TRANSACTIONS
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 options; 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; George Jensen - 200,000
options.
During the fiscal year ended June 30, 2002 and June 30, 2001, the
Company paid Lurio & Associates, P.C., of which Mr. Lurio is President,
professional fees of approximately $209,000 and $220,000 respectively, for legal
services rendered to the Company by such law firm.
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.
52
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 November 2001 the Company agreed to issue a bonus in January 2002
to its Executive Officers, consisting of 1,080,000 shares of Common Stock, and
1,080,000 options to purchase Common stock at $.40 per share. In January 2002
the Company issued the 1,080,000 shares. In April 2002 the Company issued
1,080,000 shares of Common Stock to its Executive Officers as a bonus in lieu of
the previously granted options, and canceled these options.
In April 2002, the Company: 1) issued to Haven Brock Kolls, fully
vested options to acquire up to 50,000 shares of Common Stock at $.40 per share.
The options are exercisable at any time until April, 2005; (2) granted a total
of 500,000 options to purchase Common Stock at $.40 per share to outside
directors of the Board, as compensation for serving the one-year term which
commenced March 21, 2002. The options are fully vested and are exercisable at
any time prior to April 12, 2005; (3) authorized $80,000 each to George R.
Jensen and Stephen P. Herbert and $50,000 to Haven Brock Kolls as reimbursement
for taxes paid as a result of the award of a previous bonus; and (4) authorized
90,000 shares of stock each to Leland P. Maxwell and Michael Lawlor as
reimbursement for taxes paid as a result of the award of a previous bonus.
In October 2002, the Company approved the issuance to each of George R.
Jensen, Jr., and Stephen P. Herbert of $100,000 of the senior note offering for
future services to be rendered to the Company. Pursuant thereto, each of them
received a $100,000 senior note and 200,000 shares of common stock. In October
2002, the Company approved the issuance of $100,000 of the senior note offering
to Adele Hepburn for services rendered (subject to final Board of Director
approval).
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 convertible debentures was or will be a
transaction exempt from the registration requirements of the Act and various
state securities laws.
53
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. The selling
shareholders are under no obligation to sell all or any portion of the shares
offered, nor are the selling shareholders obligated to sell such shares
immediately under this Prospectus. Particular selling shareholders may not have
a preset intention of selling their shares and may offer less than the number of
shares indicated. Because the selling shareholder may sell all, some or none of
the shares of common stock that the selling shareholder holds, 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. Shares of common stock may
be sold from time to time by the selling shareholders or by pledgees, donees,
transferees or other successors in interest.
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.
54
STITCH COMMON STOCK OPTIONS
Beneficial Ownership
After Offering
Common Stock --------------------
Selling Shareholder Offered Hereby Number Percent
------------------- -------------- ------ -------
Scott Wasserman(3) 504,753 0 *
Dan Kearney ....... 504,753 0 *
Scott Nissenbaum(6) 252,377 0 *
David Goodman(1) .. 126,188 9,489,889 4.8%
Ritchie Snyder .... 126,188 0 *
Diane Goodman(1) .. 126,188 9,489,889 4.8%
Roger Scholten(4) . 126,188 8,346,191 4.3%
Kenneth Boyle(2) .. 126,188 0 *
Mike Bolton(5) .... 126,188 4,926,260 2.5%
Scott Rosenthal ... 79,082 0 *
Wendy Jenkins(3) .. 79,082 0 *
Alex Kane ......... 55,358 0 *
Mark Rooney ....... 39,541 0 *
Ken May ........... 23,725 0 *
Matthew Heilman ... 19,771 0 *
Erika Bender(3) ... 15,816 0 *
Susan Ledyard ..... 11,862 0 *
Chris Keane ....... 11,862 0 *
Aaron Watkins ..... 11,862 0 *
Staci Spitzer ..... 11,862 0 *
Jim Rosemary ...... 11,862 0 *
Doke Scott ........ 11,862 0 *
Maeve McKenna ..... 11,862 0 *
Doug Wiggins ...... 11,862 0 *
David Vrencur ..... 7,908 0 *
Ron Wood .......... 7,908 0 *
Michael Knoll ..... 7,908 0 *
Rob Foehl ......... 7,908 0 *
Kate Jones ........ 3,954 0 *
Sean McGraw ....... 3,954 0 *
Eric Montgomery ... 3,163 0 *
Patrick Brisiel ... 3,163 0 *
Peter McNally ..... 3,163 0 *
---------
Total 2,475,318
-----------------
* less than one percent
(1) Diane Goodman is the spouse of David Goodman.
(2) Mr. Boyle is a Director of the Company.
(3) Current employee of the Company.
(4) Mr. Scholten is a Director of Maytag Holdings, Inc. which beneficially owns
8,346,191 shares of the Company.
(5) Mr. Bolton is Managing Director of Pennsylvania Early Stage Partners, GP,
L.L.C. which beneficially owns 4,926,260 shares of the Company.
(6) Former Director of the Company.
55
STITCH MERGER COMMON STOCK
Beneficial Ownership
After Offering
Common Stock --------------------
Selling Shareholder Offered Hereby Number Percent
------------------- -------------- ------ --------
David Goodman ............. 9,489,889 252,376 *
Maytag Holdings, Inc. ..... 8,346,192 0 *
PA Early Stage Partners, LP 4,926,260 0 *
----------
Total 22,762,341
-------
* Less than one percent (1%).
EMPLOYEE SEVERANCE COMMON STOCK
Beneficial Ownership~
After Offering
---------------------
Selling Shareholder(1) Common Stock Offered Hereby Number Percent
------------------- --------------------------- ------ ----------
Robert Foehl .... 16,200 0 *
David Borgese ... 25,400 0 *
Christopher Keane 26,500 0 *
Daniel Kearney .. 44,900 0 *
Kenneth May ..... 16,700 0 *
Sean McGraw ..... 8,700 0 *
James Rosemary .. 28,000 0 *
Staci Spitzer ... 19,200 0 *
David Vrencur ... 14,200 0 *
Aaron Watkins ... 12,500 0 *
Doug Wiggins .... 22,300 0 *
--------
TOTAL 234,600
-----------
* less than one percent (1%)
(1) Former employees of USA
KARL MYNYK COMMON STOCK
Beneficial Ownership
After Offering
Common Stock --------------------
Selling Shareholder Offered Hereby Number Percent
------------------- -------------- ------ --------
Karl C. Mynyk(1) 125,000 0 *
--------
* less than one percent
(1) The shares were issued to Mr. Mynyk (a former employee of USA) pursuant to a
Settlement Agreement and Release between Mr. Mynyk and the Company.
56
YODI RODRIG COMMON STOCK
Beneficial Ownership
After Offering
Common Stock --------------------
Selling Shareholder Offered Hereby(1) Number Percent
------------------- -------------- ------ -------
Yodi Rodrig 6,000,000 0 *
----------
(1) Consists of 2,000,000 shares of Common Stock and 4,000,000 shares underlying
warrants.
KAZI MANAGEMENT COMMON STOCK
Beneficial Ownership
After Offering
--------------------
Common Stock
Selling Shareholder Offered Hereby(1) Number Percent
------------------- -------------- ------ -------
Kazi Management VI, Inc. 22,857,145 0 *
----------
(1) Consists of 3,571,429 shares of Common Stock and 19,285,716 shares
underlying warrants.
ALPHA CAPITAL COMMON STOCK
Beneficial Ownership
After Offering
--------------------
Common Stock
Selling Shareholder Offered Hereby(1) Number Percent
------------------- -------------- ------ -------
Alpha Capital
Aktiengesellschaft 4,500,000 0 *
----------
(1) Consists of 3,000,000 shares of Common Stock and 1,500,000 shares underlying
warrants.
RATNER & PRESTIA COMMON STOCK
Beneficial Ownership
After Offering
Common Stock --------------------
Selling Shareholder Offered Hereby Number Percent
------------------- -------------- ------ -------
Ratner & Prestia, P.C.(1) 400,000 0 *
--------
* less than one percent
(1) Ratner & Prestia, P.C. represents the Company in intellectual property
matters.
LA JOLLA COMMON STOCK
Beneficial Ownership
After Offering
Common Stock --------------------
Selling Shareholder Offered Hereby Number Percent
------------------- -------------- ------ -------
La Jolla Cove
Investors, Inc.(1) 6,105,000 6,282,951 3.2%
--------
* less than one percent
(1) Represents shares issuable under Convertible Debenture and related warrants.
57
1999-B RESTRICTED COMMON STOCK
Beneficial Ownership
Selling Shareholder Common Stock Offered Hereby After Offering
-------------------- --------------------------- --------------------
Number Percent
------ -------
Gunter Beyer(14) 5,000 133,167 *
Deborah L. Witte, c/f 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) 30,000 227,567 *
Anthony B. Ullman(1) 20,000 227,567 *
John J. Hay(1) 20,000 227,567 *
Frances Young(2) 150,000 1,570,000 *
Richard S. Schonwald 50,000
William Robert Johnston 20,000
G. Ellard Mccarthy & Joan R. Bennett 5,000
Adele H. Hepburn(3) 80,000 4,540,788 2.3%
Austin B. Hepburn(3) 5,000 4,540,788 2.3%
Shelley & James Leroux 5,000
George Jensen
& Andrew D. Jensen (JTWOS) (4) 50,000 1,853,866 *
George Jensen
& Burton Jensen (JTWOS)(4) 50,000 1,853,866 *
George Jensen
& Ron Jensen (JTWOS)(4) 50,000 1,853,866 *
George Jensen
& Julie E. Johnston (JTWOS)(4) 50,000 1,853,866 *
Clifton B Currin, Trust 5,000
Earl D & Nancy A. Besch 10,000
August B Castle, Jr 30,000
Al Migliaccio, C/F Ashlee
Migliaccio, Under UGMA 10,000
Sheri-Lynn Demaris 50,000
Marthe Burlingame 4,000
Douglas Lurio & Margaret
Sherry Lurio (JTWOS)(5) 10,000 473,213 *
Brooke Ann Adamson 10,000
Betty A. Harris 20,000
Charles C. Kelleher 10,000
James E. Hamilton 10,000
Karl C. & Natalie C. Mynyk(13) 60,000 125,000 *
Randall C. Rolfe 1,000
58
Noma Ann Roberts 10,000
Gina & John C. Nostrant 10,000
Edwin R. Boynton(6) 20,000 419,762 *
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
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
59
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) 3,000 261,349 *
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 4,131,250 2.1%
Alan Alpert 10,000
Robert G Giddens 10,000
Harold N Gray 10,000
Donald R & Joan F Jones Sr 5,000
Dr. William P Burks 5,000
60
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 88,976 *
William W. Sellers(8) 130,000 1,026,356 *
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) 10,000 436,002 *
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) 10,000 370,384 *
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
61
James Dailey 10,000
Stephen M. Luce(12) 2,000 116,427 *
Michael Wusinich 5,000
Julie Herbert, custodian
for Lucas H. Herbert 1,000
Deborah L. Witte, c/f 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
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 represented 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
seven percent of the issued and outstanding common stock upon the occurrence of
a USA Transaction (as defined therein). See "Management - Executive Employment
Agreements."
62
(5) Mr. Lurio is a Director and his law firm, Lurio & Associates, P.C., is
general counsel to USA.
(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.
(13) Mr. Mynyck is a former employee of USA.
(14) Consultant to USA.
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 4,056,250 2.0%
Ira W. Miller(1) 12,500 256,250 *
Robert Allen Pett 100,000 610,005 *
I.W. Miller Group, Inc.(2) 6,250 262,500 *
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 *
Adam Sherman(4) 25,000 0 *
PNC Brokerage Cust. Stephen
P. Herbert IRA(5) 25,000 1,587,054 *
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%).
63
(1) Mr. Miller is the owner of I.W. Miller Group, Inc. which previously served
as our public relations firm.
(2) I.W. Miller Group, Inc. was 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.
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 50,000 660,000 *
George O'Connell 100,000
John Bachich 50,000
Steve & Elizabeth Illes 200,000 4,031,250 2.0%
Michael Bachich 200,000 975,000
Gregg J. Newhuis 125,000 275,000 *
Peter J. McGuire 50,000
Shugart Corporation 25,000
I.W. Miller Group, Inc. (1) 35,000 233,760 *
Julie H. Herbert (2) 10,000 1,602,054 *
---------
Total 895,000
=========
-------
* less than one percent
(1) I.W. Miller Group, Inc. was our public relations firm.
(2) Julie Herbert is the spouse of Stephen Herbert, the President of USA.
2001-B RESTRICTED COMMON STOCK
Common Stock Beneficial Ownership
Selling Shareholder Offered Hereby After Offering
------------------- -------------- --------------------
Number Percent
------ -------
ALEX CONSULTING(1) 100,000 2,921,000 1.5%
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 *
VIRGINIA S BALTZELL 3,334
CHARLES M & NANCY P BARCLAY 15,000
KIRSTEN BAZURO(11) 2,000 188,775 *
GUNTER J BEYER(13) 16,667 121,500 *
DAVID C BLACKBURN 50,000
JOSEPH J BOLITSKY 106,667
GARY BOURASSA 6,667
64
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
HELEN COLOMBO & JIM CROSS 16,667
HELEN COLOMBO & JIM CROSS 6,667
COLUMBIA MARKETING LTD 100,000
GERARD W COONEY 15,000
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(2) 30,000 282,000 *
HARRIET & CARY GLICKSTEIN 30,000
JULIUS GOLDEN 10,000
WILLIAM M GOLDSTEIN 20,000
PETER GRAHM 58,334
ROBERT GRAY 30,000
DIAN GRIESEL(2) 46,667 0 *
65
BRUCE H HALE 11,667
BILL HALSTENRUD 15,000
IRA FBO ROBERT A HAMILTON 16,667
DEVIN HANSEN 15,000
NANCY HANSEN 10,000
NANCY HANSEN 13,334
NANCY HANSEN 187,334
CONG. SHARIT HAPLETA 175,000
WILLIAM F HARRITY JR 63,334
GEORGE HARRUM(11) 13,334 81,000 *
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 4,292,454 2.2%
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
STEVE ILLES 100,000 3,131,250 1.6%
STEVE & ELIZABETH ILLES 1,000,000 3,131,250 1.6%
ROBERT B & MARY LOU JACOBY 6,667
TILEEN JACKSON(11) 1,000 5,277 *
PATRICIA E. RUGART CUST. FOR
JACQUELINE RUGART 5,000
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
66
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
STEPHEN M LUCE(11) 6,667 111,760 *
DOUGLAS M LURIO(5) 50,000 433,213 *
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 C/F
MATTHEW MICHAEL MCDONOUGH 134
CHARLES A MAYER 13,334
THOMAS E MCCARTY(6) 33,334 380,000 *
ROBERT G MCGARRAH(7) 50,000 408,000 *
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
PAUL NORDIN 6,667
GEORGE O'CONNELL 160,000
SUSAN ODELL 23,334
PATRICK O'MALLEY(11) 8,500 35,000 *
ALEX ORLIK(11) 76,916 11,667 *
ERIC PAGH 15,000
MICHAEL A PARKER 13,334
NEIL L PARKER 10,000
DELAWARE CHARTER GUARANTEE & TRUST
FBO BARRY J PATRIZZI IRA . 13,334
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
67
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
MARGIE RIFENBARK(11) 2,000 3,600 *
PATRICIA E. RUGART C/F
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
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 1,842,875 *
STEVE SCHEIDERMAN (11) 1,150 3,550 *
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
VIVIAN K STROUD(11) 6,667 189,127 *
CAROLYN S & CLARK D STULL JR JTWROS 15,834
MARY TOBIN(11) 1,667 103,550 *
MICHAEL TODD(11) 1,667 8,600
JEAN TURNER(11) 3,334 66,000 *
WILLIAM L VAN ALEN JR(8) 13,334 432,669 *
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
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
=========
---------~
68
* Less than one percent (1%).
(1) Mrs. Hepburn is the Director of Public Relations of USA.
(2) Dian Griesel is an officer with an investment relations firm doing work
for USA
(3) I.W. Miller Group was 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.
(11) Employee of USA.
2001 - C RESTRICTED COMMON STOCK
Common Stock Beneficial Ownership~
Selling Shareholder Offered Hereby After Offering
------------------- -------------- --------------------
Number Percent
------ -------
ALEX CONSULTING (14) 350,000 2,671,000 1.3%
JACKSON L ANDERSON 12,000
CHARLES W APPLE 20,000
KIRSTEN BAZURO (10) 10,000 180,775 *
REBA A BEESON 10,000
MARION DOUGLAS BELIN
& TEDDIE EARLINE BELIN 40,000
GUNTER J BEYER (16) 10,000 128,167 *
KATHLYNE K BIRDSALL 5,000
RICHARD & MARY BIRTZ 12,000
DAVID J BORGESE(15) 1,000 0 *
EDWIN R BOYNTON (1) 50,000 389,762 *
NEAL BOZENTKA 40,000
WILLIAM P BURKS MD 5,000
PAUL J BRODERICK (10) 1,000 0 *
AUGUST B CASTLE JR 62,716
ROBERT J CLARKE 20,000
JOHANNA CRAVEN 6,000
HELENA CRECRAFT 10,000
CLIFTON B CURRIN 6,000
BENJAMIN H DEACON 10,000
DAVID DE MEDIO (10) 30,000 234,349 *
DONALD M & DIANNE M DENLINGER 12,000
LOUIS E & ROSE M DI RENZO 10,000
JAMES W EFFRON 14,000
SOLOMON ELLNER 30,000
ANTHONY J FANELLI 4,000
FIELDMAN, HAY & ULLMAN (11) 50,000 1,677,700 *
FIN MAP CORPORATION 50,000
69
JOHN S FOSTER MD 60,000
ROBERT R FREY 9,900
GRANT GALLOWAY 20,000
ELLEN GIMBEL 6,000
RICHARD GONDA 279,000
HAROLD N GRAY 4,000
JAMES P & JOYCE M GREAVES 20,000
ROBERT HAMILTON(10) 1,000 107,976 *
KENNETH R HARRIS 4,800
GEORGE HARRUM (10) 1,000 93,333 *
ANDREW B HEBENSTREIT 60,000
CYNTHIA LOCKHART HEBERTON 2,000
MAUREEN E HENDRON 8,334
ADELE H HEPBURN (2) 102,000 4,513,788 2.3%
AUSTIN HEPBURN (2) 10,000 4,513,788 2.3%
STEPHEN P HERBERT (3) 300,000 1,312,054 *
ELWOOD E HERBERT 10,000
BJ HOLMES 5,000
ROBERT B & MARY LOU JACOBY 12,000
TILEEN JACKSON (10) 1,000 5,277 *
JOAN S. JAY 20,000
GEORGE R JENSEN JR (4) 320,000 1,583,866 *
THOMAS A KATCHUR 20,000
KAUFMANN & ASSOCIATES 20,000
HARRIETTE D KLANN 10,000
HAVEN BROCK KOLLS (5) 200,000 729,184 *
BRIAN KRUG (10) 1,000 0 *
LOIS A LANDIS 4,000
MICHAEL LAWLOR (6) 130,000 360,384 *
CECIL LEDESMA (10) 40,000 110,500 *
SHELLEY & JAMES LEROUX III 12,000
STEPHEN LUCE (10) 10,000 108,427 *
LELAND P MAXWELL (7) 130,000 250,384 *
LILY L MCCARTNEY 8,000
THOMAS E MCCARTY (8) 50,000 363,333 *
ROBERT G MCGARRAH 100,000
HARLEY & BROOK MILLER 5,000
MULL & PAIGE ASSOCIATES LLC 100,000
ELIZABETH L NELSON 20,000
SUSAN ODELL 40,000
PATRICK O'MALLEY (10) 1,000
ALEX ORLICK (10) 150,000 73,583 *
ROBERT G PADRICK 20,000
70
ROBERT G. PADRICK TRUSTEE FOR
ROBERT G. PADRICK
P/S/P AND TRUST 20,000
ERIC PAGH 20,000
RICHARD G & LAURA J PARKER 8,000
BARRY PATRIZZI (10) 10,000 26,834 *
ROY T PIRHALA 6,634
ROGER RADPOUR 500
MARGIE RIFENBARK (10) 1,000 4,600 *
JOHN S RUPP 2,000
STEPHEN SCHEIDERMAN (10) 6,000 0 *
RICHARD S SCHONWALD 60,000
AMY SEYMOUR (10) 1,000 90,550 *
SHAMROCK HOLDING 100,000
THOMAS SHANNON (10) 30,000 50,440 *
RAYMOND K SHOTWELL 2,000
GEORGE H SORRELL 2,000
DANIEL E SPEALMAN 18,000
ROBERT SPEARS 100,000
HOMER N & NATHALIE W STEWART 6,000
PRISCILLA STITT 2,000
STRATEGIC INVESTMENT MANAGEMENT SA 400,000
VIVIAN STROUD (10) 1,000 194,794 *
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
TREETOP INVESTMENTS 100,000
MARY TOBIN (10) 10,000 95,217 *
MICHAEL TODD (10) 2,500 7,767 *
JAMES L VAN ALEN 6,000 0 *
VIRTUAL CONCEPTS (13) 135,000 240,000 *
WILLIAM W SELLERS
TR UA 11/20/00 WILLIAM
W SELLERS REV TRUST (9) 100,000 1,056,356 *
MARGARET S WILLIAMS 18,000
ROBERT H WILLIAMS DDS
ASSOC PROFIT SHARING PLAN 24,000
DEBORAH WITTE 110,000
FRANCIS WOLFE, JR 1,000
MIKE WUSINICH 20,000
RUTH ZWEIGBAUM 6,000
---------
TOTAL 4,069,184
=========
--------------
* 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.
(10) Employee of USA.
(11) Technology Partners is the investment banker of USA.
71
(11) Fieldman, Hay & Ullman represented USA in connection with pending
litigation.
(12) Mr. Van Alen is a Director of USA.
(13) Virtual Concepts is a consultant to USA.
(14) Alex Consulting is a consultant to USA.
(15) Former employee of USA.
(16) Consultant to USA.
