If any of theour products areor services is found to have infringed any patent, there can be no assurance that we will be able to obtain licenses to continue to manufacture, use, sell, and license such product or service or that we will not have to pay damages and/or be enjoined 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.

If we are unable to adequately protect our proprietary technology or fail to enforce or prosecute our patents against others, third parties may be able to compete more effectively against us, which could result in the loss of customers and our business being adversely affected. Patent and proprietary rights litigation entails substantial legal and other costs, and diverts Company resources as well as the attention of our management. There can be no assurance we will have the necessary financial resources to appropriately defend or prosecute our intellectual property rights in connection with any such litigation.

While we are a leading provider and believe we have the largest installed base of unattended POS electronic payment systems in the small ticket, beverage and food vending industry, our competitors are increasingly and actively marketing products and services that compete with our products and services in this vending space. The competition includes manufacturers who may include in their new vending machines their own (or another third party’s) cashless payment systems and services other than our systems and services. While we believe our products and services are superior to our competitors, many of our competitors are much larger enterprises and have substantially greater revenues. In addition to these competitors, there are also numerous credit card processors that offer card processing services to traditional retail establishments that could decide to offer similar services to the industries that we serve. Competition from other companies, including those that are well established and have substantially greater resources, may reduce our profitability or reduce our business opportunities. 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:

We depend upon third-party manufacturers, suppliers and distributors to deliver components free from defects, competitive in functionality and cost, and in compliance with our specifications and delivery schedules. Since we generally do not maintain large inventories of our products or components, any termination of, or significant disruption in, our manufacturing capability or our relationship with our third-party manufacturers or suppliers may prevent us from filling customer orders in a timely manner.

We have occasionally experienced, and may in the future experience, delays in delivery of products and delivery of products of inferior quality from third-party manufacturers. Although alternate manufacturers and suppliers are generally available to produce our products and product components, the number of manufacturers or suppliers of some of our products and components is limited, and a qualified replacement manufacturer or supplier could take several months. In addition, our use of third-party manufacturers reduces our direct control over product quality, manufacturing timing, yields and costs. Disruption of the manufacture or supply of our products and components, or a third-party manufacturer’s or supplier’s failure to remain competitive in functionality, quality or price, could delay or interrupt our ability to manufacture or deliver our products to customers on a timely basis, which would have a material adverse effect on our business and financial performance.

Substantially all of our customers may terminate their network service contracts with us for any or no reason upon providing us with thirty or sixty-days’sixty days’ advance notice. Accordingly, consistent demand for and satisfaction with our products by our customers is critical to our financial condition and future success. Problems, defects, or dissatisfaction with our products or services or competition in the marketplace could cause us to lose a substantial number of our customers with minimal notice. If a substantial number of our customers were to exercise their termination rights, it would result in a material adverse effect to our business, operating results, and financial condition.

Managing the proper inventory levels for components and finished products is challenging. In formulating our product offerings, we have focused our efforts on providing products with greater capability and functionality, which requires us to develop and incorporate the most current technologies in our products. This approach tends to increase the risk of obsolescence for products and components we hold in inventory and may compound the difficulties posed by other factors that affect our inventory levels, including the following:

If we accumulate excess or obsolete inventory, price reductions and inventory write-downs may result, which could adversely affect our results of operation and financial condition.

We face rapidly changing technology and frequent new service offerings by competitors that can render existing services obsolete or unmarketable. Our future depends, in part, on our ability to enhance existing services and to develop, introduce and market, on a timely and cost effective basis, new services that keep pace with technological developments and customer requirements. Developing new products and technologies is a complex, uncertain process requiring innovation and accurate anticipation of technological and market trends. When changes to the product line are announced, we will be challenged to manage possible shortened life cycles for existing products and continue to sell existing products and prevent customers from returning existing products. Our inability to respond effectively to any of these challenges may have a material adverse effect on our business and financial success.

Credit card issuers have promulgated credit card security guidelines as part of their ongoing efforts to battle identity theft and credit card fraud. We continue to work with credit card issuers to assure that our products and services comply with these rules. There can be no assurances, however, that our products and services or third party products and services utilized by us are invulnerable to unauthorized access or hacking. When there is unauthorized access to credit card data that results in financial loss, there is the potential that parties could seek damages from us.

Substantially all of the transactions handled by our network involve Visa or MasterCard. If we fail to comply with the applicable requirements of the Visa and MasterCard credit card associations, Visa or MasterCard could suspend or terminate our registration with them. The termination of our registration with them or any changes in the Visa or MasterCard rules that would impair our registration with them could require us to stop providing payment processing services through our network.

We rely on agreements with other large payment processing organizations, primarily Elavon, Inc. (“Elavon”),Chase Paymentech, to enable us to provide card authorization, data capture, settlement and merchant accounting services and access to various reporting tools for the customers we serve. Many of these organizations and service providers are our competitors and our agreements are subject to termination by them.

We are, among other things, subject to banking regulations and credit card association regulations. Failure to comply with these regulations may result in the suspension or revocation of our business, the limitation, suspension or termination of service, and/or the imposition of fines that could have an adverse effect on our financial condition. Additionally, changes to legal rules and regulations, or interpretation or enforcement thereof, could have a negative financial effect on us or our product offerings. The payment processing industry may become subject to regulation as a result of recent data security breaches that have exposed consumer data to potential fraud. To the extent this occurs, we could be subject to additional technical, contractual or other requirements as a condition of our continuing to conduct our payment processing business. These requirements could cause us to incur additional costs, which could be significant, or to lose revenues to the extent we do not comply with these requirements.

Our articles of incorporation also provide that the preferred stock has a liquidation preference over the common stock in the amount of $10 per share plus accrued and unpaid dividends. As of June 30, 2012,2015, the liquidation preference was $15,361,522.

$17,354,908.

Upon certain fundamental transactions involving the Company, such as a merger or sale of substantially all of our assets, we may be required to distribute the liquidation preference then due to the holders of our series A preferred stock as well as cash payments to certain of our warrant holders which would reduce the amount of the distributions otherwise to be made to the holders of our common stock in connection with such transactions.

Our articles of incorporation provide that upon a merger or sale of substantially all of our assets or upon the disposition of more than 50% of our voting power, the holders of at least 60% of the preferred stock may elect to have such transaction treated as a liquidation and be entitled to receive their liquidation preference. Upon our liquidation, the holders of our preferred stock are entitled to receive a liquidation preference prior to any distribution to the holders of common stock which as of June 30, 2015 is equal to $17,354,908.

The terms of the warrants that were issued in March 2011 to acquire up to 3,900,000 shares of common stock at $2.6058 per share which expire in September 2016 provide that upon a Fundamental Transaction (as defined in the warrant) the holder shall have the right to have the warrant purchased by the Company for cash at its Black Scholes Value (as defined in the warrant). The term Fundamental Transaction includes a merger, sale of substantially all of our assets, or if any person shall acquire 50% or more of the voting power of our shares. The Black Scholes Value (as defined in the warrant) payable for the 3,900,000 warrants as of June 30, 2015 was approximately $5.3 million.

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We may issue additional shares of our common stock, which could depress the market price of our common stock and dilute your ownership.

As of August 31, 2012,September 15, 2015, we had issued and outstanding options to purchase 45,333 shares of our common stock and warrants to purchase 7,754,1874,298,000 shares of our common stock. The shares underlying none of these options, and 6,782,0404,253,000 of these warrants have been registered and may be freely sold. Market sales of large amounts of our common stock, or the potential for those sales even if they do not actually occur, may have the effect of depressing the market price of our common stock. In addition, if our future financing needs require us to issue additional shares of common stock or securities convertible into common stock, the supply of common stock available for resale could be increased which could stimulate trading activity and cause the market price of our common stock to drop, even if our business is doing well. Furthermore, the issuance of any additional shares of our common stock including those pursuant to the exercise of warrants by the holders thereof, or securities convertible into our common stock could be substantially dilutive to holders of our common stock if they do not invest in future offerings.

stock.

Our stock price may be volatile.

The trading price of our common stock is expected to be subject to significant fluctuations in response to various factors including, but not limited to, the following:

●

quarterly variations in operating results and achievement of key business metrics;

●

changes in earnings estimates by securities analysts, if any;

●

any differences between reported results and securities analysts’ published or unpublished expectations;

●

announcements of new contracts, service offerings or technological innovations by us or our competitors;

●

market reaction to any acquisitions, joint ventures or strategic investments announced by us or our competitors;

●

demand for our services and products;

●

shares of common stock being sold pursuant to Rule 144 or upon exercise of warrants;

●

regulatory matters;

●

concerns about our financial position, operating results, litigation, government regulation, developments or disputes relating to agreements, patents or proprietary rights;

●

potential dilutive effects of future sales of shares of common stock by shareholders and by the Company, and subsequent saleCompany;

●

the amount of average daily trading volume in our common stock by the holders of warrants and options;stock;

●

our ability to obtain working capital financing; and

●

general economic or stock market conditions unrelated to our operating performance.

The securities market in recent years has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations, as well as general economic conditions, may also materially and adversely affect the market price of our common stock.

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The substantial market overhang of our shares may tend to depress the market price of our shares.

As of August 31, 2012, there were outstanding warrants to purchase 2,518,040September 15, 2015, the Company has 4,253,000 of our shares underlying warrants exercisable at the exercise price of $1.13 per share at any time before December 31, 2013, and 4,264,000 of our shares at the exercise price of $2.6058 per share at any time before September 18, 2016. The Company has agreed and/or intends2016 which are required to registerbe registered by us for resale in the open market of the shares underlying these warrants.under applicable securities laws. Sales in the public market of a substantial number of the shares underlying these warrants, or the perception that these sales may occur, could cause the market price of our common stock to decline. In addition, the sale of these shares could impair our ability to raise capital, should we wish to do so, through the sale of additional common stock. We are unable to estimate the number of shares that may be sold because this will depend on the market price for our common stock, the personal circumstances of the sellers and other factors.

Director and officer liability is limited.

As permitted by Pennsylvania law, our by-laws limit the liability of our directors for monetary damages for breach of a director’s fiduciary duty except for liability in certain instances. As a result of our by-law provisions and Pennsylvania law, shareholders may have limited rights to recover against directors for breach of fiduciary duty. In addition, our by-laws and indemnification agreements entered into by the Company with each of the officers and directors provide that we shall indemnify our directors and officers to the fullest extent permitted by law.

Our publicly-filed reports are reviewed by the SEC from time to time and any significant changes required as a result of any such review may result in material liability to us, and have a material adverse impact on the trading price of our common stock.

The reports of publicly-traded companies are subject to review by the SEC from time to time for the purpose of assisting companies in complying with applicable disclosure requirements and to enhance the overall effectiveness of companies’ public filings, and comprehensive reviews of such reports are now required at least every three years under the Sarbanes-Oxley Act of 2002. SEC reviews may be initiated at any time. While we believe that our previously filed SEC reports comply, and we intend that all future reports will comply in all material respects with the published SEC rules and regulations, we could be required to modify or reformulate information contained in prior filings as a result of an SEC review. Any modification or reformulation of information contained in such reports could be significant and result in material liability to us and have a material adverse impact on the trading price of our common stock.

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Item 2.2. Properties.

The Company conducts its operations from various facilities under operating leases. The Company leases 17,249 square feet of space located in Malvern, Pennsylvania for its principal executive office and for general administrative functions, sales activities, product development, and product development.customer support. The lease term expires on April 30, 2016. As of June 30, 2012,2015, the Company’s rent payment for this facility is $29,000approximately $32,000 per month.

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The Company also leases 13,37711,250 square feet of space located in Malvern, Pennsylvania for its product warehousing and shipping and customer support. Theunder a lease termagreement, which expires December 31, 2012 with the option to extend the lease thereafter for an additional 24-month period.on February 28, 2016. As of June 30, 2012,2015, the Company’s rent payment for this facility is $15,000approximately $5,000 per month for the durationmonth.

Item 3. Legal Proceedings.

On January 26, 2015, Universal Clearing Solutions, LLC (“Universal Clearing”), a former non-vending customer of the amended lease period.

Item 3. Legal Proceedings.

On April 13, 2012, the Company, receivedfiled a notice from a former director and shareholder that he intended to nominate himself and six other persons for election as directors at the upcoming 2012 annual meeting of shareholders. In connection with the proxy contest, on May 3, 2012 the Company commenced a legal action against the former director and his nominees and certain other parties (collectively, “SAVE”). As part of the litigation, in July 2012 certain members of SAVE filed counterclaimscomplaint against the Company and Stephen P. Herbert relating to, among other things, the 2012 annual meeting of shareholders. On August 16, 2012, the Company and SAVE entered into a Settlement and Release Agreement (the “Settlement Agreement”). Pursuant to the Settlement Agreement, SAVE accepted the election of all nine of the Company’s director nominees by the shareholders at the June 28, 2012 annual meeting of shareholders and have agreed not to contest or challenge the election results and the Company and SAVE have dismissed with prejudice the civil action filed on May 3, 2012 in the United States District Court for the Eastern District of Pennsylvania knownArizona. On April 10, 2015, Universal Clearing filed an amended complaint, and on June 19, 2015, Universal Clearing filed a second amended complaint, which alleged causes of action against the Company for breach of contract, breach of fiduciary duty, and defamation. The allegations in the complaint relate to an agreement entered into between the Company and Universal Clearing pursuant to which Universal Clearing could board certain sub-merchants on the Company’s service. The complaint seeks monetary damages allegedly incurred by Universal Clearing as USA Technologies, Inc. v. Bradley Tirpak, et al., v. Stephen P. Herbert (Civil Action No. 12-2399-TJS)a result of, among other things, the Company’s refusal to board on its service certain sub-merchants of Universal Clearing. On July 24, 2015, the Company filed an answer to the defamation count of the complaint denying the allegations, and filed a motion to dismiss the remaining counts. The court has not yet ruled on the Company’s motion to dismiss.

On July 24, 2015, the Company filed a counterclaim against Universal Clearing seeking damages of approximately $680,000 which were incurred by the Company in connection with chargebacks relating to Universal Clearing’s sub-merchants which had been boarded on the Company’s service. The counterclaim alleges that Universal Clearing is responsible under the agreement for these chargebacks, and Universal Clearing misrepresented to the Company the business practices and other matters relating to these sub-merchants. On August 17, 2015, Universal Clearing filed an answer to the counterclaim denying that it was responsible for the chargebacks or had made any misrepresentations.

On August 7, 2015, the Company filed a third party complaint in the pending action against Steven Juliver, the manager of Universal Clearing, as well as allagainst Universal Tranware, LLC, and Secureswype, LLC, entities affiliated with Universal Clearing. The third party complaint sets forth causes of action for fraud and breach of contract, and seeks to recover from these defendants the chargebacks relating to Universal Clearing’s sub-merchants described above. On September 14, 2015, the third party defendants filed a motion to dismiss the third party complaint. The court has not yet ruled on the motion to dismiss.

The Company does not believe that the claims set forth in the second amended complaint have merit and counterclaims alleged therein.  In connection withintends to vigorously defend this matter. The Company does not believe that this action would have a material adverse effect on its financial statements, results of operations or cash flows. The Company also intends to pursue its claims for damages set forth in the proxy contestcounterclaim and related litigation, the Company incurred substantial expenses during the 2012 fiscal year which are described in third party complaint.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

4. Mine Safety Disclosures.

Not applicable.

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PART II

Item 5.5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The common stock of the Company trades on The NASDAQ Global Market under the symbol USAT. The high and low bid prices on The NASDAQ Global Market for the common stock were as follows:

Year ended June 30, 2012		High				Low
First Quarter (through September 30, 2011)			2.47				1.13
Second Quarter (through December 31, 2011)			1.70				0.94
Third Quarter (through March 31, 2012)			1.33				0.93
Fourth Quarter (through June 30, 2012)			1.98				1.12
Year ended June 30, 2011		High				Low
First Quarter (through September 30, 2010)			1.50				0.46
Second Quarter (through December 31, 2010)			1.60				0.97
Third Quarter (through March 31, 2011)			2.75				1.04
Fourth Quarter (through June 30, 2011)			3.74				1.93

Year ended June 30, 2015		High				Low
First Quarter (through September 30, 2014)		$	2.45			$	1.71
Second Quarter (through December 31, 2014)		$	1.87			$	1.42
Third Quarter (through March 31, 2015)		$	2.76			$	1.55
Fourth Quarter (through June 30, 2015)		$	3.36			$	2.61

Year ended June 30, 2014		High				Low
First Quarter (through September 30, 2013)		$	2.18			$	1.60
Second Quarter (through December 31, 2013)		$	2.01			$	1.40
Third Quarter (through March 31, 2014)		$	2.48			$	1.80
Fourth Quarter (through June 30, 2014)		$	2.24			$	1.73

On August 31, 2012,September 15, 2015, there were 617614 record holders of the Common Stockcommon stock and 358306 record holders of the Preferred Stock.

preferred stock.

The holders of the Common Stockcommon 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 Common Stockcommon stock or Preferred Stock.preferred stock. No dividend may be paid on the Common Stockcommon stock until all accumulated and unpaid dividends on the Preferred Stockpreferred stock have been paid. As of August 31, 2012,September 15, 2015, such accumulated unpaid dividends amounted to $11,264,098.$13,257,454. The Preferred Stockpreferred stock is also entitled to a liquidation preference over the Common Stockcommon stock which as of June 30, 20122015 equaled $15,361,552.

$17,354,908.

As of June 30, 2012,2015, equity securities authorized for issuance by the Company with respect to compensation plans were as follows:

		Number of Securities to be issued upon exercises of outstanding options and warrants						Weighted average exercise price of outstanding options and warrants				Number of securities remaining available for future issuance (excluding securities reflected in column(a)
Plan category		(a)						(b)				(c)
Equity compensation plans approved by security holders			-						-				555,941	(3)
Equity compensation plans not approved by security holders			45,333		(1)								140,000	(2)
Total			45,333						-				695,941

Plan category		Number of Securities to be issued upon exercise of outstanding options and warrants (a)				Weighted average exercise price of outstanding options and warrants (b)				Number of securities remaining available for future issuance (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders			513,888			$	1.88				1,491,119		(1)

(1) Represents stock options outstanding as of June 30, 2012 for the purchase of1,250,000 shares of Common Stock ofcommon stock issuable under the Company expiring at various times from March 2013 through2015 Equity Incentive Plan as approved by shareholders on June 2013. All such options were granted to then current employees18, 2015, and directors of the Company. Exercise prices for all the options outstanding were at prices that were either equal to or greater than the market price of the Company’s Common Stock on the dates the options were granted. Shareholder approval of these options was not required because the options were granted prior to the Company’s shares being listed on The NASDAQ Stock Market LLC.

(2)  Represents241,119 shares of Common Stock issuable to the Company’s former Chief Executive Officer upon a USA Transaction. Shareholder approval of the foregoing was not required because the agreement was entered into by the Company prior to the Company’s shares being listed on The NASDAQ Stock Market LLC.

(3)  Represents 10,941 shares of Common Stockcommon stock issuable under the Company’s 20102013 Stock Incentive Plan as approved by shareholders on June 15, 2010, 45,000 shares of Common Stock issuable under the Company’s 2011 Stock Incentive Plan as approved by shareholders on June 13, 2011, and 500,000 shares of Common Stock issuable under the Company’s 2012 Stock Incentive Plan as approved by shareholders on June 28, 201221, 2013 for use in compensating employees, officers and directors. The shares either have been, or will be registered with the Securities and Exchange Commission as an employee benefit plan under Form S-8.

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As of August 31, 2012,September 15, 2015, shares of Common Stockcommon stock reserved for future issuance were as follows:

●

45,333 shares issuable upon the exercise of stock options at exercise prices ranging from $7.50 to $8.00 per share;

●

7,754,1874,298,000 shares issuable upon the exercise of common stock warrants at exercise prices ranging from $1.13$2.10 to $7.70$2.6058 per share; all warrants were exercisable as of August 31, 2012;September 15, 2015;

	●	15,69499,193 shares issuable upon the conversion of outstanding Preferred Stockpreferred stock and cumulative Preferred Stockpreferred stock dividends;

	●	10,941241,119 shares issuable under the 20102013 Stock Incentive Plan;

	●	45,000 750,000 shares underlying stock options issued or to be issued under the 2014 Stock Option Incentive Plan;
	●	1,250,000 shares issuable under the 2011 Stock2015 Equity Incentive Plan; and

	●	500,000 140,000 shares issuable underto our former CEO upon the 2012 Stock Incentive Plan.occurrence of a USA Transaction.

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PERFORMANCE GRAPH

The following graph shows a comparison of the 5-year cumulative total shareholder return for our common stock with The NASDAQ Composite Index and the S&P 500 Information Technology Index for small cap companies in the United States. The graph assumes a $100 investment on June 30, 20072010 in our common stock and in the NASDAQ Composite Index and the S&P 500 Information Technology Index, including reinvestment of dividends.

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN

Among USA Technologies, Inc., The NASDAQ Composite Index and The S&P 500 Information Technology Index

Total Return For:	Jun-07	Jun-08	Jun-09	Jun-10	Jun-11	Jun-12
USA Technologies, Inc.	$           100	$             77	$             37	$               6	$             29	$             13
NASDAQ Composite	100	106	85	98	126	113
S&P 500 Information Technology Index	100	115	92	105	129	119

Total Return For:		Jun-10				Jun-11				Jun-12				Jun-13				Jun-14				Jun-15
USA Technologies, Inc.		$	100			$	444			$	290			$	348			$	422			$	540
NASDAQ Composite			100				131				139				161				209				236
S&P 500 Information Technology Index			100				125				140				148				192				210

The information in the performance graph is not deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934, as amended, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate it by reference into such a filing. The stock price performance included in this graph is not necessarily indicative of future stock price performance.

