USA Technologies Sends Open Letter to Shareholders Regarding Audit Committee Investigation

USA Technologies
Company Strengthens Management Team and Enhances Controls and Governance

MALVERN, PA — USA Technologies, Inc. (NASDAQ: USAT), a premier digital payment, consumer engagement and logistics service provider for the self-service retail market, issued an open letter to shareholders in connection with the internal investigation conducted by the Audit Committee of the Company’s Board of Directors and actions being taken to strengthen the Company’s management team and enhance internal controls and governance.

The Company has also filed a Form 8-K (the “Form 8-K”) with the Securities and Exchange Commission which reports further details on the principal findings of the internal investigation and the actions the Board of Directors and management are implementing as a result of the investigation.

The full text of the letter follows:

Dear Shareholders,

I am writing to you today to provide an update on the internal investigation we announced in September 2018. We greatly appreciate your patience and understanding as we have worked through this process. The Audit Committee, with the assistance of independent legal and forensic accounting advisors, conducted a thorough internal investigation relating to certain of the Company’s contractual arrangements. The investigation is substantially complete and I want to provide you certain of the Audit Committee’s findings and recommendations, as well as actions the Company is taking to strengthen the management team, improve controls and coordination within our Company, and enhance USA Technologies’ governance.

We have grown significantly over the past several years and believe the measures we are implementing will bring USA Technologies’ oversight and control functions and corporate governance more in line with a company of our size and with best practices. We also believe these measures will enhance the Company’s coordination, enable tighter day-to-day running of operations, helping us to be a stronger company and create value for shareholders.

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What Were the Audit Committee’s Findings Related to Previously Reported Revenues?

The Audit Committee made a number of findings, including that, for certain transactions which had been principally entered into during fiscal years 2017 and 2018, the Company had prematurely or inappropriately recognized revenue, and in some cases, the reported number of connections associated with these transactions. The Audit Committee and its advisors proposed adjustments to previously reported revenues associated with certain of the transactions it reviewed. On a net basis, the proposed aggregate reduction to previously reported revenues relating to these transactions is not expected to exceed $5.5 million. In most cases, revenues that had been recognized prematurely were, or are expected to be, recognized in subsequent quarters, including quarters subsequent to the quarters impacted by the investigative findings. The investigation further found that certain items that had been recorded as expenses, such as the payment of marketing or servicing fees, were more appropriately treated as contra-revenue items in earlier fiscal quarters. As set forth in the Form 8-K, neither the Company nor its independent auditor has completed its analysis of the specific adjustments to previously reported revenues identified by the investigation, and such analysis could result in further adjustments that could be materially different from those set forth above.

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What Actions Are We Taking?

As a result of the Audit Committee’s recommendations, the Board has determined to implement a range of measures, including but not limited to the following:

A reorganization of the Company’s senior management team.

The addition of a Chief Operating Officer who will directly manage a number of operating functions.

Enhancing internal compliance through the creation of a Compliance Committee of the Board of Directors, and the hiring of a Chief Compliance Officer who will report directly to the Committee.

A splitting of the roles of Chairman and CEO, with Stephen P. Herbert continuing to serve as Chief Executive Officer and as a member of the Board of Directors, and Albin (Al) Moschner appointed Non-Executive Chairman.

Authorization for the Nominating and Corporate Governance Committee to commence a search to identify two additional independent directors to join the Board.
What’s Next?

Right now, in addition to working to implement these measures as soon as practicable, we’re working diligently to complete and file our Annual Report on Form 10-K for the fiscal year ended June 30, 2018, and the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2018. We look forward to providing you all with an update on our financial results as soon as we are able. As set forth in the Form 8-K, we are also determining whether or not a restatement is required in connection with any previously filed financial statements and our independent auditor continues to work towards completion of its audit review procedures.

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Throughout this entire process, we have never lost sight of delivering world class service to our nearly 16,000 customers and approximately one million connections to our service. We continue to focus on reaching new customers and expanding our footprint within our existing customer base, while driving towards our goal of revenue and margin expansion across the business in order to deliver sustained, long-term shareholder value.

In conclusion, we reiterate our most sincere thanks for your patience over the past number of months, and as always, our thanks for your interest and investment in USA Technologies.


Stephen P. Herbert, Chief Executive Officer

Source: USA Technologies Inc, 100 Deerfield Ln Ste 300, Malvern PA 19355

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