2001-D RESTRICTED COMMON STOCK
Beneficial Ownership~
After Offering
---------------------
Selling Shareholder Common Stock Offered Hereby(1) Number Percent
------------------- --------------------------- ------ -------
AHP HOLDINGS 58,334
Alvanos, Michelle & Costa 7,500
Anderson, Jackson L 7,500
Anderson, Wayne a 20,834
Apple, Charles W 56,250
Bazuro, Kirsten and Robert(8) 6,250 184,525 *
Barclay, Charles & Nancy 25,000
Birdsall, Kathlyne K 3,125
Bjorklund, Alexandra O 37,500
Blackburn, David C 62,500
Bolitsky, Joseph J 66,667
Boyar, Lea 12,500
Boynton, Edwin R(2) 31,250 408,512 *
Breslin, Billie 25,000
Brittain Family Trust 16,668
Burks, William P 15,625
Calvarese, Vincent J 6,250
Carl, Jerrold & Susan Cohen 62,500
Carlson, Julie 165,000
Castle Jr, August B 39,198
Charrington III, Arthur M.R. 25,000
Charrington, Ardis B 25,000
Chiordi, Michael J 25,000
Ciesielski, Judy a 25,000
Clark Jr, Gerald E 17,500
Clarke, Robert J 22,500
Clausen, Gordon & Marylou 6,250
Cohen, Marc A 43,750
Cong Sharit Hapleta 125,000
Cornerstone Public Relations Group 2,344
Craven, Johanna 8,959
72
Cross, Jim & Helen Columbo 8,334
Crothers, William R 3,125
Crow, Lorraine 2,500
Currin, Clifton B 24,584
Curtis, William & Linda 50,000
D'Angelo, David S 27,084
Deacon, Benjamin 6,250
Delta Western Company 93,750
Demaris, Sheri-lynn 87,500
DeMedio, David (8) 18,750 245,599 *
Denlinger, Donald & Dianne 30,000
Diligent Finance Co Ltd(6) 800,000 1,578,000 *
Direnzo, Louis & Rose 6,250
Dolan, Leo J 20,000
Dress, Robert & Melanie 18,334
Effron, Howard 25,000
Effron, James 8,750
Elliott, Bently 25,000
Evanko, Dr. Mark A 2,500
Fanelli, Anthony 42,500
Foster, John S 70,834
Frey, Robert R 9,390
Fulmer, Samantha Harris 2,500
Fusaro, Anthony A 50,000
Galvin, Dorothy 2,500
Geddis, Margaret R 4,168
Gibson, Ronald & Bonnie 16,668
Giddens, Robert G 50,000
Gillespie, Gale S 12,500
Glickstein, Harriet & Cary 37,500
Glockner, Frederick & Joan 2,500
Golden, Julius 12,500
Goldstein, William M 25,000
Greaves, James & Joyce 12,500
Groff, Larry K & Sheryl L 7,500
Hamilton, IRA FBO Robert A. (8) 10,500 93,226 *
Hamilton, Robert A. (8) 5,250 93,226 *
Hansen, Nancy Huston 155,000
Harris Jr, Burt I 400,000
Harris, Burt I 400,000
Harris, Kenneth R 3,000
Harrity Jr, William F 79,168
Hauptfuhrer Family Partner 25,000
Heald, Jack M 14,584
Hebenstreit, Andrew B 91,668
Hebenstreit, Ann 37,500
Hebenstreit, Lisa 20,000
Hebenstreit, Sam 17,500
73
Hebenstreit, Timothy B 27,500
Hebenstreit, Todd 20,000
Hendron, Maureen E 20,833
Hepburn, Adele H(3) 272,084 4,349,456 2.2%
Hepburn, Austin B(3) 4,248 4,349,456 2.2%
Hollenshead, Michelle 5,209
Holt, Alton 130,000
Hrubala Assoc, a Partnership 10,417
Hubbert, David W 6,250
Hudson, Gordon F 12,500
Hudson, Mark J 20,000
Hudson, Nicholas 9,000
Hughes, Christine F 7,293
Illes, Steve 500,000
Illes, Steve 187,500
J.M. Hull Associates Lp 53,125
Jackson, Nata M 100,000
Jacoby, Robert & Mary Lou 31,668
Johnston, William Robert 50,000
Jones, Charles T 12,500
Jones, Donald & Joan 10,419
Katchur, Michael 18,750
Katchur, Thomas A 137,500
Katchur, Thomas John 27,000
Kilmarx, George & June 16,668
Klann Trust, Harriette D 8,334
Klann, Harriette D 12,500
Knerr, Shirley K 22,500
Kobus, Gregory & Alice 25,000
Landis, Lois 2,500
Lewis, Warren D 14,584
Lippincott Jr, H Mather & Margaret 25,000
Lockhart-heberton, Cynthia 1,250
Lopez, Anthony & Barbara 25,000
Luce, Stephen M (8) 8,334 110,093 *
Maccain, James P 29,168
Madan, Lewis F 5,000
Marchand, Aimee 3,125
Marchand, Mariel 3,125
Marchand, Robin 14,584
Martin, C Leonard 50,000
Mason, Kathleen J 191,668
Mayer, Charles 10,000
McCartney, Lily 5,000
McGonigle, John & Rosemary 2,500
McGonigle, Mary C 2,500
McGuire, Peter J 200,000
Merriman, James F 25,000
Migliaccio, Al for Ashlee 12,500
Miller, Eileen & Lawrence 10,000
74
Miller, Harley & Brook 11,459
Millikin, George & Caroline 75,000
Moffitt Jr, George W 28,125
Montgomery, Ernest E 25,000
Montgomery, Robert & Rosemary 16,668
Moyer, F Stanton 62,500
Murray, Barbara J 25,000
Nelson, Elizabeth L 43,750
Newhuis, Gregg J 37,500
Newhuis, Jeffrey M 17,500
Nolan, Patrick 50,000
Nordin, Paul 8,334
O'Connell, George 100,000
Odell, Susan 54,168
Orlik, Alex (8) 20,313 68,270 *
Pagh, Eric 31,250
Parker, Michael A 8,334
Parker, Neil L 6,250
Parker, Richard & Laura 20,000
Perry, Douglas 5,209
Perry, Larry R 5,209
Perry, Mattie & William 25,000
Perry, Richard 5,209
Pirhala, Roy T 16,626
Potts, Robert H 25,000
Prescott, Barbara L 3,125
Proctor, Charles & Maria 1,042
Rafferty, Paul & Joan 79,168
Recktenwald, William 50,000
Reisner, William & Frances 30,000
Renner IV, Harry 84,375
Rettew III, John B 20,834
Richardson, George & Sharon 26,042
Rogers, Gardiner 7,500
Roper, Lisa & Lee 37,500
Roper, Marie G 37,500
Rugart, Karl F 18,750
Rupp, John S 16,875
Scammahorn, Keith & Lynne 25,000
Schoenhut Jr, William F 16,668
Scholl Profit Sharing Plan, Db 25,000
Scholl, Margaret J 25,000
Schonwald, Richard S 156,250
Scranton, Mary L 14,584
Sellers Trust, William W (7) 79,167 1,077,189 *
Shotwell, Raymond K 1,250
Shupe, Johnnye F 2,500
Singh, Krishna K 75,000
Smith, Richard 300,000
Spealman Ira, Daniel 43,229
Spealman, Daniel E 97,499
75
Steir, Michael & Ellen 18,750
Stewart, Homer & Nathalie 16,250
Stitt, Priscilla A 3,750
Stokes, Edward B 25,000
Stringfellow, Marcus & Emiko 25,000
Stull, Clark D 1,750
Szychoski, George E 250
Szychoski, Michael W 625
Szymborski, Constantine T 25,000
Technology Partners(5) 62,500
Technology Partners(5) 900,245
Thompson, Alfred & Susan 1,875
Thompson, Andrew & Marylynn 1,250
Torres, Guillermo M 25,000
Unanue, Curtis & Maria 75,000
Van Alen Jr, William L(4) 8,335 437,667 *
Wagner, Robert E 34,821
Weaver, David 5,500
Weaver, Kevin & Alicia 75,000
Weaver, Michael L 2,500
Weaver, Wesley R 12,500
Wessells III, Henry W 2,084
Wheeler, Arthur L 1,152,500
Willard, J Edward 120,834
Williams Dds Profit Sharing 147,500
Williams, Margaret S 89,500
Yoshimoto, Craig 25,000
Yutzy, John a & Lucinda K 20,000
Zelenka, Donald J 56,250
Zweigbaum, Ruth 12,605
Total 11,631,253
-----------
* Less than one percent (1%)
(1) The amount listed for each selling shareholder reflects the shares into
which the selling shareholder's senior note due December 31, 2004 are
convertible.
(2) Mr. Boynton is a Director of USA.
(3) Ms. Hepburn is Director of Public Relations for USA.Mr. Hepburn is the
spouse of Adele Hepburn.
(4) Mr. Van Alen is a Director of USA.
(5) Technology Partners is the investment banker for USA.
(6) Consultant to USA.
(7) Director of USA.
(8) Current employee of USA.
76
2001-D September Interest Common Stock
-------------------------------------------------
Beneficial Ownership~
After Offering
------------------
Common Stock
Selling Shareholder Offered Hereby Number Percent
-------------------------------------------- ----------------- ------- --------
KATHLYNE K BIRDSALL 676
JOSEPH J BOLITSKY 14400
EDWIN R BOYNTON (1) 8354 431,408 *
BRITTAIN FAMILY TRUST 4456
VINCENT J CALVARESE 1350
GARY CELLA 2720
MICHAEL J CHIORDI 7184
GERALD E CLARK JR 3780
MARC A COHEN 9450
Cornerstone Public Relations Group,
M Darlene Herbert Felt 322
JOHANNA CRAVEN 2426
JIM CROSS 2134
WILLIAM R CROTHERS 780
LORRAINE CROW 382
BENJAMIN DEACON 956
DELTA WESTERN COMPANY 25876
DAVID DEMEDIO(3) 2250
DILIGENT FINANCE CO LTD(6) 139094 262,099 *
ROBERT F DRESS 4288
HOWARD EFFRON 4814
BENTLEY ELLIOTT 3826
ANTHONY J FANELLI 4080
JOHN S FOSTER 18198
HELEN K FOX 2654
SAMANTHA HARRIS FULMER 374
DOROTHY GALVIN 652
FREDERICK F GLOCKNER 582
IRA FBO ROBERT A HAMILTON(3) 1932 105,910 *
ROBERT A HAMILTON(3) 1134 105,910 *
ANDREW B HEBENSTREIT 11000
ADELE H HEPBURN(2) 15357 4,610,431 2.4%
MICHELLE HOLLENSHEAD 1126
GORDON F HUDSON 2750
CHARLES T JONES 3342
MICHAEL KATCHUR 4050
SHIRLEY K KNERR 4860
GREGORY S KOBUS 6900
WARREN D LEWIS 3150
H MATHER LIPPINCOTT JR 3000
ANTHONY F LOPEZ 6684
JAMES P MACCAIN 3500
LEWIS F MADAN 1154
KATHLEEN J MASON 52900
CHARLES MAYER 2700
JOHN P MCGONIGLE 664
MARY C MCGONIGLE 664
JAMES F MERRIMAN 5400
EILEEN MILLER 2674
HARLEY MILLER 3042
GEORGE W MOFFITT JR 7764
ROBERT H MONTGOMERY 4600
ELIZABETH L NELSON 9450
77
ROBERT F NEMETH 1520
JEFFREY M NEWHUIS 4806
PATRICK NOLAN 10800
PAUL NORDIN 2300
MICHAEL A PARKER 1800
NEIL L PARKER 1350
ROBERT H POTTS 3000
CHARLES W PROCTOR III 136
JOHN B RETTEW III 5750
GARDINER ROGERS 2070
KARL F RUGART 5176
WILLIAM F SCHOENHUT JR 4600
STEPHEN SCHWARTZ 2466
MARY L SCRANTON 4006
William W
Sellers tr ua 11/20/00 William W Sellers Rev Trust(4) 17366 1,138,990 *
RAYMOND K SHOTWELL 334
RICHARD SMITH 52640
MICHAEL STEIR 4050
CLARK D STULL 210
GEORGE E SZYCHOSKI 70
MICHAEL W SZYCHOSKI 174
CONSTANTINE TEOFIL SZYMBORSKI 6900
TECHNOLOGY PARTNERS 169582
ALFRED HUNTER THOMPSON 518
ANDREW THOMPSON 334
C ANTHONY WAINWRIGHT 4000
DAVID L WEAVER 16164
MARLENE WEAVER 16800
MICHAEL L WEAVER 676
WESLEY R WEAVER 3334
BERNARD WIENER 2566
CRAIG YOSHIMOTO 5400
RUTH ZWEIGBAUM 3412
----------
TOTAL 780,166 (5)
________________
* Less than one percent
(1) Mr. Boynton is a Director of USA
(2) Mrs. Hepburn is Director of Public Relations of USA.
(3) Current employee of USA.
(4) Director of USA
(5) Includes 390,083 shares and 390,083 shares underlying warrants.
(6) Current consultant to USA
78
2002-A RESTRICTED COMMON STOCK
Beneficial Ownership
After Offering
---------------------
Selling Shareholder Common Stock Offered Hereby Number Percent
------------------- --------------------------- ------ ----------
Aanestad, Donald T. 140,000
Alex Consulting(8) 350,000 2,671,000 1.3%
Alimachandani, Vijay 210,000
Alvarez, Delia P. 35,000
Anderson, Wayne A. 35,000
Apple, Charles W 70,000
Apple, Susan Schram 70,000
Bachich, John 350,000
Bellavia, Charles F. 70,000
Beyer, Gunter(9) 70,000 68,167 *
Blackburn, David C. 105,000
Blackburn, Donald F. 210,000
Bolitsky, Joseph 70,000
Bransville Investment Ltd. 140,000
Bray, David G. 14,000
Brill Securities 210,000
Brittain, Douglas & Carolyn 140,000
Brodine, Gordon L. 140,000
Budinetz, Michael J. 99,750
Burks, William P. 70,000
Carlson, Julie 70,000
Cape MacKinnon, Inc. 350,000
Castle Jr, August B. 70,000
Clarke, Robert J. 910,000
Coffey, Roger D. 70,000
Cong Shearith Hapleta 385,000
Craven, Johanna 8,750
Crow, Dudley R. 70,000
Currin, Clifton B. 140,000
Curtis, William K. 99,750
D'Angelo, David 210,000
DeMaris, Sheri Lynn 126,000
Diligent Finance Co. Ltd.(10) 700,000 1,678,000 *
Din, Anees T 189,000
Elliot, Ben 210,000
Ellner, Solomon 350,000
Ellshay, LLC 140,000
Fanelli, Anthony J. 70,000
Firestone, Jeffrey 280,000
Forigo, Daniele 250,005
Fox, Helen K. 70,000
Fusaro, Anthony A. 70,000
Geddis, Margaret R 17,500
GFG Consulting 420,000
Giddens, Robert G. 311,967
Given, Charlotte (11) 140,000 172,000 *
Deacon Jr. Benjamin H 35,000
Finn Staff 140,000
79
Herbert, Julie(7) 350,000 1,288,720 *
Jones, Robert 210,000
Glickstein, Harriet 70,000
Glicksman, Rachel 336,000
Goldstein, William M. 70,000
Gregory, Alan V. 70,000
Hainey, Bob 350,000
Haldeman, Edward 140,000
Haldeman, Pauline E. 140,000
Hall, Robert & Virginia 35,000
Harrity Jr, William 70,000
Harris, Ken 26,857
Hauptfuhrer Family Partnership 175,000
Hauptfuhrer, Barbara D. 70,000
Heald, Cynthia & Jack 70,000
Hebenstreit, Andrew 350,000
Hendron, Maureen 70,000
Hepburn, Adele (1) 700,000 3,855,788 1.9%
Hepburn, Austin B.(1) 70,000 3,855,788 1.9%
Herbert, Stephen B.(7) 350,000 912,054 *
Hewson, Thomas A. 140,000
Hrubala Associates, a Partnership 70,000
Hudson, Gordon F. 35,000
Hudson, Mark J. 17,500
Hudson, Nicholas C. 17,500
Hughes, Christine F. 35,000
Ignite Capital 350,000
Illes, Steve 175,000
Internet PR Group 70,000
Jalmarson, Graig H. 42,000
Jenkins, Wendy 140,000
Jensen, Burton(2) 74,328 1,088,544 *
Jensen, David(2) 74,328 1,088,544 *
Jensen, George(2) 420,000 1,088,544 *
Jensen, Julie(2) 280,000 1,088,544 *
Jones Sr, Donald & Joan 9,332
Katchur, Thomas A. 490,000
Katchur, Thomas John 70,000
Keffer, John & Raelene 70,000
Knode, Raplh H. 140,000
Konsmo, Oystein 87,500
Law, Jeannine P. 70,000
Leboutillier, Sherril F 70,000
Lee, Steven 17,500
Lehmann, Aaron 189,000
Leroux, Shelley 70,000
Lewis, Warren D. 70,000
Lexington Venutres 420,000
Lippincott Jr., H. Mather 35,000
Lizzul, Paul & Dawn-Marie 70,000
Lockhart, Loretta 40,005
Lozowski, Robert 14,000
Luppino, Frances 70,000
Lurio, Douglas(3) 105,000 378,213 *
Maloney, Virginia Marshall 7,000
Mason, Kathleen 140,000
Max Communications 420,000
McCabe, Barry N. 70,000
McCormick, John F. 175,000
Knerr, Shirley K 70,000
80
Potts, Robert H 70,000
Mcgarrah, Robert G(12) 210,000 248,000 *
McGuire, Peter J. 140,000
Merriman, James 210,000
Miller, Harley & Brook 24,500
Moffitt Jr, George W. 70,000
Montgomery, Robert & Rosemary 70,000
Mosier, James 140,000
Nash, Gary 14,000
Neff, Ronnie 70,000
Neil, James 140,000
Nelson, Elizabeth L. 140,000
Nemeth, Robert F. 140,000
Newhuis, Gregg J. 1,295,000
Newhuis, Jeffrey 44,345
Nolan, Patrick 24,325
Oakland, Gary 105,000
OConnell, George 280,000
ONeill, Brian J. 105,000
Padrick, Robert 280,000
Panorama Partners 21,000
Parker, Neil L. 17,500
Parker, Richard & Laura 175,000
Pellegrino, Joseph 1,400,000
Penjuke, William & Carol 70,000
Pett, Robert A. 700,000
Pirhala, Roy T. 146,003
Ransome III, Ernest L. 70,000
Recktenwald, William 140,000
Reichl, Thomas C. 21,000
Reisner, Greg A. 70,000
Reisner, William & Frances 70,000
Renner IV, Harry 70,000
Rettew III, John B. 35,000
Richardson, George B. 72,917
Roberts, Noma Ann 35,000
Roper, Lee & Lisa 70,000
Rosenthal, Jerry 140,000
Ruben, Peter B. 700,000
Rugart, Karl F. 35,000
Rupp, John S. 70,000
Schoenhut III, William F. 70,000
Schoenhut Jr., William F. 210,000
Schonwald, Richard S. 490,000
Schwartz, Stephen 175,000
Scifers, Vicki S. 70,000
Sellers, William W. (4) 280,000 1,156,356 *
Shotwell, Raymond K. 35,000
Shute, Harry D. 35,000
Singer, Joseph 7,000
Padrick, Trustee, Robert G.
Padrick P/S/P and Trust, Robert G 140,000
Padrick, Trustee FBO Kellie Nicle
Padrick, Robert G 70,000
81
Smitley, Kathy 35,000
Snyder, Melvin G. 70,000
Stanglein, Terry W. 252,000
Steir, Michael & Ellen 35,000
Stern, Shai L.(13) 175,000 41,250 *
Stevens, Gertrude 175,000
Stewart, Homer & Nathalie 15,400
Svedas, William 7,000
Tauber, Barbara Ann 7,000
Technology Partners(5) 350,000 1,878,157 *
Tequesta Capital Corp. 99,995
Thompson, Alfred & Susan 14,000
Thoroughgood, William E 17,500
Torres, Guillermo 70,000
Trinity Associates 70,000
Turesky, Stephen S. 35,000
Turner, James 280,000
Van Alen Jr, William L.(6) 140,000 306,002 *
Vodantis, John S. & Hope J. 35,000
Wagner, Robert E. 70,000
Weaver, David E. 21,000
Weaver, Dwane M. 70,000
Weaver, Marlene 700,000
Weaver, Wesley R. 70,000
Wiener, Arthur 37,403
Wiener, Arthur & Ruth 80,850
Wiener, Bernard 35,000
Wilson, Kenneth B. 35,000
Winkle, Paul J. (8) 120,001 25,715 *
Wolfe, Claudine W. 21,000
Wright, C. Edwin & Janet Lyn 35,000
Wright, John D. 35,000
Zelenka, Donald J. 140,000
Zirbes, Joseph 35,000
Zweigbaum, Ruth 17,500
______________
Total 29,988,062
________
* Less than one percent (1%)
(1) Mr. Hepburn is the spouse of Adele Hepburn, Director of Public Relations of
USA.
(2) George R. Jensen, Jr., is the Chairman of the Board and Cheif Executive
Officer of USA.
(3) Mr. Lurio is a Director of USA and President of Lurio & Associates, P.C.,
general counsel to USA.
(4) Mr. Sellers is a Director of USA.
(5) Technology Partners is the investment banker of USA.
(6) Mr. Van Alen is a Director of USA.
(7) Mr. Herbert is Director, President and Chief Operating Officer of
USA. Julie Herbert is his spouse.
(8) Mr. Winkle is president of Alex Consulting, a consultant to USA.
(9) Mr. Beyer is our consultant.
(10) Diligent Finance is our consultant.
(11) Charlotte Givens is our consultant.
(12) Robert McGarrah is our consultant.
(13) Mr. Stern is our consultant.
82
2002-A September Interest Common Stock
-------------------------------------------
Beneficial Ownership
After Offering
Common Stock -----------------------
Selling Shareholder Offered Hereby Number Percent
-------------------------------------------------- -------------------- -------- ----------
DONALD T AANESTAD 1800
VIJAY ALIMACHANDANI 2300
CHARLES F BELLAVIA 900
GUNTER J BEYER(5) 1600 136,567 *
DAVID C BLACKBURN 1300
DAVID G BRAY 708
DOUGLAS & CAROLYN BRITTAIN 3866
GORDON L BRODINE 2050
MICHAEL J BUDINETZ 3000
JULIE CARLSON 2367
ROBERT J CLARKE 17393
ROGER D COFFEY 866
JOHANNA CRAVEN 200
DUDLEY R CROW 167
ELLSHAY LLC 3000
ANTHONY J FANELLI 800
HELEN K FOX 2363
ROBERT G GIDDENS 11700
GORDON F HUDSON 650
LEXINGTON VENTURES INC 7600
ROBERT LOZOWSKI 173
DOUGLAS LURIO(2) 4500 478,713 *
BARRY N MCCABE 433
JAMES F MERRIMAN 6468
HARLEY MILLER 368
JAMES H MOSIER 600
ELIZABETH L NELSON 2033
ROBERT F NEMETH 3134
GREGG J NEWHUIS 20800
PANORAMA PARTNERS LP 100
NEIL L PARKER 200
RICHARD PARKER 1583
JOSEPH PELLEGRINO 26667
JOHN S RUPP 1392
WILLIAM F SCHOENHUT JR 3367
STEPHEN SCHWARTZ 7834
VICKI S SCIFERS 3900
RAYMOND K SHOTWELL 467
KATHY SMITLEY 142
MELVIN G SNYDER 900
TERRY W STANGLEIN 10084
MICHAEL STEIR 217
TEQUESTA CAPITAL CORP 467
ALFRED HUNTER THOMPSON 193
JAMES TURNER 4933
WILLIAM L VAN ALEN JR(3) 2067 443,935 *
DWANE M WEAVER 867
MARLENE WEAVER 55468
ARTHUR A WEINER 1294
ARTHUR & RUTH WIENER 1881
KENNETH B WILSON 517
C EDWIN WRIGHT 217
JOHN D WRIGHT 350
RUTH ZWEIGBAUM 200
-----------
TOTAL 229,279(4)
___________
* Less than one percent
(1) Current employee of USA
(2) Mr. Lurio is a Director of USA and his law firm, Lurio & Associates,
P.C., is general counsel to USA.
(3) Mr. Van Alen is a Director of USA
(4) Represents 115,539 shares and 115,539 shares underlying warrants.
(5) Current consultant to USA.
83
COMMON STOCK UNDERLYING 2001 SENIOR NOTES
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
-------------------- -------------------- --------------------
Number Percent
------- -------
EDWIN R. BOYNTON (1) 20,000 419,762 *
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
84
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.
85
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
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 1,500 438,262(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
86
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
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 4,619,338(1) 2.4%
Adele H. Hepburn 3,450 4,619,338(1) 2.4%
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
Janney Montgomery Scott, Inc.
Cust. 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
87
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, C/F Ashlee
C. Migliaccio, UGMA of Pa 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
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
88
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 1,137,681(2) *
William W. Sellers 6,675 1,137,681(2) *
Sellers Pension Plan 6,000 1,137,681(2) *
Sellers Process Equipment Company 3,000 1,137,681(2) *
Helen E. Seltzer 750
Mr. & Mrs. Horace B. Spackman 750
Carolyn Stallworth 300
Clarence A. Sterling 3,000
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.
(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.
89
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 2,000 437,762(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
90
Benjamin Deacon 2,000
Sheri Lynn DeMaris 8,000
Jill Smith c/f Ron Jensen 13,600
Sheri Demaris c/f Burt Jensen 10,000
Sheri Demaris c/f
Andrew David Jensen 10,000
Desert Investment
Grp.-D Crockett 4,000
William P. Dunham 400
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. &
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 4,609,788(1) 2.4%
Adele H. Hepburn 8,000 4,609,788(1) 2.4%
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) 4,000 479,213(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 & Rosemary Montgomery 4,000
91
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
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 1,140,356(2) *
Nancy F. Sellers 4,000(2) 1,140,356(2) *
Sellers Pension Plan 8,000(2) 1,140,356(2) *
Helen E. Seltzer 400
Robert Silverman 2,000
Clarence E. Sterling 4,000
Dorothy A. Stone 4,000
Ben Wallace & J.A. Hatcherson 8,000
Howard Waxman 4,000
Peter S. Whitney 4,000
Peter S. Whitney SEP/IRA 4,000
Wilmington Trust Company, t/f
Allison Eleuthera Smith 4,000
Wilmington Trust Company, t/f
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.
92
(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.
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
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 2,000
Mr. & Mrs. Clark D. Stull 4,000
------
Total 33,400
======
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 4,000 435,762 *
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
93
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 4,623,788(1) 2.4%
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 2,500
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
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
94
Nancy Hansen 2,000
Adele H. Hepburn 3,000 4,622,788(1) 2.4%
Patricia Jill Smith
custodian for Burton Jensen 1,120
Bullseye Marketing Inc. 20,000
Nancy Haun 400
---------
Total 158,500
=========
---------------
(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.
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 5,000 434,762(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 4,618,288(2) 2.4%
Hepburn, Austin B 2,500 4,618,288(2) 2.4%
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
95
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 1,151,356(3) *
Schonwald, Richard S 5,000
Smith, Jill 2,500
Stull, Clark D 2,500
S. W. Ryan & Co. 10,000
Van Alen, Judith F 10,000 436,002(4) *
Wagner, Robert E 2,500
Wyman Jr., Samuel D 5,000
---------
Total 375,000
=========
------------
* Less than one percent.
(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.
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 4,623,288(1) 2.4%
Jones, Robert 2,500
Klann, Hariette D 2,500
Krook, Nancy 15,000
Moffit, Richard W 5,000
96
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 1,775,000(2) *
--------
Total 139,000
--------
---------------
(1) Adele Hepburn is the Director of Public Relations of USA.~
(2) Former employee of USA.