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Item 6.6. Selected Financial Data.

The following selected financial data for the five years ended June 30, 20122015 are derived from the audited consolidated financial statements of USA Technologies, Inc. The data should be read in conjunction with the consolidated financial statements, related notes, and other financial information.

		Year ended June 30,
		2015				2014 (1)				2013				2012				2011
OPERATIONS DATA:
Revenues		$	58,077,474			$	42,344,964			$	35,940,244			$	29,017,243			$	22,868,789
Operating income (loss)		$	(240,303	)		$	436,332			$	713,925			$	(7,000,392	)		$	(5,688,217	)
Net Income (loss)		$	(1,089,482	)		$	27,530,652			$	854,123			$	(5,211,238	)		$	(6,457,067	)
Cumulative preferred dividends		$	(664,452	)		$	(664,452	)		$	(664,452	)		$	(664,452	)		$	(665,577	)
Net income (loss) applicable to common shares		$	(1,753,934	)		$	26,866,200			$	189,671			$	(5,875,690	)		$	(7,122,644	)
Net earnings (loss) per common share - basic and diluted		$	(0.05	)		$	0.78			$	0.01			$	(0.18	)		$	(0.26	)
Cash dividends per common share			-				-				-				-				-
BALANCE SHEET DATA:
Total assets		$	73,835,195			$	70,764,242			$	36,576,196			$	33,219,657			$	36,004,005
Long-term debt		$	2,331,946			$	422,776			$	369,906			$	728,330			$	253,061
Shareholders’ equity		$	53,310,709			$	53,736,667			$	23,379,191			$	21,655,022			$	26,125,531
CASH FLOW DATA:
Net cash provided by (used in) operating activities			(1,697,742	)			7,085,400				6,038,952				78,236				(908,227	)
Net cash provided by (used in) investing activities			3,353,491				(7,917,452	)			(9,180,837	)			(6,232,814	)			(4,554,692	)
Net cash provided by (used in) financing activities			645,904				3,923,372				2,696,240				(410,288	)			10,850,106
Net increase (decrease) in cash and cash equivalents			2,301,653				3,091,320				(445,645	)			(6,564,866	)			5,387,187
Cash and cash equivalents at beginning of period			9,072,320				5,981,000				6,426,645				12,991,511				7,604,324
Cash and cash equivalents at end of period		$	11,373,973			$	9,072,320			$	5,981,000			$	6,426,645			$	12,991,511
CONNECTIONS AND TRANSACTION DATA (UNAUDITED)
Net New Connections			67,000				52,000				50,000				45,000				37,000
Total Connections			333,000				266,000				214,000				164,000				119,000
New Customers Added			2,300				2,250				1,750				1,350				875
Total Customers			9,600				7,300				5,050				3,300				1,950
Total Number of Transactions (millions)			216.6				168.5				129.1				102.7				71.7
Transaction Volume ($millions)		$	388.9			$	293.8			$	219.0			$	171.3			$	119.6

(1)

Net income for the year ended June 30, 2014 includes an income tax benefit of $27,255,398 for the reduction of tax valuation allowance.

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		Year ended June 30,
		2012				2011				2010				2009				2008
OPERATIONS DATA
Revenues		$	29,017,243			$	22,868,789			$	15,771,106			$	12,020,123			$	16,103,546
Net loss		$	(5,211,238	)		$	(6,457,067	)		$	(11,571,495	)		$	(13,731,818	)		$	(16,417,893	)
Cumulative preferred dividends			(664,452	)			(665,577	)			(735,139	)			(772,997	)			(780,588	)
Loss applicable to common shares		$	(5,875,690	)		$	(7,122,644	)		$	(12,306,634	)		$	(14,504,815	)		$	(17,198,481	)
Loss per common share (basic and diluted)		$	(0.18	)		$	(0.26	)		$	(0.55	)		$	(0.95	)		$	(1.21	)
Cash dividends per common share			-				-				-				-				-
BALANCE SHEET DATA
Total assets		$	33,219,657			$	36,004,005			$	29,848,424			$	25,980,378			$	40,055,651
Long-term debt		$	728,330			$	253,061			$	596,155			$	820,059			$	967,518
Shareholders’ equity		$	21,655,022			$	26,125,531			$	22,812,172			$	19,972,272			$	32,576,549

The following unaudited quarterly financial operations data for the two years ended June 30, 20122015 and June 30, 20112014 is derived from the audited consolidated financial statements of USA Technologies, Inc. and its interim reports for the quarters therein. The data should be read in conjunction with the consolidated financial statements, related notes, and other financial information.

		UNAUDITED
YEAR ENDED JUNE 30, 2015		First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Year
Revenues		$	12,252,602			$	12,820,937			$	15,357,740			$	17,646,195			$	58,077,474
Gross profit		$	3,135,238			$	3,733,256			$	5,146,139			$	4,808,001			$	16,822,634
Operating income (loss)		$	(666,652	)		$	51,455			$	731,406			$	(356,512	)		$	(240,303	)
Net loss		$	(60,956	)		$	(260,915	)		$	(566,610	)		$	(201,001	)		$	(1,089,482	)
Cumulative preferred dividends		$	(332,226	)		$	-			$	(332,226	)		$	-			$	(664,452	)
Net loss applicable to common shares		$	(393,182	)		$	(260,915	)		$	(898,836	)		$	(201,001	)		$	(1,753,934	)
Net loss per common share - basic and diluted		$	(0.01	)		$	(0.01	)		$	(0.03	)		$	(0.01	)		$	(0.05	)
Weighted average number of common shares outstanding - basic and diluted			35,586,455				35,657,519				35,687,650				35,716,603				35,663,386

		UNAUDITED
YEAR ENDED JUNE 30, 2014		First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Year
Revenues		$	10,123,058			$	10,570,514			$	10,443,932			$	11,207,460			$	42,344,964
Gross profit		$	3,582,771			$	3,830,133			$	3,997,788			$	3,662,144			$	15,072,836
Operating income (loss)		$	128,918			$	509,690			$	365,535			$	(567,811	)		$	436,332
Net income (loss)		$	293,654			$	409,191			$	26,866,526			$	(38,719	)		$	27,530,652
Cumulative preferred dividends		$	(332,226	)		$	-			$	(332,226	)		$	-			$	(664,452	)
Net income (loss) applicable to common shares		$	(38,572	)		$	409,191			$	26,534,300			$	(38,719	)		$	26,866,200
Net earnings (loss) per common share - basic		$	-			$	0.01			$	0.75			$	-			$	0.78
Weighted average number of common shares outstanding			33,324,295				34,136,884				35,504,911				35,517,099				34,613,497
Net earnings (loss) per common share - diluted		$	-			$	0.01			$	0.75			$	-			$	0.78
Diluted weighted average number of common shares outstanding			33,324,295				34,222,731				35,504,911				35,517,099				34,613,497

22

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		UNAUDITED
YEAR ENDED JUNE 30, 2012		First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Year
Revenues		$	6,705,748			$	6,881,598			$	7,527,051			$	7,902,846			$	29,017,243
Gross profit		$	2,049,036			$	1,938,456			$	2,795,220			$	3,178,339			$	9,961,051
Net loss		$	(78,954	)		$	(1,821,061	)		$	(538,618	)		$	(2,772,605	)		$	(5,211,238	)
Cumulative preferred dividends		$	(332,226	)		$	-			$	(332,226	)		$	-			$	(664,452	)
Loss applicable to common shares		$	(411,180	)		$	(1,821,061	)		$	(870,844	)		$	(2,772,605	)		$	(5,875,690	)
Loss per common share (basic & diluted)		$	(0.01	)		$	(0.06	)		$	(0.03	)		$	(0.09	)		$	(0.18	)
Weighted average number of common shares outstanding (basic & diluted)			32,288,638				32,448,040				32,466,528				32,496,327				32,423,987
		UNAUDITED
YEAR ENDED JUNE 30, 2011		First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Year
Revenues		$	4,440,665			$	6,016,516			$	5,522,977			$	6,888,631			$	22,868,789
Gross profit		$	1,355,567			$	2,488,021			$	1,553,132			$	2,351,938			$	7,748,658
Net loss		$	(1,886,614	)		$	(133,131	)		$	(2,514,268	)		$	(1,923,054	)		$	(6,457,067	)
Cumulative preferred dividends		$	(333,351	)		$	-			$	(332,226	)		$	-			$	(665,577.00	)
Loss applicable to common shares		$	(2,219,965	)		$	(133,131	)		$	(2,846,494	)		$	(1,923,054	)		$	(7,122,644	)
Loss per common share (basic & diluted)		$	(0.09	)		$	(0.01	)		$	(0.11	)		$	(0.06	)		$	(0.26	)
Weighted average number of common shares outstanding (basic & diluted)			25,842,604				26,005,257				26,914,004				31,929,532				27,665,345

The following unaudited quarterly cash flow data for the two years ended June 30, 2012 and June 30, 2011 is derived from the audited consolidated financial statements of USA Technologies, Inc. and its interim reports for the quarters therein. The data reflects the reclassification of the cash used for purchase of property for the rental program from operating activities to investing activities. The data should be read in conjunction with the consolidated financial statements, related notes, and other financial information.

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		UNAUDITED
YEAR ENDED JUNE 30, 2012		First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Year
Net cash provided by (used in) operating activities		$	(496,789	)		$	(2,527,097	)		$	232,171			$	2,869,951			$	78,236
Net cash used in investing activities		$	(1,294,956	)		$	(1,134,983	)		$	(1,256,676	)		$	(2,546,199	)		$	(6,232,814	)
Net cash provided by (used in) financing activities		$	(99,829	)		$	(107,476	)		$	(111,841	)		$	(91,142	)		$	(410,288	)
Net increase (decrease) in cash and cash equivalents			(1,891,574	)			(3,769,556	)			(1,136,346	)			232,610				(6,564,866	)
Cash and cash equivalents at beginning of period			12,991,511				11,099,937				7,330,381				6,194,035				12,991,511
Cash and cash equivalents at end of period		$	11,099,937			$	7,330,381			$	6,194,035			$	6,426,645			$	6,426,645
		UNAUDITED
YEAR ENDED JUNE 30, 2011		First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Year
Net cash provided by (used in) operating activities		$	(1,441,190	)		$	3,096,868			$	(1,503,735	)		$	5,396,897			$	5,548,840
Net cash provided by (used in) investing activities		$	(583,586	)		$	(3,454,131	)		$	17,029			$	(534,004	)		$	(4,554,692	)
Net cash provided by (used in) financing activities		$	(112,167	)		$	(114,122	)		$	9,782,587			$	1,293,808			$	10,850,106
Net increase (decrease) in cash and cash equivalents			(2,136,943	)			(471,385	)			8,295,881				6,156,701				11,844,254
Cash and cash equivalents at beginning of period			7,604,324				5,467,381				4,995,996				13,291,877				7,604,324
Cash and cash equivalents at end of period		$	5,467,381			$	4,995,996			$	13,291,877			$	19,448,578			$	19,448,578

Item 7.7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

USA Technologies, Inc. provides wireless networking, cashless transactions, asset monitoring, and other value-added services principally to the small ticket, unattended retail markets.Point of Sale (“POS”) market. Our ePort® technology can be installed and/or embedded into everyday devices such as vending machines, a variety of kiosks, as well asamusement, commercial laundry, kiosk and smartphones via our eSuds™ technology for washer and dryers.ePort Mobile™ solution. Our associated network service, ePort Connect®, is a PCI-compliant, comprehensive service that provides wireless connectivity that facilitates electronic payment optionsincludes simplified credit/debit card processing and support, consumer engagement services as well as telemetry and machine-to-machine (“M2M”) services, including the ability to remotely monitor, control and report on the results of distributed assets containing our electronic payment solutions. In addition, the Company provides energy management products, such as its VendingMiser® and CoolerMiser™, which reduce energy consumption in vending machines and coolers.

The Company generates revenue in multiple ways. We derive the majority of our revenues from license and transaction fees related to our ePort Connect service. Connections to our service stem from the sale or lease of our POS electronic payment devices or certified payment software or the servicing of similar third-party installed POS terminals. The majority of ePort Connect customers pay a monthly fee plus a blended transaction rate on the dollar volume processed by the Company. Customers with higher expected transaction rates might pay a lower or no ePort Connect monthly fee, but a higher blended transaction rate on dollar volume processed by the Company. Connections to the ePort Connect service, therefore, are the most significant driver of the Company’s revenues, particularly revenues from license and transaction fees.

The Company also generates equipment revenue through the direct sale, lease, or rental of ePort® technology as well as our stand-alone, non-networked energy management products.

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 policies and estimates related to revenue recognition, software development costs, impairment of long-lived assets, goodwill and intangible assets, and investments represent our critical accounting policies and estimates. Future results may differ from our estimates under different assumptions or conditions.

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REVENUE RECOGNITION

Revenue from the sale or QuickStart lease of equipment is recognized on the terms of freight-on-board shipping point, orpoint. Activation fee revenue, if applicable, is recognized when the Company’s cashless payment device is initially activated for use on the Company network. Transaction processing revenue is recognized upon installation and acceptancethe usage of the equipment if installationCompany’s cashless payment and control network. License fees for access to the Company’s devices and network services are purchasedrecognized on a monthly basis. In all cases, revenue is only recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed and determinable, and collection of the resulting receivable is reasonably assured. The Company estimates an allowance for product returns at the date of sale and license and transaction fee refunds on a monthly basis.

ePort hardware is available to customers under the QuickStart program pursuant to which the customer would enter into a five-year non-cancelable lease with either the Company or a third-party leasing company for the related equipment.devices. At the end of the lease period, the customer would have the option to purchase the device for a nominal fee.

REVENUE RECOGNITION

Revenue from the sale or QuickStart lease of equipment is recognized on the terms of freight-on-board shipping point. Activation fee revenue is recognized when the Company’s cashless payment device is initially activated for use on the Company network. Transaction processing revenue is recognized upon the usage of the Company’s cashless payment and control network. License fees for access to the Company’s devices and network services are recognized on a monthly basis. In all cases, revenue is only recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed and determinable, and collection of the resulting receivable is reasonably assured. The Company estimates an allowance for product returns at the date of sale.

IMPAIRMENT OF sale and license and transaction fee refunds on a monthly basis.

LONG LIVED ASSETS

In accordance with the Financial Accounting Standards Board Accounting Standards Codification® (“ASC”) TopicASC 360, “Impairment or Disposal of Long-livedLong-Lived Assets”, the Company reviews its definite lived long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the carrying amount of an asset or group of assets exceeds its net realizable value, the asset will be written down to its fair value. In the period when the plan of sale criteria of ASC 360 are met, definite lived long-lived assets are reported as held for sale, depreciation and amortization cease, and the assets are reported at the lower of carrying value or fair value less costs to sell.

GOODWILL AND INTANGIBLE ASSETS

Goodwill represents the excess of cost over fair value of the net assets purchased in acquisitions. The Company accounts for goodwill in accordance with ASC 350, “Intangibles – Goodwill and Other”. Under ASC 350, goodwill is not amortized to earnings, but instead is subject to periodic testing for impairment. The Company tests goodwill for impairment using a two-step process. The first step screens for potential impairment, while the second step measures the amount of impairment. The Company uses a discounted cash flow analysis to complete the first step in this process. We also give consideration to our market capitalization. Testing for impairment is to be done at least annually and at other times if events or circumstances arise that indicate that impairment may have occurred. The Company has selected April 1 as its annual test date. The Company has concluded there has been no impairment of goodwill as a result of its testing on April 1, 2012, April 1, 2011, and April 1, 2010.

The Company trademarks with an indefinite economic life are not being amortized. The trademarks, not subject to amortization, are related to the miserEnergyMiser asset group and consist of the following trademarks: 1) VendingMiser, 2) CoolerMiser, 3) PlugMiser and 4) SnackMiser.four trademarks. The Company tests indefinite-lived intangible assets for impairment using a two-step process. The first step screens for potential impairment, while the second step measures the amount of impairment. The Company uses a discounted cash flowrelief from royalty analysis to complete the first step in this process. Testing for impairment is to be done at least annually and at other times if events or circumstances arise that indicate that impairment may have occurred. The Company has selected April 1 as its annual test date for its indefinite-lived intangible assets. The Company concluded there was an impairment of its indefinite-lived trademarks as a result of its testing in its fiscal year 2011, and has recorded a $581,900 impairment expense in fourth quarter of the fiscal year ended June 30, 2011 (see Note 5 to the Consolidated Financial Statements). There was no impairment expense recorded during the fiscal year ended June 30, 2012 and 2010.

Patents and trademarks, with an estimated economic life, are carried at cost less accumulated amortization, which is calculated on a straight-line basis over their estimated economic life. The Company reviews intangibles, subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset is considered to be impaired when the sum of the undiscounted future net cash flows resulting from the use of the asset and its eventual disposition is less than its carrying amount. The amount of the impairment loss, if any, is measured as the difference between the net book value of the asset and its estimated fair value. Other than described above, as of June 30, 2012, 2011, and 2010, the Company has concluded there has been no impairment of its other patents or trademarks that are subject to amortization.

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RESULTS OF OPERATIONS

FISCAL YEAR ENDED JUNE 30, 20122015 COMPARED TO FISCAL YEAR ENDED JUNE 30, 2011

2014

Results for the fiscal year ended June 30, 20122015 continued to demonstrate significant growth and improvements in the Company’s operations.toward achieving our long-term goals. Highlights of year over year improvements include:

●·

Record net new connections of 67,000;

·

Total revenue up 27%;37% to $58.1 million;

●·

Recurring license and transaction fee revenue up 42%;22% to $43.6 million; and

·

Improvements in cash flows from operating activities in third and fourth quarters, as a result of QuickStart reintroduced during the fiscal year.

●23

New connections up 38%; and,

●

Gross profit dollars up 29%.

Revenues for the fiscal year ended June 30, 2015 were $58,077,474, consisting of $43,633,462 of license and transactions fees and $14,444,012 of equipment sales, compared to $42,344,964 for the fiscal year ended June 30, 2014, consisting of $35,638,121 of license and transaction fees and $6,706,843 of equipment sales. The growing ePort Connect service baseincrease in total revenue of connections drove$15,732,510, or 37%, was equally attributable to the 42%increase in equipment sales of $7,737,169 or 115% and the increase in license and transaction fee revenue. fees of $7,995,341, or 22%, from the prior year.

Revenue from license and transaction fees, which represented 75% of total revenue for fiscal 2015, is fueled primarily byattributable to monthly ePort Connect® service fees and transaction processing fees, grew to approximately $23 millionfees. Highlights for fiscal 2012 from $16 million for fiscal 2011. These recurring revenues represented 81% of total revenue for the fiscal 2012 year.

License and transaction fee highlights for the year ended June 30, 2012 included:

2015 include:

●	● ●	45,000 additionalAdding 67,000 net connections to the Company’sour service, consisting of 82,000 new connections to our ePort Connect service in fiscal 2012; Total connected2015, offset by 15,000 deactivations, compared to 52,000 net connections added in fiscal 2014;
●	As of June 30, 2015, the Company had approximately 333,000 connections to the ePort Connect service basecompared to 164,000approximately 266,000 connections to the ePort Connect service as of June 30, 2012, compared to 119,000 as of June 30, 2011,2014, an increase of approximately 38% compared to67,000 net connections at June 30, 2011;or 25%;

●

Increases in the number of small-ticket, credit/debit transactions and dollars handled in thefor fiscal year2015 of 43% each29% and 32%, respectively, compared to the same period a year ago; and

●

●

69% growth in ePort Connect customers, fueled by 1,350 new customers in the 2012 fiscal year for 3,300 customers atcustomer base grew 32% from June 30, 2012.2014.

Revenues for the fiscal year ended June 30, 2012 were $29,017,243, consisting of $23,370,754 of license and transactions fees and $5,646,489 of equipment sales, compared to $22,868,789 for the fiscal year ended June 30, 2011, consisting of $16,442,485 of license and transaction fees and $6,426,304 of equipment sales. The increase in total revenue of $6,148,454, or 27%, was primarily due to an increase in license and transaction fees of $6,928,269, or 42%, from the prior year, and a decrease in equipment sales of $779,815 or 12%, from the prior year.

The increase in license and transaction fees was due to the growth in ePort Connect service fees and transaction dollar volumedollars that stems from the increased number of connections to our ePort Connect service. As of June 30, 2012, the Company had approximately 164,000 connections to the ePort Connect service (including approximately 15,000 non-USAT, third party devices) as compared to approximately 119,000 connections to the ePort Connect service (including approximately 13,000 non-USAT, third party devices) as of June 30, 2011. During the year ended June 30, 2012, the Company added approximately 45,000 connections to our network as compared to approximately 37,000 connections during the year ended June 30, 2011. The JumpStart Program units represented approximately 65% and 60% of connections added during the 2012 and 2011 fiscal years, respectively.

Pursuant to its agreements with customers, the Company, in addition to ePort ConnectionConnect service fees, the Company earns transaction processing fees equal to a percentage of the dollar volume processed by the Company, which are included as licensing and transaction processing revenues in its Consolidated Statements of Operations.Company. During the year ended June 30, 2012,2015, the Company processed approximately 103216.6 million transactions totaling approximately $171$388.9 million compared to approximately 72168.5 million transactions totaling approximately $120$293.8 million during the year ended June 30, 2011,2014, an increase of approximately 43%29% in the number of transactions and approximately 32% in the value of transactions processed.