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. AND KATHERINE K. APPLE 2,000
BARRY C. ARNDT 1,000
JOHN P. AYERS 2,000
CHARLES M. AND NANCY P. BARCLAY 4,000
ROBERT E. BECK 400
MARION D. AND TEDDIE E. BELIN 4,000
NANCY A. AND EARL D. BESCH 2,000
ALEXANDRA O. BJORKLUND, 4,000
TRUSTEE U/A DATED 11-14-88
LOUISE D. BODINE 4,000
JOSEPH BOLITSKY 8,000
CHARLES L. BOLLING 1,000
GARY BOURASSA 1,000
EDWIN R. BOYNTON (11) 10,000 429,762 *
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. AND VINCENT J. CALVARESE 2,000
97
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. AND MARY LOU C. CLAUSEN 4,000
JAMES M. 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 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) 1,000 263,349 *
LOUIS E. 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 1,709,700 *
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 AND CARY GLICKSTEIN 4,000
WILLIAM M. GOLDSTEIN 2,000
GREGORY R. GOMES 10,000
IKLOS GOTTLIEB AND 4,000
YESHIVA SHEARITH HAPLETA
HAROLD N. GRAY 6,000
JOHN R. GREEN 4,000
CHARLES S. GRETH AND 1,000
RONNIE M. NEFF
ROBERT GUERIERA JR 2,000
JOHN E. HAMILTON 600
ROBERT A. HAMILTON (2) 1,400 107,576 *
NANCY H. HANSEN 4,000
KENNETH R. AND BETTY A. HARRIS 4,000
R. JOHNSTONE HARRITY 2,000
WILLIAM F. HARRITY, JR 4,000
BARBARA D. HAUPTFUHRER 3,000
ROBERT P. HAUPTFUHRER 2,000
98
FAMILY PARTNERSHIP
JOHN HAY (9) 6,000 1,709,700 *
ANN HEBENSTREIT REVOCABLE TRUST 2,000
MARC A. HEMBROUGH 2,000
AUSTIN B. HEPBURN (3) 3,000 4,607,788 2.44%
ADELE H. HEPBURN (3) 15,000 4,607,788 2.4%
JULIE H. HERBERT (10) 2,000 1,610,054 *
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 2,000
INDEPENDENT TRUST CORP, TRUSTEE
JANNEY MONTGOMERY SCOTT IRA FOR 2,000
ROBERT E. WAGNER
ROBERT B. AND MARY LOU JACOBY 2,000
WILLIAM ROBERT JOHNSTON 1,000
GLORIA S.AND FRED S. KARN 200
MORRIS KAUFMAN 2,000
MAUDE WOOD AND THOMAS D. KENT JR 2,000
ROBERT A. KILGORE 10,000
KATHLEEN COUGHLIN KILGORE 2,000
GEORGE H. AND JUNE Y. KILMARX 10,000
ANTHONY KIM 10,000
HARRIETTE D. KLANN 2,000
SHIRLEY K. KNERR 2,200
CHRISTINE C. KOLLS (4) 6,000 949,850 *
DAVID A. KRA 2,000
PHILLIP S. 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 2,000
MASON CUSTODIAN ACCT #397-70859
AARON LEHMANN 2,000
SHELLEY AND JAMES LEROUX, III 4,000
LEROY LEWIS 4,000
ISRAEL AND NESIA LICHENSTEIN 2,000
TOBY AND SOLOMON LICHTENSTEIN 1,000
ISRAEL AND RACHEL LICHTENSTEIN 1,000
THE WORDEN FAMILY 4,000
LIMITED PARTNERSHIP
E.H. ROGERS, JR. FAMILY 4,000
LIMITED PARTNERSHIP
BIRTZ REVOCABLE LIVING 4,000
TRUST (DATED 8-15-94)
PATRICK LOPEZ 2,000
DOUGLAS M. AND
99
MARGARET SHERRY LURIO (5) 6,000 477,213 *
JAMES P. MacCAIN 2,000
DONALD W. MACKENZIE 4,000
ALBERT P. AND MARY E. MALISCHEWSKI 2,000
SALVATORE MARINO 2,000
DR. IRWIN MARKOWITZ 10,000
CHARLES A. MAYER 2,000
G. ELLARD MCCARTHY AND 1,000
JOAN R. BENNETT
ROBERT F. McCARTNEY 2,000
JAMES F. MERRIMAN 3,000
HARLEY AND BROOK MILLER 600
THOMAS J. MOLUMPHY 1,000
GORDON E. MONTGOMERY 2,000
ROBERT H. AND 2,000
ROSEMARY M. MONTGOMERY
MILTON K. AND LOIS T. MORGAN Jr 2,000
JOHN J. MORGENTHALER 2,000
MAC G. AND JANDELLE C. MORRIS 1,000
RICHARD F. MURPHY 4,000
RONNIE M. NEFF 1,000
ELIZABETH LARRABEE NELSON 3,000
JOHN BRADLEY AND CAROL NIX 400
BRIAN G. NELSON 2,000
ALEX ORLIK(13) 800 87,783 *
ROBERT G. PADRICK, TRUSTEE FBO 2,000
ROBERT G. PADRICK PROFIT
SHARING PLAN
PETER B. PAKRADOONI 2,000
GARY PAPA 4,000
RICHARD G. PARKER 2,000
PANORAMA PARTNERS 10,000
WILLIAM R. AND MATTIE A. PERRY 7,000
ROY T. PIRHALA 4,000
JOHN W. PONTON, JR 2,000
J STEVE POWELL 600
MOLUMPHY CAPITAL MGMT 2,000
PROFIT SHARING
DANIEL P. QUINN 2,000
ROGER RADPOUR 2,000
PAUL J. 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. AND PATRICIA E. RUGART 2,000
JOHN S. RUPP 3,000
VALENTINA SAS AND ALEX ORLIK(12) 400
WILLIAM F. SCHOENHUT, JR 8,000
RICHARD S. SCHONWALD 21,000
THOMAS V. SEDLACEK 2,000
THOMAS A. AND KRISTIN M. SELDERS 1,000
WILLIAM W. SELLERS (6) 14,000 1,142,356 *
NICHOLAS SELLERS 2,000
SCOTT SELTZER 1,000
CELIA E. SHEVLIN 400
100
LEONARD H. SICHEL, JR 2,000
JOSEPH SINGER 2,000
LESLIE 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
SOLVEIG W. STETSON AND 2,000
HOMER N. STEWART
PRISCILLA STITT 4,000
EDWARD B. STOKES 4,000
CLARK D. STULL 4,000
TERRY L. AND MOLLY B. SWANTON 4,000
STEPHEN S. TURESKY 1,000
ANTHONY B. ULLMAN (9) 6,000 1,709,700 *
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 *
DONALD J. ZELENKA 10,000
RUTH ZWEIGBAUM 800
----------
Total 893,600
-----------------
* Less than one percent (1%).
(1) Mr. DeMedio is an employee of USA.
(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 represented USA in connection with past
litigation.
(10) Julie Herbert is the spouse of Stephen Herbert, the President of USA.
(11) Mr. Boynton is a Director of USA.
(12) Mr. Orlik is an employee of USA
101
(12) Mr. Orlik is an employee of USA.
1999-B COMMON STOCK PURCHASE WARRANTS
Common Beneficial Ownership
Selling Shareholder Stock Offered Hereby After Offering~
------------------------ --------------------------- --------------------
Number Percent
------ -------
ADAMSON, BROOKE ANN 3,800
ALEX CONSULTING, INC. (1) 30,000 2,991,000 1.5%
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) 20,000 419,762 *
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
102
CURTIS, WILLIAM K & LINDA S 30,000
DAILEY, JAMES 10,000
D'ANGELO, DAVID 10,000
DEMEDIO, DAVID (3) 3,000 267,349 *
DEMEDIO, MARTHA 1,000
DOLAN, LEO 5,000
EASON, JEAN 2,000
FIELDMAN, HAY & ULLMAN (4) 225,000 1,502,000 *
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) 20,000 128,976 *
HAMILTON, JAMES 5,000
HANSCOM, JANE 1,000
HANSEN, NANCY 15,000
HARGETT, JUDY & JOHN 2,500
HARRIS IRA, BETTY 17,500
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 4,620,788 2.4%
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 *
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
103
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) 5,000 113,427 *
LUPPINO, FRANCES 10,000
LURIO, DOUG AND MARGARET (9) 5,000 478,213 *
MARINO, SALVATORE 5,000
MASON, KATHLEEN 50,000
MAXWELL, LELAND (10) 5,000 392,050 *
MCCARTHY, G ELLARD 5,000
MCCARTY, THOMAS (11) 69,000 344,333 *
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
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 1,026,356 *
SHAHEEN, LOUIS & JANET 5,000
SMITH, PATRICIA JILL 73,500
STETSON IV, JOHN & SOLVEIG 5,000
STEWART, HOMER 1,000
104
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 1,695,000 *
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.
2001 - B COMMON STOCK PURCHASE WARRANTS
Common Stock
Hereby Offered Beneficial Ownership
After Offering
Selling Shareholder ------------------- --------------------
------------------- Number Percent
------ -------
MICHELLE H & COSTA J ALVANOS 2,334
MICHELLE H ALVANOS 5,000
WAYNE A ANDERSON 16,667
CHARLES W APPLE 30,000
CHARLES M & NANCY P BARCLAY 15,000
105
DAVID C BLACKBURN 50,000
JOSEPH J BOLITSKY 106,667
E DOUGLAS & CAROLYN BRITTAIN 13,334
VINCENT J CALVARESE 6,667
JERROLD CARL & SUSAN E COHEN 50,000
JULIE CARLSON 132,000
GORDON S & MARYLOU C CLAUSEN 10,000
MARC A COHEN 70,000
GINO F. COLOMBO & JIM CROSS 6,667
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
LEO J DOLAN 13,334
ROBERT F & MELANIE J DRESS 36,668
ANTHONY J FANELLI 30,000
JOHN S FOSTER 26,667
ROBERT R FREY 5,125
MARGARET R GEDDIS 3,334
RONALD C & BONNIE H GIBSON 12,334
HARRIET & CARY GLICKSTEIN 30,000
JULIUS GOLDEN 10,000
WILLIAM M GOLDSTEIN 20,000
NANCY HANSEN 10,000
NANCY HANSEN 13,334
NANCY HANSEN 187,334
CONG. SHARIT HAPLETA 175,000
IRA FBO ROBERT A HAMILTON 16,667
WILLIAM F HARRITY JR 63,334
ROBERT P HAUPTFUHRER
FAMILY PARTNERSHIP 20,000
JACK M HEALD 14,000
ANDREW B HEBENSTREIT 23,334
ANN HEBENSTREIT 10,000
ADELE H HEPBURN(1) 333,334 4,292,454 2.2%
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
106
STEVE ILLES 100,000 3,131,250 1.6%
STEVE & ELIZABETH ILLES 1,000,000 3,131,250 1.6%
ROBERT B & MARY LOU JACOBY 6,667
WILLIAM ROBERT JOHNSTON 50,000
DONALD R & JOAN F JONES SR 16,667
MICHAEL KATCHER 15,000
THOMAS A KATCHUR 100,000
GEORGE H & JUNE Y KILMARX 13,334
HARRIETTE D KLANN 6,667
SHIRLEY K KNERR 15,000
PHILLIP S KROMBOLZ 33,334
WARREN D LEWIS 11,667
H MATHER & MARGARET W LIPPINCOTT 1,167
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
CHARLES A MAYER 13,334
PETER J MCGUIRE 160,000
MICHAEL W MILES 30,000
HARLEY & BROOK MILLER 13,334
GEORGE W MOFFITT JR 45,000
KENNETH G MOLTA 6,667
ROBERT & ROSEMARY MONTGOMERY 13,334
ELIZABETH L NELSON 50,000
GREGG J NEWHUIS 293,334
JEFFREY M NEWHUIS 106,668
PAUL NORDIN 6,667
ALEX ORLIK 17,501
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
ROY T PIRHALA 6,734
ROBERT H POTTS 11,667
BARBARA L PRESCOTT 2,500
CHARLES W & MARIA O PROCTOR III 1,667
PAUL RAFFERTY 33,334
PAUL J & D JOAN RAFFERTY 30,000
WILLIAM RECKTENWALD 40,000
HARRY RENNER IV 67,500
JOHN B RETTEW III 16,667
GEORGE B RICHARDSON 41,667
GARDINER ROGERS 10,000
KARL F RUGART 15,000
JOHN S RUPP 18,750
CHARLES SCHWAB & CO FBO PETER
A SANDS IRA ACCT 7780-9057 26,668
WILLIAM F SCHOENHUT JR 13,334
RICHARD SCHONWALD 250,000 1,842,875 *
MARY L SCRANTON 23,334
107
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
WILLIAM L VAN ALEN JR(2) 13,334 432,669 *
ROBERT E WAGNER 27,857
HENRY W WESSELLS III 1,667
DELTA WESTERN COMPANY 150,000
ARTHUR L WHEELER 33,334
J EDWARD WILLARD 26,667
WILLIAM W SELLERS TR UA
11/20/00 WILLIAM W
SELLERS REV TRUST(3) 26,667 1,129,689 *
MARGARET S WILLIAMS 34,334
ROBERT H WILLIAMS DDS
ASSOC PROFIT SHARING PLAN 75,000
DONALD J ZELENKA 90,000
RUTH ZWEIGBAUM 7,084
----------
TOTAL 5,751,080
==========
--------------
* Less than one percent (1%).
(1) Mrs. Hepburn is the Director of Public Relations of USA.
(2) Mr. Van Alen is a Director of USA.
(3) Mr. Sellers is a Director of USA.
2001-C COMMON STOCK PURCHASE WARRANTS
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby After Offering
-------------------- -------------------- -------------------
Number Percent
------- -------
JACKSON L. ANDERSON 6,000
CHARLES W APPLE 10,000
KATHLYNE K BIRDSALL 2,500
EDWIN R BOYNTON (1) 25,000 414,762 *
WILLIAM P BURKS MD 2,500
AUGUST B CASTLE JR 31,358
ROBERT J CLARKE 10,000
JOHANNA CRAVEN 3,000
CLIFTON B CURRIN 3,000
BENJAMIN H DEACON 5,000
DONALD M & DIANNE M DENLINGER 6,000
LOUIS E & ROSE M DI RENZO 5,000
JAMES W EFFRON 7,000
ANTHONY J FANELLI 2,000
JOHN S FOSTER MD 30,000
ROBERT R FREY 4,950
JAMES P & JOYCE M GREAVES 10,000
KIRSTEN BAZURO(4) 5,000 185,775 *
DAVID DEMEDIO(4) 15,000 249,349 *
LARRY AND SHERYL GROFF 6,000
KENNETH R. HARRIS 2,400
ANDREW B. HEBENSTREIT 30,000
MAUREEN E. HENDRON 4,167
ADELE H. HEPBURN (2) 51,000 4,574,788 2.3%
108
ROBERT B. & MARY LOU JACOBY 6,000
THOMAS A. KATCHUR 10,000
HARRIETTE D. KLANN 5,000
LOIS A. LANDIS 2,000
LILY L. MCCARTNEY 4,000
AL MIGLIACCIO 10,000
HARLEY & BROOK MILLER 2,500
ELIZABETH L NELSON 10,000
SUSAN ODELL 20,000
ERIC PAGH 10,000
RICHARD G & LAURA J PARKER 4,000
STEPHEN LUCE (4) 5,000 113,427 *
ALEX ORLIK (4) 7,500 81,0083 *
ROY T PIRHALA 3,317
JOHN S RUPP 1,000
RAYMOND K SHOTWELL 1,000
DANIEL E SPEALMAN 9,000
HOMER N & NATHALIE W STEWART 3,000
PRISCILLA STITT 1,000
ALFRED HUNTER & SUSAN MARY THOMPSON 1,500
ANDREW ANDERSON & MARY LYNN THOMPSON 1,000
WILLIAM W SELLERS TR UA 11/20/00 50,000 1,106,356 *
WILLIAM W SELLERS REV TRUST (3)
MARGARET S WILLIAMS 9,000
ROBERT H WILLIAMS DDS ASSOC PROFIT 12,000
SHARING PLAN
RUTH ZWEIGBAUM 3,000
-------
TOTAL 467,692
------------
* 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. Sellers is a Director of USA.
(4) Employee of USA.
NOTEHOLDER PURCHASE WARRANTS
Beneficial Ownership
After Offering
--------------------
Selling Shareholder Common Stock Offered Hereby Number Percent
------------------- --------------------------- ------- -----------
AANESTAD, DONALD T 30,000
ADAMSON, ANNA KATE 3,000
ADAMSON, BROOKE ANN 3,000
ADAMSON, JOSIAH DAVID 3,000
ADAMSON, MICAH PAUL 3,000
ADAMSON, PETER JOHN 3,000
AGANS, ROBERT M 105,000
AHP HOLDINGS 110,001
109
ALEX CONSULTING(15) 75,000 2,946,000 1.5%
ALIMACHANDANI, VIJAY 45,000
ALPERT, ALAN 7,500
ALVANOS, MICHELLE & COSTA 4,500
ALVAREZ, DELIA P 7,500
ANDERSON, JACKSON L 4,500
ANDERSON, WAYNE A 50,001
APPLE, CHARLES W 48,750
APPLE, CHARLES W & KATHARINE K 30,000
APPLE, SUSAN SCHRAMM 15,000
APPLE, THOMAS 15,000
ARDNT, BARRY C 7,500
AYERS, JOHN P 15,000
BACHICH, JOHN 150,000
BARCLAY, CHARLES & NANCY 75,000
BAZURO, ROBERT & KIRSTEN (2) 3,750 187,025 *
BECK, ROBERT E 3,000
BELIN JTWROS, MARION DOUGLAS & TEDDIE EARLINE 45,000
BELLAVIA, CHARLES F 15,000
BESCH, NANCY A & EARL D 15,000
BEYER, GUNTER J 15,000
BIRD, BENJAMIN LEE 15,000
BIRDSALL, KATHLYNE K 1,875
BIRTZ REVOCABLE LIVING TRUST 30,000
Bjorklund Trustee U/A Dated 11-11-88, Alexandra O 52,500
BLACKBURN, DAVID C 60,000
BLACKBURN, DONALD F 45,000
BODINE, LOUISE D 30,000
BOLITSKY, JOSEPH J 115,001
BOLLING, CHARLES L 15,000
BOURASSA, GARY R 7,500
BOYAR, LEA 7,500
BOYNTON PENSION PLAN, JAMES R 45,000
BOYNTON, EDWIN R(1) 48,750 391,012 *
BRAY, DAVID G 3,000
BRESLIN, BILLIE 15,000
BRILL SECURITIES 45,000
BRITTAIN FAMILY TRUST 10,001
BRITTAIN, DOUGLAS & CAROLYN 30,000
BRODINE, GORDON L 60,000
BROOKS, CAROLINDA P 30,000
BUDINETZ, MICHAEL J 21,375
BURKS MD, WILLIAM P 69,375
BUTLER, ESTATE OF SMEDLEY D 30,000
BUTLER, SUSAN L 22,500
CALVARESE, JOANNE C & VINCENT J 15,000
CALVARESE, VINCENT J 18,750
110
CAMPBELL, WILLIAM A 7,500
CAPE MACKINNON INC 75,000
CARABASI MD, RALPH A 7,500
CARL, JERROLD & SUSAN COHEN 37,500
CARLSON, JULIE 114,000
CASTLE JR, AUGUST B 68,519
CHARRINGTON III, ARTHUR M.R. 15,000
CHARRINGTON, ARDIS B 15,000
CHIECO, MICHAEL G 37,500
CHIMICLES, BARBARA 15,000
CHIORDI, MICHAEL J 15,000
CIESIELSKI, JUDY A 60,000
CLARK JR, GERALD E 10,500
CLARKE, ROBERT J 208,500
CLAUSEN, GORDON S & MARY LOU C 33,750
CLOUTIER, DIANE 90,000
COFFEY, ROGER D 15,000
COHEN, MARC A 86,250
CONG. SHEARITH HAPLETA 326,250
CORNERSTONE PUBLIC RELATIONS GROUP 1,406
CRAVEN, JOHANNA 7,251
CRECRAFT, HELENA 15,000
CROSS, JIM & HELEN COLUMBO 5,000
CROTHERS, WILLIAM R 9,375
CROW, DUDLEY R 15,000
CROW, LORRAINE 1,500
CUNNINGHAM MD, T DAVID 15,000
CURRIN TRUSTEE, CLIFTON B 89,751
CURTIS, A KENNETH & WILLIAM K 30,000
CURTIS, WILLIAM K 37,500
CURTIS, WILLIAM K & LINDA S 90,000
D'ANGELO, DAVID S 91,251
DEACON, BENJAMIN H 18,750
DELLARUSSO, RICHARD J 15,000
DELTA WESTERN COMPANY 56,250
DEMARIS, SHERI LYNN 154,500
DEMEDIO, DAVID M (2) 18,750 256,849 *
DENLINGER, DONALD & DIANNE 18,000
DI RENZO, LOUIS & ROSE 7,500
DILIGENT FINANCE CO LTD(15) 480,000 1,898,000 1.0%
DIN, ANEES T 40,500
DIRENZO, LOUIS & ROSE 3,750
DOLAN, LEO J 42,000
DRESS, ROBERT & MELANIE 11,000
DRESSLER, MITCHELL 15,000
DURYEA, JUSTIN G 11,250
EFFRON, HOWARD 15,000
EFFRON, JAMES 5,250
ELLIOTT, BEN 60,000
ELLNER, SOLOMON 75,000
ELLSHAY LLC 30,000
EVANKO, DR. MARK A 1,500
FANELLI, ANTHONY 40,500
FIELDMAN, HENRY J(3) 45,000 1,592,700 *
111
FINN STAFF 30,000
FIRESTONE, JEFFREY 60,000
FORIGO, DANIELE 53,573
FOSTER, JOHN S 102,501
FOX, HELEN K 15,000
FREY, ROBERT R 5,634
FULMER, SAMANTHA HARRIS 1,500
FUSARO, ANTHONY A 45,000
GALVIN, DOROTHY 1,500
GEDDIS, MARGARET R 10,001
GFG CONSULTING 186,850
GIBSON, RONALD & BONNIE 10,001
GIDDENS, ROBERT G 90,000
GILLESPIE, GALE S 7,500
GIVEN, CHARLOTTE(15) 186,850 282,000 *
GLICKSMAN, RACHEL 72,000
GLICKSTEIN, HARRIET & CARY 67,500
GLOCKNER, FREDERICK & JOAN 1,500
GOLDEN, JULIUS 7,500
GOLDSTEIN, WILLIAM M 75,000
GOMES, GREGORY R 75,000
GOTTLIEB, MIKLOS 15,000
GRAY, HAROLD N 60,000
GREAVES, JAMES & JOYCE 7,500
GREEN, JOHN R 30,000
GREGORY, ALAN V 15,000
GROFF, LARRY K & SHERYL L 4,500
GUERIERA JR, ROBERT 30,000
HAINEY, BOB 75,000
HALDEMAN, EDWARD 30,000
HALDEMAN, PAULINE E 30,000
HALL, ROBERT & VIRGINIA 7,500
HAMILTON, JOHN E 4,500
HAMILTON, ROBERT A(2) 13,650 89,026 *
HAMILTON, IRA FBO ROBERT A (2) 6,300 89,026 *
HANSEN, NANCY H 138,000
HARRIS JR, BURT I 240,000
HARRIS, BURT I 240,000
HARRIS, KENNETH R 7,555
HARRIS, KENNETH R & BETTY A 30,000
HARRIS, PETER A & DEBORAH L 7,500
HARRITY JR, WILLIAM F 137,501