It typically takes 30-60 days for a new connection to begin contributing to the Company’s license and transaction fee revenues. The Company counts its ePort Connect connections upon shipment of an active terminal to a customer under contract, at which time activation on its network is performed by the Company, and the terminal is capable of conducting business via the Company’s network and related services. An ePort connection does not necessarily mean that the unit is actually installed by the customer on a machine, or that the unit has begun processing transactions, or that the Company has begun receiving monthly service fees in connection with the unit. Rather, at the time of shipment of the ePort, the customer becomes obligated to pay the one-time activation fee, and is obligated to pay monthly service fees in accordance with the terms of the customer’s contract with the Company. We anticipate that our license and transaction fee revenues would continue to increase if the number of connections to our network would continue to increase.

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In addition, our customer base increased with approximately ­­­1,350 new

New customers added to our ePort® Connect service during the fiscal year ended June 30, 2012,2015 totaled 2,300, bringing the total number of such customers to approximately 3,3009,600 as of June 30, 2012.2015. The Company added approximately 8752,250 new customers in the year ended June 30, 2011.2014. By comparison, the Company had approximately 1,9507,300 customers as of June 30, 2011,2014, representing a 69%32% increase during the past twelve months. The Company views the total installed base of machines managed by its customers that have yet to transition to cashless payment, as a key strategic opportunity for future growth in connections. We count a customer as a new customer upon the signing of their ePort Connect service agreement. When a reseller sells our ePort, we count a customer as a new customer upon the signing of the applicable services agreement with the customer.

The $779,815 decrease$7,737,169 increase in equipment sales was a result of decreasesan increase of approximately $359,000$8,159,507 related to ePort® products, offset by decreases of approximately $395,000$433,130 in Energy Miser products and approximately $26,000 in other products. The $359,000 decreaseincrease in ePort products is directly attributable to $322,000 of activation fees on non-USAT, third party devices and other activation services performed inselling more units, versus renting units via the 2011JumpStart program, during the current fiscal year. Also contributingyear due to the decreasereintroduction of the QuickStart program in ePort product sales were revenues recorded in the 2011 fiscal year of $225,000 of Visa support funding and approximately $73,000 of revenue recognized under our May 2008 agreement with a customer. These decreases were offset by a $261,000 increase in ePort product revenues attributable to increased activation fees on JumpStart units and equipment sales.September 2014. The decrease in Energy Miser equipment sale revenueproducts is due directly attributable to selling fewer units sold during the year ended June 30, 2012 than during the year ended June 30, 2011.

current fiscal year.

Cost of sales consisted of cost of services for license and transaction fee related costsfees of $15,312,966$29,429,385 and $11,651,138$23,018,001 and equipment costs of $3,743,226$11,825,455 and $3,468,993,$4,254,127, for the yearyears ended June 30, 20122015 and 2011,2014, respectively. The increase in total cost of sales of $3,936,061$13,982,712, or 51%, was due to an increase in cost of equipment sales of $7,571,328 due to selling more units during the period under the QuickStart program. In fiscal 2014, the JumpStart program accounted for a significant percentage of the Company’s net new connections. Under this program, the cost of the device is depreciated to cost of services of $3,661,828for license and transaction fees over the expected rental period. There was also an increase in equipment costs of $274,233. The increase in cost of services was predominantly related to increases in units connectedof $6,411,384 that stemmed from the greater number of connections to the networkCompany’s ePort Connect service and increases in transaction dollars. In addition, approximately $316,000 of the $3,661,828 increase in cost of services was attributable to increased debit card processing costs incurred because of the significant increase of interchange fees chargeddollars processed by Visa and MasterCard, which became effective on October 1, 2011. The impact on margins caused by these increases in the second fiscal quarter did not impact the subsequent quarters in fiscal 2012 as the Visa Agreement that went effect on October 14, 2011 essentially restored Visa debit interchange rates to pre-October 1, 2011 levels during the one-year term of the agreement, and the Company ceased the acceptance of MasterCard debit cards in mid-November 2011. Also contributing to the increase in cost of services was approximately $199,000 of costs for electronic communication of software updates to connected ePorts®. The increase in equipment costs related to the increased freight-in costs of approximately $140,000 associated with our Verizon enabled ePorts as well as slightly higher costs to manufacture the Verizon enabled ePorts.

those connections.

Gross profit (“GP”) for the year ended June 30, 20122015 was $9,961,051$16,822,634 compared to GP of $7,748,658$15,072,836 for the previous fiscal year, an increase of $2,212,393,$1,749,798, or 12%, of which $3,266,441$14,204,077 is attributable to license and transaction fees GP offset by a decrease of $1,054,048and $2,618,557 of equipment sales GP. The increaseOverall gross profit margins decreased from 36% to 29% due to a decrease in GP dollars from license and transaction fees was mainly generatedmargins to 33%, from 35% in the prior fiscal year and by additional devices connected to our network. Thea decrease in GP from equipment sales is predominantlymargins to 18%, from 37% in the prior fiscal year.

License and transaction fees margins decreased due to the impact of certain JumpStart connections added during the third and fourth quarters of 2014 fiscal 2011 revenue items mentioned above andyear with fee grace periods extending into fiscal year 2015 under sales incentives, as well as approximately $1,716,000 of net rent expense during the additional costs incurred for freight-inyear ended June 30, 2015 related to the Sale Leaseback transactions, which is approximately $535,000 higher than the depreciation the Company would have recorded on the ePorts during the same period had the Sale Leaseback transactions not occurred. Also contributing to the decrease of the Verizon enabled ePorts. Overall margins were consistent at 34%, while license and transaction fee margins increasedwas a charge of approximately $410,000 connection with a customer billing dispute.

The decrease in equipment revenue margins is attributable to sales under the QuickStart program, which has generally lower margins than what is recognized under a rental, or JumpStart. In addition, there were approximately $878,000 less in activation fees recorded during fiscal 2015 versus fiscal 2014, which are a higher margin revenue source, and to date have not been part of the QuickStart program.

The $166,000 increase in equipment sales GP includes one-time recoveries of $747,000 and $152,000 in the years ended June 30, 2015 and 2014, respectively. The $747,000 relates to recoveries arising from 29%a customer agreement; and, the $152,000 was a reversal of a prior charge for equipment rebates. Excluding these one-time items, equipment sales GP decreased $429,000 from the prior year, which was mostly attributable to 34%,having $878,000 less GP from ePort activation fees, which are a higher margin revenue source and which to date are not part of the QuickStart Program and $215,000 less GP related to fewer energy miser offset by a higher dollar volume of gross profit from the large increase in equipment margins having decreased from 46%revenue dollars as compared to 34%. License and transaction fee margins increased due to improved efficiencies stemming from recent partnership agreements, a larger ePort Connect service base, as well as having a larger number of JumpStart rental units with fees in the 2012 fiscal year versus a year ago when a larger number of JumpStart units had a longer period before monthly fees commenced. These improvements were offset by the additional costs incurred during the second fiscal quarter for interchange fees described above, and electronic communication of device software updates.

ago.

Selling, general and administrative (“SG&A”) expenses of $15,460,668$16,451,255 for the fiscal year ended June 30, 2012,2015, increased by $4,030,058$2,415,239 or 35%17%, from the prior fiscal year. The most significant componentsApproximately $1,130,000, or 47% of the increase, are detailed in the table below and relate to expenses for the proxy contest and related litigation as further described in the Legal Proceedings section (Item 3.) of this Form 10-K, and the Company’s Audit Committee investigation of postings concerning the Company on an internet message board and the resignation of the Company’s former Chief Executive Officer. The approximate expenses for these two matters in the 2012 fiscal year are as follows:

		Proxy contest and litigation				Investigation and former CEO separation				Total
Legal		$	1,435,000			$	202,000			$	1,637,000
Public relations			160,000				38,000				198,000
Other services			634,000				213,000				847,000
Severance			-				411,000				411,000
Severance, stock compensation			-				111,000				111,000
		$	2,229,000			$	975,000			$	3,204,000

30

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Outside of the two matters described above, SG&A increased approximately $831,000 in fiscal 2012 as compared to fiscal 2011.were non-cash expenses. The overall increase in SG&A is comprisedattributable to increases of approximately $769,000 of additional$1,100,000 in bad debt estimates, $588,000 in employee and director compensation and benefitbenefits expenses, $311,000$552,000 in increased travel, tradeshow, salesconsulting and advertising expenses,professional services, and $194,000 in additional sales taxby a net increase of $175,000 for various other expenses.

24

Other income and penalty expenses estimated as a resultexpense for the year ended June 30, 2015, primarily consisted of a state’s revenue audit, offset by approximately $450,000 of expense reductions. The expense reductions include $140,000 less bad debt expense$393,144 non-cash charge for the change in the 2012 fiscal year,fair value of the Company’s warrant liabilities. The primary factor affecting the change in fair value is the increase in the Black-Scholes value of the warrants from June 30, 2014 to June 30, 2015, which factored in the increase in the Company’s stock price as well as various other cost saving measures approximating $310,000, net.

a decrease in its volatility used for this calculation during that period.

The fiscal year ended June 30, 20122015 resulted in a net loss of $5,211,238$1,089,482 compared to a net lossincome of $6,457,067$27,530,652 for the fiscal year ended June 30, 2011, a decrease2014. Included in net lossincome for the fiscal year ended June 30, 2014 is a benefit from a reduction in income tax valuation allowances of $1,245,829 between fiscal years.$26,713,897. After preferred dividends of $664,452 for each fiscal year, net loss(loss)/income applicable to common shareholders was $5,875,690, or $.18 per share, compared to a net loss applicable to common shareholders of $7,122,644, or $0.26 per share$(1,753,934) and $26,866,200 for the prior corresponding fiscal year.

years ended 2015 and 2014, respectively. For the fiscal year ended June 30, 2012,2015, net loss per common share (basic and diluted) were $0.05, compared to net earnings per common share (basic and diluted) of $0.78.

Non-GAAP net loss was $470,262 for the year ended June 30, 2015, compared to non-GAAP net income of $188,804 for the year ended June 30, 2014. Management believes that non-GAAP net income is an important measure of USAT’s business. Management uses the aforementioned non-GAAP measures to monitor and evaluate ongoing operating results and trends and to gain an understanding of our comparative operating performance. We believe that non-GAAP financial measures serve as useful metrics for our management and investors because they enable a better understanding of the long-term performance of our core business and facilitate comparisons of our operating results over multiple periods, and when taken together with the corresponding GAAP (United States’ Generally Accepted Accounting Principles) financial measures and our reconciliations, enhance investors’ overall understanding of our current and future financial performance.

A reconciliation of net income to Non-GAAP net income for the years ended June 30, 2015 and 2014 is as follows:

		Year ended June 30,
		2015				2014  (1)
Net income (loss)		$	(1,089,482	)		$	27,530,652
Non-GAAP adjustments:
Non-cash portion of income tax provision (benefit)			226,076				(27,276,419	)
Fair value of warrant adjustment			393,144				(65,429	)
Non-GAAP net income (loss)		$	(470,262	)		$	188,804
Net income (loss)		$	(1,089,482	)		$	27,530,652
Cumulative preferred dividends			(664,452	)			(664,452	)
Net income (loss) applicable to common shares		$	(1,753,934	)		$	26,866,200
Non-GAAP net income (loss)		$	(470,262	)		$	188,804
Cumulative preferred dividends			(664,452	)			(664,452	)
Non-GAAP net loss applicable to common shares		$	(1,134,714	)		$	(475,648	)
Net earnings (loss) per common share - basic and diluted		$	(0.05	)		$	0.78
Non-GAAP net loss per common share - basic and diluted		$	(0.03	)		$	(0.01	)
Weighted average number of common shares outstanding - basic and diluted			35,663,386				34,613,497

(1)

Net income for the year ended June 30, 2014 includes an income tax benefit of $27,255,398 for the reduction on tax valuation allowances.

As used herein, non-GAAP net income (loss) represents GAAP net income (loss) excluding costs or benefits relating to any adjustment for fair value of warrant liabilities and non-cash portions of the Company’s income tax benefit (provision). Non-GAAP net earnings (loss) per common share - diluted is calculated by dividing non-GAAP net income (loss) applicable to common shares by the number of diluted weighted average shares outstanding.

25

For the fiscal year ended June 30, 2015, the Company had an Adjusted EBITDA loss of $2,777,338 which includes approximately $3,204,000 of cash expenses related to the proxy contest and former CEO matters outlined in the above table.$6,258,993. Reconciliation of net lossincome (loss) to Adjusted EBITDA for the years ended June 30, 2012, 2011,2015 and 20102014 is as follows:

		Year ended June 30,
		2012				2011				2010
Net loss		$	(5,211,238	)		$	(6,457,067	)		$	(11,571,495	)
Less interest income			(72,059	)			(82,234	)			(85,144	)
Plus interest expense			83,993				35,953				60,942
Plus income tax expense			12,599				-				-
Plus depreciation expense			2,443,054				1,553,978				783,415
Plus amortization expense			997,900				1,034,400				1,034,400
Plus (less) change in fair value of warrant liabilities			(1,813,687	)			815,131				-
Plus stock-based compensation			782,100				356,866				130,525
Plus intangible asset impairment			-				581,900				-
Adjusted EBITDA loss		$	(2,777,338	)		$	(2,161,073	)		$	(9,647,357	)

		Year ended June 30,
		2015				2014
Net income (loss)		$	(1,089,482	)		$	27,530,652
Less interest income			(82,695	)			(30,337	)
Plus interest expense			301,767				256,844
Plus income tax expense (benefit)			289,141				(27,255,398	)
Plus depreciation expense			5,731,356				5,463,985
Plus amortization expense			-				21,953
Plus change in fair value of warrant liabilities			393,144				(65,429	)
Plus stock-based compensation			715,762				529,041
Adjusted EBITDA		$	6,258,993			$	6,451,311

As used herein, Adjusted EBITDA represents net income (loss) before interest income, interest expense, income taxes, depreciation, amortization, change in fair value of warrant liabilities and stock-based compensation expense, and impairment expense on intangible assets.expense. We have excluded the non-operating item, change in fair value of warrant liabilities, because it represents a non-cash gain or charge that is not related to the Company’s operations. We have excluded the non-cash expenses,expense, stock-based compensation, and impairment expense, as they doit does not reflect the cash-based operations of the Company. Adjusted EBITDA is a non-GAAP financial measure which is not required by or defined under GAAP (Generally Accepted Accounting Principles). The presentation of this financial measure is not intended to be considered in isolation or as a substitute for the financial measures prepared and presented in accordance with GAAP, including the net income or net loss of the Company or net cash used in operating activities. Management recognizes that non-GAAP financial measures have limitations in that they do not reflect all of the items associated with the Company’s net income or net loss as determined in accordance with GAAP, and are not a substitute for or a measure of the Company’s profitability or net earnings. Adjusted EBITDA is presented because we believe it is useful to investors as a measure of comparative operating performance and liquidity, and because it is less susceptible to variances in actual performance resulting from depreciation and amortization and non-cash charges for changes in fair value of warrant liabilities and stock-based compensation expense.

31

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FISCAL YEAR ENDED JUNE 30, 20112014 COMPARED TO FISCAL YEAR ENDED JUNE 30, 2010

Revenues2013

Results for the fiscal year ended June 30, 20112014 continued to demonstrate growth and improvements in the Company’s operations as compared to the fiscal year ended June 30, 2013. Highlights of year over year improvements include:

·

$27.3 million of deferred tax assets recognized;

·

Total revenue up 18% to $42.3 million;

·

Recurring license and transaction fee revenue up 19% to $35.6 million; and

·

Total connections to its ePort Connect service base as of June 30, 2014 up 24% as compared to June 30, 2013.

Revenues for the fiscal year ended June 30, 2014 were $22,868,789,$42,344,964, consisting of $6,426,304 of equipment sales and $16,442,485$35,638,121 of license and transactions fees compared to $15,771,106, consisting of $6,464,006and $6,706,843 of equipment sales, and $9,307,100compared to $35,940,244 for the fiscal year ended June 30, 2013, consisting of $30,044,429 of license and transaction fees for the year ended June 30, 2010.and $5,895,815 of equipment sales. The increase in total revenue of $7,097,683,$6,404,720, or 45%18%, was primarily due to an increase in license and transaction fees of $7,135,385,$5,593,692, or 77%19%, from the prior period, offset by a decreaseyear, and an increase in equipment sales of $37,702$811,028 or 1%14%, from the prior period. The increase in license and transaction fees was primarily due to the increase in the number of connections to our ePort Connect network, and the associated fees generated by these connected units. License and transaction fee revenues consist of service fees and transaction processing fees. We anticipate that our license and transaction fee revenues would continue to increase if the number of connections to our network would continue to increase.

As of June 30, 2011, the Company had approximately 119,000 connections to our ePort Connect service (including approximately 13,000 third party devices) as compared to approximately 82,000 connections (including approximately 7,000 third party devices) as of June 30, 2010. During the year ended June 30, 2011, the Company added approximately 37,000 connections. Units sold under the JumpStart Program represented slightly above 60% and 45% of connections added during the June 2011 and June 2010 fiscal years, respectively.

During the year ended June 30, 2011, the Company processed approximately 72 million transactions totaling approximately $120 million of transaction processing volume compared to approximately 37 million transactions totaling approximately $68 million of transaction processing volume during the year ended June 30, 2010, an increase of approximately 95% in the number of transactions and approximately 76% in dollars processed. During the fiscal year ended June 30, 2011, approximately 82% of the transactions handled by our network consisted of small ticket debit card transactions. Pursuant to its agreements with customers, the Company earns transaction processing fees equal to a percentage of the dollar volume processed by the Company, which are included as licensing and transaction processing revenues in its Consolidated Statements of Operations..

In addition, our customer base increased with approximately 875 new customers added to our ePort Connect network during the year ended June 30, 2011 bringing the total number of such customers to approximately 1,950 as of June 30, 2011. The Company added approximately 300 new customers in the year ended June 30, 2010. By comparison, the Company had approximately 1,075 customers as of June 30, 2010, representing an 83% increase during the past fiscal year.

The $37,702 decrease in equipment sales was a result of an increase of approximately $365,000 related to Energy Miser products offset by a net decrease of approximately $157,000 in sales of ePort® products and fees and a decrease of approximately $246,000 in sales of the Business Center and eSuds® product lines combined. The net decrease in ePort® related sales revenue of $157,000 is attributable to reduced hardware sales of approximately $683,000, offset by increases of approximately $526,000 in revenue associated with other aspects of our ePort business described below. The decrease in hardware sale revenue is due mainly to the fact that a significant portion of the ePort® units shipped during the year ended June 30, 2011were part of the JumpStart Program, for which the Company records a one-time activation fee, but does not record an equipment (hardware) sale.

The JumpStart Program began in December 2009, therefore most ePort® units shipped during the year ended June 30, 2010 were sold to our customers and an equipment (hardware) sale was recorded. Pursuant to the JumpStart Program, the Company is entitled to receive a one-time activation fee upon shipment of the device, a monthly service fee, generally commencing the month after shipment, and transactional processing fees due in connection with the cashless activity generated by the device. The decrease in hardware sales was offset by increases of (1) approximately $228,000 in activation related fees related to JumpStart Program units, (2) $225,000 of Visa support funding for installation and making operational Visa accepting ePorts, and (3) approximately $73,000 of revenue recognized under our May 2008 agreement with a customer.

The Company entered into an Acceptance and Promotional Agreement with Visa USA, Inc. on August 16, 2010. Under the first program year of the agreement, the Company is entitled to receive up to $225,000 to be used to support the installation and making operational of up to 9,000 terminals, which accept the Visa brand, by no later than December 31, 2010. During the year ended June 30, 2011, the Company recorded $225,000 of revenue related to the support funding for installation and making operational of Visa accepting terminals. As required by the Visa agreement, the Company supported the installation and made operational at least 9,000 terminals by December 31, 2010.

Cost of sales consisted of equipment costs of $3,468,993 and $4,049,433 and network and transaction services related costs of $11,651,138 and $6,861,642 for the year ended June 30, 2011 and 2010, respectively. The increase in total cost of sales of $4,209,056 over the prior fiscal year was due to a decrease in equipment costs of $580,440, offset by an increase in network and transaction services of $4,789,496. The decrease in equipment costs was a direct result of shipping more units under the JumpStart Program. The costs associated with the JumpStart units were recorded to Property and Equipment on the Consolidated Balance Sheets. The increase in network and transaction services costs was directly related to increases in units connected to the network and increases in transaction dollar processing volume, offset by decreases in third party supplier costs due to an amendment to a contract which occurred in the quarter ended March 31, 2010.

32

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Gross profit (“GP”) for the year ended June 30, 2011 was $7,748,658 compared to gross profit of $4,860,031 for the previous fiscal year, an increase of $2,888,627, of which $542,738 is attributable to equipment sales and $2,345,889 is attributable to license and transaction fees. The increase in GP from equipment sales is predominately due to the increase in activation fees on JumpStart connections as compared to the prior fiscal year as well as the Visa support funding recorded during the year ended June 30, 2011. The increase in GP dollars from license and transaction fees was generated by additional devices connected to our network and a decrease in third party supplier costs related to the contract amendment referred to above. GP increased overall from 31% to 34%, equipment sales GP increased from 37% to 46% due mainly to (1) approximately $228,000 increase in activation related fees related to JumpStart Program units added during the fiscal year 2011 compared to the JumpStart Program units added during the year ended June 30, 2010, (2) $225,000 of Visa support funding for installation and making operational Visa accepting ePorts during the year ended June 30, 2011 and $0 during the year ended June 30, 2010, and (3) approximately $73,000 of revenue recognized under our May 2008 agreement with a customer during the year ended June 30, 2011, and license and transaction fees GP increased from 26% to 29% due mainly to the decrease in third party supplier costs related to the contract amendment referred to above.

Selling, general and administrative (“SG&A”) expenses of $11,430,610 for the year ended June 30, 2011, decreased by $3,455,075 or 23%, from the prior fiscal year, due to an approximate $2,300,000 decrease as a result of the Company’s expense reduction efforts and an approximate $1,156,000 decrease in proxy contest, litigation and settlement expenses. The Company’s expense reduction of $2,300,000 consisted of decreases in consulting and other professional services of approximately $1,511,000, compensation expenses of approximately $581,000, facility expenses of approximately $128,000, product development material costs of approximately $127,000, offset by net increases of approximately $47,000.

The consulting and other professional services decrease of approximately $1,511,000 was primarily due to $522,000 of reductions in costs of information technology, as well as reductions in costs of research and development of approximately $496,000, legal costs of approximately $220,000, accounting charges of approximately $116,000 and expenses for other services of approximately $156,000, net. The compensation expense net decrease of approximately $581,000 was due to a decrease of approximately $664,000 in salaries, severances and commissions, as well as a decrease of approximately $143,000 in benefit costs, offset by an increase of approximately $226,000 related to non-cash compensation expenses.

During the fiscal year ended June 30, 2011, the Company recorded an impairment charge of $581,900 on an intangible asset. The intangible asset impaired is related to the Miser energy products and consists of the trademarks: 1) VendingMiser, 2) CoolerMiser, 3) PlugMiser and 4) SnackMiser. This asset is unrelated to the Company’s core operations related to the ePort wireless, cashless products. The Company believes the impairment of this non-core asset, and the factors surrounding its impairment do not in any way effect the ongoing operations of the Company.

The year ended June 30, 2011 resulted in a net loss of $6,457,067 (including approximately $4.6 million of non-cash charges) compared to a net loss of $11,571,495 (including approximately $2 million of non-cash charges) for the year ended June 30, 2010, an improvement of $5,114,428, or 44%. Net loss for the year ended June 30, 2011 was the lowest net loss of any fiscal year since our shares became listed on The NASDAQ Stock Market in March 2007. For the year ended June 30, 2011, the net loss applicable to common shareholders was $7,122,644, or $.26 per share, as compared to a loss per common share of $12,306,634, or $.55 per share, for the prior fiscal year.

33

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FISCAL QUARTER ENDED JUNE 30, 2012 COMPARED TO FISCAL QUARTER ENDED JUNE 30, 2011

Results for the fiscal quarter ended June 30, 2012 continued to demonstrate significant growth and improvements in the Company’s operations. Highlights of year over year improvements include:

●

Total revenue up 15%;

●

Recurring license and transaction fee revenue up 27%;

●

New connections added up 129%; and

●

Gross profit dollars up 35%.

The growing ePort Connect service base of connections drove the 27% increase in license and transaction fee revenue.

Revenue from license and transaction fees, which represented 84% of total revenue for fiscal 2014, is fueled primarily byattributable to monthly ePort Connect® service fees and transaction processing fees, grew to approximately $6.4 millionfees. Highlights for the fourth quarter of fiscal 2012 from $5 million for same period a year ago. These recurring revenues represented 81% of total revenue for the fourth quarter of fiscal 2012 year as compared to 73% for the same prior period.

License and transaction fee highlights for the quarter ended June 30, 2012 included:

2014 include:

●	●	16,000 additionalAdding 52,000 net connections to the Company’sour service, consisting of 76,000 new connections to our ePort Connect service in fiscal 2014, offset by 24,000 deactivations, compared to 50,000 net connections added in fiscal 2013;
●	As of June 30, 2014, the Company had approximately 266,000 connections to the ePort Connect service compared to approximately 214,000 connections to the ePort Connect service as of June 30, 2013, an increase of approximately 129% compared to52,000 net connections added during the fourth quarter a year ago;or 24%;

●

16,000 increase in the total connected service base during the quarter ended  June 30, 2012, compared to 7,000 increase in total connections added during the quarter ended  June 30, 2011;

●

Increases in the number of small-ticket, credit/debit transactions and dollars handled in the fourth quarterfor fiscal 2014 of 22%31% and 27%34%, respectively, compared to the same period a year ago; and

●

●

69% growth in ePort Connect customerscustomer base grew 24% from the prior year fourth quarter, fueled by 450 new customers in the fiscal 2012 fourth quarter, for 3,300 customers at June 30, 2012.2013.

Revenues for the quarter ended June 30, 2012 were $7,902,846, consisting of $6,382,575 of license and transactions fees and $1,520,271 of equipment sales, compared to $6,888,631 for the quarter ended June 30, 2011, consisting of $5,028,820 of license and transaction fees and $1,859,811 of equipment sales. The increase in total revenue of $1,014,216, or 15%, was primarily due to an increase in license and transaction fees of $1,353,755, or 27%, from the prior year quarter, and a decrease in equipment sales of $339,540 or 18%, from the same period in the prior year.

The increase in license and transaction fees was due to the growth in ePort Connect service fees and transaction dollar volumedollars that stems from the increased number of ePort® units connectedconnections to our ePort Connect service. As of June 30, 2012,2014, the Company had approximately 164,000266,000 connections to the ePort Connect service (including approximately 15,000 non-USAT, third party devices) as compared to approximately 119,000214,000 connections to the ePort Connect service (including approximately 13,000 non-USAT, third party devices) as of June 30, 2011.2013. During the quarteryear ended June 30, 2012,2014, the Company added approximately 16,00052,000 net connections to our network as compared to approximately 7,00050,000 net connections added during the quarteryear ended June 30, 2011. The JumpStart Program units represented approximately 75% and 40% of connections added during the fourth quarters of the 2012 and 2011 fiscal years, respectively.

2013.

Pursuant to its agreements with customers, the Company in addition to ePort ConnectionConnect service fees, the Company earns transaction processing fees equal to a percentage of the dollar volume processed by the Company, which are included as licensing and transaction processing revenues in its Consolidated Statements of Operations.Company. During the quarteryear ended June 30, 2012,2014, the Company processed approximately 28169 million transactions totaling approximately $47$294 million compared to approximately 23129 million transactions totaling approximately $37$219 million during the quarteryear ended June 30, 2011,2013, an increase of approximately 22%31% in the number of transactions and approximately 27%34% in the value of transactions processed.

26

In addition, our customer base increased with approximately ­­­450 new

New customers added to itsour ePort® Connect service during the quarterfiscal year ended June 30, 20122014 totaled 2,250, bringing the total number of such customers to approximately 3,3007,300 as of June 30, 2012.2014. The Company added approximately 2751,750 new customers in the quarteryear ended June 30, 2011.2013. By comparison, the Company had approximately 1,9505,050 customers as of June 30, 2011,2013, representing a 69%45% increase during the past twelve months.

The $339,540 decreaseCompany views the total installed base of machines managed by its customers that have yet to transition to cashless payment, as a key strategic opportunity for future growth in connections. We count a customer as a new customer upon the signing of their ePort Connect service agreement. When a reseller sells our ePort, we count a customer as a new customer upon the signing of the applicable services agreement with the customer.

The $811,028 increase in equipment sales was a result of decreases of approximately $318,000 in Energy products, and $28,000 in ePort products, offset by an increase of approximately $6,000$1,058,000 related to ePort® products, offset by decreases of approximately $174,000 in Energy Miser products and approximately $73,000 in other product revenues.products. The $318,000$1,058,000 increase in ePort products is directly attributable to selling more units and an increase in activation fees during the current fiscal year. The $174,000 decrease in Energy Miser products is directly attributable to selling fewer units during the quarter ended June 30, 2012 than during the quarter ended June 30, 2011.

current fiscal year.

Cost of sales consisted of cost of services for networklicense and transaction fee related costs of $3,818,276$23,018,001 and $3,342,525$18,219,945 and equipment costs of $906,231$4,254,127 and $1,194,168,$3,623,686, for the quartersyears ended June 30, 20122014 and 2011,2013, respectively. The increase in total cost of sales of $187,814$5,428,497, or 25%, was due to an increase in cost of services of $475,751$4,798,056 that stemmed from the greater number of connections to the Company’s ePort Connect service and a decreaseincreases in equipment costs of $287,937. Thetransaction dollars processed by those connections. Also, there was an increase in cost of services was predominantly related to increases in units connected to the network and increases in transaction processing volume. The decrease in equipment costs is directly attributablesales of $630,441 due to selling fewermore units during the quarter ended June 30, 2012 than during the quarter ended June 30, 2011.

34

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period.

Gross profit (“GP”) for the quarteryear ended June 30, 20122014 was $3,178,339$15,072,836 compared to GP of $2,351,938$14,096,613 for the previous corresponding quarter,fiscal year, an increase of $826,401,$976,223, or 7%, of which $51,603 represents decreased equipment sales GP and an increase of $878,004$12,620,120 is attributable to license and transaction fees.fees GP and $2,452,716 of equipment sales GP. Overall gross profit margins increaseddecreased from 34%39% to 40%36% due to a decrease in license and transaction fees margins having increasedto 35%, from 34% to 40%39% in the prior fiscal year and by a decrease in equipment sales margins having increasedto 37%, from 36% to 40%. License39% in the prior fiscal year. Lower license and transaction fee margins increased dueare largely attributable to improved efficiencies stemming from recent partnership agreements, a larger ePort Connect service base,approximately 24,000 deactivations that occurred during the fiscal year primarily attributable to one customer as well as having a larger numberthe impact of certain new JumpStart rental units with fees in the quarter versus a year ago when a larger number of JumpStart units had not yet had monthly fees commence. The increase in equipment sales margins was mainly due to increased activation fees, which have no direct costsconnections associated with them.

grace periods under sales incentives. For the new connections associated with the grace periods, the Company incurred costs without receiving the associated monthly service fees.

Selling, general and administrative (“SG&A”) expenses of $5,420,955$14,036,016 for the quarterfiscal year ended June 30, 2012,2014, increased by $2,026,883, net$1,967,450 or 60%16%, from the same quarter in the prior fiscal year. The significant componentoverall increase is comprised of approximately a $1,207,000 increase in employee and director compensation and benefit expenses; $329,000 in professional services, $224,000 increase in sales and marketing expenses; and, smaller, numerous, net increases in several other expenses totaling $207,000. The increase in employee and director compensation and benefits expenses predominantly related to expanding our base of employees, sales commissions and bonuses for record connections added in fiscal 2014 as well as bonus accruals related to performance-based compensation arrangements.

Other income and expense for the year ended June 30, 2014, primarily consisted of a reduction of $26.7 million of the valuation allowance we had on our deferred tax assets as the Company believes that it is more likely than not it will be able to utilize net increaseoperating loss carryforwards to offset future taxable earnings. Also included is detailed$65,429 of non-cash gain for the change in the table belowfair value of the Company’s warrant liabilities. The primary factor affecting the change in fair value is the decrease in the Black-Scholes value of the warrants from June 30, 2013 to June 30, 2014, which factored in the increase in the Company’s stock price as well as a decrease in its volatility during that period.

The fiscal year ended June 30, 2014 resulted in net income of $27,530,652 compared to net income of $854,123 for the fiscal year ended June 30, 2013, an improvement of $26,676,529 between fiscal years. Included in net income for the fiscal year ended June 30, 2014 is a benefit from reduction income tax valuation allowances of $26,713,897. After preferred dividends of $664,452 for each fiscal year, net income applicable to common shareholders was $26,866,200 and relates$189,671 for the fiscal years ended 2014 and 2013, respectively. For the fiscal year ended June 30, 2014, net earnings per common share (basic and diluted) were $0.78, compared to expensesnet earnings per common share (basic and diluted) of $0.01.

Non-GAAP net income was $751,326 for the year ended June 30, 2014, compared to non-GAAP net income of $914,195 for the year ended June 30, 2013. Management believes that non-GAAP net income, non-GAAP net income is an important measure of USAT’s business. Management uses the aforementioned non-GAAP measures to monitor and evaluate ongoing operating results and trends and to gain an understanding of our comparative operating performance. We believe that non-GAAP financial measures serve as useful metrics for our management and investors because they enable a better understanding of the long-term performance of our core business and facilitate comparisons of our operating results over multiple periods, and when taken together with the corresponding GAAP (United States’ Generally Accepted Accounting Principles) financial measures and our reconciliations, enhance investors’ overall understanding of our current and future financial performance.

27

A reconciliation of net income to Non-GAAP net income for the years ended June 30, 2014 and 2013 is as follows:

		Year ended June 30,
		2014 (1)				2013
Net income		$	27,530,652			$	854,123
Non-GAAP adjustments:
Proxy related costs (SG&A)			-				328,000
Non-cash portion of income tax provision/benefit			(27,276,419	)			27,646
Fair value of warrant adjustment			(65,429	)			(267,928	)
Non-GAAP net income		$	188,804			$	941,841
Net income		$	27,530,652			$	854,123
Cumulative preferred dividends			(664,452	)			(664,452	)
Net income applicable to common shares		$	26,866,200			$	189,671
Non-GAAP net income		$	188,804			$	941,841
Cumulative preferred dividends			(664,452	)			(664,452	)
Non-GAAP net income (loss) applicable to common shares		$	(475,648	)		$	277,389
Net earnings per common share - basic		$	0.78			$	0.01
Non-GAAP net earnings (loss) per common share - basic		$	-			$	0.01
Basic weighted average number of common shares outstanding			34,613,497				32,787,673
Net earnings per common share - diluted		$	0.78			$	0.01
Non-GAAP net earnings (loss) per common share - diluted		$	-			$	0.01
Diluted weighted average number of common shares outstanding			34,613,497				33,613,346

(1)

Net income for the year ended June 30, 2014 includes an income tax benefit of $27,255,398 for the reduction on tax valuation allowances.

As used herein, non-GAAP net income represents GAAP net income excluding costs relating to the proxy contest, any adjustment for fair value of warrant liabilities and related litigation as further describedchanges in the Legal Proceedings section (Item 3.)Company’s valuation allowances for taxes. As used herein, non-GAAP net earnings per common share is calculated by dividing non-GAAP net income applicable to common shares by the weighted average number of this Form 10-K. The expensesshares outstanding, and where diluted shares are required, adds back the preferred dividend since the conversion of preferred shares are accounted for this matter in the fourth quarter of the 2012 fiscal year are summarized as follows:
diluted share count.

28

		Proxy contest and litigation
Legal		$	1,435,000
Public relations			160,000
Other consultants			634,000
		$	2,229,000

Outside of the proxy contest and litigation expenses summarized above, SG&A decreased approximately $202,000 in fiscal 2012’s fourth quarter as compared to the same quarter in

For the fiscal 2011.

The quarteryear ended June 30, 2012 resulted in a2014, the Company had Adjusted EBITDA of $6,451,311. Reconciliation of net loss of $2,772,605 comparedincome to a net loss of $1,923,054Adjusted EBITDA for the quarteryears ended June 30, 2011. For the quarter ended June 30, 2012, the loss per common share was $0.09 as compared to a loss per common share of $0.06 for the prior corresponding fiscal quarter.

For the quarter ended June 30, 2012, the Company had an Adjusted EBITDA loss of $1,414,879 which includes approximately $2,229,000 of proxy related expenses outlined in the above table. Reconciliation of net loss to Adjusted EBITDA loss for the quarters ended June 30, 20122014 and 20112013 is as follows:

		Three months ended
		June 30
		2012				2011
Net loss		$	(2,772,605	)		$	(1,923,054	)
Less interest income			(26,877	)			(25,519	)
Plus interest expense			13,237				3,529
Plus income tax expense			12,599				-
Plus depreciation expense			695,609				480,703
Plus amortization expense			222,100				258,600
Less change in fair value of warrant liabilities			169,755				(35,609	)
Plus (less) stock-based compensation			271,303				293,381
Plus intangible asset impairment			-				581,900
Adjusted EBITDA loss		$	(1,414,879	)		$	(366,069	)

35

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		Year ended June 30,
		2014				2013
Net income		$	27,530,652			$	854,123
Less interest income			(30,337	)			(57,121	)
Plus interest expense			256,844				157,205
Plus income tax expense (benefit)			(27,255,398	)			27,646
Plus depreciation expense			5,463,985				3,837,174
Plus amortization expense			21,953				742,400
Plus change in fair value of warrant liabilities			(65,429	)			(267,928	)
Plus stock-based compensation			529,041				502,907
Adjusted EBITDA		$	6,451,311			$	5,796,406

As used herein, Adjusted EBITDA represents net income (loss) before interest income, interest expense, income taxes, depreciation, amortization, change in fair value of warrant liabilities and stock-based compensation expense, and impairment expense on intangible assets.expense. We have excluded the non-operating item, change in fair value of warrant liabilities, because it represents a non-cash charge or gai n that is not related to the Company’s operations. We have excluded the non-cash expenses,expense, stock-based compensation, and impairment expense, as they doit does not reflect the cash-based operations of the Company. Adjusted EBITDA is a non-GAAP financial measure which is not required by or defined under GAAP (Generally Accepted Accounting Principles). The presentation of this financial measure is not intended to be considered in isolation or as a substitute for the financial measures prepared and presented in accordance with GAAP, including the net income or net loss of the Company or net cash used in operating activities. Management recognizes that non-GAAP financial measures have limitations in that they do not reflect all of the items associated with the Company’s net income or net loss as determined in accordance with GAAP, and are not a substitute for or a measure of the Company’s profitability or net earnings. Adjusted EBITDA is presented because we believe it is useful to investors as a measure of comparative operating performance and liquidity, and because it is less susceptible to variances in actual performance resulting from depreciation and amortization and non-cash charges for changes in fair value of warrant liabilities and stock-based compensation expense.

LIQUIDITY AND CAPITAL RESOURCES

For the year ended June 30, 2012,2015, net cash providedused by operating activities was $78,236. The$1,697,742 as a result of a net loss of $5,211,238 was$1,089,482, offset by non-cash operating activities net benefit of $7,251,674, and net cash providedused by changesthe change in the Company’s operating assets and liabilities of $2,781,428 and  by$7,859,934. Of the $7,251,674 of non-cash activities, the most significant during fiscal year 2015 was $5,731,356 depreciation expense, of which, $5,119,674 related to depreciation on JumpStart equipment allocated to cost of services. In addition to depreciation expense, other non-cash charges totaling $2,508,046, representingincluded $715,762 related to the vesting of equity-based compensation for employees and directors, $1,099,528 of bad debt expense, $393,144 expense due to the change in the fair value of common stock warrants, vestingwarrant liabilities and issuance$395,038 of common stock for employee and director compensation, bad debt expense, provision for deferred tax liabilities, loss on disposal of equipment andincome taxes. These non-cash charges were offset by an $833,619 non-cash gain from sale-leaseback transactions. The $7,859,934 cash used in the depreciation and amortization of assets.

The cash provided by the $2,781,428 change in the Company’s operating assets and liabilities was primarily the result of increases in finance receivables of $2,513,898$4,113,898 related to the QuickStart program, accounts receivable of $2,517,493, predominately related to sales of hardware sold with credit terms, $1,930,857 in accrued expenses and $498,082 in accounts payable,inventory; these uses of cash were partially offset by an $820,412increase of $918,761 in accounts payable.

During the fiscal year the Company reintroduced QuickStart, a program whereby our customers are able to purchase our ePort hardware via a five-year, non-cancellable lease. From its introduction in September 2014 and through approximately mid-March 2015, the Company was entering into these leases directly with its customers. Under this scenario, the Company recorded a long-term and short-term receivable for the five-year leases. The $4,113,898 increase in finance receivables is directly due to leases the Company entered into directly with its customers. In the third and fourth quarters of fiscal 2015, the Company signed vendor agreements with two leasing companies, whereby our customers would enter into leases directly with the leasing companies. Under this scenario, the Company invoiced the leasing company for the equipment leased by our customer, and recorded as an accounts receivable. Unlike its finance receivables, which the cash would be collected over a five-year period, the accounts receivable due from the leasing company is typically collected within 30 days. Since entering into the vendor agreements, and through June 30, 2015, the majority of QuickStart sales consummated were with the customer entering into the lease directly with the leasing company, which contributed to the $2,517,493 increase in accounts receivable. Ofreceivable, whereby amounts due from the $2,781,428leasing companies had not yet been collected by June 30, 2015.

There has been a shift by our customers from acquiring our product via JumpStart, which accounted for 60% of our gross connections in fiscal year 2014, and was just 4% in our 2015 fourth quarter, to QuickStart or a straight purchase, which accounted for 89% of our gross connections in fiscal year 2015 and was approximately 54% of gross connections for our fiscal 2015 fourth quarter. This is further illustrated in our cash flow statement whereby the cash used for the purchase of property for rental program reduced from $10,883,473 in fiscal 2014 to just $1,641,993 in fiscal 2015. This shift, as well as our ability to increase the cash collection under QuickStart sales, by utilizing leasing companies (as described above) if available, significantly improves cash flows from operating activities. We believe we will continue to be able to utilize third party leasing companies in our QuickStart program, and therefore do not expect finance receivables to increase in accrued expenses, $993,000 relatesthe future. The exception being, for any customer unable to secure third party leasing for which the proxy contest, and ofCompany may decide to enter in a lease directly with the $498,082 increase in accounts payables, $15,000 relatescustomer or if we are unable to the proxy contest.

procure satisfactory and/or sufficient third party leasing arrangements.