HARRITY, R JOHNSTONE 15,000
HARRITY, VIRGINIA W 7,500
HAUPTFUHRER FAMILY PARTNERSHIP, ROBERT P 67,500
HAUPTFUHRER, BARBARA D 52,500
HAY, JOHN(4) 45,000 1,592,700 *
HEALD FAMILY TRUST 30,000
HEALD, CYNTHIA & JACK 15,000
HEALD, JACK M 8,750
HEBENSTREIT, ANDREW B 130,001
HEBENSTREIT, ANN 22,500
HEBENSTREIT, LISA 12,000
HEBENSTREIT, SAM B 10,500
HEBENSTREIT, TIMOTHY B 16,500
112
HEBENSTREIT, TODD 12,000
HENDRON MD, MAUREEN E 102,500
HEPBURN, ADELE H (5) 470,751 4,110,488 2.1%
HEPBURN, AUSTIN B(5) 44,549 4,110,488 2.1%
HERBERT, STEPHEN P (6) 75,000 1,488,720 *
HERBERT, JULIE(18) 75,000 1,488,720 *
HEWSON, THOMAS A 30,000
HODGES, JOYCE 7,500
HOLLENSHEAD, MICHELLE 3,125
HOLMWOOD, JAMES M 30,000
HOLT, ALTON R 78,000
HRUBALA ASSOCIATES, A PARTNERSHIP 36,251
HUBBERT, DAVID W 26,250
HUDSON, GORDON F 30,000
HUDSON, MARK J 15,750
HUDSON, NICHOLAS C 9,150
HUDSON, WILBUR E 7,500
HUGHES, CHRISTINE F 15,626
HYMAN, MICHAEL 15,000
IGNITE CAPITAL 75,000
ILLES, STEVE 450,000 3,781,250 1.9%
INTERNET PR GROUP 15,000
IRA FBO BETTY A HARRIS DLJSC 15,000
IRA FBO KENNETH R HARRIS DLJSC 15,000
IRA FOR ROBERT E WAGNER 30,000
J.M. HULL ASSOCIATES LP 31,875
JACKSON, NATA M 60,000
JACOBY, ROBERT & MARY LOU 34,001
JALMARSON, CRAIG H 9,000
JENKINS, WENDY (3) 30,000 142,000 *
JENSEN JR, GEORGE R(7) 240,000 1,472,200 *
JENSEN, BURTON 15,927
JENSEN, DAVID 15,927
JENSEN, GEORGE R & RON RAYMOND(7) 150,000 1,472,200 *
JENSEN, JULIE(7) 75,000 1,472,200 *
JOHNSTON, WILLIAM ROBERT 37,500
JONES JTWROS, ROBERT F & DEBORAH L 60,000
JONES SR, DONALD & JOAN 2,000
JONES, CHARLES T 7,500
JONES, DONALD & JOAN 6,252
KARN, GLORIA S & FRED S 1,500
KATCHUR, MICHAEL 11,250
113
KATCHUR, THOMAS A 187,500
KATCHUR, THOMAS JOHN 31,200
KEFFER, JOHN & RAELENE 15,000
KENT, MAUDE WOOD 15,000
KENT, MAUDE WOOD & THOMAS D 15,000
KILGORE, KATHLEEN COUGHLIN 15,000
KILGORE, ROBERT A 75,000
KILMARX, GEORGE H & JUNE 85,001
KIM, ANTHONY Y.K. 75,000
KLANN TRUST, HARRIETTE D 5,000
KLANN, HARRIETTE D 22,500
KNERR, SHIRLEY K 45,000
KNODE, RALPH H 30,000
KOBUS, GREGORY & ALICE 15,000
KOLLS, CHRISTINE C (19) 45,000 910,850 *
KONSMO, OYSTEIN 18,750
KROMBOLZ, PHILLIP S 30,000
KROMBOLZ, ROCHELLE L & PHILLIP S 30,000
KROOK, NANCY 105,000
LAND, JEFFREY R 15,000
LANDIS, LOIS 1,500
LANNI, PAUL G 15,000
LAW, JEANNINE P 15,000
LEBOUTILLIER, SHERRILL F 150,000
LEE TRUST W/D/T 10/5/92, JOHN N 45,000
LEE, STEVEN 3,750
LEENE, JENNIFER BEIRNES 15,000
Legg Mason Cust FBO DennisL Gilbert IRA 15,000
LEGG MASON FBO RICHARD SCHONWALD IRA 22,500
LEHMANN, AARON 55,500
LEROUX, SHELLEY 45,000
LEWIS, WARREN D 23,751
LEXINGTON VENTURES INC 90,000
LIPPINCOTT JR, H MATHER 22,500
LIZZUL, PAUL & DAWN-MARIE 15,000
LOCKHART, LORETTA 8,573
LOCKHART-HEBERTON, CYNTHIA 750
LOPEZ, ANTHONY & BARBARA 15,000
LOPEZ, PATRICK 15,000
114
LOZOWSKI, ROBERT 3,000
LUCE, STEPHEN M.(2) 5,000 113,427 *
LUPPINO, FRANCES 15,000
LURIO, DOUGLAS(9) 22,500 415,713 *
LURIO, DOUGLAS M & MARGARET SHERRY(9) 45,000 415,713 *
MacCAIN, JAMES P 40,001
MACCARTNEYROBERT F & LILY L 15,000
MACKENZIE, DONALD 30,000
MADAN, LEWIS F 3,000
MALISCHEWSKI, ALBERT P & MARY E 15,000
MALONEY, VIRGINIA MARSHALL 1,500
MARCHAND, AIMEE 1,875
MARCHAND, MARIEL 1,875
MARCHAND, ROBIN 8,750
MARIE G ROPER, MARIE G 7,500
MARINO, SALVATORE 15,000
MARKOWITZ DDS Retirement Fund, IRWIN H 75,000
MARTIN, C LEONARD 30,000
MASON, KATHLEEN J 160,001
MAX COMMUNICATIONS 90,000
MAYER, CHARLES A 21,000
MCCABE, BARRY N 15,000
MCCARTHY, DUANE C 1,500
MCCARTHY, G ELLARD & JOAN R BENNETT 7,500
MCCARTNEY, LILY 3,000
McCauley Jr Trustees, David E & Sue A 45,000
MCCORMICK, JOHN F 37,500
MCGARRAH, ROBERT G (15) 45,000 413,000 *
MCGONIGLE, JOHN & ROSEMARY 1,500
MCGONIGLE, MARY C 1,500
MCGUIRE, PETER J 225,000
MERRIMAN, JAMES F 82,500
MIGLIACCIO, AL 7,500
Millennium Trust Co, Llc Cust f/b/o Fred KaragosianTR#1505257 15,000
MILLER, EILEEN & LAWRENCE 6,000
MILLER, HARLEY & BROOK 31,626
MILLIKIN, GEORGE & CAROLINE 45,000
MOFFITT JR, GEORGE W 31,875
MOFFITT REVOCABLE TRUST DATED 9/25/97, WANDA S 15,000
MOLUMPHY CAPITAL MGMT Profit Sharing 15,000
MOLUMPHY, THOMAS J 7,500
MONTGOMERY, ERNEST E 15,000
MONTGOMERY, ROBERT & ROSEMARY 25,001
MONTGOMERY, ROBERT H 30,000
MORGAN JR, MILTON K & LOIS T 15,000
MORRIS, MAC G 7,500
MOSIER, JAMES 30,000
MOYER, F STANTON 37,500
MURPHY, RICHARD F 30,000
115
MURRAY, BARBARA J 15,000
NASH, GARY 3,000
NEFF, RONNIE 15,000
NELSON, ELIZABETH L 71,250
NEMETH, ROBERT F 30,000
NEWHUIS, GREGG J 300,000
NEWHUIS, JEFFREY M 20,003
NIX, JOHN BRADLEY & CAROL C 4,500
NOLAN, PATRICK 35,213
NORDIN, PAUL 5,000
OAKLAND, GARY 22,500
OCONNELL, GEORGE 360,000
ODELL, SUSAN 32,501
O'NEILL, J BRIAN 22,500
ORLIK, ALEX (2) 18,188 82,583 *
PADRICK, ROBERT 60,000
PADRICK, TRUSTEE, ROBERT G PADRICK P/S/P AND TRUST, ROBERT G. 30,000
PADRICK, TRUSTEE FBO KELLIE NICOLE PADRICK, ROBERT G. 15,000
PAGH, ERIC 18,750
PAKRADOONI, PETER B 30,000
PANORAMA PARTNERS 4,500
PARKER, MICHAEL A 5,000
PARKER, NEIL L 7,500
PARKER, RICHARD 15,000
PARKER, RICHARD & LAURA 49,500
PELLEGRINO, JOSEPH 300,000
PENJUKE, WILLIAM & CAROL 15,000
PERRY, DOUGLAS 3,125
PERRY, LARRY R 3,125
PERRY, MATTIE & WILLIAM 71,250
PERRY, RICHARD 3,125
PETT, ROBERT 150,000
PIRHALA, ROY T 86,262
PONTON JR, JOHN W 15,000
POTTS, ROBERT H 30,000
POWELL, J STEVE 4,500
PRESCOTT, BARBARA L 1,875
PROCTOR, CHARLES & MARIA 625
RAFFERTY, PAUL & JOAN 47,501
RANSOME III, ERNEST L 22,500
RECKTENWALD, WILLIAM 75,000
REICHL, THOMAS C 4,500
REISNER, GREG A 15,000
REISNER, WILLIAM & FRANCES 33,000
RENNER IV, HARRY 125,625
RETTEW III, JOHN B 20,001
REYBOK, ROBERT & JOAN 15,000
RICHARDSON, GEORGE & SHARON 15,625
116
RICHARDSON, GEORGE B 15,625
ROBERTS, NOMA ANN 45,000
Rogers JR. Family LIimited Partnership, E H 30,000
ROGERS, DOYLE 15,000
ROGERS, GARDINER 16,500
ROPER, LEE R & LISA ANN 67,500
ROPER, MARIE G 22,500
ROSENTHAL, JERRY 30,000
ROUSE III, GEORGE PARKE 15,000
RUBEN, PETER S 180,000
RUGART, KARL F 48,750
RUPP, FRANK S 15,000
RUPP, JOHN S 70,125
SAS, VALENTINA 3,000
SCAMMAHORN, KEITH & LYNNE 15,000
SCHOENHUT III, WILLIAM F 30,000
SCHOENHUT JR, WILLIAM F 70,001
SCHOENHUT, EDWARD L 30,000
SCHOLL PROFIT SHARING PLAN, DB 15,000
SCHOLL, MARGARET J 15,000
SCHONWALD, RICHARD S 333,750
SCHWARTZ, STEPHEN 37,500
SCIFERS, VICKI S 15,000
SCRANTON, MARY L 8,750
SELDERS, THOMAS A & KRISTIN M 7,500
SELLERS TRUST, WILLIAM W (17) 47,500 973,856 *
SELLERS, NICHOLAS 15,000
SELLERS, WILLIAM W (17) 135,000 973,856 *
SELTZER, SCOTT 7,500
SHEVLIN, CELIA E 3,000
SHOTWELL, RAYMOND K 8,250
SHUPE, JOHNNYE F 1,500
SHUTE, HARRY D 7,500
SICHEL JR, LEONARD H 15,000
SINGER, JOSEPH 1,500
SINGER, LESLIE & ETHEL 15,000
SINGH, KRISHNA K 45,000
SMITH, RICHARD(15) 180,000 120,000 *
SMITLEY, KATHY 7,500
SNYDER, MELVIN G 15,000
SPEALMAN IRA, DANIEL 25,938
SPEALMAN, DANIEL E 58,500
STANGLEIN, TERRY W 54,000
STEINHILBER, ELINOR M 15,000
STEIR, MICHAEL & ELLEN 18,750
STERN, SHAI L (10) 37,500 178,750 *
STETSON IV, JOHN B 30,000
STETSON, CPT ERIC W 7,500
117
STETSON, SCOTT W 1,500
STETSON, SOLVEIG W 15,000
STEVENS, GERTRUDE 37,500
STEWART, HOMER & NATHALIE 13,050
STEWART, HOMER N 15,000
STITT, PRISCILLA A 32,250
STOKES, EDWARD B 45,000
STRINGFELLOW, MARCUS & EMIKO 15,000
STROUD, VIVIAN K (2) 7,500 188,294 *
STULL JTWROS, CLARK D & CAROLYN S 30,000
STULL, CLARK D 1,050
SVEDAS, WILLIAM 1,500
SWANTON,TERRY L & MOLLY B 30,000
SZYCHOSKI, GEORGE E 150
SZYCHOSKI, MICHAEL W 375
SZYMBORSKI, CONSTANTINE T 15,000
TAUBER, BARBARA ANN 1,500
TECHNOLOGY PARTNERS(11) 652,647 1,855,510 *
TEQUESTA CAPITAL CORP 21,428
THOMPSON, ALFRED & SUSAN 4,125
THOMPSON, ANDREW & MARYLYNN 750
THOROUGHGOOD, WILLIAM E 3,750
TORRES, GUILLERMO M 30,000
TRINITY ASSOCIATES 165,000
TURESKY, STEPHEN S 15,000
TURNER, JAMES 60,000
ULLMAN, ANTHONY B(12) 45,000 1,592,700 *
UNANUE, CURTIS & MARIA 45,000
VAN ALEN JR, WILLIAM L(13) 35,001 411,001 *
VESPER JR, JOHN H 7,500
VODANTIS, JOHN S & HOPE J 7,500
WAGNER, ROBERT E 35,894
WAHLSTROM, BORJE 15,000
WAHLSTROM, JEAN STEEL 15,000
WEAVER, DAVID 7,800
WEAVER, DWANE M 15,000
WEAVER, KEVIN & ALICIA 45,000
WEAVER, MARLENE 150,000
WEAVER, MICHAEL L 1,500
WEAVER, WESLEY R 22,500
WESSELLS III, HENRY W 5,001
WHEELER, ARTHUR L 1,102,500
WIENER, ARTHUR 8,015
WIENER, ARTHUR & RUTH 9,825
WIENER, BERNARD 7,500
WILLARD, J EDWARD 147,501
WILLIAMS DDS PROFIT SHARING 88,500
WILLIAMS, MARGARET S 53,700
WILSON, KENNETH B 7,500
WOLFE, CLAUDINE W 4,500
118
WRIGHT, C EDWIN & JANET LYN 7,500
WRIGHT, JOHN D 15,000
WRIGHT, WILLIAM M 15,000
WYMAN JR, SAMUEL D 15,000
YAMAGUCHI, JONI CARLEY 15,000
YOSHIMOTO, CRAIG 15,000
YOUNG, FRANCES(14) 705,000 1,120,000 *
YUTZY, JOHN A & LUCINDA K 12,000
ZELENKA, DONALD J 213,750
ZIRBES, JOSEPH 7,500
ZWEIGBAUM, RUTH 15,063
TOTAL 20,720,051
----------
* Less than one percent.
119
(1) Mr. Boynton is a Director of the Company.
(2) Employee of the Company.
(3) Mr. Feildman is a member of the law firm of Fieldman, Hay & Ullman, LLP,
which represented the Company in connection with prior litigation.
(4) Mr. Hay is a member of the law firm of Fieldman, Hay & Ullman, LLP,
which represented the Company in connection with prior litigation.
(5) Adele and Austin Hepburn are husband and wife. Adele Hepburn is the Director
of Public Relations of the Company.
(6) Mr. Herbert is President, Director and Chief Operating Officer of the
Company.
(7) George and Julie Jensen are husband and wife. Mr. Jensen is Chairman of the
Board and Cheif Operating Officer of the Company.
(8) Son of George Jensen.
(9) Douglas and Magaret Lurio are husband and wife. Mr. Lurio is a Director of
the Company and he is the President of Lurio &
Associates, P.C.
(10) Mr. Stern is a consultant to the Company.
(11) Technology Partners is the Company's investment banker.
(12) Mr. Ullman is a member of the law firm of Fieldman, Hay & Ullman, LLP,
which represented the Company in connection with prior litigation.
(13) Mr. Van Alen is a Director of the Company.
(14) Ms. young is a former employee of the Company.
(15) Consultant to the Company.
(16) Spouse of H. Brock Kolls
(17) Director of USA
MANAGEMENT OPTIONS
Beneficial Ownership
After Offering
--------------------
Selling Shareholder Common Stock Offered Hereby Number Percent
------------------- --------------------------- ------ -------
Options
Mr. George R. Jensen, Jr. 480,000 1,457,200(10) *
Mr. Henry B. duPont Smith 20,000 1,348,720(1) *
Mr. Stephen P. Herbert 290,000 655,850(2) *
Mr. Haven Brock Kolls, Jr. 300,000 980,856(3) *
Mr. William W. Sellers 175,500 773,575(4) 1.25%
Mr. Peter G. Kapourelos 177,000 8,013(5) *
Mr. William L. Van Alen, Jr. 172,500 95,000(6) *
Mr. Steven Katz 160,000 35,000(13) *
Mr. Douglas M. Lurio 160,000 253,713(11) *
Mr. Edwin R. Boynton 110,000 329,762(12) *
Ms. Adele Hepburn 277,000 4,343,788 2.2%
Mr. Austin Hepburn 5,000 4,343,788 2.2%
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
120
Mr. Jack D. Davis 342.50
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 100,000 407,050 (8) *
Mr. Leland P. Maxwell 120,000 277,050 (9) *
Mr. Cecil Ledesma 9,500 141,500 (14) *
Ms. Amy Thigpen 7,000 84,550 (14) *
Ms. Vivian Stroud 6,000 9,628 (14) *
Mr. Dave DeMedio 6,000 189,794 (14) *
Mr. James Tierney 1,000 258,349 (15) *
Larry Gershman 150,000 0 (16) *
Frances Young 100,000 1,725,000 (17) *
George O'Connell 100,000
---------
Total 2,472,500
=========
-------------------~
*Less than one percent (1%)
(1) Mr. Smith is a former 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.
(8) Mr. Lawlor is the Vice President-Marketing and Sales of USA.
(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
121
reflect the right granted to him under his employment
agreement to receive seven 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.
(17) Former employee of USA.
2004 and 2005 SENIOR NOTE INTEREST DECEMBER COMMON STOCK
Common Stock(1) Beneficial Ownership
Selling Shareholder Offered Hereby After Offering
------------------- -------------- --------------------
Number Percent
------ -------
2004 NOTEHOLDER
-----------
AHP HOLDINGS 7000
ALVANOS, MICHELLE & COSTA 900
ANDERSON, JACKSON L 900
ANDERSON, WAYNE A 2500
APPLE, CHARLES W 6750
BARCLAY, CHARLES & NANCY 3000
BAZURO, KIRSTEN & ROBERT(9) 750 190,025 *
BIRDSALL, KATHLYNE K 376
BJORKLUND, ALEXANDRA O 4500
BLACKBURN, DAVID C 7500
BOLITSKY, JOSEPH J 8000
BOYAR, LEA 1500
BOYNTON, EDWIN R(10) 3750 436,012 *
BRESLIN, BILLIE 3000
BRITTAIN FAMILY TRUST 2000
BURKS, WILLIAM P 1876
CALVARESE, VINCENT J 750
CARL, JERROLD & COHEN, SUSAN 7500
CARLSON, JULIE 19800
CASTLE JE, AUGUST B 4704
CHARRINGTON III, ARTHUR M.R. 3000
CHARRINGTON, ARDIS B 3000
CHIORDI, MICHAEL J 3000
CIESIELSKI, JUDY A 3000
CLARK JR, GERALD E 2100
CLARKE, ROBERT J 2700
CLAUSEN, GORDON & MARYLOU 750
122
COHEN, MARC 5250
CORNERSTONE PUBLIC RELATIONS GROUP 282
CRAVEN, JOHANNA 1076
CROSS, JIM 1000
CROTHERS, WILLIAM R 376
CROW, LORRAINE 300
CURRIN, CLIFTON B 2950
CURTIS, WILLIAM & LINDA 6000
D'ANGELO, DAVID S 3250
DB SCHOLL PROFIT SHARING PLAN 3000
DEACON, BENJAMIN 750
DELTA WESTERN COMPANY 11250
DEMARIS, SHERI-LYNN 10500
DEMEDIO, DAVID(9) 2250 262,099 *
DENLINGER, DONALD & DIANNE 3600
DILIGENT FINANCE CO LTD (8) 96000 2,282,000 1.2%
DIRENZO, LOUIS & ROSE 750
DOLAN, LEO J 2400
DRESS, ROBERT & MELANIE 2200
EFFRON, HOWARD 3000
EFFRON, JAMES 1050
ELLIOTT, BENTLY 3000
EVANKO, DR. MARK A 300
FANELLI, ANTHONY J 5100
FLINT, PRISCILLA TAYLOR 76
FOSTER, JOHN S 8500
FREY, ROBERT 1126
FULMER, SAMANTHA HARRIS 300
FUSARO, ANTHONY A 6000
GALLAGHER, ROSE & ANTHONY J 150
GALVIN, DOROTHY 300
GEDDIS, MARGARET R 500
GIBSON, RONALD & BONNIE 2000
GIDDENS, ROBERT 6000
GILLESPIE, GALE 1500
GLICKSTEIN, HARRIET & CARY 4500
GLOCKNER, FREDERICK & JOAN 300
GOLDEN, JULIUS 1500
GOLDSTEIN, WILLIAM M 3000
GREAVES, JAMES & JOYCE 1500
GROFF, LARRY K & SHERYL L 900
HAMILTON, IRA FBO ROBERT A (9) 1260 107,086 *
HAMILTON, ROBERT A (9) 630 107,086 *
HANSEN, NANCY HUSTON 18600
123
HARRIS JR, BURT I 96000
HARRIS, KENNETH R 360
HARRITY JR, WILLIAM F 9500
HAUPTFUHRER FAMILY PARTNER 3000
HEALD, JACK M 1750
HEBENSTREIT, ANDREW B 11000
HEBENSTREIT, ANN 4500
HEBENSTREIT, LISA 2400
HEBENSTREIT, SAM 2100
HEBENSTREIT, TIMOTHY B 3300
HEBENSTREIT, TODD 2400
HENDRON, MAUREEN E 2500
HEPBURN, ADELE H (2) 31524 4,593,754 2.4%
HEPBURN, AUSTIN B (2) 510 4,593,754 2.4%
HOLLENSHEAD, MICHELLE 626
HOLT, ALTON R 15600
HRUBALA ASSOC, A PARTNERSHIP 1250
HUBBERT, DAVID W 750
HUDSON, GORDON F 1500
HUDSON, MARK J 2400
HUDSON, NICHOLAS 1080
HUGHES, CHRISTINE F 876
ILLES, STEVE 82500 4,148,750 2.1%
J.M. HULL ASSOCIATES LP 6376
JACKSON, NATA M 12000
JACOBY, ROBERT & MARY LOU 3800
JOHNSTON, WILLIAM ROBERT 6000
JONES, CHARLES T 1500
JONES, DONALD & JOAN 1250
KATCHUR, MICHAEL 2250
KATCHUR, THOMAS A 16500
KATCHUR, THOMAS JOHN 3240
KAUR, SARB JIT 150
KILMARX, GEORGE & JUNE 2000
KLANN TRUST, HARRIETTE D 1000
KLANN, HARRIETTE D 1500
KNERR, SHIRLEY K 2700
KOBUS, GREGORY & ALICE 3000
LANDIS, LOIS 300
LEWIS, WARREN D 1750
LIPPINCOTT JR, H MATHER & MARGARET 3000
LOCKHART-HEBERTON, CYNTHIA 150
LOPEZ, ANTHONY & BARBARA 3000
LUCE, STEPHEN M 1000 117,427 *
MACCAIN, JAMES P 3500
MADAN, LEWIS F 600
MARCHAND, AIMEE 376
MARCHAND, MARIEL 376
MARCHAND, ROBIN 1750
124
MARTIN, C LEONARD 6000
MASON, KATHLEEN 23000
MAYER, CHARLES 1200
MCCARTNEY, LILY 600
MCGONIGLE, JOHN & ROSEMARY 300
MCGONIGLE, MARY C 300
MCGUIRE, PETER 24000
MERRIMAN, JAMES F 3000
MIGLIACCIO, AL FOR ASHLEE 1500
MILLER, EILEEN & LAWRENCE 1200
MILLER, HARLEY & BROOK 1376
MILLIKIN, GEORGE & CAROLINE 9000
MOFFITT JR, GEORGE W 3376
MONTGOMERY, ERNEST E 3000
MONTGOMERY, ROBERT & ROSEMARY 2000
MORRISON, FRANCES WHEELER 1500
MOYER, F STANTON 7500
MURRAY, BARBARA J 3000
NELSON, ELIZABETH L 5250
NEWHUIS, GREGG J 4500
NEWHUIS, JEFFREY 2100
NOLAN, PATRICK 6000
NORDIN, PAUL 1000
O'CONNELL, GEORGE 12000
ODELL, SUSAN 6500
ORLIK, ALEX (9) 2438 86,145 *
PAGH, ERIC 3750
PARKER, MICHAEL A 1000
PARKER, NEIL L 750
PARKER, RICHARD & LAURA 2400
PERRY, DOUGLAS A 626
PERRY, LARRY R 626
PERRY, MATTIE & WILLIAM 3000
PERRY, RICHARD 626
PIRHALA, ROY T 1996
POTTS, ROBERT H 3000
PRESCOTT, BARBARA L 376
PROCTOR, CHARLES & MARIA 126
RAAB, SAMUEL 15000
RAFFERTY, PAUL & JOAN 9500
RECKTENWALD, WILLIAM 6000
REISNER, WILLIAM & FRANCES 3600
RENNER IV, HARRY 10126
RETTEW III, JOHN B 2500
RICHARDSON, GEORGE B 3126
ROGERS, GARDINER 900
ROPER, LISA & LEE 4500
ROPER, MARIE G 4500
RUGART, KARL F 2250
RUPP, JOHN S 2026
SCAMMAHORN, KEITH & LYNNE 3000
SCHOENHUT JR, WILLIAM F 2000
SCHOLL, MARGARET J 3000
125
SCHONWALD, RICHARD S 18750 2,074,125 1.1%
SCRANTON, MARY L 1750
SELLERS TRUST, WILLIAM W 9500
SHOTWELL, RAYMOND 150
SHUPE, JOHNNYE F 300
SINGH, KRISHNA K 9000
SINGH, SARB JIT 76
SMITH, RICHARD 36000
SPEALMAN IRA, DANIEL 5188
SPEALMAN, DANIEL E 11700
STEIR, MICHAEL & ELLEN 2250
STEWART, HOMER & NATHALIE 1950
STITT, PRISCILLA A 450
STOKES, EDWARD B 3000
STRINGFELLOW, MARCUS & EMIKO 3000
STULL, CLARK D 210
SZYCHOSKI, GEORGE E 30
SZYCHOSKI, MICHAEL W 76
SZYMBORSKI, CONSTANTINE T 3000
TAYLOR, DIANA STELLING 76
TAYLOR, EDWARD M 150
TAYLOR, JOHN M 150
TAYLOR, JUDITH ANN 76
TAYLOR, MARGO E 76
TAYLOR, TUCKER CHASE 150
TECHNOLOGY PARTNERS(8) 115530 2,392,627 1.3%
THOMPSON, ALFRED & SUSAN 226
THOMPSON, ANDREW & MARYLYNN 150
TORRES, GUILLERMO M 3000
UNANUE, CURTIS A& MARIA 9000
VAN ALEN JR, WILLIAM L(7) 1000 445,002 *
WAGNER, ROBERT E 4178
WAIBEL, CAROLYN 3000
WAIBEL, R SCOTT 3000
WEAVER, DAVID 660
WEAVER, KEVIN & ALICIA 9000
WEAVER, MICHAEL L 300
WEAVER, WES 1500
WESSELLS III, HENRY W 250
WHEELER JR, ARTHUR L 3000
WHEELER JR, FREDERICK C 3000
WHEELER, ALINA R 3000
WHEELER, ANTONIA C 3000
WHEELER, ARTHUR L 150000
PATTON, CHRISTINE W 3000
WHEELER, EDWARD F 3000
WHEELER, LESLIE P 3000
WHEELER, SUSAN W 3000
WILLARD, J EDWARD 14500
WILLIAMS DDS PROFIT SHARING 17700
WILLIAMS, MARGARET S 10740
YOSHIMOTO, CRAIG 3000
YUTZY, JOHN A & LUCINDA K 2400
ZELENKA, DONALD J 6750
ZWEIGBAUM, RUTH 1512
TOTAL SHARES 1,395,774
126
2005 NOTEHOLDER
---------------
AANESTAD, DONALD T 6,000
ALEX CONSULTING 98) 10,000 3,011,000 1.5%
ALIMACHANDANI, VIJAY 6,000
ALVAREZ, DELIA P 1,500
ANDERSON, WAYNE A 1,500
APPLE, CHARLES W 3,000
APPLE, SUSAN SCHRAMM 2,000
BACHICH, JOHN 10,000
BELLAVIA, CHARLES F 3,000
BEYER, GUNTER J (8) 3,000 135,167 *
BLACKBURN, DAVID C 4,500
BLACKBURN, DONALD F 9,000
BOLITSKY, JOSEPH 2,000
BRAY, DAVID G 600
BRILL SECURITIES 9,000
BRITTAIN, DOUGLAS & CAROLYN 4,000
BRODINE, GORDON L 4,000
BUDINETZ, MICHAEL J 2,850
BURKS, WILLIAM P 3,000
CAPE MACKINNON INC 11,000
CARLSON, JULIE 3,000
CASTLE JR, AUGUST B 3,000
CLARKE, ROBERT J 26,000
COFFEY, ROGER D 3,000
CONG SHEARITH HAPLETA 11,000
CRAVEN, JOHANNA 380
127
CROW, DUDLEY R 3,000
CURRIN, CLIFTON B 4,000
CURTIS, WILLIAM K 7,500
D'ANGELO, DAVID 8,000
DEMARIS, SHERI LYNN 5,400
DEACON JR., BENJAMIN H 1,000
DIN, ANEES T 5,400
ELLIOTT, BEN 6,000
ELLNER, SOLOMON 10,000
ELLSHAY LLC 6,000
FANELLI, ANTHONY J 3,000
FINN STAFF 4,000
FIRESTONE, JEFFREY 11,870
FORIGO, DANIELE 7,150
FOX, HELEN K 3,000
FUSARO, ANTHONY A 3,000
GEDDIS, MARGARET R 500
GFG CONSULTING 12,000
GIDDENS, ROBERT G 13,500
GIVEN, CHARLOTTE(8) 4,000 308,000 *
GLICKSTEIN, HARRIET & CARY 2,000
GLICKSMAN, RACHEL 9,600
GOLDSTEIN, WILLIAM M 3,000
GREGORY, ALAN V 3,000
HAINEY, BOB 10,000
HALDEMAN, EDWARD 6,000
HALDEMAN, PAULINE E 6,000
HALL, ROBERT & VIRGINIA 1,390
HARRIS, KEN 200
HARRITY JR, WILLIAM 3,000
HAUPTFUHRER FAMILY PARTNERSHIP 6,000
HAUPTFUHRER, BARBARA D 3,000
HEALD, CYNTHIA & JACK 3,000
HEBENSTREIT, ANDREW 15,000
HENDRON, MAUREEN 3,000
HEPBURN, ADELE(2) 120,000 4,502,788 2.4%
128
HEPBURN, AUSTIN B (2) 3,000 4,502,788 2.4%
HERBERT, JULIE (3) 12,670 1,613,380 *
HERBERT, STEPHEN P (3) 12,670 1,613,380 *
HEWSON, THOMAS A 6,000
HRUBALA ASSOCIATES, A PARTNERSHIP 3,000
HUDSON, GORDON F 1,500
HUDSON, MARK J 750
HUDSON, NICHOLAS C 750
HUGHES, CHRISTINE F 1,000
IGNITE CAPITAL 10,000
ILLES, STEVE 5,000 4,226,250 2.2%
INTERNET PR GROUP 2,000
JALMARSON, CRAIG H 1,200
JENKINS, WENDY(9) 4,000 168,000 *
JENSEN, BURTON (11) 2,614
JENSEN, DAVID (11) 2,614
JENSEN, GEORGE (9) 15,000 1,913,400 *
JENSEN, JULIE (9) 8,800 1,913,400 *
JONES, ROBERT 6,000
JONES SR, DONALD & JOAN 400
KATCHUR, THOMAS A 21,000
KATCHUR, THOMAS JOHN 3,000
KEFFER, JOHN & RAELENE 3,000
KNERR, SHIRLEY K 2,000
KNODE, RALPH H 4,000
KONSMO, OYSTEIN 2,500
LAW, JEANNINE P 3,000
LEBOUTILLIER, SHERRILL F 2,000
LEE, STEVEN 750
LEHMANN, AARON 8,100
LEROUX, SHELLEY 3,000
LEWIS, WARREN D 3,000
LEXINGTON VENTURES INC 18,000
LIPPINCOTT JR, H MATHER 1,500
129
LIZZUL, PAUL & DAWN-MARIE 3,000
LOCKHARDT, LORETTA 1,720
LOZOWSKI, ROBERT 600
LUPPINO, FRANCIS 3,000
LURIO, DOUGLAS(5) 4,500 478,713 *
MALONEY, VIRGINIA MARSHALL 200
MASON, KATHLEEN 6,000
MAX COMMUNICATIIONS 18,000
MCCABE, BARRY N 3,000
MCCORMICK, JOHN F 6,840
MCGARRAH, ROBERT G 6,000
MCGUIRE, PETER J (8) 6,000 452,000 *
MERRIMAN, JAMES 9,000
MILLER, HARLEY & BROOK 1,050
MOFFITT JR, GEORGE W 3,000
MONTGOMERY, ROBERT & ROSEMARY 3,000
MOSIER, JAMES 6,000
NASH, GARY 400
NEFF, RONNIE 3,000
NELSON, ELIZABETH L 6,000
NEMETH, ROBERT F 6,000
NEWHUIS, GREGG J 37,000
NEWHUIS, JEFFREY 1,900
NOLAN, PATRICK 780
OAKLAND, GARY 3,250
OCONNELL, GEORGE 15,000
O'NEILL, J BRIAN 3,000
PADRICK, ROBERT 8,000
PADRICK, TRUSTEE, ROBERT G. PADRICK
P/S/P AND TRUST, ROBERT G. 4,000
PADRICK, TRUSTEE FBO KELLIE NICOLE
PADRICK, ROBERT G. 2,000
PANORAMA PARTNERS 900
PARKER, NEIL L 750
PARKER, RICHARD & LAURA 7,500
PELLEGRINO, JOSEPH 60,000
PENJUKE, WILLIAM & CAROL 2,000
PETT, ROBERT 20,000
PIRHALA, ROY T 6,260
POTTS, ROBERT H. 2,000
RANSOME III, ERNEST L 3,000
RECKTENWALD, WILLIAM 6,000
REICHL, THOMAS C 900
REISNER, GREG A 3,000
REISNER, WILLIAM & FRANCES 3,000
RENNER IV, HARRY 3,000
RETTEW III, JOHN B 1,000
130
RICHARDSON, GEORGE B 3,130
ROBERTS, NOMA ANN 1,500
ROPER, LEE & LISA 3,000
ROSENTHAL, GERRY 4,000
RUBEN, PETER 20,000
RUGART, KARL F 1,500
RUPP, JOHN S 3,000
SCHOENHUT III, WILLIAM F 3,000
SCHOENHUT JR, WILLIAM F 9,000
SCHONWALD, RICHARD 21,000
SCHWARTZ, STEPHEN 7,500
SCIFERS, VICKI S 3,000
SELLERS, WILLIAM (10) 8,000 1,480,356 *
SHOTWELL, RAYMOND K 1,500
SHUTE, HARRY D 1,500
SINGER, JOSEPH 300
SMITLEY, KATHY 1,500
SNYDER, MELVIN G 3,000
STANGLEIN, TERRY W 10,800
STEIR, MICHAEL & ELLEN 1,500
STERN, SHAI L (6) 7,500 208,750 *
STEVEN, GERTRUDE 5,000
STEWART, HOMER & NATHALIE 660
SVEDAS, WILLIAM 300
TAUBER, BARBARA ANN 280
TECHNOLOGY PARTNERS (8) 10,000 2,498,157 *
TEQUESTA CAPITAL CORP 4,290
THOMPSON, ALFRED & SUSAN 600
THOROUGHGOOD, WILLIAM E 560
TORRES, GUILLERMO 3,000
TRINITY ASSOCIATES 2,000
TURESKY, STEPHEN S 1,500
TURNER, JAMES 12,000
VAN ALEN JR, WILLIAM L(7) 6,000 440,002 *
VODANTIS, JOHN S & HOPE J 1,000
WAGNER, ROBERT E 2,000
WEAVER, DAVID 900
WEAVER, DWANE M 3,000
WEAVER, MARLENE 30,000
WEAVER, WESLEY R 2,770
WIENER, ARTHUR 1,392
WIENER, ARTHUR & RUTH 2,720
131
WEINER, BERNARD 1,500
WILSON, KENNETH B 1,500
WOLFE, CLAUDINE W 900
WRIGHT, C EDWIN & JANET LYN 1,500
WRIGHT, JOHN D 1,500
ZELENKA, DONALD J 6,000
ZIRBES, JOSEPH 1,000
ZWEIGBAUM, RUTH 630
TOTAL 1,138,940
----------
* Less than one percent.
(1) The amount listed for each selling shareholder reflects shares of common
stock to be issued if the entire amount of interest payments on 2004 and
2005 Senior Notes for the quarter ended 12/31/02 is elected to be taken in
shares and warrants.
(2) Adele and Austin Hepburn are husband and wife. Mrs. Hepburn is the Director
of Public Relations of USA.
(3) Stephen and Julie and husband and wife. Mr. Herbert is President,
Director and Chief Operating Officer of USA.
(4) George and Julie Jensen are husband and wife. Mr. Jensen is Chairman of the
Board and Cheif Executive Officer of USA.
(5) Mr. Lurio is a Director of USA and he is the President of Lurio &
Associates, P.C., general counsel to the firm.
(6) Mr. Stern is a consultant.
(7) Mr. Van Alen is a Director of USA.
(8) Consultant to USA.
(9) Employee of USA
(10) Director of USA
(11) Child of Mr. Jensen.
132
2003 SENIOR NOTES COMMON STOCK
Common Stock Offered Beneficial Ownership
Selling Shareholder Hereby (1) After Offering
------------------- -------------------- ---------------------
Number Percent
------ -------
ANNA KATE ADAMSON 2,720
BROOKE ANN ADAMSON 2,720
JOSIAH DAVID ADAMSON 2,720
MICAH PAUL ADAMSON 2,720
PETER JOHN ADAMSON 2,720
ROBERT M. AGANS 95,200
AHP HOLDINGS L.P. 68,000
ALAN ALPERT 10,200
WAYNE A. ANDERSON 27,200
CHARLES W. APPLE
AND KATHARINE K. APPLE 27,200
THOMAS APPLE 13,600
BARRY C. ARNDT 6,800
TRINITY ASSOCIATES 136,000
JOHN P. AYERS 13,600
JOHN BACHICH 68,000
MICHAEL J. BACHICH 272,000 253,000 *
CHARLES M. BARCLAY
AND NANCY P. BARCLAY 54,400
ROBERT E. BECK 2,720
MARION DOUGLAS BELIN AND
TEDDIE EARLINE BELIN, JTWROS 40,800
NANCY A. BESCH AND EARL D. BESCH 13,600
133
BENJAMIN LEE BIRD 13,600
RICHARD L. AND MARY J. BIRTZ,
TRUSTEES OF BIRTZ REVOCABLE
LIVING TRUST DATED AUGUST
15, 1994 27,200
ALEXANDRA O. BJORKLUND,
TRUSTEE U/A DATED
11-14-88 27,200
LOUISE D. BODINE 27,200
JOSEPH J. BOLITSKY 54,400
CHARLES L. BOLLING 13,600
GARY R. BOURASSA 6,800
EDWIN R. BOYNTON (2) 27,200 412,562 *
JAMES R. BOYNTON PENSION PLAN 40,800
GORDON L. BRODINE 27,200
CAROLINDA P. BROOKS 27,200
WILLIAM P. BURKS, M.D 40,800
SUSAN L. BUTLER 20,400
SMEDLEY D. BUTLER, ESTATE 27,200
JOANNE C. CALVARESE
AND VINCENT J. CALVARESE 13,600
VINCENT J. CALVARESE 13,600
WILLIAM A. CAMPBELL 6,800
RALPH A. CARABASI, M.D 6,800
AUGUST B. CASTLE, JR 27,200
MICHAEL G. CHIECO 34,000
BARBARA CHIMICLES 13,600
JUDY CIESIELSKI 40,800
GORDON S. AND MARY LOU C. CLAUSEN 27,200
DIANE CLOUTIER 81,600
MARC A. COHEN 54,400
HELENA CRECRAFT 13,600
WILLIAM R. CROTHERS 6,800
J. DAVID CUNNINGHAM, M.D 13,600
CLIFTON B. CURRIN TRUST 40,800
A. KENNETH CURTIS
AND WILLIAM K. CURTIS 27,200
WILLIAM K. CURTIS
AND LINDA S. CURTIS 54,400
DAVID S. D'ANGELO 27,200
DAVID E. MCCAULEY JR. AND SUE
A. MCCAULEY, TRUSTEES, DAVE
AND SUE MCCAULEY LIVING TRUST 40,800
BENJAMIN H. DEACON 6,800
RICHARD J. DELLARUSSO 13,600
SHERI-LYNN DEMARIS 68,000
DAVID M. DEMEDIO (3) 6,800 257,549 *
LOUIS DI RENZO AND ROSE DI RENZO 6,800
LEO J. DOLAN 27,200
MITCHELL DRESSLER 13,600
JUSTIN G. DURYEA 10,200
HEALD FAMILY TRUST 27,200
HENRY J. FIELDMAN (4) 40,800 1,197,300 *
FIELDMAN, HAY
& ULLMAN, L.L.P. (4) 408,000 1,197,300 *
JOHN S. FOSTER 54,400
MARGARET R. GEDDIS 3,400
ROBERT G. GIDDENS 81,600
LEGG MASON CUST. FBO DENNIS
L. GILBERT IRA 13,600
CHARLOTTE GIVEN 54,400
HARRIET GLICKSTEIN
AND CARY E. GLICKSTEIN 27,200
WILLIAM M. GOLDSTEIN 40,800
134
GREGORY R. GOMES 68,000
MIKLOS GOTTLIEB 13,600
HAROLD N. GRAY 54,400
JOHN R. GREEN 27,200
ROBERT GUERIERA, JR 27,200
JOHN E. HAMILTON 4,080
ROBERT A. HAMILTON (5) 9,520 99,456 *
NANCY H. HANSEN 40,800
CONG. SHEARITH HAPLETA 408,000
PETER A. HARRIS AND
DEBORAH L. HARRIS 6,800
IRA FBO BETTY A. HARRIS DLJSC 13,600
IRA FBO KENNETH R. HARRIS DLJSC 13,600
KENNETH R. HARRIS AND
BETTY A. HARRIS, JTWROS 27,200
R. JOHNSTONE HARRITY 13,600
VIRGINIA W. HARRITY 6,800
WILLIAM F. HARRITY, JR 68,000
BARBARA D. HAUPTFUHRER 34,000
ROBERT P. HAUPTFUHRER
FAMILY PARTNERSHIP 13,600
JOHN HAY (4) 40,800 1,197,300 *
MAUREEN E. HENDRON, M.D 68,000
ADELE H. HEPBURN (6) 496,400 4,104,908 2.1%
AUSTIN B. HEPBURN (6) 24,480 4,104,908 2.1%
JOYCE HODGES 6,800
JAMES M. HOLMWOOD 27,200
DAVID R. MOLUMPHY, PARTNER,
HRUBALA ASSOCIATES,
A PARTNERSHIP 13,600
DAVID W. HUBBERT 20,400
GORDON F. HUDSON 13,600
WILBUR E. HUDSON 6,800
CHRISTINE F. HUGHES 3,400
MICHAEL HYMAN 13,600
STEVE ILLES 272,000 3,959,250 2.0%
ROBERT B. JACOBY 13,600
JULIE JENSEN (13) 13,600 1,651,600 *
GEORGE R. JENSEN, JR. (7) 136,000 1,651,600 *
GEORGE R. JENSEN JR
AND RON RAYMOND JENSEN (7) 136,000 1,651,600 *
WILLIAM ROBERT JOHNSTON 6,800
ROBERT F. JONES
AND DEBORAH L. JONES 54,400
GLORIA S. KARN AND FRED S. KARN 1,360
MAUDE WOOD KENT AND THOMAS D. KENT 13,600
MAUDE WOOD KENT 13,600
KATHLEEN COUGHLIN KILGORE 13,600
ROBERT A. KILGORE 68,000
GEORGE H. KILMARX AND
JUNE KILMARX 68,000
ANTHONY Y.K. KIM 68,000
HARRIETTE D. KLANN 13,600
SHIRLEY K. KNERR 14,960
CHRISTINE C. KOLLS (8) 40,800 915,050 *
PHILLIP S. KROMBOLZ 27,200
ROCHELLE L. KROMBOLZ AND
PHILLIP S. KROMBOLZ 27,200
NANCY KROOK 95,200
JEFFREY R. LAND 13,600
PAUL G. LANNI 13,600
SHERRILL F. LEBOUTILLIER 122,400
JOHN N. LEE TRUST W/D/T 10/5/92 40,800
135
JENNIFER BEIRNES LEENE 13,600
AARON LEHMANN 13,600
SHELLEY LEROUX 27,200
E.H. ROGERS, JR., FAMILY
LIMITED PARTNERSHIP 27,200
PATRICK LOPEZ 13,600
DOUGLAS M. LURIO AND MARGARET
SHERRY LURIO, JTWROS (9) 40,800 442,413 *
JAMES P. MACCAIN 20,400
DONALD MACKENZIE 27,200
ALBERT P. MALISCHEWSKI AND
MARY E. MALISCHEWSKI 13,600
SALVATORE MARINO 13,600
IRWIN H. MARKOWITZ D.D.S
RETIREMENT FUND 68,000
KATHLEEN J. MASON 13,600
CHARLES A. MAYER 13,600
DUANE C. MCCARTHY 1,360
G. ELLARD MCCARTHY AND
JOAN R. BENNETT 6,800
ROBERT F. MCCARTNEY AND
LILY L. MCCARTNEY 13,600
PETER J. MCGUIRE 68,000
JAMES F. MERRIMAN 20,400
MILLENNIUM TRUST CO., L.L.C.,
CUST. F/B/O FRED KARAGOSIAN 13,600
HARLEY MILLER AND BROOKE MILLER 17,680
WANDA S. MOFFITT REVOCABLE
TRUST DATED 9/25/97 13,600
THOMAS J. MOLUMPHY 6,800
ROBERT H. MONTGOMERY 27,200
MILTON K. AND LOIS
T. MORGAN, JR 13,600
MAC G. MORRIS 6,800
RICHARD F. MURPHY 27,200
ELIZABETH L. NELSON 13,600
JOHN BRADLEY NIX
AND CAROL C. NIX 4,080
GEORGE O'CONNELL 204,000
ALEX ORLIK 5,440
ROBERT G. PADRICK AND
KELLIE NICOLE PADRICK 13,600
ROBERT G. PADRICK TRUSTEE
FOR ROBERT G. PADRICK
P/S/P AND TRUST 27,200
PETER B. PAKRADOONI 27,200
RICHARD PARKER 13,600
MATTIE A. PERRY AND
WILLIAM R. PERRY 51,000
ROY T. PIRHALA 40,800
JOHN W. PONTON, JR 13,600
J. STEVE POWELL 4,080
MOLUMPHY CAPITAL MGMT
PROFIT SHARING 13,600
ERNEST L. RANSOME, III 6,800
WILLIAM RECKTENWALD 13,600
HARRY RENNER, IV 54,400
ROBERT REYBOK AND JOAN REYBOK 13,600
NOMA ANN ROBERTS 34,000
DOYLE ROGERS 13,600
GARDINER ROGERS 10,880
LEE R. ROPER AND LISA ANN ROPER 27,200
MARIE G. ROPER 6,800
GEORGE PARKE ROUSE, III 13,600
PETER S. RUBEN 27,200
KARL F. RUGART 27,200
136
FRANK S. RUPP 13,600
JOHN S. RUPP 40,800
VALENTINA SAS 2,720
EDWARD L. SCHOENHUT 27,200
WILLIAM F. SCHOENHUT, III 13,600
WILLIAM F. SCHOENHUT, JR 13,600
RICHARD SCHONWALD 176,800
LEGG MASON F.B.O
RICHARD SCHONWALD IRA 20,400
THOMAS A. SELDERS AND
KRISTIN M. SELDERS 6,800
NICHOLAS SELLERS 13,600
WILLIAM W. SELLERS (10) 68,000 1,061,156 *
SELLERS PENSION PLAN
DTD 8/9/65 (10) 27,200 1,061,156 *
SCOTT SELTZER 6,800
CELIA E. SHEVLIN 2,720
LEONARD H. SICHEL, JR 13,600
LESLIE SINGER AND ETHEL SINGER 13,600
ELINOR M. STEINHILBER 13,600
CPT. ERIC W. STETSON 6,800
SCOTT W. STETSON 1,360
SOLVEIG W. STETSON 13,600
JOHN B. STETSON, IV 27,200
HOMER N. STEWART 13,600
PRISCILLA STITT 27,200
EDWARD B. STOKES 27,200
VIVIAN K. STROUD (11) 6,800 188,994 *
CLARK D. STULL AND
CAROLYN S. STULL 27,200
TERRY L. SWANTON AND
MOLLY B. SWANTON 27,200
STEPHEN S. TURESKY 6,800
ANTHONY B. ULLMAN (4) 40,800 1,197,300 *
JOHN H. VESPER, JR 6,800
IRA FOR ROBERT E. WAGNER 27,200
BORJE WAHLSTROM 13,600
JEAN STEEL WAHLSTROM 13,600
HENRY W. WESSELLS, III 3,400
ARTHUR L. WHEELER 176,800
J. EDWARD WILLARD 68,000
JOHN D. WRIGHT 6,800
WILLIAM M. WRIGHT 13,600
SAMUEL D. WYMAN, JR 13,600
JONI CARLEY YAMAGUCHI 13,600
FRANCES YOUNG (12) 843,200 981,800 *
DONALD J. ZELENKA 136,000
RUTH ZWEIGBAAUM 6,800
---------
TOTAL 8,831,840
=========
-------------------
* Less than one percent (1%)
(1) The amount listed for each selling shareholder includes the following: (i)
shares of common stock issued to each selling shareholder; (ii) shares of common
stock to be issued if the entire principal amount of each selling shareholder's
senior note due December 31, 2003 is converted; and (iii) shares of common stock
to be issued if all interest payment purchase rights are exercised. The total of
8,831,840 shares of common stock registered hereby is comprised of the
following: (i) 1,298,800 shares of common stock issued to the selling
shareholders; (ii) 5,195,200 shares of common stock to be issued if the entire
principal amount of the senior notes due December 31, 2003 is converted into
common stock; and (iii) 2,337,840 shares of common stock to be issued if all
137
interest payment purchase rights are exercised.