During the year ended June 30, 2012, the Company used $6,232,814 in2015, $3,353,491 of cash was provided by investing activities of which $5,754,670$4,993,879 was received from the sale of rental equipment under sale-leaseback transactions, which were offset by cash used of $1,641,993 related to the purchase of equipment for the JumpStart Program and $478,144 for network equipment. The Company used $410,288 forprogram.

29

Net cash provided by financing activities was $645,904 predominately from $2,056,724 of which $368,917 relatedproceeds received by selling finance receivables with recourse and/or the rights to the cash flows from the finance receivables to a third party leasing company, offset by the repayment of long-term$1,000,000 on the Line of Credit and $358,582 of debt.

The Company has incurred losses since inception. Our accumulated deficit through June 30, 2012 is composed of cumulative losses amounting to approximately $199,160,000, preferred dividends converted to common stock of approximately $2,690,000, and charges incurred

Adjusted EBITDA for the open-market purchases of preferred stock of approximately $150,000. The Company has historically raised capital through equity offerings in order to fund operations.

As a result of the continued growth in connections to our ePort Connect service, recurring revenue from license and transaction fees increased from $5,029,000 for the three monthsyear ended June 30, 20112015 was $6,258,993 compared to approximately $6,383,000$6,451,311 for the three months ended June 30, 2012, an increase of 27%. In addition, total GP dollars and GP margins have increased from $2,352,000 and 34% for the three months ended June 30, 2011 to $3,178,000 and 40% for the three months ended June 30, 2012, an increase of 35% in GP dollars and a six point improvement in margins. Our average monthly cash GP during the three months ended June 30, 2012, excluding non-cash depreciation expense included in cost of sales during the quarter of approximately $556,000, approximates $1,245,000 and is expected to increase in the nextprior fiscal quarter due to recognizing recurring revenue on units shipped during the quarter ended June 30, 2012.

Our average monthly SG&A expenses during the three months ended June 30, 2012 were approximately $1,807,000. This includes charges during the quarter of approximately $2,229,000 related to the proxy contest matter, and other non-cash net charges of approximately $401,000. Excluding these charges, our average monthly cash-based SG&A expenses during the three months ended June 30, 2012 was approximately $930,000.

The excess of cash-based GP over the cash-based SG&A expenses described above should manifest itself in positive Adjusted EBITDA.year. The Company reports Adjusted EBITDA to reflect the liquidity of operations and a measure of operational cash flow. Adjusted EBITDA excludes significant non-cash charges such as depreciation, amortization of intangibles, fair value warrant liability changes, and stock-based compensation from net income. For onlyincome and changes to the second time in its history, the Company reported positive Adjusted EBITDACompany’s valuation allowances for the quarter ended March 31, 2012 of approximately $336,000.taxes. We believe that, provided there are no unusual or unanticipated material non-operational expenses, achieving positive Adjusted EBITDA is sustainable, predominately because the currentand will continue to increase, as our connection base is drivingincreases.

As a result of the necessary level ofcontinued growth in connections to our ePort Connect service that has resulted in strong growth in recurring revenue from license and transaction fees and associated gross profits to support sustainability,the improvement in GP dollars, as well as the significant reduction in cash used for JumpStart, and asthe utilization of third party leasing companies in our connection base increases, we believe Adjusted EBITDA will continue to grow as well. AlthoughQuickStart program, the Company reported an Adjusted EBITDA loss of approximately $1,415,000 for the quarter ended June 30, 2012, included in that loss is approximately $2.2 million of expenses related to the proxy contest matter, which we believe are unrelated to the core operations of our business. Therefore, excluding these costs, Adjusted EBITDA for the June 30, 2012 quarter would have shown further improvement to approximately $814,000generated positive Adjusted EBITDA.

36

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During the 2013 fiscal year, andfree cash flow (defined as net cash provided there are no unanticipated or unusual non-operational expenses, the Company anticipates utlizing substantial cash resources in connection with ePort units expected to be used in the JumpStart Program. In the event we incur any unanticipated or unusual non-operational expenses during the 2013 fiscal year, the Company may reduce the ePort units used in the JumpStart Program, thereby also reducing or eliminating theby operating activities less cash used for the program. Inpurchase of rental equipment/JumpStart) for its third and fourth quarters in fiscal 2012,year 2015. Free cash flow for the fourth quarter was $2,681,155, and the Company funded approximately two-thirds of its new connections through JumpStart. The Company anticipates using the JumpStart program for approximately 55%believes it will continue to 60% of its anticipated connections in fiscal 2013 as a result of the potential diversification from the kiosk market, where many customers only require our ePort SDK or our newly introduced Quick Connect web service.

As a result of the above described improvements ingenerate positive free cash flow and provided there are no unanticipated or unusual non-operational expenses duringfor the 20132016 fiscal year, we believe we are adequately positionedassuming QuickStart remains a significant component of connections, and third party leasing companies continue to fund and grow the business including the  JumpStart Program. enter into leases directly with our customers.

The Company has three sources of cash available to fund and grow the business:business as of June 30, 2015: (1) cash and cash equivalents on hand of $6,426,645 at June 30, 2012;approximately $11 million; (2) the anticipated growing level of Adjusted EBITDA (as described above) which indicates the business has the potential to generate cash;cash provided by operating activities from our QuickStart program; and (3) the availability of$3 million available under the line of credit with Avidbank that was established in July 2012 (see “Avidbank Line of Credit” below). Although the line initially has an availability of approximately $1.5 million, the Company anticipates that the availability would  increase as our business and relationship with Avidbank grows,a commercial bank, provided we continue to satisfy the various affirmative and negative covenants set forth in the loan agreement.

Therefore, based upon The line of credit matures on August 17, 2017. In addition, the above assumptions,Company believes the capital markets, debt and equity, would be available to provide additional sources of cash, if required.

Therefore, the Company believes its existing cash and cash equivalents and available cash resources as of June 30, 2012,2015, would provide sufficient funds through at least July 1, 20132016 in order to meet its cash requirements, including payment of its accrued expenses and payables, any cash resources anticipated to be utilized for the JumpStart program, and other anticipated capital expenditures, and the repayment of long-term debt.

AVIDBANK LINE OF CREDIT

On July 10, 2012, to help fund growth initiatives like the JumpStart Program, the Company entered into a Loan and Security Agreement and other ancillary documents (the “Loan Documents”) with Avidbank Corporate Finance, a division of Avidbank (“Avidbank” or the “Bank”), providing for a secured asset-based revolving line of credit in an amount of up to $3.0 million (the “Line of Credit”). The Line of Credit is the first bank provided lending  arrangement (excluding capital leases) the Company has obtained since its listing on The NASDAQ Stock Market in 2007. Due to the historical losses and cash burn of the Company, bank provided lending was difficult to secure and the Company has historically relied on equity raises as a source of working capital. The Company believes its ability to obtain this Line of Credit is a result of its improving financial performance and business model, and represents an opportunity to obtain working capital from a source other than equity financing. The Company further believes that as it establishes a  history of performing under the Line of Credit and its financial performance continues to improve, additional bank debt financing opportunities and/or arrangements would become available to the Company.

The Loan Documents provide that the aggregate amount of advances under the Line of Credit shall not exceed the lesser of (i) $3.0 million, or (ii) 75% of eligible accounts receivable as defined in the Loan Documents plus 80% of the prior two months transaction processing revenues and networking service fees as defined in the Loan Documents, provided that the amounts advanced on account of such processing revenues and service fees shall not exceed $1,000,000 without the Avidbank’s prior consent. The foregoing limits the amount available to the Company under the Line of Credit to approximately $1.5 million.

The outstanding balance of the amounts advanced under the Line of Credit will bear interest at 2% above the prime rate as published in The Wall Street Journal or 5% whichever is higher. Interest is payable by the Company to the Bank on a monthly basis, provided, that the minimum interest payable by the Company to the Bank with respect to each six month period shall be $20,000.

The Line of Credit and the Company’s obligations under the Loan Documents are secured by substantially all of the Company’s assets, including its intellectual property.

The term of the Line of Credit is one year. At the time of maturity all outstanding advances under the Line of Credit as well as any unpaid interest is due and payable. Prior to maturity of the Line of Credit, the Company may prepay amounts due under the Line of Credit without penalty, and subject to the terms of the Loan Documents, may re-borrow any such amounts.

The Loan Documents contain customary affirmative and negative covenants. The Loan Documents also require the Company to achieve a minimum Adjusted EBITDA, as defined in the Loan Documents, measured on a quarterly basis, and to maintain a balance of $3.0 million of unrestricted cash in accounts with the Bank. The Company achieved the June 30, 2012 Adjusted EBITDA covenant as defined in the Loan Documents. We also believe we will achieve the Adjusted EBITDA covenants in the Loan Documents for the September 30, 2012 and December 31, 2012 quarters.

The Loan Documents also contain customary events of default, including, among other things, payment defaults, breaches of covenants, and bankruptcy and insolvency events, subject to grace periods in certain instances. Upon an event of default, the Bank may declare all of the outstanding obligations of the Company under the Line of Credit and Loan Documents to be immediately due and payable, and exercise any other rights provided for under the Loan Documents. In the event the Bank would declare all of the outstanding obligations of the Company under the Line of Credit and Loan Documents to be immediately due and payable, the $3.0 million of unrestricted cash  deposited with the Bank would be sufficient to satisfy all of the outstanding  principal obligations due to the Bank, and the Bank would not have any further recourse against any other assets of the Company.

37

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CONTRACTUAL OBLIGATIONS

As of June 30, 2012,2015, the Company had certain contractual obligations due over a period of time as summarized in the following table:

		Payments due by period
						Less Than												More than
Contractual Obligations		Total				1 year				1-3 years				3-5 years				5 years
Long-Term Debt Obligations		$	321,822			$	296,466			$	25,356			$	-			$	-
Capital Lease Obligations			457,954				209,534				248,420				-				-
Operating Lease Obligations			1,517,650				450,368				1,067,282				-				-
Purchase Obligations			-				-				-				-				-
Other Long-Term Liabilities Reflected on the Registrant’s Balance Sheet under GAAP			-				-				-				-				-
Total		$	2,297,426			$	956,368			$	1,341,058			$	-			$	-

		Payments due by period
						Less Than												More than
Contractual Obligations		Total				1 year				1-3 years				3-5 years				5 years
Long-Term Debt Obligations		$	2,483,072			$	519,472			$	1,572,269			$	391,330			$	-
Capital Lease Obligations			382,666				157,304				225,362				-				-
Operating Lease Obligations, other			362,737				361,927				810				-				-
Operating Lease Obligations under Sale Leaseback			5,420,041				2,641,155				2,778,886				-				-
Total		$	8,648,516			$	3,679,859			$	4,577,328			$	391,330			$	-

Item 7A.7A. Quantitative and Qualitative Disclosures About Market Risk.

The Company’s exposure to market risks for interest rate changes is not significant. Interest rates on its long-term debt are generally fixed and its investments in cash equivalents are not significant.fixed. The Company has no exposure to market risks related to Available-for-sale securities. Market risks related to fluctuations of foreign currencies are not significant and the Company has no derivative instruments.

30

38

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Item 8. Financial Statements and Supplementary Data.

USA TECHNOLOGIES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Statements:
Report of Independent Registered Public Accounting Firm		F-1
Consolidated Balance Sheets		F-2
Consolidated Statements of Operations		F-3
Consolidated Statements of Shareholders’ Equity		F-4
Consolidated Statements of Cash Flows		F-7F-5
Notes to Consolidated Financial Statements		F-9F-6

31

39

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

USA Technologies, Inc.

We have audited the accompanying consolidated balance sheets of USA Technologies, Inc. and subsidiaries as of June 30, 20122015 and 2011,2014, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended June 30, 2012.2015. Our audits also included the financial statement schedule of USA Technologies, Inc. listed in Item 15(a). These financial statements and financial statement schedule 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 the standards of the Public Company Accounting Oversight Board (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. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our auditaudits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 consolidated financial statements referred to above presents fairly, in all material respects, the financial position of USA Technologies, Inc. and subsidiaries as of June 30, 20122015 and 2011,2014, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2012,2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ McGladrey LLP
New York, NY
September 30, 2015

F-1

/s/ McGladrey LLP

New York, NY

September 25, 2012

F-1

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USA Technologies, Inc.

Consolidated Balance Sheets

		June 30,
		2012				2011
Assets
Current assets:
Cash and cash equivalents		$	6,426,645			$	12,991,511
Accounts receivable, less allowance for uncollectible accounts of $25,000 and $113,000, respectively			2,441,941				1,634,719
Finance receivables			206,649				285,786
Inventory			2,511,748				2,670,332
Prepaid expenses and other current assets			555,823				846,033
Total current assets			12,142,806				18,428,381
Finance receivables, less current portion		$	336,198			$	195,601
Property and equipment, net			11,800,108				7,395,775
Intangibles, net			1,196,453				2,194,353
Goodwill			7,663,208				7,663,208
Other assets			80,884				126,687
Total assets		$	33,219,657			$	36,004,005
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable		$	6,136,443			$	5,638,361
Accrued expenses			3,342,456				1,088,090
Current obligations under long-term debt			466,056				155,428
Total current liabilities			9,944,955				6,881,879
Long-term liabilities:
Long-term debt, less current portion			262,274				97,633
Accrued expenses, less current portion			426,241				166,709
Deferred tax liabilities			12,599				-
Warrant liabilities, non-current			918,566				2,732,253
Total long-term liabilities			1,619,680				2,996,595
Total liabilities			11,564,635				9,878,474
Commitments and contingencies (Note 15)
Shareholders’ equity:
Preferred stock, no par value:
Authorized shares- 1,800,000 Series A convertible preferred- Authorized shares- 900,000 Issued and outstanding shares- 442,968 (liquidation preference of $15,361,552 and $14,697,100, respectively)			3,138,056				3,138,056
Common stock, no par value: Authorized shares- 640,000,000 Issued and outstanding shares- 32,510,069 and 32,281,140, respectively			220,513,327				219,772,598
Accumulated deficit			(201,996,361	)			(196,785,123	)
Total shareholders’ equity			21,655,022				26,125,531
Total liabilities and shareholders’ equity		$	33,219,657			$	36,004,005

		June 30,
		2015				2014
Assets
Current assets:
Cash and cash equivalents		$	11,373,973			$	9,072,320
Accounts receivable, less allowance for uncollectible accounts of $494,000 and $63,000, respectively			4,671,544				2,683,579
Finance receivables			941,150				119,793
Inventory			4,216,396				1,486,777
Prepaid expenses and other current assets			574,479				363,367
Deferred income taxes			1,257,796				907,691
Total current assets			23,035,338				14,633,527
Finance receivables, less current portion			3,697,513				352,794
Other assets			350,041				190,703
Property and equipment, net			12,868,808				21,138,580
Deferred income taxes			25,788,187				26,353,330
Intangibles, net			432,100				432,100
Goodwill			7,663,208				7,663,208
Total assets		$	73,835,195			$	70,764,242
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable		$	9,242,672			$	7,753,911
Accrued expenses			2,107,530				1,915,799
Line of credit			4,000,000				5,000,000
Current obligations under long-term debt			477,522				172,911
Income taxes payable			54,086				21,021
Deferred gain from sale-leaseback transactions			860,391				380,895
Total current liabilities			16,742,201				15,244,537
Long-term liabilities:
Long-term debt, less current portion			1,854,424				249,865
Accrued expenses, less current portion			49,160				186,174
Warrant liabilities			978,353				585,209
Deferred gain from sale-leaseback transactions, less current portion			900,348				761,790
Total long-term liabilities			3,782,285				1,783,038
Total liabilities			20,524,486				17,027,575
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par value:
Authorized shares- 1,800,000 Series A convertible preferred- Authorized shares- 900,000 Issued and outstanding shares- 442,968 (liquidation preference of $17,354,908 and $16,690,456, respectively)			3,138,056				3,138,056
Common stock, no par value: Authorized shares- 640,000,000 Issued and outstanding shares- 35,747,242 and 35,514,685, respectively			224,873,721				224,210,197
Accumulated deficit			(174,701,068	)			(173,611,586	)
Total shareholders’ equity			53,310,709				53,736,667
Total liabilities and shareholders’ equity		$	73,835,195			$	70,764,242

See accompanying notes.

F-2

F-2

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USA Technologies, Inc.

Consolidated Statements of Operations

		Year ended June 30
		2012				2011				2010
Revenues:
License and transaction fees		$	23,370,754			$	16,442,485			$	9,307,100
Equipment sales			5,646,489				6,426,304				6,464,006
Total revenues			29,017,243				22,868,789				15,771,106
Cost of services			15,312,966				11,651,138				6,861,642
Cost of equipment			3,743,226				3,468,993				4,049,433
Gross profit			9,961,051				7,748,658				4,860,031
Operating expenses:
Selling, general and administrative			15,460,668				11,430,610				14,885,685
Depreciation and amortization			1,500,775				1,424,365				1,570,043
Impairment of intangible asset			-				581,900				-
Total operating expenses			16,961,443				13,436,875				16,455,728
Operating loss			(7,000,392	)			(5,688,217	)			(11,595,697	)
Other income (expense):
Interest income			72,059				82,234				85,144
Interest expense			(83,993	)			(35,953	)			(60,942	)
Change in fair value of warrant liabilities			1,813,687				(815,131	)			-
Total other income (expense), net			1,801,753				(768,850	)			24,202
Loss before provision for income taxes			(5,198,639	)			(6,457,067	)			(11,571,495	)
Provision for income taxes			(12,599	)			-				-
Net loss			(5,211,238	)			(6,457,067	)			(11,571,495	)
Cumulative preferred dividends			(664,452	)			(665,577	)			(735,139	)
Loss applicable to common shares		$	(5,875,690	)		$	(7,122,644	)		$	(12,306,634	)
Loss per common share (basic and diluted)		$	(0.18	)		$	(0.26	)		$	(0.55	)
Weighted average number of common shares outstanding (basic and diluted)			32,423,987				27,665,345				22,370,068

		Year ended June 30,
		2015				2014				2013
Revenues:
License and transaction fees		$	43,633,462			$	35,638,121			$	30,044,429
Equipment sales			14,444,012				6,706,843				5,895,815
Total revenues			58,077,474				42,344,964				35,940,244
Costs:
Cost of services			29,429,385				23,018,001				18,219,945
Cost of equipment			11,825,455				4,254,127				3,623,686
Total costs			41,254,840				27,272,128				21,843,631
Gross profit			16,822,634				15,072,836				14,096,613
Operating expenses:
Selling, general and administrative			16,451,255				14,036,016				12,068,566
Depreciation and amortization			611,682				600,488				1,314,122
Total operating expenses			17,062,937				14,636,504				13,382,688
Operating income (loss)			(240,303	)			436,332				713,925
Other income (expense):
Interest income			82,695				30,337				57,121
Other income			52,178				-				-
Interest expense			(301,767	)			(256,844	)			(157,205	)
Change in fair value of warrant liabilities			(393,144	)			65,429				267,928
Total other income (expense), net			(560,038	)			(161,078	)			167,844
Income (loss) before benefit (provision) for income taxes			(800,341	)			275,254				881,769
Benefit (provision) for income taxes			(289,141	)			27,255,398				(27,646	)
Net income (loss)			(1,089,482	)			27,530,652				854,123
Cumulative preferred dividends			(664,452	)			(664,452	)			(664,452	)
Net income (loss) applicable to common shares		$	(1,753,934	)		$	26,866,200			$	189,671
Net earnings (loss) per common share - basic		$	(0.05	)		$	0.78			$	0.01
Basic weighted average number of common shares outstanding			35,663,386				34,613,497				32,787,673
Net earnings (loss) per common share - diluted		$	(0.05	)		$	0.78			$	0.01
Diluted weighted average number of common shares outstanding			35,663,386				34,613,497				33,613,346

See accompanying notes.

F-3

F-3

---

USA Technologies, Inc.