(2) Mr. Boynton is a Director of USA.
(3) Mr. DeMedio is an employee of USA.
(4) Messrs. Fieldman, Hay and Ullman, are members of the law firm of Fieldman,
Hay & Ullman, LLP, which represented USA in connection with prior litigation.
(5) Mr. Hamilton is an employee of USA.
(6) Adele and Austin Hepburn are husband and wife. Adele Hepburn is the
Director of Public Relations of USA.
(7) 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
seven percent of the issued and outstanding common stock upon the occurrence of
a USA Transaction (as defined therein). See "Management - Executive Employment
Agreements."
(8) Christine Kolls is the spouse of Haven Brock Kolls, Jr., the Senior Vice
President of USA.
(9) Mr. Lurio is a Director and his law firm, Lurio & Associates, P.C., is
general counsel to USA.
(10) Mr. Sellers is a Director of USA.
(11) Ms. Stroud is an employee of USA.
(12) Ms. Young is a former employee of USA.
(13) Ms. Jensen is the spouse of George R. Jensen, Jr., Chief Executive Officer
and is the beneficial owner of his shares.
138
EMPLOYEE COMMON STOCK
Beneficial Ownership
After Offering
Common Stock --------------------
Selling Shareholder Offered Hereby Number Percent
------------------- -------------- ------ --------
Bazuro, Kirsten(1) 160,000 30,775 *
Demedio, David(1) 160,000 104,349 *
Harrum, George(1) 80,000 14,333 *
Ledesma, Cecil(1) 80,000 90,500 *
Luce, Steven(1) 80,000 38,427 *
Sagady, Cary(2) 160,000 0 *
Seymour, Amy(1) 80,000 11,550 *
Stroud, Vivian(1) 160,000 35,794 *
Tobin, Mary F.(1) 80,000 25,217 *
Vista Marketing Research(2) 280,000 133,333 *
Wasserman, Scott(1) 160,000 0 *
----------------
Total 1,480,000
--------
* less than one percent
(1)Current employee of USA.
(2)Current consultant of USA.
2002-B COMMON STOCK
Beneficial Ownership
After Offering
Common Stock -----------------------
Selling Shareholder Offered Hereby Number Percent
------------------- -------------- ----------- ----------
Shotwell, Raymond, K. 10,000
Hall, Thomas E. 500,000
Esser, Terry W. 20,000
Cohen, Marc A 160,000
-------------
Total 690,000
--------
139
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
------
2001 HIGH LOW
---- ---- ---
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) $ 1.05 $ 0.60
Second Quarter (through December 31, 2001) $ 0.74 $ 0.34
Third Quarter (through March 31, 2002) $ 0.80 $ 0.39
Fourth Quarter (through June 30, 2002) $ 0.41 $ 0.20
Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
At September 30, 2002, there are 5,290,485 shares of Common Stock issuable
upon exercise of outstanding options. The following table shows the number of
options outstanding and their exercise price:
OPTION
OPTIONS OUTSTANDING EXERCISE PRICE
------------------- --------------
2,475,318 $ .165
550,000 $ .40
5,000 $ .50
400,000 $ .70
735,000 $ 1.00
305,000 $ 1.50
651,167 $ 2.00
84,000 $ 2.50
80,000 $ 4.50
5,000 $ 5.00
-------------------
5,290,485 Total
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 or consultants.
As of September 30, 2002, the following Warrants were outstanding:
140
1,500 1997 Warrants;
2,500 1998-A Warrants;
5,000 1998-B Warrants;
875,000 consultant warrants;
1,580,828 Swartz Private Equity, LLC warrants;
3,721,845 2001-B and C Warrants;
100,000 GEMA Warrants; and
805,735 Warrants associated with Stock for interest.
240,000 2002-A Warrants;
7,332,408 Total
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 the Warrants associated with Stock for interest).
As of September 30, 2002 there are $13,850,510 face value of Senior
Notes outstanding which are convertible into 36,478,498 shares of Common
Stock.
On September 30, 2002 there were 979 record holders of the Common Stock and
577 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 September 30, 2002, such accumulated
unpaid dividends amount to $5,572,533.
During fiscal year 2002, certain holders of the Company's Preferred Stock
converted 26,002 shares into 26,002 shares of Common Stock. Certain of these
shareholders also converted cumulative preferred dividends of $268,140 into
26,814 shares of Common Stock. During the first quarter of fiscal 2003, none of
the Company's Preferred Stock was converted into shares of Common Stock, and no
cumulative preferred dividends were converted into shares of Common Stock.
As of September 30, 2002, there were 529,282 shares of Common Stock
issuable upon conversion of the outstanding Preferred Stock and 557,253 shares
issuable upon the conversion of cumulative Preferred Dividends, which when and
if issued would be freely tradeable under the Act.
During the quarter ended June 30, 2002, the following issuances of Common
Stock were authorized: 11,507 shares from the conversion of Preferred Stock;
12,007 shares from the conversion of cumulative Preferred dividends; 334,168
from the exercise of Warrants; 61,728 shares from the conversion of Convertible
Debentures and 617,280 shares from the related exercise of Warrants; 390,000
shares in exchange for professional services; 300,882 shares in lieu of interest
on the 12% convertible Notes; 1,250,000 shares to Officers as compensation; and
23,637,341 shares issued in connection with the acquisition of Stitch Networks
Corporation (See Note 3 to the Consolidated Financial Statements).
Subsequent to June 30, 2002 and through October 30, 2002, the following
equity activity occurred:
During September 2002, the Company sold 2,000,000 shares of restricted
Common Stock at $.12 per share for aggregate proceeds of $240,000 to an
investor. In addition, in October 2002, the Company granted to the investor
141
warrants to purchase up to 2,000,000 shares at $.10 per share through November
30, 2002, and if all of these warrants are exercised, the investor has been
granted another identical warrant for 2,000,000 shares exercisable at any time
through March 31, 2003.
The Company had received signed subscription documents for the 2002-A
Private Placement of Senior Notes for $4,284,008, of which $2,755,775
has been deposited and the remainder of $1,528,233 was for services.
La Jolla Cove Investors has converted Debentures and exercised warrants.
The investor utilized previously remitted funds to the Company which was
reflected as a deposit in the June 30, 2002 consolidated financial statements.
Through September 30, 2002, La Jolla converted $103,000 of 9 3/4 percent
Convertible Debentures, for which the Company issued 5,349,050 shares of stock,
and exercised 534,905 warrants to purchase Common Stock at an average price of
$.193 per share. The Company had previously executed a Securities Purchase
Agreement with La Jolla for the purchase of $225,000 (increased by $100,000 on
June 18, 2002) of Convertible Debentures bearing 9 3/4 percent interest with a
maturity date of August 3, 2003 (extended to August 2, 2004 on June 18, 2002).
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% (later lowered to 72%) of the lowest closing bid price of the
Common Stock during the 30 days preceding exercise. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
In October 2002, the Company agreed to issue 400,000 shares to Ratner &
Prestia, P.C., the Company's intellectual property counsel. The sales proceeds
from the shares are to be applied by the firm towards the legal fees due to the
firm by the Company. We have agreed to register these shares for resale under
the Act at our cost and expense.
In July 2002 the Company agreed to issue an aggregate of 234,600 shares to
employees as part of those employees' severance payments. The shares were issued
at $.25 per share.
In July 2002, the Company agreed to issue to Karl Mynyk, a former employee,
an aggregate of 125,000 shares in settlement of litigation between he and the
Company. The shares were valued at $.20 per share. We have agreed to register
these shares for resale under the Act at our cost and expense.
In October 2002, the Company issued 501,906 shares (valued at $.20 per
share) to the holders of the senior notes in lieu of the cash quarterly interest
payments due for the quarter ended September 30, 2002. In addition, the Company
granted warrants to purchase up to 501,906 shares at $.20 per share at any
time prior to December 31, 2004.
In October 2002, the Company issued to Edwin P. Boynton 50,000 shares in
lieu of the 100,000 options granted to him in April 2002.
142
In October 2002, the Company sold to an investor 3,571,429 shares at $.07
per share and issued the following warrants: (1) warrants to purchase up to
7,142,858 shares at $.07 at any time for a five year period; and (2) warrants to
purchase up to 7,142,858 shares, at $.07 per share and up to 5,000,000 shares at
$.10 per share, exercisable over a one year period. We have agreed to register
these shares for resale under the Act at our cost and expense.
In October 2002, the Company sold to an investor 1,500,000 shares at $.10
per share and granted warrants to purchase up to 750,000 shares at $.15 per
share at any time for five years. Within seven days following the effectiveness
of the registration statement covering these shares, the Company has agreed to
sell to the investor an additional 1,500,000 shares at $.10 per share and grant
warrants to purchase up to 750,000 shares at the then closing price per share at
any time for five years. We have agreed to register these shares for resale
under the Act at our cost and expense.
In October 2002, the Company granted to the holders of the 12% senior notes
warrants to purchase that number of shares equal to 75% of the dollar amount of
the notes held by such holder. The total number of warrants was 10,360,025 and
are exercisable at any time prior to November 30, 2002. If the holder exercises
all of such holder's warrants, the holder shall receive another identical
warrant exercisable at any time prior to March 31, 2003. We have agreed to
register these shares for resale under the Act at our cost and expense.
In November 2002, the Company agreed to issue an aggregate of 1,480,000
shares to employees and consultants for services to be rendered. The shares were
valued at $.125 per share.
In November 2002, the Company issued an aggregate of 690,000 shares to 4
investors at $.10 per share for an aggregate of $69,000.
143
DESCRIPTION OF SECURITIES
General
Effective October 28, 2002, we are authorized to issue up to 200,000,000
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 September 30, 2002,
there were 72,736,205 shares of common stock issued and outstanding and 529,282
shares of series A preferred stock issued and outstanding which are convertible
into 529,282 shares of common stock. Through September 30, 2002, a total of
581,868 shares of preferred stock have been converted into 658,312 shares of
common stock and $2,620,354 of accrued and unpaid dividends thereon have been
converted into 282,212 shares of common stock.
144
Management Options
As of September 30, 2002, we had issued to our employees and consultants
options to acquire up to:
- 5,000 shares at $5.00 per share;
- 80,000 shares at $4.50 per share;
- 84,000 shares at $2.50 per share;
- 651,167 shares at $2.00 per share;
- 305,000 shares at $1.50 per share;
- 735,000 shares at $1.00 per share;
- 5,000 shares at $.50 per share.
- 400,000 shares at $.70 per share
- 2,475,318 shares at $.165 per share; and
- 550,000 shares at $.40 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
145
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 $2,100 in connection with this warrant. During the quarter ended
December 31, 2001, La Jolla exercised all of these warrants for a cash payment
of approximately $.29 per share.
During August 2001, the Company issued to La Jolla a $225,000 Convertible
Debenture (increased by $100,000 on June 18, 2002) bearing 9 3/4 percent
interest with a maturity date of August 2, 2003 (extended to August 2, 2004).
Interest is payable by the Company monthly in arrears. The Debenture is
convertible at the lower of $1.00 per share or 80% (later reduced to 72%) of the
lowest closing bid price of the Common Stock during the 20 days (changed to 270
calendar 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. From inception through September 30, 2002, La Jolla
converted $103,000 of 9 3/4 percent Convertible Debentures, for which the
Company issued 534,905 shares of stock, and exercised 5,349,050 warrants to
purchase Common Stock at an average price of $.193 per share.
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.
146
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 September 30, 2002 the
accumulated and unpaid dividends were $5,572,300.
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 September 30, 2002 a total of 581,868 shares
of series A preferred stock have been converted into common stock and accrued
and unpaid dividends thereon have been converted into 282,212 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.
12% Senior Notes
As of September 30, 2002, we have outstanding $4,164,000 of Senior Notes
due December 31, 2005, $4,652,000 of Senior Notes due December 31, 2004, and
$5,034,000 of Senior Notes due December 31, 2003. The principal amount of each
senior note which is not voluntarily converted shall be payable on the maturity
date thereof, 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, 2004. The senior notes
are senior to all existing equity securities of USA, including the series A
preferred stock.
147
Of the senior notes due December 31, 2003, a total of $3,823,000 were
purchased through the exchange of $3,823,000 of the old senior notes previously
due December 31, 2001. 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 $1.00 per share. For the quarters ended September 31, 2001 and December 31,
2001, the conversion rate was reduced to $.50 per share and for the quarter
ended March 31, 2002 to $.40 per share and for the quarters ended September 30,
2002, December 31, 2002 and March 31, 2003, to $.20 per share together with one
warrant at $.20 per share for each share issued.
The principal amount of each senior note due December 31, 2004 is
convertible at any time into shares of Common Stock at the rate of $.40 per
share. In January 2002, the Company agreed to provide the option to each holder
of these senior notes to elect to accept shares in lieu of receiving cash in
satisfaction of the interest payments otherwise due to them on account of the
last three quarters of fiscal 2002. The conversion rate for this interest
payment due for the quarter ended March 31, 2002 was $.40 per share. In October
2002, the Company continued this option at $.20 per share for the quarters ended
September 30, 2002, December 31, 2002 and March 31, 2003 together with one
warrant at $.20 for each share issued.
The principal amount of each Senior Note due December 31, 2005 is
convertible at any time into shares of Common Stock at the rate of $.20 per
share. The Company agreed to provide the option to each holder of these senior
notes to elect to accept shares in lieu of receiving cash in satisfaction of the
interest payments otherwise due to them on account of the last quarter of fiscal
2002 at the rate of $.20 per share. In October 2002, the Company continued this
option at $.20 per share for the quarters ended September 30, 2002, December 31,
2002 and March 31, 2003 together with one warrant at $.20 for each share issued.
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.
148
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.
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.
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 were 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).In June 2002, the termination date
of 3,676,829 of these warrants was extended to December 2002, and the
exercise price of these warrants reduced to $.10.
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 April 30, 2002. In June 2002, the termination date of 294,334 of
these warrants was extended to December 2002, and the exercise price
of these warrants reduced to $.10.
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.
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.
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.
149
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.
Shares Eligible for Future Sale
All of the 72,736,205 shares of common stock issued and outstanding on
the date hereof are freely transferable without registration under the Act
(other than shares held by "affiliates" of USA). As of the date hereof, there
were 529,282 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 the date hereof,
are convertible into 529,282 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).
Shares of our common stock which are not freely tradeable under the Act are
known as "Restricted Securities" and cannot be resold without registration under
the Act or 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.
150
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.
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 and any broker-dealers or agents that are involved
in selling the shares may be deemed to be "underwriters" within the meaning of
the Act in connection with such sales. In such event, any commissions received
by such broker-dealers or agents and profit on the resale of the shares
purchased by them may be deemed to be underwriting discounts under the Act.
151
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. In some circumstances, we have agreed to
indemnify the selling shareholders against certain losses and liabilities,
including liabilities under the Act.
LEGAL MATTERS
The validity of the common stock has been passed upon for us by Lurio &
Associates, P.C., Philadelphia, Pennsylvania 19103.
EXPERTS
The consolidated financial statements of USA Technologies, Inc. at June 30,
2002 and 2001, and for each of the two years in the period ended June 30, 2002,
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 the Company's ability to continue as a going concern as
described in Note 2 to the consolidated 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.
152
USA Technologies, Inc.
Consolidated Financial Statements
Years ended June 30, 2002 and 2001
Contents
Report of Independent Auditors F-1
Consolidated Financial Statements
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Shareholders' Equity (Deficit) F-4
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
153
Report of Independent Auditors
USA Technologies, Inc.
Board of Directors and Shareholders
We have audited the accompanying consolidated balance sheets of USA
Technologies, Inc. as of June 30, 2002 and 2001, and the related consolidated
statements of operations, shareholders' equity (deficit), and cash flows for
each of the two years in the period ended June 30, 2002. 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 consolidated financial position of USA Technologies,
Inc. at June 30, 2002 and 2001, and the consolidated results of its operations
and its cash flows for each of the two years in the period ended June 30, 2002,
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, continues to
incur losses from operations, has continued to require forebearance agreements
on debt obligations, 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, or the
amounts and classification of liabilities that might result from the outcome of
this uncertainty.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
September 27, 2002
F-1
154
USA Technologies, Inc.
Consolidated Balance Sheets
June 30
2002 2001
----------------------------
Assets
Current assets:
Cash and cash equivalents $ 557,970 $ 817,570
Accounts receivable, less allowance for uncollectible
accounts of $37,000 and $28,000 in 2002 and 2001,
respectively 340,293 64,752
Inventory 877,814 560,410
Prepaid expenses and other current assets 124,865 428,825
Subscriptions receivable 35,000 29,000
----------------------------
Total current assets 1,935,942 1,900,557
Property and equipment, net 1,932,427 761,324
Software development costs, at cost, less accumulated
amortization of $2,995,979 and $0 in 2002
and 2001, respectively 2,330,207 3,087,415
Goodwill 6,800,827 -
Intangibles, less accumulated amortization of $36,500 2,883,500 -
Other assets 29,117 430,765
----------------------------
Total assets $ 15,912,020 $ 6,180,061
============================
Liabilities and shareholders' equity (deficit)
Current liabilities:
Accounts payable $ 3,081,495 $ 2,607,570
Accrued expenses 2,131,289 1,355,595
Deposits 480,000 -
Current obligations under long term debt 850,644 116,231
Convertible Senior Notes - 211,704
----------------------------
Total current liabilities 6,543,428 4,291,100
Convertible Senior Notes, less current portion 6,289,825 4,236,281
Long term debt, net of current portion 762,085 53,577
Convertible debenture 65,543 -
----------------------------
Total liabilities 13,660,881 8,580,958
Shareholders' equity (deficit):
Preferred Stock, no par value:
Authorized shares-1,800,000
Series A Convertible Preferred-Authorized shares -
900,000
Issued and outstanding shares-529,282 and 555,284 at
June 30, 2002 and 2001, respectively (liquidation
preference of $10,468,391 at June 30, 2002) 3,749,158 3,933,253
Common Stock, no par value:
Authorized shares-150,000,000 and 62,000,000 at
June 30, 2002 and 2001, respectively
Issued and outstanding shares-66,214,188 and
21,450,755 at June 30, 2002 and 2001, respectively 55,443,750 32,977,922
Subscriptions receivable (149,750) -
Deferred compensation - (103,000)
Accumulated deficit (56,792,019) (39,209,072)
----------------------------
Total shareholders' equity (deficit) 2,251,139 (2,400,897)
----------------------------
Total liabilities and shareholders' equity (deficit) $ 15,912,020 $ 6,180,061
============================
See accompanying notes.
F-2
155
USA Technologies, Inc.
Consolidated Statements of Operations
Year ended June 30
2002 2001
----------------------------
Revenues:
Equipment sales $ 903,795 $ 803,685
License and transaction fees 778,906 647,317
----------------------------
Total revenues 1,682,701 1,451,002
Operating expenses:
Cost of sales 918,948 816,239
General and administrative 7,989,651 5,628,014
Compensation 4,654,662 2,966,776
Depreciation and amortization 3,436,217 209,646
----------------------------
Total operating expenses 16,999,478 9,620,675
----------------------------
(15,316,777) (8,169,673)
Other income (expense):
Interest income 15,791 60,034
Interest expense:
Coupon or stated rate (966,974) (587,769)
Non-cash amortization of debt discount (1,513,118) (764,736)
Less: amounts capitalized 492,658 230,000
----------------------------
Total interest expense (1,987,434) (1,122,505)
Other expense (26,387) (40,100)
----------------------------
Total other income (expense) (1,998,030) (1,102,571)
----------------------------
Loss before cumulative effect of accounting change
and extraordinary item (17,314,807) (9,272,244)
Cumulative effect of accounting change - (821,000)
----------------------------
Loss before extraordinary item (17,314,807) (10,093,244)
Extraordinary loss on exchange of debt - (863,000)
----------------------------
Net loss (17,314,807) (10,956,244)
Cumulative preferred dividends (822,561) (836,541)
----------------------------
Loss applicable to common shares $(18,137,368) $(11,792,785)
============================
Loss per common share (basic and diluted):
Loss before cumulative effect of accounting change
and extraordinary item $ (0.50) $ (0.60)
Cumulative effect of accounting change - (0.05)
Extraordinary loss on exchange of debt - (0.05)
----------------------------
Loss per common share (basic and diluted) $ (0.50) $ (0.70)
============================
Weighted average number of common shares
outstanding (basic and diluted) 35,994,157 16,731,999
============================
See accompanying notes.
F-3
156
USA Technologies, Inc.
Consolidated Statements of Shareholders' Equity (Deficit)
Series A
Convertible Common Deferred Accumulated
Preferred Stock Stock Compensation Deficit Total
-----------------------------------------------------------------------------
Balance, June 30, 2000 $ 4,012,266 $24,204,050 $ (206,000) $(28,165,798) $ (155,482)
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 stock options to distributor - 420,000 - - 420,000
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 (103,000) (39,209,072) (2,400,897)
F-4
157
USA Technologies, Inc.
Consolidated Statements of Shareholders' Equity (Deficit)
Series A
Convertible Common Deferred Subscriptions Accumulated
Preferred Stock Stock Compensation Receivable Deficit Total
-------------------------------------------------------------------------------------
Conversion of 26,002 shares of Preferred
stock to 26,002 shares of Common Stock (184,095) 184,095 - - -
Conversion of $268,140 of cumulative
preferred dividends into 26,814 shares of
Common Stock at $10.00 per share 268,140 (268,140)
Issuance of 2,784,134 shares of Common
Stock in exchange for professional services 1,330,944 1,330,944
Issuance of 500,000 Common Stock
Warrants in exchange for professional
services 115,000 115,000
Issuance of 2,340,000 shares of Common
Stock to Officers as compensation 981,000 981,000
Issuance of 200,000 Common Stock Options
in exchange for professional services 66,000 66,000
Issuance of 498,000 shares of Common
Stock from the conversion of $622,500 of
the 2000 12% Senior Notes at $1.25 per
share 622,500 622,500
Exercise of 26,667 Common Stock warrants
at $.50 per share 13,334 13,334
Exercise of 1,806,862 Common Stock
Warrants at $.10 per share 180,687 180,687
Exercise of 500,000 Common Stock
Warrants at $.29 per share, net of offering
costs of $2,100 142,900 142,900
Issuance of 333,678 shares of Common Stock
from the conversion of $82,000 of 9-
3/4% debentures, and the related exercise
of Common Stock Warrants at varying
prices per share to purchase 3,336,780
shares of Common Stock, net of offering
costs of 15,750 886,250 886,250
Issuance of 4,726,040 shares of Common
Stock in connection with the 2001-B Private
Placement, net of offering costs of $259,672 2,754,371 2,754,371
Issuance of 4,046,684 shares of Common
Stock in Connection with the 2001-C Private
Placement, net of offering costs of $84,272 1,992,852 (149,750) 1,843,102
Issuance of 674,431 shares of Common Stock
in lieu of cash payment for interest
on the Convertible Senior Notes and the
issuance of 303,829 warrants 301,856 301,856
Debt discount relating to beneficial
conversion feature on the 2001 12% Senior
Notes 3,742,813 3,742,813
Debt discount relating to beneficial
conversion feature on the $325,000,
9-3/4% Convertible Debenture 325,000 325,000
Issuance of Common Stock in connection
with Stitch acquisition 7,800,323 7,800,323
Issuance of Common Stock Options and
Common Stock Warrants in connection with
Stitch acquisition 729,323 729,323
Compensation expense related to deferred
stock awards 103,000 103,000
Other 28,440 28,440
Net loss (17,314,807) (17,314,807)
----------------------------------------------------------------------------------
Balance, June 30, 2002 $ 3,749,158 $55,443,750 $ - S (149,750) $(56,792,019) $2,251,139
==================================================================================
See accompanying notes
F-5
158
USA Technologies, Inc.