Consolidated Statements of Shareholders’ Equity

		Series A
		Convertible
		Preferred Stock								Common Stock								Accumulated
		Shares				Amount				Shares				Amount				Deficit				Total
Balance, June 30, 2009			510,270			$	3,614,554				15,423,022			$	194,948,693			$	(178,590,975	)		$	19,972,272
Issuance of common stock at $2.00 per share, less issuance costs of $1,613,425			-				-				7,285,792				12,958,159				-				12,958,159
Issuance of common stock at $0.90 per share, less issuance costs of $504,095			-				-				2,753,454				1,974,014				-				1,974,014
Issuance of fully-vested shares of common stock to officers and employees and vesting of shares granted under the 2008 Stock Incentive Plan			-				-				40,000				87,354				-				87,354
Retirement of common stock			-				-				(5,113	)			(9,668	)			-				(9,668	)
Retirement of preferred stock			(65,802	)			(465,878	)			-				-				(132,586	)			(598,464	)
Net loss																			(11,571,495	)			(11,571,495	)
Balance, June 30, 2010			444,468				3,148,676				25,497,155				209,958,552				(190,295,056	)			22,812,172

		Series A
		Convertible
		Preferred Stock								Common Stock								Accumulated
		Shares				Amount				Shares				Amount				Deficit				Total
Balance, June 30, 2012			442,968			$	3,138,056				32,510,069			$	220,513,327			$	(201,996,361	)		$	21,655,022
Exercise of warrants			-				-				399,597				432,229				-				432,229
Warrants issued in conjunction with Line of Credit Amendment			-				-				-				55,962				-				55,962
Stock based compensation
2010 Stock Incentive Plan			-				-				62,942				68,723				-				68,723
2011 Stock Incentive Plan			-				-				96,665				157,645				-				157,645
2012 Stock Incentive Plan			-				-				279,806				276,539				-				276,539
Retirement of common stock			-				-				(64,847	)			(121,052	)			-				(121,052	)
Net income			-				-				-				-				854,123				854,123
Balance, June 30, 2013			442,968				3,138,056				33,284,232				221,383,373				(201,142,238	)			23,379,191
Exercise of warrants			-				-				2,090,226				2,361,956				-				2,361,956
Stock based compensation
2010 Stock Incentive Plan			-				-				6,668				6,024				-				6,024
2011 Stock Incentive Plan			-				-				51,667				17,366				-				17,366
2012 Stock Incentive Plan			-				-				-				278,471				-				278,471
2013 Stock Incentive Plan			-				-				131,203				227,180				-				227,180
Retirement of common stock			-				-				(49,311	)			(89,020	)			-				(89,020	)
Excess tax benefits from stock-based compensation			-				-				-				24,847				-				24,847
Net income			-				-				-				-				27,530,652				27,530,652
Balance, June 30, 2014			442,968			$	3,138,056				35,514,685			$	224,210,197			$	(173,611,586	)		$	53,736,667
Stock based compensation
2011 Stock Incentive Plan			-				-				10,002				604				-				604
2012 Stock Incentive Plan			-				-				88,991				51,941				-				51,941
2013 Stock Incentive Plan			-				-				165,463				292,782				-				292,782
2014 Stock Option Incentive Plan			-				-				-				370,435				-				370,435
Retirement of common stock			-				-				(31,899	)			(61,987	)			-				(61,987	)
Excess tax benefits from stock-based compensation			-				-				-				9,749				-				9,749
Net loss			-				-				-				-				(1,089,482	)			(1,089,482	)
Balance, June 30, 2015			442,968			$	3,138,056				35,747,242			$	224,873,721			$	(174,701,068	)		$	53,310,709

See accompanying notes.

F-4

F-4

---

USA Technologies, Inc.

Consolidated Statements of Shareholders’ Equity (Continued)

		Series A
		Convertible
		Preferred Stock								Common Stock								Accumulated
		Shares				Amount				Shares				Amount				Deficit				Total
Issuance of common stock at $0.90 per share less issuance cost of $230,087			-				-				261,953				5,671				-				5,671
Issuance of common stock to Lincoln Park Capital			-				-				150,000				-				-				-
Issuance of common stock at $2.064 per share less the fair value of warrants issued of $1,917,122 and less cash issuance costs of $838,705			-				-				5,200,000				7,976,973				-				7,976,973
Exercise of 376,355 warrants at $2.20 resulting in the issuance of common stock			-				-				376,355				827,981				-				827,981
Exercise of 497,367 warrants at $1.13 resulting in the issuance of common stock			-				-				497,367				562,025				-				562,025
Cashless exercise of 127,497 warrants resulting in the issuance of common stock			-				-				83,472				-				-				-
Conversion of preferred stock into common stock			(1,500	)			(10,620	)			15				10,620				-				-
Conversion of $33,000 of preferred dividends into common stock			-				-				33				33,000				(33,000	)			-
Issuance of fully-vested shares of common stock to employees and vesting of shares granted under the 2008 Stock Incentive Plan			-				-				20,747				10,208				-				10,208
Issuance of fully-vested shares of common stock to employees and directors and vesting of shares granted under the 2010 Stock Incentive Plan			-				-				109,918				292,263				-				292,263
Issuance of common stock for settlement of the Long-Term Equity Incentive Program for Fiscal Year 2010			-				-				86,342				97,566				-				97,566
Retirement of common stock			-				-				(2,217	)			(2,261	)			-				(2,261	)
Net loss																			(6,457,067	)			(6,457,067	)
Balance, June 30, 2011			442,968				3,138,056				32,281,140				219,772,598				(196,785,123	)			26,125,531

See accompanying notes.

F-5

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USA Technologies, Inc.

Consolidated Statements of Shareholders’ Equity (Continued)

		Series A
		Convertible
		Preferred Stock								Common Stock								Accumulated
		Shares				Amount				Shares				Amount				Deficit				Total
Exercise of 4,550 warrants at $2.20 resulting in issuance of common stock			-				-				4,550				10,010				-				10,010
Cashless exercise of 2,767 warrants resulting in issuance of common stock			-				-				990				-				-				-
Issuance of fully-vested shares of common stock to employees and directors and vesting of shares under the 2010 Stock Incentive Plan			-				-				120,472				248,851				-				248,851
Issuance of fully-vested shares of common stock to employees and directors and vesting of shares under the 2011 Stock Incentive Plan			-				-				141,666				335,636				-				335,636
Vesting of shares under the 2012 Stock Incentive Plan			-				-				-				197,613				-				197,613
Retirement of common stock			-				-				(38,749	)			(51,381	)			-				(51,381	)
Net loss			-				-				-				-				(5,211,238	)			(5,211,238	)
Balance, June 30, 2012			442,968			$	3,138,056				32,510,069			$	220,513,327			$	(201,996,361	)		$	21,655,022

F-6

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USA Technologies, Inc.

Consolidated Statements of Cash Flows

		Year ended June 30
		2012				2011				2010
OPERATING ACTIVITIES:
Net loss		$	(5,211,238	)		$	(6,457,067	)		$	(11,571,495	)
Adjustments to reconcile net loss to net cash used in operating activities:
Charges incurred in connection with the vesting and issuance of common stock for employee and director compensation			782,100				302,471				87,354
Charges incurred in connection with the Long-term Equity Incentive Plan			-				54,395				43,171
Charges incurred (reduced) for change in fair value of warrants			(1,813,687	)			815,131				-
Loss on disposal of property and equipment			134,350				116,828				25,059
Depreciation, $1,940,179, $1,164,013, and $247,772, respectively, of which is allocated to cost of services			2,443,054				1,553,978				783,415
Amortization			997,900				1,034,400				1,034,400
Impairment of intangible asset			-				581,900				-
Bad debt expense (recovery)			(48,270	)			92,025				(506	)
Provision for deferred tax liability			12,599				-				-
Changes in operating assets and liabilities:
Accounts receivable			(758,952	)			321,677				(579,863	)
Finance receivables			(61,460	)			100,406				(247,241	)
Inventory			158,584				(36,361	)			(962,745	)
Prepaid expenses and other assets			431,276				115,756				337,672
Accounts payable			498,082				1,067,631				776,039
Accrued expenses			2,513,898				(571,397	)			432,840
Net cash provided by (used in) operating activities			78,236				(908,227	)			(9,841,900	)
INVESTING ACTIVITIES:
Purchase of property and equipment			(478,144	)			(291,390	)			(520,835	)
Purchase of property for rental program, net			(5,754,670	)			(4,263,302	)			(2,505,282	)
Net cash used in investing activities			(6,232,814	)			(4,554,692	)			(3,026,117	)

		Year ended June 30,
		2015				2014				2013
OPERATING ACTIVITIES:
Net income (loss)		$	(1,089,482	)		$	27,530,652			$	854,123
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Stock based compensation			715,762				529,041				502,907
(Gain) Loss on disposal of property and equipment			(17,357	)			4,245				(20,343	)
Non-cash interest and amortization of debt discount			-				2,095				53,867
Bad debt expense			1,099,528				134,176				68,615
Depreciation			5,731,356				5,463,985				3,837,174
Amortization			-				21,953				742,400
Change in fair value of warrant liabilities			393,144				(65,429	)			(267,928	)
Deferred income taxes, net			215,038				(27,301,266	)			27,646
Gain on sale of finance receivables			(52,178	)			-				-
Recognition of deferred gain from sale-leaseback transactions			(833,619	)			(9,522	)			-
Changes in operating assets and liabilities:
Accounts receivable			(2,517,493	)			(157,071	)			(247,358	)
Finance receivables			(4,113,898	)			52,531				17,729
Inventory			(1,930,857	)			370,104				716,470
Prepaid expenses and other current assets			(304,229	)			(190,783	)			503,937
Accounts payable			918,761				412,664				1,164,804
Accrued expenses			54,717				267,004				(1,915,091	)
Income taxes payable			33,065				21,021				-
Net cash provided by (used in) operating activities			(1,697,742	)			7,085,400				6,038,952
INVESTING ACTIVITIES:
Purchase of property and equipment			(60,309	)			(111,121	)			(107,351	)
Purchase of property for rental program			(1,641,993	)			(10,883,473	)			(9,092,394	)
Proceeds from sale of rental equipment under sale-leaseback transactions			4,993,879				2,995,095				-
Proceeds from sale of property and equipment			61,914				82,047				18,908
Net cash provided by (used in) investing activities			3,353,491				(7,917,452	)			(9,180,837	)
FINANCING ACTIVITIES:
Net proceeds (payments) from the issuance (retirement) of common stock and exercise of common stock warrants			(61,987	)			2,272,936				311,177
Excess tax benefits from share-based compensation			9,749				24,847				-
Proceeds (payments) from line of credit			(1,000,000	)			2,000,000				3,000,000
Repayment of long-term debt			(358,582	)			(374,411	)			(614,937	)
Proceeds from long-term debt			2,056,724				-				-
Net cash provided by financing activities			645,904				3,923,372				2,696,240
Net increase (decrease) in cash and cash equivalents			2,301,653				3,091,320				(445,645	)
Cash and cash equivalents at beginning of year			9,072,320				5,981,000				6,426,645
Cash at end of year		$	11,373,973			$	9,072,320			$	5,981,000
Supplemental disclosures of cash flow information:
Interest paid in cash		$	305,566			$	259,820			$	118,934
Depreciation expense allocated to cost of services		$	5,119,674			$	4,880,529			$	3,265,452
Reclass of rental program property to inventory, net		$	674,280			$	33,266			$	28,337
Prepaid items financed with debt		$	103,125			$	101,850			$	133,588
Prepaid interest from issuance of warrants for debt costs		$	-			$	-			$	55,962
Equipment and software acquired under capital lease		$	107,903			$	325,431			$	124,917
Disposal of property and equipment		$	842,204			$	709,638			$	98,928
Disposal of property and equipment under sale-leaseback transactions		$	3,873,275			$	1,918,920			$	-

See accompanying notes.

F-5

F-7

---

USA Technologies, Inc.

Consolidated Statements of Cash Flows (Continued)

		Year ended June 30
		2012				2011				2010
FINANCING ACTIVITIES:
Net proceeds from the issuance (payments for retirement) of common stock		$	(41,371	)		$	11,287,511			$	14,922,505
Payments for retirement of preferred stock			-				-				(598,464	)
Proceeds from the issuance of long-term debt			-				-				7,500
Repayment of long-term debt			(368,917	)			(437,405	)			(607,462	)
Net cash provided by (used in) financing activities			(410,288	)			10,850,106				13,724,079
Net increase (decrease) in cash and cash equivalents			(6,564,866	)			5,387,187				856,062
Cash and cash equivalents at beginning of year			12,991,511				7,604,324				6,748,262
Cash and cash equivalents at end of year		$	6,426,645			$	12,991,511			$	7,604,324
Supplemental disclosures of cash flow information:
Cash paid for interest		$	38,891			$	37,962			$	63,883
Equipment and software acquired under capital lease		$	495,955			$	-			$	17,337
Equipment and software financed with long-term debt		$	252,968			$	-			$	195,000
Conversion of convertible preferred stock to common stock		$	-			$	(10,620	)		$	-
Conversion of cumulative preferred dividends to common stock		$	-			$	(33,000	)		$	-
Prepaid insurance financed with long-term debt		$	95,263			$	94,311			$	-
Disposal of property and equipment		$	652,093			$	283,802			$	581,124
Fair value of warrants at issuance		$	-			$	1,917,122			$	-

See accompanying notes.

F-8

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

1. BUSINESS

USA Technologies, Inc. (the “Company”, “We”, “USAT”, or “Our”), was incorporated in the Commonwealth of Pennsylvania in January 1992, provides wireless networking, cashless transactions, asset monitoring1992. We are a provider of technology-enabled solutions and other value-added services principally tothat facilitate electronic payment transactions primarily within the unattended Point of Sale (“POS”) market. We are a leading provider in the small ticket, beverage and food vending industry and are expanding our solutions and services to other unattended retail markets. Our ePort® technology can be installed and/or embedded into everyday devicesmarket segments, such as vending machines, kiosks, as well asamusement, commercial laundry, kiosk and others. Since our eSuds™ technology for washerfounding, we have designed and dryers. Our associated network service, ePort Connect®, is a comprehensive servicemarketed systems and solutions that provides wireless connectivity that facilitatesfacilitate electronic payment options, as well as telemetry and machine-to-machine (“M2M”) services, includingwhich include the ability to remotely monitor, control, and report on the results of distributed assets containing our electronic payment solutions. In addition,Historically, these distributed assets have relied on cash for payment in the Company provides energy management products,form of coins or bills, whereas, our systems allow them to accept cashless payments such as its VendingMiser® and CoolerMiser™, which reduce energy consumption in vending machines and coolers.

The Company has incurred losses from its inception through June 30, 2012. Although the Company anticipates nearing profitability during the 2013 fiscal year, profitability is not assured. The Company’s ability to meet its future obligations is dependent upon the success of its products and services in the marketplace and the available capital resources. Until the Company’s products and services can generate sufficient annual revenues, the Company will be required to use its cash and cash equivalents on hand, and its line of credit (see Note 16); and, may raise capital to meet its cash flow requirements including the issuance of Common Stock and the exercise of outstanding Common Stock warrants.

or debit cards or other emerging contactless forms, such as mobile payment.

2. ACCOUNTING POLICIES

CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Stitch Networks Corporation (“Stitch”) and USAT Capital Corp LLC (“USAT Capital”).subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

RECLASSIFICATION

Certain amounts in prior period financial statements have been reclassified to conform to the current period presentation.

CASH EQUIVALENTS

Cash equivalents represent all highly liquid investments with original maturities of three months or less. Cash equivalents are comprised of money market funds.

The Company maintains its cash in bank deposit accounts, which may exceed federally insured limits at times.

Included in cash and cash equivalents at June 30, 2012 and 2011 was approximately $0 and $410,000, respectively, of cash received by the Company for transaction processing services which is payable to our customers. Included in accounts receivable are amounts for transactions processed with our card processers for which cash has not been received by the Company and included in accounts payable are amounts for transactions processed with our card processers and due to our customers, which are recorded net of fees due to the Company. Generally, contractual terms require us to remit amounts owed to our customers on a weekly basis.

ACCOUNTS RECEIVABLE

Accounts receivable are reported at their outstanding unpaid principal balances reduced by an allowance for doubtful accounts. The Company estimates doubtful accounts for accounts receivable and finance receivables based on historical bad debts, factors related to specific customers’ ability to pay and current economic trends. The Company writes off accounts receivable against the allowance when management determines the balance is uncollectible and the Company ceases collection efforts. Management believes that the allowance accruedrecorded is adequate to provide for its estimated credit losses.

F-9

---

USA Technologies, Inc.
Notes to Consolidated Financial Statements

2. ACCOUNTING POLICIES (CONTINUED)

FINANCE RECEIVABLES

The Company offers extended payment terms to certain customers for equipment sales. During the year ended June 30, 2010, the Company started offering customerssales under its Quick Start Program. In accordance with the Financial Accounting Standards Board Accounting Standards Codification® (“ASC”) Topic 840, “Leases”, agreements under the Quick Start Program qualify for sales-type lease accounting. Accordingly, the future minimum lease payments are classified as finance receivables in the Company’s consolidated balance sheets. Notes receivableFinance receivables or Quick Start leases are generally for a 36sixty month term. Finance receivables are carried at their contractual amount and charged off against the allowance for credit losses when management determines that recovery is unlikely and the Company ceases collection efforts. The Company recognizes a portion of the note or lease payments as interest income in the accompanying consolidated financial statements based on the effective interest rate method.

INVENTORY

Inventory consists of finished goods and packaging materials. The Company’s inventory is stated at the lower of cost (average cost basis) or market.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Property and equipment are depreciated on the straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized on the straight-line basis over the lesser of the estimated useful life of the asset or the respective lease term.

INTANGIBLE ASSETS

The company’s intangible assets include goodwill, trademarks and patents.

Goodwill represents the excess of cost over fair value of the net assets purchased in acquisitions. The Company accounts for goodwill in accordance with ASC 350, “Intangibles – Goodwill and Other”. Under ASC 350, goodwill is not amortized to earnings, but instead is subject to periodic testing for impairment. Testing for impairment is to be done at least annually and at other times if events or circumstances arise that indicate that impairment may have occurred. The Company has selected April 1 as its annual test date. The Company has concluded there has been no impairment of goodwill during the fiscal years ended June 30, 2015, 2014 and 2013, respectively.

F-6

USA Technologies, Inc.

Notes to Consolidated Financial Statements

2. ACCOUNTING POLICIES (CONTINUED)

The Company trademarks with an indefinite economic life are not being amortized. The trademarks, not subject to amortization, are related to the miser asset group and consist of the following trademarks: 1) VendingMiser, 2) CoolerMiser, 3) PlugMiser and 4) SnackMiser. The Company tests indefinite-life intangible assets for impairment using a two-step process. The first step screens for potential impairment, while the second step measures the amount of impairment. The Company uses a relief from royalty analysis to complete the first step in this process. Testing for impairment is to be done at least annually and at other times if events or circumstances arise that indicate that impairment may have occurred. The Company has selected April 1 as its annual test date for its indefinite-lived intangible assets. The Company has concluded there has been no impairment of trademarks during the fiscal years ended June 30, 2015, 2014 and 2013, respectively.

Patents and trademarks, with an estimated economic life, are carried at cost less accumulated amortization, which is calculated on a straight-line basis over their estimated economic life. Intangible assets with an estimated economic life were fully amortized as of June 30, 2014.

LONG LIVED ASSETS

In accordance with ASC 360, “Impairment or Disposal of Long-Lived Assets”, the Company reviews its definite lived long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the carrying amount of an asset or group of assets exceeds its net realizable value, the asset will be written down to its fair value. In the period when the plan of sale criteria of ASC 360 are met, definite lived long-lived assets are reported as held for sale, depreciation and amortization cease, and the assets are reported at the lower of carrying value or fair value less costs to sell. The Company has concluded that the carrying amount of definite lived long-lived assets is recoverable as of June 30, 2015 and June 30, 2014.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and Disclosures (“Topic 820”): Improving Disclosures about Fair Value Measurements.” ASU 2009-062010-06 amends certain disclosure requirements of Subtopic 820-10. This ASU provides additional disclosures for transfers in and out of Levels 1 and 2 and for activity in Level 3. This ASU also clarifies certain other existing disclosure requirements including level of desegregation and disclosures around inputs and valuation techniques.

The Company’s financial assets and liabilities are measured usingaccounted for in accordance with ASC 820 “Fair Value Measurement.” Under ASC 820 the Company uses inputs from the three levels of the fair value hierarchy.hierarchy to measure its financial assets and liabilities. The three levels are as follows:

Level 1- Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2- Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3- Inputs are unobservable and reflect the Company’s assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available.

The Company’s financial instruments, principally cash equivalents, accounts receivable, short-term finance receivables, prepaid expenses and other assets, accounts payable and accrued expenses, are carried at cost which approximates fair value due to the short-term maturity of these instruments. The fair value of the Company’s obligations under its long-term debt and credit agreements and the long-term portion of its finance receivables approximates their carrying value as such instruments are at market rates currently available to the Company.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Property and equipment are depreciated on the straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized on the straight-line basis over the lesser of the estimated useful life of the asset or the respective lease term.

F-10

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USA Technologies, Inc.
Notes to Consolidated Financial Statements

2. ACCOUNTING POLICIES (CONTINUED)

GOODWILL AND INTANGIBLE ASSETS

Goodwill represents the excess of cost over fair value of the net assets purchased in acquisitions. The Company accounts for goodwill in accordance with ASC 350, “Intangibles – Goodwill and Other”. Under ASC 350, goodwill is not amortized to earnings, but instead is subject to periodic testing for impairment. The Company tests goodwill for impairment using a two-step process. The first step screens for potential impairment, while the second step measures the amount of impairment. The Company uses a discounted cash flow analysis to complete the first step in this process. We also give consideration to our market capitalization. Testing for impairment is to be done at least annually and at other times if events or circumstances arise that indicate that impairment may have occurred. The Company has selected April 1 as its annual test date. The Company has concluded there has been no impairment of goodwill as a result of its testing on April 1, 2012, April 1, 2011, and April 1, 2010.

The Company trademarks with an indefinite economic life are not being amortized. The trademarks, not subject to amortization, are related to the miser asset group and consist of the following trademarks: 1) VendingMiser, 2) CoolerMiser, 3) PlugMiser and 4) SnackMiser. The Company tests indefinite-lived intangible assets for impairment using a two-step process. The first step screens for potential impairment, while the second step measures the amount of impairment. The Company uses a discounted cash flow analysis to complete the first step in this process. Testing for impairment is to be done at least annually and at other times if events or circumstances arise that indicate that impairment may have occurred. The Company has selected April 1 as its annual test date for its indefinite-lived intangible assets. There was no impairment expenses recorded during the fiscal years ended June 30, 2012 and 2010. In fiscal 2011 the Company concluded there was an impairment of its indefinite-lived trademarks as a result of its testing and recorded a $581,900 impairment expense in the fourth quarter of the fiscal year ended June 30, 2011 (see Note 5).

Patents and trademarks, with an estimated economic life, are carried at cost less accumulated amortization, which is calculated on a straight-line basis over their estimated economic life. The Company reviews intangibles, subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset is considered to be impaired when the sum of the undiscounted future net cash flows resulting from the use of the asset and its eventual disposition is less than its carrying amount. The amount of the impairment loss, if any, is measured as the difference between the net book value of the asset and its estimated fair value. Other than the impairment charge recorded in fiscal 2011 described above, as of June 30, 2012 and 2011, the Company has concluded there has been no impairment of its other patents or trademarks that is subject to amortization.

IMPAIRMENT OF LONG LIVED ASSETS

In accordance with ASC 360, “Impairment or Disposal of Long-Lived Assets”, the Company reviews its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the carrying amount of an asset or group of assets exceeds its net realizable value, the asset will be written down to its fair value. In the period when the plan of sale criteria of ASC 360 are met, long-lived assets are reported as held for sale, depreciation and amortization cease, and the assets are reported at the lower of carrying value or fair value less costs to sell. The Company has concluded that the carrying amount of long-lived assets is recoverable as of June 30, 2012 and 2011.

CONCENTRATION OF CREDIT RISK

S 

Financial instruments that subject the Company to a concentration of credit risk consist principally of cash and cash equivalents and accounts and finance receivables. The Company maintains cash and cash equivalents with various financial institutions.institutions where accounts may exceed federally insured limits at times. Approximately 46%35% and 22% of the Company’s trade accounts and finance receivables at June 30, 20122015 and 2011,2014, respectively, were concentrated with twoone customer.

Concentration of revenues with customers subject the Company to operating risks. Approximately 21%, 26% and one customer(s), respectively. Approximately 43%, 48%, and 52%26% of the Company’s license and transaction processing revenues for the years ended June 30, 2012, 2011,2015, 2014 and 2010,2013, respectively, were concentrated with two customers - 25%, 23%, and 17%, respectively, with one; and 18%, 25%, and 35%, respectively, with another. There was no concentration of equipment sales revenueone customer. Additionally for the year ended June 30, 20122013, approximately 11% of the license and 2011. Fortransaction processing fees were with another customer. There was a 17% concentration of equipment sales revenue with one customer for the year ended June 30, 2010, approximately 11% of2015 with no concentrations for the Company’s equipment sales revenue was concentrated with one customer.years ended June 30, 2014 and 2013. The Company’s customers are principally located in the United States.

F-11

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USA Technologies, Inc.
Notes to Consolidated Financial Statements

2. ACCOUNTING POLICIES (CONTINUED)

REVENUE RECOGNITION

Revenue from the sale or QuickStart lease of equipment is recognized on the terms of freight-on-board shipping point. Activation fee revenue, if applicable, is recognized when the Company’s cashless payment device is initially activated for use on the Company network. Transaction processing revenue is recognized upon the usage of the Company’s cashless payment and control network. License fees for access to the Company’s devices and network services are recognized on a monthly basis. In all cases, revenue is only recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed and determinable, and collection of the resulting receivable is reasonably assured. The Company estimates an allowance for product returns at the date of sale.

EQUIPMENT RENTAL

Duringsale and license and transaction fee refunds on a monthly basis.

ePort hardware is available to customers under the year ended June 30, 2010,QuickStart program pursuant to which the customer would enter into a five-year non-cancelable lease with either the Company commencedor a third-party leasing company for the devices. At the end of the lease period, the customer would have the option to purchase the device for a nominal fee.

EQUIPMENT RENTAL

The Company offers its customers a rental program the JumpStart Program (“JumpStart”), for its ePort devices. Thedevices, the JumpStart program (“JumpStart”). JumpStart terms are typically 36 months and are cancellable with thirty to sixty daysdays’ written notice. In accordance with ASC 840, “Leases”, the Company classifies the rental agreements as operating leases. For the years ended June 30, 2012, 2011, and 2010, there was approximately $607,000, $597,000, and $369,000, respectively, of activation fee revenue related to JumpStart equipment included in equipment sales in the Consolidated Statements of Operations. There was also approximately $6,099,000, $2,725,000, and 433,000 ofleases, with service fee revenue related to JumpStart equipmentthe leases included in license and transaction fees in the Consolidated Statements of Operations for the years ended June 30, 2012, 2011, and 2010, respectively.Operations. Cost for the JumpStart revenues, which consists of depreciation expense on the JumpStart equipment, approximated $1,740,000, $933,000, and 105,000 for the years ended June 30, 2012, 2011, and 2010, respectively, and wereis included in cost of services in the Consolidated Statements of Operations. At June 30, 2012 and 2011, $9,793,000 and $5,735,000 of ePort equipment utilized by the JumpStart Program wasprogram is included in property and equipment, net on the consolidated balance sheet (see Note 4).Consolidated Balance Sheet.

F-7

USA Technologies, Inc.

Notes to Consolidated Financial Statements

2. ACCOUNTING POLICIES (CONTINUED)

WARRANTY COSTS

The Company generally warrants its products for one to three years. Warranty costs are estimated and recorded at the time of sale based on historical warranty experience, if available. These costs are reviewed and adjusted, if necessary, periodically throughout the year.

SHIPPING AND HANDLING

Shipping and handling fees billed to our customers in connection with sales are recorded as revenue. The costs incurred for shipping and handling of our product are recorded as cost of sales.

equipment.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses are expensed as incurred. Research and development expenses, which are included in selling, general and administrative expenses in the consolidated statementsConsolidated Statements of operations,Operations, were approximately $1,768,000, $997,000,$1,457,000, $1,018,000 and $1,864,000,$901,000, for the years ended June 30, 2012, 2011,2015, 2014, and 2010,2013, respectively. Our research and development initiatives focus on adding features and functionality to our system solutions through the development and utilization of our processing and reporting network and new technology.

F-12

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USA Technologies, Inc.
Notes to Consolidated Financial Statements

2. ACCOUNTING POLICIES (CONTINUED)

ACCOUNTING FOR EQUITY AWARDS

In accordance with ASC 718 the cost of employee services received in exchange for an award of equity instruments is based on the grant-date fair value of the award and allocated over the vestingrequisite service period of the award.

The Company recorded stock compensation expense of $584,487, $302,471, and $87,354 related to common stock grants and vesting of shares previously granted to employees and directors during the years ended June 30, 2012, 2011, and 2010, respectively. These expenses exclude the Fiscal Year 2012 Performance Share Plan (the “2012 Plan”) and the Long-Term Equity Incentive Program (“LTIP” or the “LTIP Program”) covering the Company’s executive officers.

On September 15, 2011, at the recommendation of the Compensation Committee, the board of directors adopted the “2012 Plan”. The Company recorded expense of $197,613 for the year ended June 30, 2012 for the award earned by Company’s executive officers under the 2012 Plan. The Company recorded stock compensation expense of $54,395 and $43,171 related to the vesting of shares and the change in fair value of the of shares awarded under the LTIP Program during the years ended June 30, 2011 and 2010, respectively (see Note 11), the last years of the LTIP Program.

There were no common stock options granted, vested or recorded as expense during the years ended June 30, 2012, 2011 and 2010. During the 2012 fiscal year, 42,333 and 3,000 common stock options, with exercise prices of $7.50 and $8.00, respectively, expired unexercised.

INCOME TAXES

The Company follows the provisions of FASB ASC 740, Accounting for Uncertainty in Income Taxes,whichprovides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized upon the adoption of ASC 740 and in subsequent periods. Upon the adoption of ASC 740, the Company had no unrecognized tax benefits. No liabilities have been recorded for uncertain tax positions.

Income taxes are computed using the asset and liability method of accounting. Under the asset and liability method, a deferred tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carryforwards. The measurement of deferred income tax assets is adjusted by a valuation allowance, if necessary, to recognize future tax benefits only to the extent, based on available evidence, it is more likely than not such benefits will be realized. The Company recognizes interest and penalties, if any, related to uncertain tax positions in selling, general and administrative expenses. No interest andor penalties related to uncertain tax positions were accrued or incurred during the years ended June 30, 2012, 2011,2015, 2014, and 2010.

2013.

The Company files income tax returns in the United States federal jurisdiction and various state jurisdictions. The tax years ended June 30, 20092012 through June 30, 2012 remains2015 remain open to examination by taxing jurisdictions to which the Company areis subject. As of June 30, 2012,2015, the Company did not have any income tax examinations in process.

LOSS

EARNINGS (LOSS) PER COMMON SHARE

Basic earnings (loss) per share are calculated by dividing net income (loss) applicable to common shares by the weighted average common shares outstanding for the period. Diluted earnings (loss) per share isare calculated by dividing net income (loss) applicable to common shares by the weighted average common shares outstanding for the yearperiod plus the effectdilutive effects of potential common shares (approximately 8,106,040, 15,673,000, and 13,787,000 shares asstock equivalents unless the effects of such common stock equivalents is anti-dilutive. For the years ended June 30, 2012, 2011,2015 and 2010, respectively) unless such2014 no effect isfor common stock equivalents was considered in the calculation of diluted earnings (loss) per share because their effect was anti-dilutive. No exercise of stock options (45,333); or stock purchase warrants (8,045,619); orFor the conversion of preferred stock (4,430) or cumulative preferred dividends (10,932) was assumed during the fiscal year ended June 30, 2012 because2013 the result would be anti-dilutive. No exercisedilutive effect for 825,673 shares of common stock options (90,666); or stock purchase warrants (15,567,199); orequivalents was considered in the conversioncalculation of preferred stock (4,430) or cumulative preferred dividends (10,267) was assumed duringdiluted earnings (loss) per share.

COMPREHENSIVE INCOME

ASC 220, “Comprehensive Income”, prescribes the fiscal yearreporting required for comprehensive income and items of other comprehensive income. Entities having no items of other comprehensive income are not required to report on comprehensive income. The Company has no items of other comprehensive income for its years ended June 30, 2011 because the result would be anti-dilutive. No exercise of stock options (160,000)2015, 2014 or stock purchase warrants (13,526,748); or the conversion of preferred stock (4,445) or cumulative preferred dividends (9,635); or the issuance of shares granted under LTIP (86,342) was assumed during the fiscal year ended June 30, 2010 because the result would be anti-dilutive.

F-13

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USA Technologies, Inc.
Notes to Consolidated Financial Statements

2. ACCOUNTING POLICIES (CONTINUED)

2013.

RECENT ACCOUNTING PRONOUCEMENTS

The Company does not believe thatis evaluating whether the effects of the following recent accounting pronouncements or any other recently issued, but not yet effective accounting standards, will have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

In September 2011,May 2014, the Financial Accounting Standards Board issued ASU 2011-08 Intangibles—Goodwill and Other2014-09 Revenue from Contracts with Customers (Topic 350): Testing Goodwill for Impairment.606). This pronouncement will be effective for the Company beginning with the fiscal year ending June 30, 2013.

2019.

In December 2011,June 2014, the Financial Accounting Standards Board issued ASU 2011-11 Balance Sheet2014-12 Compensation- Stock Compensation (Topic 210): Disclosures about Offsetting Assets and Liabilities.718); Accounting for share-based payments when the terms of the award provide that a performance target could be achieved after the requisite service period. This pronouncement will be effective for the Company beginning with the fiscal year ending June 30, 2014.

2017.

In December 2011,August 2014, the Financial Accounting Standards Board issued ASU 2011-12 Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the2014-15 Presentation of ReclassificationsFinancial Statements- Going Concern (Subtopic 205-40): Disclosure of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.uncertainties about an entity’s ability to continue as a going concern. This pronouncement will be effective for the Company beginning with the fiscal year ending June 30, 2013.

2018.

In July 2012,April 2015, the Financial Accounting Standards Board issued ASU 2012-02 Intangibles—Goodwill and Other (Topic 350)2015-03 Interest- Imputation of Interest (Subtopic 835-30): Testing Indefinite-Lived Intangible Assets for Impairment.Simplifying the presentation of debt issuance costs. This pronouncement will be effective for the Company beginning with the fiscal year ending June 30, 2013.
2017.

In July 2015, the Financial Accounting Standards Board issued ASU 2015-11 Inventory (Topic 330): Simplifying the measurement of inventory. This pronouncement will be effective for the Company beginning with the year ending June 30, 2018.

RECLASSIFICATION

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.

F-8

USA Technologies, Inc.

Notes to Consolidated Financial Statements

3. FINANCE RECEIVABLES

Finance Receivables consist of the following:

		June 30,
		2012				2011
Total finance receivables		$	542,847			$	481,387
Less current portion			206,649				285,786
Non-current portion of finance receivables		$	336,198			$	195,601

		June 30,				June 30,
		2015				2014
Total finance receivables		$	4,638,663			$	472,587
Less current portion			941,150				119,793
Non-current portion of finance receivables		$	3,697,513			$	352,794

As of June 30, 20122015 and 2011,2014, there was no allowance for credit losses of finance receivables. As the Company collects monthly payments

Credit quality indicators consist of the receivables from the customers’ transaction funds the risk of loss was determined to be remote.following:

Credit risk profile based on payment activity:
		June 30, 2015				June 30, 2014
Performing		$	4,618,458			$	472,587
Nonperforming			20,205				-
Total		$	4,638,663			$	472,587

Age Analysis of Past Due Finance Receivables
As of June 30,
		31 – 60				61 – 90				Greater than												Total
		Days Past Due				Days Past Due				90 Days Past Due				Total Past Due				Current				Finance Receivables
QuickStart Leases - 2015		$	-			$	15,574			$	4,630			$	20,205			$	4,618,458			$	4,638,663
QuickStart Leases - 2014		$	-			$	909			$	378			$	1,287			$	471,300			$	472,587

F-9

Credit Quality Indicators
As of June 30, 2012

Credit risk profile based on payment activity:
		Leases
Performing		$	542,847
Nonperforming			-
Total		$	542,847

F-14

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USA Technologies, Inc.
Notes to Consolidated Financial Statements

3. FINANCE RECEIVABLES (CONTINUED)

Age Analysis of Past Due Finance Receivables
As of June 30, 2012

		31 – 60 Days Past Due				61 – 90 Days Past Due				Greater than 90 Days Past Due				Total Past Due				Current				Total Finance Receivables
Leases			-				2,057				18,855				20,912			$	521,935			$	542,847
Total		$	-			$	2,057			$	18,855			$	20,912			$	521,935			$	542,847

Age Analysis of Past Due Finance Receivables
As of June 30, 2011

		31 – 60 Days Past Due				61 – 90 Days Past Due				Greater than 90 Days Past Due				Total Past Due				Current				Total Finance Receivables
Leases			-				-				-				-			$	481,387			$	481,387
Total		$	-			$	-			$	-			$	-			$	481,387			$	481,387

4. PROPERTY AND EQUIPMENT

Property and equipment, at cost, consist of the following:

			Useful		June 30,
			Lives		2012				2011
Computer equipment and purchased software			3-7 years		$	4,682,276			$	4,335,163
Property and equipment used for Rental Program			5 years			12,523,254				6,768,584
Furniture and equipment			3-7 years			805,077				785,960
Leasehold improvements			Lesser of life or lease term			465,587				271,759
Vehicles			5 years			-				29,066
						18,476,194				12,190,532
Less accumulated depreciation						(6,676,086	)			(4,794,757	)
					$	11,800,108			$	7,395,775

		Useful		June 30, 2015
		Lives		Cost				Accumulated Depreciation				Net
Computer equipment and purchased software		3-7 years		$	4,669,485			$	(4,016,635	)		$	652,850
Property and equipment used for rental program		5 years			26,469,057				(14,475,816	)		$	11,993,241
Furniture and equipment		3-7 years			723,047				(571,933	)		$	151,114
Leasehold improvements		Lesser of life or lease term			575,343				(503,740	)		$	71,603
				$	32,436,932			$	(19,568,124	)		$	12,868,808
		Useful		June 30, 2014
		Lives		Cost				Accumulated Depreciation				Net
Computer equipment and purchased software		3-7 years		$	4,581,001			$	(3,612,551	)		$	968,450
Property and equipment used for rental program		5 years			30,348,918				(10,524,701	)		$	19,824,217
Furniture and equipment		3-7 years			681,717				(498,995	)		$	182,722
Leasehold improvements		Lesser of life or lease term			575,343				(412,152	)		$	163,191
				$	36,186,979			$	(15,048,399	)		$	21,138,580
				2015				2014				2013
Depreciation expense				$	5,694,452			$	5,459,064			$	3,837,174

Assets under capital leaseleases totaled approximately $1,863,000$2,139,000 and $1,459,000$2,031,000 as of June 30, 20122015 and 2011,2014, respectively. Capital lease amortization of approximately $189,000, $277,000,$349,000, $305,000 and $263,000,$265,000, is included in depreciation expense for the years ended June 30, 2012, 2011,2015, 2014, and 2010,2013, respectively.

F-10

ePort equipment utilized by the JumpStart Program is identified as Property and equipment used for Rental Program in the above table. Accumulated depreciation attributable to the Property and equipment used for Rental Program is approximately $2,731,000 and $1,034,000 as of June 30, 2012 and 2011, respectively and is included in accumulated depreciation for the respective years in the above table.

F-15

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

5. INTANGIBLE ASSETS

Amortization expense relating to all acquired intangible assets was approximately $998,000, $1,034,000,$0, $22,000 and $1,034,000$742,000 during each of the years ended June 30, 2012, 2011,2015, 2014, and 2010,2013, respectively. The intangibleIntangible asset balance and related accumulated amortizationbalances consisted of the following:

		June 30, 2012
		Gross
		Carrying			Accumulated				Net Carrying
		Amount			Amortization					Value
Intangible assets:
Trademarks		$	1,482,100			$	(1,050,000	)		$	432,100
Patents			9,294,000				(8,529,647	)			764,353
Total		$	10,776,100			$	(9,579,647	)		$	1,196,453

		June 30, 2011
		Gross
		Carrying			Accumulated				Net Carrying
		Amount			Amortization					Value
Intangible assets:
Trademarks		$	1,482,100			$	(949,375	)		$	532,725
Patents			9,294,000				(7,632,372	)			1,661,628
Total		$	10,776,100			$	(8,581,747	)		$	2,194,353

The Company’s test for impairment of its indefinite-lived trademarks consists of the trademarks: 1) VendingMiser, 2) CoolerMiser, 3) PlugMiser and 4) SnackMiser. As a result of its testing in fiscal years ended June 30, 2012 and 2010 the Company determined that no impairment had occurred. In the testing in fiscal year 2011, the Company determined that the sum of the expected discounted cash flows attributable to the trademarks was less than its carrying value of $1,014,000, and that an impairment write-down was required. The primary driver behind the decrease in the value was a decrease in the revenue expectations for the trademarks from the time the trademarks were acquired in July 2003 to when the impairment assessment was prepared. Accordingly, in fiscal year 2011, the Company performed a valuation of the trademark’s fair value with the assistance of an independent valuation specialist. The fair value of the trademarks was determined by a method known as “relief from royalty”, in which the fair value is determined by reference to the amount of royalty income the intangible would generate if it were licensed in an arm’s-length transaction. The essential assumptions in a valuation via an income approach are as follows:

●

The related dollar sales volume;

●

The percentage royalty on sales;

●

The adjustment for taxes;

●

The remaining useful economic life;

●

The percentage return on investment; and,

●

The tax amortization benefit.

During the fourth quarter of the fiscal year ended June 30, 2011, the fair value of the trademarks was determined to be $432,100. This assessment resulted in an impairment write-down during the fourth fiscal quarter of $581,900, which is included in “Impairment of intangible asset” in the Consolidated Statement of Operations for the fiscal year ended June 30, 2011.

The trademark described above, is not related to the Company’s core operations consisting of its ePort wireless, cashless products and services.

F-16

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

5. INTANGIBLE ASSETS (CONTINUED)

At June 30, 2012, the expected amortization of the intangible assets is as follows: approximately $764,000 in fiscal year 2013 and $0 in fiscal year 2014. The weighted average useful life of these amortized intangible assets is 1.0 years at June 30, 2012. At June 30, 2012 and 2011, $432,100 and $432,100, respectively of trademarks has an indefinite life and is included in the intangible assets tables above.