Consolidated Statements of Cash Flows
Year ended June 30
2002 2001
----------------------------------
Operating activities:
Net loss $(17,314,807) $(10,956,244)
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 4,532,533 859,295
Depreciation 403,738 209,646
Amortization 3,032,479 -
Loss on property and equipment 195,722 -
Interest amortization relating to Senior Notes 1,513,118 764,736
Interest expense on the Senior Notes paid through the issuance of
Common Stock 301,856 114,927
Charges incurred in connection with Senior Notes 1,000,085 -
Changes in operating assets and liabilities:
Accounts receivable (232,653) 538,419
Inventory (36,642) 345,009
Prepaid expenses and other assets 774,845 356,757
Accounts payable (259,627) 1,713,179
Accrued expenses (44,413) 801,352
----------------------------------
Net cash used in operating activities (6,133,766) (3,568,924)
Investing activities:
Cash acquired in connection with Stitch Acquisition, net of financing costs 2,278,229 -
Purchase of property and equipment (102,917) (380,355)
Increase in software development costs (2,238,771) (2,938,111)
----------------------------------
Net cash used in investing activities (63,459) (3,318,466)
Financing activities:
Net proceeds from the issuance of Common Stock and the exercise of
Common Stock Purchase Warrants and Options 3,912,765 4,834,636
Net repayment of long-term debt (2,533,363) (176,053)
Collection of subscriptions receivable 29,000 12,199
Proceeds from the issuance of convertible debenture 325,000 -
Repayment of the Senior Notes (240,000) -
Proceeds received the from deposits for future financings 500,000 -
Proceeds from issuance of the Senior Notes, net of issuance costs 3,944,223 1,174,818
----------------------------------
Net cash provided by financing activities 5,937,625 5,845,600
----------------------------------
Net decrease in cash and cash equivalents (259,600) (1,041,790)
Cash and cash equivalents at beginning of year 817,570 1,859,360
----------------------------------
Cash and cash equivalents at end of year $ 557,970 $ 817,570
==================================
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 603,312 $ 472,842
==================================
Issuance of Common Stock options to distributor $ - $ 420,000
==================================
Issuance of Common Stock, Common Stock Options and Warrants in
connection with Stitch acquisition $ 8,529,646 $ -
==================================
Conversion of Convertible Preferred Stock to Common Stock $ 184,095 $ 79,013
==================================
Conversion of Cumulative Preferred Dividends to Common Stock $ 268,140 $ 87,030
==================================
Prepaid stock expenses through issuance of Common Stock $ - $ 42,000
==================================
Subscriptions receivable $ 35,000 $ 29,000
==================================
Conversion of Senior Notes to Common Stock $ 622,500 $ 28,024
==================================
Transfer of inventory to property and equipment $ - $ 87,561
==================================
Capital lease obligations incurred $ - $ 118,207
==================================
Beneficial conversion feature related to Senior Notes $ 3,742,813 $ 409,104
==================================
Beneficial conversion feature related to Convertible Debenture $ 325,000 $ -
==================================
See accompanying notes.
F-6
159
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
1. Business
USA Technologies, Inc., a Pennsylvania corporation (the Company), was
incorporated on January 16, 1992. The Company provides unattended cashless
payment/control systems and associated network and financial services for the
copy, fax, debit card, smart card personal computer, laundry, and vending
industries. The Company's devices make available credit and debit card and other
payment methods in connection with the sale of a variety of products and
services. The Company's customers are principally located in the United States
and are comprised of hotels, chains, consumer package goods companies,
information technology and vending operators. 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 and Business Express Limited Service
(LSS) principally to the hospitality industry. The Business Express and Business
Express Limited Service (LSS) combines the Company's business applications for
computers, copiers and facsimile machines into a business center unit. The
Company has developed its next generation of cashless control/payment systems
(e-Port), which includes capabilities for interactive multimedia and e-commerce,
acceptance of other forms of electronic payments and remote monitoring of host
machine data and is being marketed and sold to operators, distributors and
original equipment manufacturers (OEM) primarily in the vending industry.
The Company's wholly owned subsidiary, Stitch Networks Corporation (Stitch)
designs and employs embedded connectivity solutions that enable network servers
to monitor and control vending machines and appliances over the internet (Note
3). On December 31, 2000, Stitch executed a Vending Placement, Supply and
Distribution Agreement (the Agreement) with Eastman Kodak Company, Maytag
Corporation and Dixie Narco, Inc., which formed a strategic alliance to market
and execute a national vending program for the sale of one-time use camera and
film products. The Agreement provides for an initial term of three years ending
December 31, 2003, with additional provisions for early termination and
extensions as defined. Furthermore, the Agreement also provides for exclusivity
among the parties for the term of the Agreement relating to the sale of camera
and film products from vending machines within the Continental United States.
F-7
160
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
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, principally software development costs, goodwill and other
intangibles, that might be necessary should the Company be unable to continue in
existence. The Company has never been profitable, has incurred losses of $17.3
million and $11.0 million during each of the fiscal years ending June 30, 2002
and 2001, respectively, and cumulative losses from its inception through June
30, 2002 amounting to approximately $53.3 million. Losses have continued through
September 2002 and are expected to continue throughout fiscal year 2003.
Additionally, the Company has continued to require forebearance agreements on
debt obligations (Note 8) and is in the process of renegotiating the terms of
the debt. 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.
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.
Consolidation
The accompanying consolidated financial statements include the accounts of
Stitch. All significant intercompany accounts and transactions have been
eliminated in consolidation.
F-8
161
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
2. Accounting Policies (continued)
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, which principally consists of finished goods, components, and
packaging materials, is stated at the lower of cost (first-in, first-out basis)
or market. The Company maintains a valuation reserve, which reflects the
Company's estimate of the impact on inventory of potential obsolescence, excess
quantities, and declines in market values.
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.
Goodwill and Intangible Assets
Goodwill represents the excess of cost over fair value of the net assets
acquired from Stitch. Intangible assets include patents ($1,870,000) and
trademarks ($1,050,000) acquired in the Stitch acquisition. Amortization of
these intangibles is computed on the straight-line basis over 10 years.
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. Approximately 41% and 12% respectively of the
Company's accounts receivable and revenues for the year ended June 30, 2002 is
concentrated with one customer.
F-9
162
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
2. Accounting Policies (continued)
Revenue Recognition
Revenue from the sale of equipment is recognized upon shipment, or upon
installation of the equipment if installation services are purchased of the
related equipment. License and transaction fee revenue (including transaction
processing revenue) is recognized upon the usage of the Company's credit card
activated control systems. Revenue from the sale of products from the Company's
vending machines is recognized upon the acceptance by the customer of the
products. Monthly fees for the use of vending machines equipped with embedded
Internet connectivity technology is recognized upon usage of the equipment.
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 product and related network and, accordingly, the Company commenced
capitalization of software development costs related to this product. Costs
capitalized were approximately $2,239,000 and $2,938,000 during the years ended
June 30, 2002 and 2001, respectively. Amortization of software development costs
will commence when the product becomes available for general release to
customers. 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 commences when the
product becomes available for general release to its customers. 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.
During the fourth quarter of fiscal 2002, the e-Port product and related network
became available for general release to the Company's customers. Management
performed an evaluation of the commercial success and preliminary market
acceptance of the e-Port product and network pursuant to SFAS 121 during the
fourth quarter. As a result the Company wrote down $2,663,000 of software
development costs related to the e-Port and the related network. The unamortized
balanced after the impairment charge is being
F-10
163
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
2. Accounting Policies (continued)
Software Development Costs (continued)
amortized over an estimated useful life of two years. Amortization expense
during the year ended June 30, 2002, including the above impairment adjustment
of $2,663,000, was $2,996,000.
Advertising Expenses
Advertising costs are expensed as incurred. Advertising expense for the years
ended June 30, 2002 and 2001 was approximately $429,000 and $88,000,
respectively.
Research and Development Expenses
Research and development expenses are expensed as incurred. Research and
development expenses, which are included in general and administrative and
compensation expenses in the consolidated statements of operations, were
$1,187,000 and $1,260,000 for the years ended June 30, 2002 and 2001,
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 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 13.
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,
F-11
164
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
2. Accounting Policies (continued)
Loss Per Common Share (continued)
cumulative preferred dividends or Senior Notes was assumed during fiscal 2002 or
2001 because the assumed exercise of these securities would be antidilutive.
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 included detachable equity
instruments (see Note 10). 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 proscribed 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.
Accordingly, the Company recorded a one-time, noncash charge during fiscal year
2001 of $821,000 to record the cumulative effect of an accounting change as
required by the EITF.
Reclassification
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 $420,000 estimated fair value of the options was amortized as a
reduction of selling, general, and administrative expenses over the term of the
distribution agreement. During the third quarter of fiscal year 2002 and
pursuant to EITF 00-18 Accounting Recognition for
F-12
165
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
2. Accounting Policies (continued)
Reclassification (continued)
Certain Transactions Involving Equity Instruments Granted to Other Than
Employees, the Company presented the unamortized balance in other assets, and
reclassified the June 30, 2001 balance from a contra-equity account to other
assets for a consistent presentation. As of June 30, 2002, the distribution
agreement is no longer in effect and, accordingly, the Company wrote off the
unamortized balance of $315,000.
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
consolidated balance sheets equal or approximate fair value due to their short
maturities. The fair value of the Company's Senior Notes, Debentures, and other
Long-Term Debt approximates book value as such notes are at market rates
currently available to the Company.
Impairment of Long Lived Assets
In accordance with Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of, the Company reviews its property
and equipment and unamortized intangible assets whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. The Company estimates the future cash flows expected to result from
operations and if the sum of the expected undiscounted future cash flows is less
than the carrying amount of the long-lived asset, the Company recognizes an
impairment loss by reducing the unamortized cost of the long-lived asset to its
estimated fair value.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets. Statement 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. Statement 141 also includes guidance on the initial recognition and
measurement of goodwill and other intangible assets arising from business
combinations completed after June 30, 2001. Statement 142 prohibits the
amortization of goodwill and intangible assets with indefinite
F-13
166
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
2. Accounting Policies (continued)
New Accounting Pronouncements (continued)
useful lives. Statement 142 requires that these assets be reviewed for
impairment at least annually. Intangible assets with finite lives will continue
to be amortized over their estimated useful lives. As Statement 142 is effective
for fiscal years beginning after December 15, 2001, the Company will adopt the
Statement on July 1, 2002. Although the Company did not adopt Statement 142
until fiscal year 2003, the nonamortization provisions of Statement 142 for
combinations initiated after June 30, 2001 are applicable for the Company
effective July 1, 2001.
Under Statement 142 the Company will test goodwill for impairment during fiscal
year 2003 using the two-step process prescribed in Statement 142. The first step
is a screen for potential impairment, while the second step measures the amount
of the impairment, if any. The Company expects to perform the first of the
required impairment tests of goodwill and indefinite lived intangible assets as
of July 1, 2002 in the first quarter of fiscal year 2003. If the first test
indicates a potential impairment, the second phase will be completed to
calculate any actual impairment. Any impairment charge resulting from these
transitional impairment tests will be reflected as the cumulative effect of a
change in accounting principle in the first quarter of fiscal year 2003. The
Company has not yet determined what the effect of these tests will be on the
earnings and financial position of the Company.
The FASB recently issued Statement No. 144, Accounting for the Impairment of
Disposal of Long-Lived Assets, that is applicable to financial statements issued
for fiscal years beginning after December 15, 2001. The FASB's new rules on
asset impairment supersede FASB Statement 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and portions of
APB Opinion 30, Reporting the Results of Operations. This Standard provides a
single accounting model for long-lived assets to be disposed of and
significantly changes the criteria that would have to be met to classify an
asset as held-for-sale. Classification as held-for-sale is an important
distinction since such assets are not depreciated and are stated at the lower of
fair value and carrying amount. This Standard also requires expected future
operating losses from discontinued operations to be displayed in the period in
which the losses are incurred, rather than as of the measurement date as
presently required. The provisions of this Standard are not expected to have a
significant effect on the Company's financial position or results of operations.
F-14
167
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
3. Acquisition of Stitch Networks Corporation
On May 14, 2002, USA Acquisition Corp., a wholly owned subsidiary of the Company
acquired Stitch pursuant to an Agreement and Plan of Merger by and among the
Company, USA Acquisition Corp., Stitch and the stockholders of Stitch. The
Company acquired Stitch to strengthen its position as a leading provider of
wireless remote monitoring and cashless and mobile commerce solutions. At the
close of the transaction on May 14, 2002, Stitch became a wholly owned
subsidiary of the Company. The acquisition was accounted for using the purchase
method and, accordingly, the results of the operations of Stitch have been
included in the accompanying consolidated statements of operations since the
acquisition date. The purchase price consisted of the issuance of 22,762,341
shares of Common Stock of the Company in exchange for the outstanding shares of
Stitch and the issuance of warrants to purchase up to 7,587,447 shares of Common
Stock of the Company at $.40 per share at any time through June 30, 2002. The
purchase price also included the assumption of outstanding Stitch stock options
that were converted into options to purchase an aggregate of 2,475,318 shares of
the Company's Common Stock at $.165 per share at any time prior to May 14, 2007,
warrants to purchase up to 412,553 shares of the Company's Common Stock at $.40
per share at any time through June 30, 2002 and acquisition related expenses
which included the issuance of 875,000 shares of Common Stock to an investment
banking firm. None of the warrants issued in connection with the acquisition
were exercised as of June 30, 2002. A total of 4,800,000 shares of the Common
Stock issued to the former stockholders of Stitch are being held in escrow to
secure the former stockholder's indemnification obligations under the Agreement
and Plan of Merger. Such shares are subject to cancellation if there is a breach
of the indemnification (as defined). In connection with the acquisition, the
Company's shareholders voted in May of 2002 to increase the number of authorized
shares of Common Stock to 150,000,000.
During June 2002, the Company determined that it would vacate the office space
previously occupied by Stitch. Accordingly, the Company accrued the remaining
lease exit costs relating to this property in the amount of approximately
$354,000 as part of the cost of Stitch. While the Company is attempting to
sublease this space, no provision for recovery has been estimated at this time.
F-15
168
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
3. Acquisition of Stitch Networks Corporation (continued)
The following table summarizes the preliminary purchase price allocation of the
fair value of the assets and liabilities assumed at the date of acquisition:
Current assets $ 2,710,000
Property and equipment 1,700,000
Goodwill 6,801,000
Intangibles 2,920,000
Current liabilities (1,554,000)
Long-term debt (3,976,000)
-----------------
$ 8,601,000
=================
Long-term debt of $2,165,000 was repaid during June 2002.
Unaudited pro-forma combined results of the Company as if the Company acquired
Stitch on July 1, 2000 and July 1, 2001 are as follows:
Year ended June 30
2002 2001
------------------------------
Revenues $ 2,869,466 $ 1,953,250
Loss before cumulative effect of accounting change and
extraordinary item (19,583,216) (15,058,358)
Cumulative effect of accounting change - (821,000)
------------------------------
Loss before extraordinary item (19,583,216) (15,879,358)
------------------------------
Extraordinary loss on exchange of debt - (863,000)
Net loss (19,583,216) (16,742,358)
------------------------------
Cumulative preferred dividends (822,561) (836,541)
Loss applicable to common shares $ (20,405,777) $(17,578,849)
==============================
Loss before cumulative effect of accounting change and
extraordinary item $ (0.36) $ (0.40)
==============================
Cumulative effect of accounting change $ - $ (0.02)
==============================
Extraordinary loss on exchange of debt $ - $ (0.02)
==============================
Loss per common share (basic and diluted) $ (0.36) $ (0.44)
==============================
Weighted average number of common shares
outstanding (basic and diluted) 56,676,823 40,369,340
==============================
F-16
169
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
4. Property and Equipment
Property and equipment consist of the following:
Useful June 30
Lives 2002 2001
------------------------------------
Computer equipment and
purchased software 3 years $ 1,855,459 $ 609,775
Vending machines and related
components 7 years 1,050,220 -
Control systems 3 years 982,371 533,055
Furniture and equipment 5-7 years 503,110 190,836
Leasehold improvements Lease term 94,031 90,313
Vehicles 5 years 10,258 10,258
-------------------------
4,495,449 1,434,237
-------------------------
Less accumulated depreciation (2,563,022) (672,913)
-------------------------
$ 1,932,427 $ 761,324
=========================
5. Accrued Expenses
Accrued expenses consist of the following:
June 30
2002 2001
----------------------
Accrued professional fees $ 628,372 $ 439,478
Accrued lease termination payments, net 344,934 -
Accrued other 264,518 31,414
Accrued compensation and related sales commissions 225,917 125,668
Accrued interest 209,885 91,585
Accrued software license and support costs 144,755 154,229
Accrued taxes and filing fees 134,411 -
Accrued product warranty costs 85,827 52,466
Accrued consulting fees 62,480 435,000
Advanced customer billings 30,190 25,755
----------------------
$2,131,289 $1,355,595
======================
F-17
170
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
6. Related Party Transactions
At June 30, 2002 and 2001, approximately $30,000 and $70,000, 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, 2002 and 2001, the
Company incurred approximately $213,000 and $271,000, respectively, for these
services. During the year ended June 30, 2002, certain Board members
participated in various offerings of debt or equity of the Company for a total
investment of approximately $277,500.
Stitch purchases vending machines from Dixie-Narco, Inc. (Dixie), an affiliate
of a shareholder of the Company. There were no purchases from Dixie for the
period May 14, 2002 to June 30, 2002. Amounts payable to Dixie of $124,333 are
included in accounts payable in the accompanying 2002 consolidated balance
sheet.
7. Commitments
- 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 seven
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.
The employment agreement was extended to June 30, 2004.
- The Company conducts its operations from various facilities under operating
leases. Rent expense under such arrangements was approximately $220,000 and
$188,000 during the years ended June 30, 2002 and 2001, respectively.
Future minimum lease payments are reflected below. During the years ended
June 30, 2002 and 2001, the Company entered into agreements to lease $0 and
$118,207 of computer equipment accounted for as capital leases. This
computer equipment is included in property and equipment in the
accompanying consolidated financial statements. Capital lease amortization
of approximately $54,000 and $34,000 is included in depreciation expense
for the years ended June 30, 2002 and 2001, respectively.
F-18
171
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
7. Commitments (continued)
Future minimum lease payments subsequent to June 30, 2002 under capital and
noncancelable operating leases are as follows:
Capital Leases Operating Leases
----------------------------------
2003 $ 52,942 $ 155,000
2004 15,960 109,000
2005 1,779 80,000
2006 - 20,000
----------------------------------
Total minimum lease payments 70,681 $ 364,000
=================
Less amount representing interest 7,697
---------------
Present value of net minimum lease payments 62,984
Less current obligations under capital leases 46,300
---------------
Obligations under capital leases, less current portion $ 16,684
===============
8. Long-Term Debt
Long-term debt consists of the following:
June 30
2002 2001
-----------------------
Bank facility $1,255,113 $ -
Working capital loans 275,000 -
IBM inventory financing 19,632 45,785
Capital lease obligations (Note 7) 62,984 124,023
-----------------------
1,612,729 169,808
Less current portion 850,644 116,231
-----------------------
$ 762,085 $ 53,577
=======================
At June 30, 2002 the Company has a $1.5 million bank facility available (the
Facility) to fund the purchase of vending machines placed at locations where
Kodak film products are sold. Borrowings are made from time to time under the
Facility, with repayment schedules set at the time of each borrowing, including
equal monthly payments over 36 months and an interest rate based upon 495 basis
points over the three year U.S. Treasury Notes. The Company has granted the bank
a security interest in the film products vending machines. Repayment of
principal is also insured by a Surety Bond issued by a third-party insurer in
exchange for an initial fee paid by the Company. Subsequent to June 30, 2002,
the Company has not borrowed any additional funds under this Facility.
F-19
172
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
8. Long-Term Debt (continued)
In connection with the Stitch acquisition (Note 3), the Company assumed long
term debt of $3,976,000 which included a vending equipment borrowing facility
and working capital loans. The Company repaid $2,165,000 of the working capital
loans in June 2002. All but $225,000 of these working capital loans bear
interest at a variable rate based on the bank's prime rate. These loans are
secured by the assets of Stitch. At June 30, 2002 $275,000 of working capital
loans are outstanding of which $225,000, which bears interest at 6.75%, was
payable on July 8, 2002 and $50,000 was payable on demand. Subsequent to June
30, 2002, the Company has made interest only payments to the bank. On July 26,
2002, August 29, 2002 and September 27, 2002 the bank agreed to extend the due
date of these notes until September 1, 2002, October 1, 2002, and November 1,
2002, respectively under several forebearance agreements. In connection these
extensions, the Company paid $13,000 of fees to the bank.
The Company also had an inventory financing arrangement whereby IBM Credit
Corporation originally granted the Company a $1.5 million equipment line of
credit. This arrangement expired in fiscal year 2002. The outstanding balance at
June 30, 2002 and 2001, of $19,632 and $45,785, respectively, 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.
9. Income Taxes
At June 30, 2002 and 2001, the Company had net operating loss carryforwards of
approximately $54,769,000 and $31,234,000, respectively, to offset future
taxable income expiring through approximately 2022. At June 30, 2002 and 2001,
the Company recorded a net deferred tax asset of approximately $20,546,000 and
$12,418,500, respectively, which was principally reduced by a valuation
allowance of the same amount as the realization of the deferred tax asset is not
certain, principally due to the lack of earnings history.
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. Stitch had net operating loss
carryforwards of approximately
F-20
173
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
9. Income Taxes (continued)
$10,985,000 at the acquisition date. Such net operating loss carryforwards are
limited under these provisions as to the amount available to offset future
taxable income and such limited amounts are reflected below.
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
2002 2001
---------------------------
Deferred tax assets:
Net operating loss carryforwards $ 19,837,000 $ 13,237,000
Compensation expense on stock option re-pricing - 170,500
Deferred research and development costs 480,000 125,000
Software development costs 1,008,000 -
Other 392,000 131,000
---------------------------
21,717,000 13,663,500
Deferred tax liabilities:
Intangibles (1,171,000) -
Software development costs - (1,245,000)
---------------------------
20,546,000 12,418,500
Valuation allowance (20,546,000) (12,418,500)
---------------------------
Deferred tax asset, net $ - $ -
===========================
Amounts assigned to intangibles acquired in the Stitch acquisition exceeded the
tax basis. Such excess will increase taxable income as the Intangibles
(excluding goodwill) are amortized. The net operating loss caryyforwards will be
used to offset the increase in taxable income. Accordingly, the Company recorded
a deferred tax liability of $1,171,000 and a deferred tax asset in the same
amount related to these intangibles at the acquisition date.
10. Senior Notes and Debentures
During June 2002, the Company commenced a $2,500,000 2002-A private placement
offering (subsequently increased to $4,000,000 in September, 2002) consisting of
12% Convertible Senior Notes due December 31, 2005. Each $10,000 Note is
convertible into Common Stock at $.20 per share at any time through June 30,
2004 and interest is payable quarterly. Each Noteholder initially received
20,000 Common Stock warrants, however subsequent to June 30, 2002, the Board of
Directors amended the offering to replace the warrants with 20,000 shares of
Restricted Common Stock. Through June 30, 2002, the Company sold 444.08 units
generating proceeds of $444,083, of which $35,000 is reflected as subscriptions
receivable. Such amounts were collected subsequent to June
F-21
174
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
10. Senior Notes and Debentures (continued)
30, 2002. The offering was scheduled to terminate June 30, 2002 with extension
possible for up to an additional 60 days. The offering was extended to September
30, 2002, with right of further extension for an additional 30 days. As of
September 27, 2002, the Company had signed subscription agreements for
$2,103,000, of which $1,694,000 was received in cash which has been deposited.
The remainder is for services.
During fiscal year 2002, the Company commenced a $2,500,000 2001-D private
placement offering (later increased to $6,500,000), consisting of 12%
Convertible Senior Notes due December 31, 2004. Each $10,000 Note is convertible
into Common Stock at $.40 per share, and interest is payable quarterly. Certain
stockholders of the Company, who received warrants to purchase Common Stock of
the Company as a part of earlier private placements, were offered the
opportunity to cancel a portion of such warrants and to receive an equivalent
number of new warrants at $.10 expiring on December 31,2002 if they invested in
the 2001-D offering. The original warrants were scheduled to expire December 31,
2001 or March 31, 2002 (according to their original terms) at $.50. The fair
value of the new warrants issued to 2001-D participants was determined using the
Black-Scholes valuation method in the amount of $3,424,000. Such amount was
allocated to equity. The debt discount is being amortized to interest expense
through December 31, 2004. Through June 30, 2002, the Company issued 481.4 units
generating net cash proceeds of $3,906,740. An additional $907,853 of notes were
issued to consultants for services rendered. The 2001-D offering was extended by
the Company to close on October 31, 2002.
During August 2001, the Company executed a Securities Purchase Agreement with an
investment company for the purchase of $225,000 of a 9.75% Convertible Debenture
(the "Debenture") due August 2003. Interest on the Debenture is payable monthly
in arrears. On June 18, 2002, the investment company increased the Debenture by
$100,000, extended the maturity date of the $325,000 to August 2004 and lowered
the conversion rate. The investment company also paid the Company $300,000
towards a future exercise of Common Stock warrants. Of this amount $20,000 was
used during June 2002 to exercise Common Stock warrants. The remaining balance
of $280,000 is reflected in deposits at June 30, 2002.
The Debenture is convertible at a price equal to the lesser of $1.00 or 72% (80%
prior to June 18, 2002) of the lowest closing bid price of the Company's Common
Stock during the 20 day period prior to the conversion. The Company reserves the
right to prepay the portion of the Debenture that the investment company elected
to convert, plus interest, at 150% of such amount, if the price of Common Stock
is less than $0.40 per share. At the time of conversion, the Company will issue
to the holder warrants to purchase an amount
F-22
175
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
10. Senior Notes and Debentures (continued)
of Common Stock equal to ten times the number of shares issued upon the
conversion of the Debenture. The warrants are exercisable at the same conversion
price as the Debenture. Due to the significance of the beneficial conversion
feature associated with this instrument, the entire $325,000 of proceeds has
been allocated to the warrants, and is included in equity. The debt discount is
being amortized to interest expense over the term of the Debenture. During
fiscal year 2002, the investment company converted $82,000 of the Debenture,
resulting in the issuance of 333,678 shares of Common Stock. The investment
company also exercised warrants resulting in the issuance of 3,336,780 shares of
Common Stock and generating net cash proceeds of $886,250.
During fiscal year 1999, the Company's Board of Directors authorized a private
placement offering (the "1999 Senior Note Offering"). Each unit, as amended,
consisted of a 12% Senior Note in the principal amount of $10,000, maturing on
December 31, 2001, 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) were sold in this
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. During
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 fiscal year 2001, the Company authorized a private placement offering
("2000 Senior Note Offering") of 670 units at a unit price of $10,000. Each unit
consisted of a 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 Senior Note is convertible into Common Stock at $1.25 per share anytime
through its maturity. This offering provided for the holders of the 1999 Senior
Notes to exchange their 1999 Senior 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 specific prices established by the Board
of Directors.
During fiscal year 2001 the Company issued 1,136,300 shares of Common Stock in
connection with the 2000 Senior Notes. 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 equity. The debt
discount is being amortized to interest expense through December 31, 2003.
Through June 30, 2002, $647,500 of such Notes were converted into 518,000 shares
of Common Stock
F-23
176
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
10. Senior Notes and Debentures (continued)
The Company sold 568.15 units in the 2000 Senior Note Offering 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.
During the years ended June 30, 2002 and 2001, the Company issued 674,431 and
121,541 shares of Common Stock respectively, in lieu of cash payment for
interest on the Senior Notes.
A summary of the various Senior Note activities are as follows:
1999 Senior 2000 Senior 2001 Senior 2002 Senior
Notes Notes Notes Notes
----------------------------------------------------------
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
Converted into Common Stock (622,500)
Repaid at maturity (240,000)
Issued for cash and services 4,814,593 444,083
Less: Unamortized debt discount
and other issuance costs - (750,295) (2,928,567) (323,989)
----------------------------------------------------------
Balance at June 30, 2002 $ - $ 4,283,705 $ 1,886,026 $ 120,094
==========================================================
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
F-24
177
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
10. Senior Notes and Debentures (continued)
remaining life of the respective debt instruments. Debt discount amortization,
which has been reflected as interest expense in the consolidated statements of
operations, was approximately $1,513,000 and $765,000 for the years ended June
30, 2002 and 2001, respectively.
11. 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, 2002 and 2001 amounted to
$5,175,571 and $4,621,150, respectively. Cumulative unpaid dividends are
convertible into common shares at $10.00 per common share at the option of the
shareholder. During the years ended June 30, 2002 and 2001, certain holders of
the Preferred Stock converted 26,002 and 11,160 shares, respectively, into
26,002 and 11,160 shares of Common Stock, respectively. Certain of these
shareholders also converted cumulative preferred dividends of $268,140 and
$87,030, respectively, into 26,814 and 8,703 shares of Common Stock during the
years ended June 30, 2002 and 2001, 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,
2002. 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.
12. Common Stock Transactions
During the years ended June 30, 2002 and 2001, the Company's Board of Directors
authorized the following private placement offerings of the Company's Common
Stock:
- 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;
- 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;
F-25
178
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
12. Common Stock Transactions (continued)
- 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. During fiscal year 2002 the Company
issued 4,726,040 shares of Common Stock from this offering generating
additional net proceeds of $2,754,371. 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.
- 2001-C offering for the issuance of 4,500,000 shares of Common Stock
at $.50 per share. In each share purchased the holder received a
warrant to purchase a share of Common Stock at $.50 per share expiring
May 2002. The Company issued 4,046,684 shares of Common Stock
generating net proceeds of $1,992,852 after deducting related offering
costs. Of this amount, $149,750 has not been received, and,
accordingly is reflected in subscriptions receivable at June 30, 2002.
The Company issued 2,784,137 and 200,000 shares of Common Stock for professional
services during the years ended June 30, 2002 and 2001, respectively. Such
shares were valued based on the fair value of the Company's Common Stock on the
date the shares were granted. During the year ended June 30, 2002 and 2001, the
Company also issued 2,340,000 and 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 $981,000 during fiscal
year 2002 and $474,995 during fiscal year 2001 based on the fair value of the
Company's Common Stock on the date the shares were granted.
During fiscal year 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 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.
F-26
179
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
12. Common Stock Transactions (continued)
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. No purchases were made during the fiscal year
ended June 30, 2002. The agreement was terminated during April 2002.
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 would be issued the
Common Stock if employed by the Company on June 30, 2002. The Company recorded
deferred compensation of $240,000 in connection with these awards. Compensation
expense of $103,000 has been recorded to reflect the amortization of the shares
earned during each of the years ended June 30, 2002 and 2001, respectively. All
officers were employed by the Company as of June 30, 2002.
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 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.
F-27
180
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
12. Common Stock Transactions (continued)
A summary of Common Stock Warrant activity for the years ending June 30, 2002
and 2001 is as follows:
Warrants
-------------
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
Issued 22,602,593
Exercised (1,833,529)
Cancelled (22,162,272)
-------------
Outstanding at June 30, 2002 6,839,820
=============
The exercise price and exercise dates of outstanding and exercisable warrants
outstanding at June 30, 2002 are as follows:
Outstanding and
Exercisable Exercise Price Expiration Date
-----------------------------------------------------
3,971,163 $ 0.10 December 31, 2002
303,829 0.20 June 30, 2004
150,000 0.70 August 2, 2003
650,000 0.70 November 23, 2003
1,200,000 0.91 August 29, 2010
377,927 1.00 April 24, 2011
2,901 1.03 April 30, 2011
75,000 1.25 June 30, 2006
100,000 2.00 June 22, 2003
1,500 4.00 July 2, 2002
2,500 4.00 March 5, 2003
5,000 4.00 August 17, 2003
----------------
6,839,820
================
During the years ended June 30, 2002 and 2001, the Company's Board of Directors
made numerous amendments to the outstanding Common Stock Warrants whereby the
Company reduced the exercise price and extended the expiration terms. The above
table reflects the status of the warrants as of June 30, 2002.
F-28
181
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
13. Stock Options
The Company's Board of Directors has granted options to employees and its Board
members 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.
The following table summarizes all stock option activity during the years ended
June 30, 2002 and 2001:
Common Shares
Under Options Exercise Price Per
Granted Share
-----------------------------------
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
Granted 4,505,318 $ .165-$.70
Canceled or expired (4,101,500) $ .40-$5.00
-----------------------------------
Balance at June 30, 2002 5,290,485 $ .165-$5.00
===================================
The price range of the outstanding Common Stock options at June 30, 2002 is as
follows:
Weighted Average
Option Remaining Options
Exercise Prices Options Outstanding Contract Life (Yrs.) Exercisable
------------------------------------------------------------------------------
$.165 2,475,318 4.87 2,475,318
$.40 550,000 2.78 550,000
$.50 5,000 0.80 5,000
$.70 400,000 0.97 400,000
$1.00 735,000 4.47 615,002
$1.50 305,000 0.98 305,000
$2.00 651,167 2.48 651,167
$2.50 84,000 0.96 84,000
$4.50 80,000 1.10 80,000
$5.00 5,000 0.17 5,000
------------- ---------------
5,290,485 5,170,487
============= ===============
F-29
182
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
13. 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
2002 2001
----------------------------
Net loss applicable to common shares as
reported under APB 25 $(18,137,368) $(11,792,785)
Stock option expense per SFAS 123 (985,046) (524,845)
----------------------------
Pro forma net loss $(19,122,414) $(12,317,630)
============================
Loss per common share as reported $ (0.50) $ (.70)
Pro forma net loss per common share $ (0.53) $ (.74)
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 2002 and 2001: an expected life of
2 years; no expected cash dividend payments on Common Stock, respectively; and
for fiscal 2002 a risk-free interest rate of 4.5% to 5.5% and for fiscal 2001,
5.5%, and volatility factors of the expected market price of the Company's
Common Stock, based on historical volatility of .85 to .95 for fiscal 2002, and
1.100 for fiscal 2001.
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-30
183
USA Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
13. Stock Options (continued)
As of June 30, 2002, the Company has reserved shares of Common Stock for the
following:
Exercise of Common Stock options 5,290,485
Exercise of Common Stock warrants 6,839,820
Conversion of remaining Debentures
and exercise of related warrants 19,038,462
Conversions of Preferred Stock
and cumulative Preferred Stock
dividends 1,046,839
Conversions of Senior Notes 19,172,264
------------
51,387,870
============
14. 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 up to 10% of an employee's compensation. The Company contribution
for the years ended June 30, 2002 and 2001 was approximately $48,000 and
$51,000, respectively.
15. Contingencies
In the normal course of business, various legal actions and claims are pending
or may be instituted or asserted in the future against the Company. The Company
does not believe that the resolution of these matters will have a material
effect on the financial position or results of operations of the Company.
16. Subsequent Events (Unaudited)
During September 2002, the Company sold 2,000,000 shares of restricted Common
Stock at $0.12 per share generating gross proceeds of $240,000. During October
2002, the Company granted the same investor 2,000,000 warrants to purchase the
Company's Common Stock at $0.10 per shares through November 30, 2002. If all
2,000,000 warrants are exercised, the investor has been granted another warrant
to purchase 2,000,000 shares of Common Stock at $0.10 per share through March
31, 2003.
On October 28, 2002, the shareholders voted to increase the number of authorized
shares of the Company to 200,000,000.
On October 31, 2002, the Company received an extension to December 1, 2002 of
the existing forbearance for repayment of approximately $225,000 of outstanding
debt with Wilmington Trust Bank.
In October 2002, the Company sold to an investor 3,571,429 shares at $.07 per
share and issued the following common stock warrants: (1) warrants to purchase
up to 7,142,858 shares at $.07 at any time for a five year period; and (2)
warrants to purchase up to 7,142,858 shares at $.07 per share and 5,000,000
shares at $.10 per share, exercisable over a one year period.
In October 2002, the Company sold to an investor 1,500,000 shares at $.10 per
share and granted common stock warrants to purchase up to 750,000 shares at $.10
per share at any time for a five year period. Within seven days following the
effectiveness of the registration statement covering these shares, the Company
has agreed to sell to the investor an additional 1,500,000 shares at $.10 per
share and grant common stock warrants to purchase up to 750,000 shares at $.10
per share at any time for a five year period.
In October 2002, the Company issued 501,906 shares of Common stock to holders of
Senior Notes in lieu of cash for quarterly interest payments due September 30,
2002, and issued related warrants to purchase up to 501,906 shares of Common
Stock at $.0.20 per shares through December 31, 2004 to those Senior Note
holders.
In October 2002, the Company granted to the holders of all the 12% senior notes
common stock warrants to purchase that number of shares equal to 75% of the
dollar amount of the notes held by such holder. The total number of warrants is
10,360,025 and are exercisable at any time prior to November 30, 2002. If the
holder exercises all of such holder's warrants, the holder shall receive another
identical warrant exercisable at any time prior to March 31, 2003.
In November 2002, the Company agreed to issue an aggregate of 1,480,000 shares
to employees and consultants for services to be rendered. The shares were valued
at $.15 per share.
In November 2002, the Company issued an aggregate of 530,000 shares to 3
investors at $.10 per share for an aggregate of $59,000.
F-31
184
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 . $ 2,873.34
Printing and Engraving Expenses . . . . . . . . . . . $ 7,126.66
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"):
Private Placements.
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.
185
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.
186
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 for
our 2001-C offering 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. As of the date of this Prospectus, $829,342 has been collected in
cash and $983,077 has been distributed or is yet to be distributed for services
in lieu of cash.
187
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.
During the period from November 2001 through April 5, 2002, the Company
sold $3,618,985 principal amount of 12% Convertible Senior Notes due December
31, 2004. Each Senior Note is convertible into shares of common stock at $.40
per share anytime through maturity. The notes were sold to accredited investors
and the offer and sale thereof did not involve any general advertising or
solicitation and the offer and sale was therefore exempt from registration under
Rule 506 of the Regulation D promulgated under the Act.
In January 2002, the Company issued shares of common stock to the following
executive officers as a bonus: George R. Jensen, Jr.- 320,000 shares; Stephen P.
Herbert- 300,000 shares; H. Brock Kolls-200,000 shares; Leland Maxwell-130,000
shares; and Michael Lawlor- 130,000 shares. The issuance of the shares was
exempt from registration under Section 4(2) of the Act.
In May 2002, we acquired Stitch Networks Corporation. Pursuant to the
transaction, Stitch become our wholly-owned subsidiary. In exchange for their
Stitch stock, the Stitch stockholders received an aggregate of 22,762,341 of our
shares of common stock and warrants to purchase up to 8,000,000 of our shares of
common stock at $.40 per share at any time through June 30, 2002. We also issued
to the former option holders of Stitch options to purchase up to 2,475,318
shares at $.165 per share at any time for five years following closing. The
offer and sale of the shares, warrants, and options was exempt from registration
under Section 4(2) of the Act.
In April 2002, the Company agreed to issue 400,000 shares of Common Stock
to Alex Consulting, Inc., a consultant to the Company. The offer and sale of the
shares was exempt from registration under Section 4(2) of the Act.
In April 2002, the Company agreed to issue 90,000 shares of Common Stock to
Larry Gershman, a consultant to the Company. The offer and sale of the shares
was exempt from registration under Section 4(2) of the Act.
In April 2002, the Company agreed to issue to Technology Partners
(Holdings) LLC, our investment banker, a total of 150,000 shares of Common
Stock. The shares are to be issued at the rate of 25,000 per month under the six
month extension of their consultant agreement. The offer and sale of the shares
was exempt from registration under Section 4(2) of the Act.
During September 2002, the Company sold 2,000,000 shares of restricted
Common Stock at $.12 per share for aggregate proceeds of $240,000 to an
investor. In addition, in October 2002, the Company granted to the investor
warrants to purchase up to 2,000,000 shares at $.10 per share through November
30, 2002, and if all of these warrants are exercised, the investor has been
granted another identical warrant for 2,000,000 shares exercisable at any time
through March 31, 2003. The offer and sale of the shares was exempt from
registration under Section 4(2) of the Act.
Commencing during June 2002 and through October 2002, the Company sold to
186 accredited investors $4,284,008 principal amount of 12% Senior Notes due
December 31, 2005 and 8,568,000 shares of Common Stock. For each $10,000
invested, the subscriber received a $10,000 note and 20,000 shares of Common
Stock. The Company has received signed subscription documents for the
2002-A Private Placement of Senior Notes for $4,284,008, of which
$2,755,775 has been deposited and the remainder of $1,528,233 was
for services. The notes were sold to accredited investors and the offer and sale
thereof did not involve any general advertising or solicitation and the offer
and sale was therefore exempt from registration under Rule 506 of the Regulation
D promulgated under the Act.
188
La Jolla Cove Investors converted Debentures and exercised warrants. The
investor utilized previously remitted funds to the Company which was reflected
as a deposit in the June 30, 2002 consolidated financial statements.
Specifically, from inception through September 30, 2002, La Jolla converted
$103,000 of 9 3/4 percent Convertible Debentures, for which the Company issued
534,905 shares of stock, and exercised 5,349,050 warrants to purchase Common
Stock at an average price of $.193 per share. The Company had previously
executed a Securities Purchase Agreement with La Jolla for the purchase of
$225,000 (increased by $100,000 on June 18, 2002) of Convertible Debentures
bearing 9 3/4 percent interest with a maturity date of August 3, 2003 (extended
to August 2, 2004 on June 18, 2002). 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% (later lowered to 72%) of the lowest closing
bid price of the Common Stock during the 30 days preceding exercise. The offer
and sale of the shares was exempt from registration under Section 4(2) of the
Act.
In October 2002, the Company sold 400,000 shares to Ratner & Prestia, P.C.,
the Company's intellectual property counsel. The sales proceeds from
the shares are to be applied by the firm towards the legal fees due to the firm
by the Company. The offer and sale of the shares was exempt from registration
under Section 4(2) of the Act.
In July 2002 the Company agreed to issue an aggregate of 234,600 shares to
employees as part of those employees' severance payments. The offer and sale of
the shares was exempt from registration under Section 4(2) of the Act.
In July 2002, the Company agreed to issue to Karl Mynyk, a former employee,
an aggregate of 125,000 shares in settlement of litigation between he and the
Company. The shares were valued at $.20 per share. The offer and sale of the
shares was exempt from registration under Section 4(2) of the Act.
In October 2002, the Company issued 506,622 shares (valued at $.20 per
share) to the holders of the senior notes in lieu of the cash quarterly interest
payments due for the quarter ended September 30, 2002. In addition, the Company
granted to warrants to purchase up to 506,622 shares at $.20 per share at any
time prior to December 31, 2004. The offer and sale of the shares and warrants
was exempt from registration under Section 4(2) of the Act.
In October 2002, the Company issued to Edwin P. Boynton 50,000 shares in
lieu of the 100,000 options granted to him in April 2002. The offer and sale of
the shares was exempt from registration under Section 4(2) of the Act.
In October 2002, the Company sold to an investor 3,571,429 shares of Common
Stock at $.07 per share and issued the following warrants: (1) warrants to
purchase up to 7,142,858 shares of Common Stock at $.07 at any time for a five
year period; and (2) warrants to purchase up to 7,142,858 shares at $.07 per
share and up to 5,000,000 shares at $.10 per share, exercisable over a one year
period. The offer and sale of the shares was exempt from registration under
Section 4(2) of the Act.
189
In October 2002, the Company sold to an investor 1,500,000 shares at $.10
per share and granted warrants to purchase up to 750,000 shares at $.15 per
share at any time for five years. Within seven days following the effectiveness
of the registration statement covering these shares, the Company has agreed to
sell to the investor an additional 1,500,000 shares at $.10 per share and grant
warrants to purchase up to 750,000 shares at the then closing price per share at
any time for five years. The securities were sold to an accredited investor and
the offer and sale thereof did not involve any general advertising or
solicitation and the offer and sale was therefore exempt from registration under
Rule 506 of the Regulation D promulgated under the Act.
In October 2002, the Company granted to the holders of the 12% senior notes
warrants to purchase that number of shares equal to 75% of the dollar amount of
the notes held by such holder. The total number of warrants issued was
10,360,025 and are exercisable at any time prior to November 30, 2002. If the
holder exercises all of such holder's warrants, the holder shall receive another
identical warrant exercisable at any time prior to March 31, 2003. The offer and
sale of the shares was exempt from registration under Section 4(2) of the Act.
In November 2002, the Company agreed to issue an aggregate of 1,480,000
shares to employees and consultants for services to be rendered. The shares were
valued at $.125 per share. The offer and sale of the shares was exempt from
registration under Section 4(2) of the Act.
In November 2002, the Company issued an aggregate of 690,000 shares to 4
accredited investors at $.10 per share for an aggregate of $69,000. The offer
and sale of the shares was exempt from registration under Section 4(2) of the
Act.
II. Stock Options
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.
190
During April 2001, the Company issued options to the following executives:
George R. Jensen, 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 options. 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.
In November 2001, the Company authorized issuance of 1,080,000 fully vested
options to purchase its Common Stock to its Executive Officers, provided that
they were employed by the Company as of January 2, 2002. The amounts of options
authorized were: George R. Jensen, Jr. - 320,000 options; Stephen P. Herbert -
300,000 options; Haven Brock Kolls 200,000 options; Leland Maxwell - 130,000
options; and Michael Lawlor - 130,000 options. Each option is exercisable at
$.40 per share at any time and on or before June 30, 2003. These options vested
during March, 2002.
In November 2001, the Company issued the following fully vested options to
purchase an aggregate of 650,000 shares: Gary Oakland - 100,000 options; Adele
Hepburn - 300,000 options; and Frances Young - 250,000 options. These options
vested during March, 2002.
In April 2002, the Company granted to H. Brock Kolls an aggregate of fully
vested options to purchase up to 50,000 shares exercisable at $.40 per share for
a three year period following issuance.
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.
191
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.
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
security holders 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).
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).
192
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).
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).
193
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. (Incorporated by reference to Exhibit 4.15 to Form
SB-2 Registration Statement No. 333-72302)
**4.16 Subscription Agreement dated October 26, 2002 by and between the Company
and Ratner & Prestia, P.C.
194
**4.17 Stock Purchase Agreement dated October 26, 2002 by and between the
Company and Kazi Management VI, Inc.
**4.18 Warrant Certificate (no. 189) dated October 26, 2002 in favor of Kazi
Management VI, Inc.
**4.19 Registration Rights Agreement dated October 26, 2002 by and between the
Company and Kazi Management, Inc.
**4.20 Warrant Certificate (no. 190) dated October 26, 2002 in favor of Kazi
Management VI, Inc.
**4.21 Subscription Agreement dated November 4, 2002 by and between the Company
and Alpha Capital Aktiengesellschaft
**4.22 Form of Common Stock Purchase Warrant dated November 4, 2002 in favor of
Alpha Capital Aktiengesellschaft
**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).
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).
195
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).
**10.9.2 Second Amendment to Employment and Non-Competition Agreement
between Stephen P. Herbert and the Company dated April 15, 2002.
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).
196
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).
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).
**10.21.3 Third Amendment to Employment and Non-Competition Agreement
between USA and George R. Jensen, Jr. dated January 16, 2002.
**10.21.4 Fourth Amendment to Employment and Non-Competiton Agreement
between USA and George R. Jensen, Jr., dated April 15, 2002.
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).
197
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).
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 and Plan of Merger dated April 10, 2002, by and among the
Company, USA Acquisitions, Inc., Stitch Networks Corporation, David H.
Goodman, Pennsylvania Early Stage Partners, L.P., and Maytag Holdings, Inc.
(Incorporated by reference to Exhibit 2.1 to Form 10-QSB for the quarter
ended March 31, 2002).
**23.1 Consent of Ernst & Young LLP.
**24.1 Power of Attorney
-----------------------------------------------------------------------------
** -- Filed herewith.
198
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) 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.
199
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.
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.
200
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 November 5,
2002.
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.
Signatures Title Date
---------- ----- ----
/s/ George R. Jensen, Jr. Chairman of the Board, November 5, 2002
--------------------------- and Chief Executive
George R. Jensen, Jr. Officer (Principal and
Chief Executive Officer) Director
/s/ Leland P. Maxwell Vice President, Chief November 5, 2002
--------------------------- Financial Officer
Leland P. Maxwell Treasurer (Principal Accounting Officer)
/s/ Stephen P. Herbert President, Chief November 5, 2002
--------------------------- Operating Officer,
Stephen P. Herbert Director
201
/s/ William W. Sellers Director November 5, 2002
----------------------------
William W. Sellers
/s/ William L. Van Alen, Jr. Director November 5, 2002
---------------------------
William L. Van Alen, Jr.
Director November __, 2002
---------------------------
Steven Katz
/s/ Douglas M. Lurio Director November 5, 2002
---------------------------
Douglas M. Lurio
Director November __, 2002
---------------------------
Edwin R. Boynton
Director November __, 2002
---------------------------
Kenneth C. Boyle
202
EXHIBIT INDEX
Exhibit Number Description
-------- -----------
4.16 Subscription Agreement dated October 26, 2002 by and between the Company
and Ratner & Prestia, P.C.
4.17 Stock Purchase Agreement dated October 26, 2002 by and between the Company
and Kazi Management VI, Inc.
4.18 Warrant Certificate (no. 189) dated October 26, 2002 in favor of Kazi
Management VI, Inc.
4.19 Registration Rights Agreement dated October 26, 2002 by and between the
Company and Kazi Management, Inc.
4.20 Warrant Certificate (no. 190) dated October 26, 2002 in favor of Kazi
Management VI, Inc.
4.21 Subscription Agreement dated November 4, 2002 by and between the Company
and Alpha Capital Aktiengesellschaft
4.22 Form of Common Stock Purchase Warrant dated November 4, 2002 in favor of
Alpha Capital Aktiengesellschaft
10.9.2 Second Amendment to Employment and Non-Competition Agreement between
USA and Stephen P. Herbert dated April 15, 2002.
10.21.3 Third Amendment to Employment and Non-Competition Agreement between
USA and George R. Jensen, Jr., dated January 16, 2002.
10.21.4 Fourth Amendment to Employment and Non-Competition Agreement between
USA and George R. Jensen, Jr., dated April 15, 2002.
5.1 Opinion of Lurio & Associates
23.1 Consent of Independent Auditors
24.1 Power of Attorney (appears as part of signature page)
-----------------
203