		Beginning				Year ended June 30, 2015								Ending
		Balance				Additions/								Balance				Amortization
		July 1, 2014				Adjustments				Amortization				June 30, 2015				Period
Intangible assets:
Goodwill		$	7,663,208			$	-			$	-			$	7,663,208				Indefinite
Trademarks - Indefinite			432,100				-				-				432,100				Indefinite
Trademarks - Amortizable			-				-				-				-				10 years
Patents			-				-				-				-				10 years
Total		$	8,095,308			$	-			$	-			$	8,095,308
		Beginning				Year ended June 30, 2014								Ending
		Balance				Additions/								Balance				Amortization
		July 1, 2013				Adjustments				Amortization				June 30, 2014				Period
Intangible assets:
Goodwill		$	7,663,208			$	-			$	-			$	7,663,208				Indefinite
Trademarks - Indefinite			432,100				-				-				432,100				Indefinite
Trademarks - Amortizable			21,953				-				(21,953	)			-				10 years
Patents			-				-				-				-				10 years
Total		$	8,117,261			$	-			$	(21,953	)		$	8,095,308

6. ACCRUED EXPENSES

Accrued expenses consist of the following:

		June 30,				June 30,
		2015				2014
Accrued compensation and related sales commissions		$	672,628			$	545,110
Accrued professional fees			301,150				214,615
Accrued taxes and filing fees			505,300				640,958
Advanced customer billings			390,023				370,040
Accrued rent			74,601				155,712
Accrued other			212,988				175,538
			2,156,690				2,101,973
Less current portion			(2,107,530	)			(1,915,799	)
		$	49,160			$	186,174

F-11

		June 30,
		2012				2011
Accrued compensation and related sales commissions		$	767,926			$	269,335
Accrued professional fees			482,664				197,964
Accrued taxes and filing fees			663,078				302,147
Advanced customer billings			311,767				100,398
Accrued Proxy costs			992,520				-
Accrued rent			278,862				114,511
Accrued other			271,880				270,444
		$	3,768,697			$	1,254,799

7. LONG-TERM DEBT

Long-term debt consists of the following:

		June 30,
		2012				2011
Capital lease obligations		$	426,007			$	84,043
Loan agreement			302,323				169,018
			728,330				253,061
Less current portion			466,056				155,428
		$	262,274			$	97,633

The maturities of long-term debt as of June 30, 2012 are as follows:

2013		$	466,055
2014			209,476
2015			52,799
		$	728,330

During March 2007, the Company entered into a capital lease agreement in connection with office equipment for approximately $146,000, due in sixty equal monthly payments of $2,965 through March 2012.

During May 2007, the Company entered into a capital lease agreement in connection with office equipment for approximately $305,000, due in 36 equal monthly payments of $9,456 through April 2010.

F-17

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

7. LONG-TERM DEBT (CONTINUED)

DuringLINE OF CREDIT

On July 2007, the Company entered into loan agreements for $239,740 with a financial institution bearing interest at 12% collateralized by $274,494 of the Finance Receivables. The Company agreed to make 32 monthly payments of $9,104, which include interest and principal, from the proceeds received from the Finance Receivables.

During November 2007, the Company entered into a long-term debt agreement for $93,000 with a financial institution bearing interest at 8.25%, collateralized by the assets of the Company, which requires 84 monthly payments of $1,467, including interest and principal. This loan was satisfied in June 2012.

During February, March, and April 2008, the Company entered into various capital leases for network equipment totaling approximately $199,000, due in 36 monthly installments at interest rates from 3.78% to 12.35%.

During November 2008, the Company entered into various capital leases for network equipment and maintenance contracts on the equipment totaling $462,041, due in 24 to 36 monthly installments at interest rates from 3.75% to 12.35%.

During May 2009, the Company financed a software license agreement totaling approximately $56,000, due in four quarterly installments, at an interest rate of 9%.

During July 2009, the Company financed a portion of the premiums for various insurance policies totaling $85,991 due in nine monthly installments at an interest rate of 5.1%. In the same month, the Company also entered into a capital lease for office equipment totaling $24,836, due in 46 monthly installments of $677.

During March 2010, the Company financed the purchase of computer equipment totaling $195,000 due in 36 monthly installments at an interest rate of 4.95%. An amount of restricted cash equal to the outstanding principal balance of the loan serves as security for this loan. Accordingly, $51,492 of restricted cash is classified with current other assets on the Consolidated Balance Sheet at June 30, 2012 and $65,754 and $51,492 of restricted cash is classified as current and non-current other assets, respectively, on the Consolidated Balance Sheet at June 30, 2011.

During May 2010, the company financed software licenses totaling $77,730, due in twelve monthly installments at an interest rate of 3.3%.

During July 2010, the Company financed a portion of the premiums for various insurance policies totaling $94,331 due in nine monthly installments at an interest rate of 4.93%. During July 2011, the Company financed a portion of the premiums for various insurance policies totaling $90,372 due in nine equal monthly payments at an interest rate of 5.57%.

During August 2011, the Company entered into a capital lease for network equipment totaling approximately $496,000, due in 36 monthly payments of $14,145 through August 2014.

During November 2011, the Company financed computer equipment for network equipment totaling approximately $46,000, due in twelve equal quarterly installment payments at an interest rate of 6.47%.

During April10, 2012, the Company entered into a Loan and Security Agreement and other ancillary documents (the “Loan Agreement”) with a commercial bank (the “Bank”), which, as amended, provides for a secured line of credit of up to $7 million, secured by substantially all of the Company’s assets, until August 17, 2017. The outstanding balance of the amounts advanced under the line of credit will bear interest at 2% above the prime rate as published in The Wall Street Journal or 5% whichever is higher.

The Loan Agreement contains customary affirmative and negative covenants, including achieving a minimum Adjusted EBITDA and minimum liquidity, and customary events of default. During the period of the Line of Credit, the Company has obtained waivers from the Bank for failure to satisfy certain covenants. As of June 30, 2015, the Company was in violation a covenant of the Loan Agreement which was subsequently waived by the Bank on July 31, 2015.

In connection with the Bank extending the Line of Credit, in January 2013, the Company issued to the Bank warrants to purchase up to 45,000 shares of common stock of the Company at any time prior to December 31, 2017 at an exercise price of $2.10 per share. The fair value of the warrants of $55,962 was amortized as interest expense in the years ended June 30, 2014 and 2013 of $2,095 and $53,867, respectively.

		As of or Twelve Months Ended
		June 30,
		2015				2014
Balance at period-end		$	4,000,000			$	5,000,000
Maximum amount outstanding at any month end		$	5,000,000			$	5,000,000
Average balance outstanding during the period		$	4,077,000			$	4,154,000
Weighted-average interest rate:
As of the period-end			5.25	%			5.25	%
Paid during the period			5.25	%			5.25	%

Interest expense on the line of credit was approximately $211,000, $221,000 and $84,000 during each of the years ended June 30, 2015, 2014 and 2013, respectively.

8. LONG-TERM DEBT

CAPITAL LEASES

The company periodically enters into capital lease forobligations to finance certain office and network equipment totalingfor use in its daily operations. During the 12 month periods ended June 30, 2015, 2014, and 2013, the company entered into capital lease obligations of $108,000, $325,000 and $108,000, respectively. The interest rates on these obligations range from 4.89% to 13.88%. The value of the acquired equipment is included in property and equipment and depreciated accordingly.

The balances of the capital lease obligations as of June 30, 2015 and 2014 and the related future obligations are shown in the table below.

OTHER LOAN AGREEMENTS

The company periodically enters into other loan agreements to finance the purchase of various assets as needed, including computer equipment, insurance premiums, network equipment and software for use in its daily operations. During the twelve-month periods ended June 30, 2015, 2014 and 2013, the company entered into capital lease obligations of $108,000, $325,000, and $108,000, respectively. The interest rates on these obligations range from approximately $62,000, due4.9% to 13.9%. The value of these financed assets acquired is included in 36 monthly paymentsproperty and equipment or other assets and depreciated accordingly.

The balances of $1,785 throughthe other loan agreements as of June 30, 2015 and 2014 and the related future obligations is shown in the table below.

ASSIGNMENT OF QUICKSTART LEASES

In February 2015.

During June 2012,2015 and May 2015, the Company financed software licenses totaling approximately $212,000, dueassigned its interest in four equal quarterly installment payments at an interestcertain finance receivables (various 60 month QuickStart leases) to a third party finance company in exchange for cash and the assumption of financing obligations in the aggregate of $1,752,717 and $304,008, respectively. The assignment transaction contains recourse provisions for the Company which requires the proceeds from the assignment to be treated as long-term debt. The financing obligations range in rate of 11.09%from 9.41% to 9.45%.

F-12

F-18

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

8. LONG-TERM DEBT (CONTINUED)

The balance of the financing obligations is shown in the table below.

		June 30,				June 30,
		2015				2014
Capital lease obligations		$	337,597			$	414,525
Other loan agreements			-				8,251
Lease financing obligations			1,994,349				-
			2,331,946				422,776
Less current portion			477,522				172,911
		$	1,854,424			$	249,865

The maturities of long-term debt for each of the fiscal years following June 30, 2015 are as follows:

2016		$	477,522
2017			502,749
2018			488,929
2019			486,928
2020			371,237
Thereafter			4,581
		$	2,331,946

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with the fair value hierarchy described in Note 2, the following table shows the fair value of the Company’s financial instruments that are required to be measured at fair value as of June 30, 20122015 and 2011:

June 30, 2012		Level 1				Level 2				Level 3				Total
Cash equivalents		$	141,107		$	-				$	-			$	141,107
Common stock warrant liability, warrants exercisable at $2.6058 from September 18, 2011 through September 18, 2016		$	-		$	-				$	917,440			$	917,440
Common stock warrant liability, warrants exercisable at $5.90 through September 14, 2013		$	-		$	-				$	1,126			$	1,126
June 30, 2011		Level 1				Level 2				Level 3				Total
Cash equivalents		$	83,267			$	-			$	-			$	83,267
Common stock warrant liability, warrants exercisable at $2.6058 from September 18, 2011 through September 18, 2016		$	-			$	-			$	2,638,629			$	2,638,629
Common stock warrant liability, warrants exercisable at $5.90 through September 14, 2013		$	-			$	-			$	93,624			$	93,624

As of June 30, 2012 and 2011, the fair values of the Company’s Level 1 financial instruments were $141,107 and $83,267, respectively. These financial instruments consist of cash equivalents, including certificates of deposit and money market accounts. As of June 30, 2012 and 2011, the Company held no Level 2 financial instruments.

As of June 30, 2012 and 2011, the fair values of the Company’s Level 3 financial instruments totaled $918,566 and $2,732,253, respectively. 2014:

June 30, 2015		Level 1				Level 2				Level 3				Total
Common stock warrant liability, warrants exercisable at $2.6058 from September 18, 2011 through September 18, 2016		$	-			$	-			$	978,353			$	978,353
June 30, 2014		Level 1				Level 2				Level 3				Total
Common stock warrant liability, warrants exercisable at $2.6058 from September 18, 2011 through September 18, 2016		$	-			$	-			$	585,209			$	585,209

The Level 3 financial instruments consistinstrument consists of common stock warrants issued by the Company in March 2011 and March 2007, which include features requiring liability treatment of the warrants. The fair value of warrants issued in March 2011 (see Notes 11 and 12)Note 13) to purchase 3.9 million shares of the Company’s common stock is based on valuations performed by an independent third party valuation firm. The fair value was determined using proprietary valuation models using the quality of the underlying securities of the warrants, restrictions on the warrants and security underlying the warrants, time restrictions and precedent sale transactions completed in the secondary market or in other private transactions. The fair value of warrants issued in March 2007 to purchase 903,955 shares of the Company’s common stock was estimated by the Company to be $1,126 using the Black-Scholes with the following assumptions: dividend yield of 0%, expected stock price volatility of 0.82, risk free interest rate of 0.21, and an expected life of 1.2 years. Prior to March 31, 2011, the fair value of these warrants was determined to be de minimus and was not included on the Company’s consolidated balance sheets. There were no transfers of assets or liabilities between level 1, level 2, or level 3 during the years ended June 30, 20122015 and 2011.

2014.

The following table summarizes the changes in fair value of the Company’s Level 3 financial instruments for the yearyears ended:

		June 30,
		2015				2014
Beginning balance		$	(585,209	)		$	(650,638	)
Gain (loss) due to change in fair value of warrant liabilities, net			(393,144	)			65,429
Ending balance		$	(978,353	)		$	(585,209	)

F-13

		June 30,
		2012				2011
Beginning balance		$	(2,732,253	)		$	-
Issuance of common stock warrants, exercisable at $2.6058 per share			-				(1,917,122	)
Recognize liability of warrants, exercisable at $5.90 per share; attributed to loss due to change in fair value			-				(151,631	)
Gain/ (Loss) due to change in fair value of warrant liabilities, net			1,813,687				(663,500	)
Ending balance		$	(918,566	)		$	(2,732,253	)

F-19

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

9.

10. INCOME TAXES

The Company has significant deferred tax assets, a substantial amount of which result from operating loss carryforwards. The Company routinely evaluates its ability to realize the benefits of these assets to determine whether it is more likely than not that such benefit will be realized. In periods prior to the year ended June 30, 2014, the Company’s evaluation of its ability to realize the benefit from its deferred tax assets resulted in a full valuation allowance against such assets. Based upon earnings performance that the Company had achieved along with the belief that such performance will continue into future years, the Company determined during the year ended June 30, 2014 that it was more likely than not that a substantial portion of its deferred tax assets would be realized and reduced its valuation allowances recorded in prior years by approximately $27 million, which includes $40,245 of deferred tax liabilities recorded as of June 30, 2013 reversing in the current year.

In addition to considering recent periods’ performance, the evaluation of the amount of deferred tax assets expected to be realized involves forecasting the amount of taxable income that will be generated in future years. The Company has forecasted future results using estimates that management believes to be conservative. The number of connections added in a service year are a key metric, which in the Company’s recurring revenue service model become an important ingredient in driving future growth and earnings. The forecasts the Company used assumes that significantly fewer net connections would be added to its service year than what it has historically achieved during each of its previous five fiscal years. With respect to its forecasts, the Company also has taken into account several industry analysts who have projected that demand for technology and services similar to the Company’s will continue to grow in the markets the Company serves. Using these forecasts, the Company estimated that it was more likely than not that approximately $64 million of its operating loss carryforwards would be utilized to offset corresponding future years’ taxable income.

If in future periods the Company demonstrates its ability to grow taxable income in excess of the forecasts described above, it will re-evaluate the need to keep some, or all, of the remaining valuation allowances of approximately $23 million on its deferred tax assets.

The benefit (provision) for income taxes for the years ended June 30, 2015, 2014 and 2013 is comprised of the following:

		2015				2014				2013
Current:
Federal		$	(58,028	)		$	(21,021	)		$	-
State			(6,325	)			-				-
			(64,353	)			(21,021	)			-
Deferred:
Federal			365,143				20,970,149				(20,842	)
State			(589,931	)			6,306,270				(6,804	)
			(224,788	)			27,276,419				(27,646	)
		$	(289,141	)		$	27,255,398			$	(27,646	)

The provision for income taxes for the year ended June 30, 2015 includes $395,605 for the state and federal income tax effects of a decrease in the applicable state tax rate used to tax effect deferred tax assets caused by a state income tax law change. The provision for income taxes for the years ended June 30, 2013 was recorded for the future potential income tax effects for basis differences between financial reporting and income tax purposes for indefinite life intangible assets and goodwill that are being amortized for income tax purposes but not for financial reporting. Because there was a full valuation allowance reflected against deferred tax assets as of June 30, 2013, the potential future income tax effects associated with such indefinite life assets were not subject to offset deferred tax assets with finite lives.

A reconciliation of the benefit (provision) for income taxes for the years ended June 30, 2015, 2014 and 2013 to the indicated benefit (provision) based on income (loss) before benefit (provision) for income taxes at the federal statutory rate of 34% is as follows:

		2015				2014				2013
Indicated benefit (provision) at federal statutory rate of 34%		$	272,116			$	(93,586	)		$	(299,801	)
Effects of permanent differences			(215,271	)			(8,168	)			71,379
State income taxes, net of federal benefit			(410,410	)			(17,989	)			(4,490	)
Income tax credits			40,000				-				-
Changes related to prior years			187,373				-				-
Change in valuation allowances			(162,949	)			27,375,141				205,266
		$	(289,141	)		$	27,255,398			$	(27,646	)

F-14

USA Technologies, Inc.

Notes to Consolidated Financial Statements

10. INCOME TAXES (CONTINUED)

At June 30, 2012,2015 the Company had netfederal operating loss carryforwards of $168,327,709approximately $163 million to offset future taxable income expiring through approximately 2032. The Company had capital loss carryforwards of $4,759 as of June 30, 2011 that expired on June 30, 2012.

2035. The timing and extent to which the Company can utilize future tax deductionsoperating loss carryforwards in any year may be limited by provisions of the Internal Revenue Code regarding changes in ownership of corporations (i.e. IRS Code Section 382). The changes in ownership limitations under IRS Code Section 382 have had the effect of limiting the maximum amount of net operating loss carryforwards as of June 30, 2012 and 20112015 available for use to offset future years’ taxable income to $127,024,196 and $121,667,065, respectively.approximately $125 million. Those net operating loss carryforwards start to expire June 30, 2022.

At June 30, 2012 and 2011 the Company recorded net deferred tax assets of $51,708,064 and $48,973,987, respectively, which were offset by a valuation allowance of $51,720,663 and $48,973,987 as of June 30, 2012 and 2011, respectively, as the realization of the deferred tax asset is not likely, principally due to the lack of earnings history.

As of June 30, 2012, net deferred tax liabilities of $12,599 were recorded representing the future potential state and federal income tax effects for basis differences between financial reporting and income tax purposes as of June 30, 2012 for indefinite life intangible assets and goodwill that are being amortized for income tax purposes but not for financial reporting. The potential future income tax effects associated with such indefinite life assets are not subject to offset against deferred tax assets with finite lives.

These deferred tax liabilities resulted in a provision for income taxes for the year ended June 30, 2012 of $12,599 which is comprised of deferred state income taxes of $3,101 and deferred federal income taxes of $9,498.

An income tax benefit of $1,767,537 at the federal statutory rate of 34% is indicated for the year ended June 30, 2012 based upon the loss before provision for income taxes. In recording the provision for income taxes that benefit was reduced for the effects of increases in the valuation allowance of $2,327,354 for federal income taxes associated with deferred tax assets, increased for the effects of permanent differences of $594,264 and reduced by state income taxes net of federal benefit $2,046.

The net deferred tax assets arose primarily from net operating loss carryforwards, as well as the use of different accounting methods for financial statement and income tax reporting purposes as follows:

		June 30,
		2012				2011
Deferred tax assets:
Net operating loss carryforwards		$	48,825,628			$	46,695,537
Deferred research and development costs			185,940				218,622
Intangibles			1,059,409				1,003,047
Stock-based compensation			694,407				476,273
Other			955,279				685,861
			51,720,663				49,079,340
Deferred tax liabilities:
Intangibles and goodwill			(12,599	)			(105,353	)
Deferred tax assets, net			51,708,064				48,973,987
Valuation allowance			(51,720,663	)			(48,973,987	)
Deferred tax (liabilities) assets, net of allowance		$	(12,599	)		$	-

F-20

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

10.

		June 30,
		2015				2014
Deferred tax assets:
Net operating loss carryforwards		$	46,919,363			$	47,776,042
Asset reserves			791,915				391,155
Deferred research and development costs			1,009,303				710,640
Intangibles			605,836				907,274
Deferred gain on assets under sale-leaseback transaction			632,317				460,902
Stock-based compensation			223,883				250,426
Other			436,510				348,885
			50,619,127				50,845,324
Deferred tax liabilities:
Fixed assets			(491,990	)			(683,159	)
Intangibles and goodwill			(84,520	)			(67,459	)
Deferred tax assets, net			50,042,617				50,094,706
Valuation allowance			(22,996,634	)			(22,833,685	)
Deferred tax assets (liabilties), net of allowance			27,045,983				27,261,021
Less current portion			1,257,796				907,691
Deferred tax assets (liabilties), non-current		$	25,788,187			$	26,353,330

11. 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. EachAs of June 30, 2015 each share of Series A Preferred Stock shall have the right to one-hundredth of a vote and is convertible at any time into one-hundredth0.194 of a share of Common Stock. EachStock and each share of Series A Preferred Stock is entitled to 0.194 of a vote on all matters on which the holders of Common Stock entitles the holderare entitled to one voting right.vote  . Series A Preferred Stock provides for an annual cumulative dividend of $1.50 per share, payable when, as and if declared by the Board of Directors, to the shareholders of record in equal parts on 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.

Cumulative unpaid dividends at June 30, 2012 and 2011 amounted to $10,931,872 and $10,267,420, respectively. Cumulative unpaid dividends are convertible into common shares at $1,000 per common share at the option of the shareholder. During the years ended June 30, 2012 and 2010 no shares of Preferred Stock nor cumulative preferred dividends converted into shares of common stock. During the year ended June 30, 2011, 1,500 shares of Preferred Stock and $33,000 cumulative preferred dividends converted into 15 shares and 33 shares of common stock, respectively.

The Series A Preferred Stock may be called for redemption at the option of the Board of Directors 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, 2012.2015. In the event of any liquidation as defined in the Company’s Articles of Incorporation, 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.

During the year ended The Series A Preferred Stock liquidation preference as of June 30, 2010,2015 and 2014 is as follows:

		2015				2014
Shares outstanding at $10.00 per share		$	4,429,680			$	4,429,680
Cumulative unpaid dividends			12,925,228				12,260,776
		$	17,354,908			$	16,690,456

Cumulative unpaid dividends are convertible into common shares at $1,000 per common share at the Company retired 65,802 sharesoption of its Preferred Stock it purchased on the open market at prices ranging from $8 to $9 per share for a total of $598,464.shareholder. During the years ended June 30, 20122015, 2014 and 2011, the Company did not purchase any2013, no shares of its Preferred Stock on the open market.

11. COMMON STOCK

The Company’s Board of Directors has authorized various Common Stock public and private placement offerings. Activity for these offerings during the years ended June 30, 2012, 2011, and 2010 are as follows:

On September 25, 2006, the Company enterednor cumulative preferred dividends were converted into a Common Stock Purchase Agreement with Steve Illes, an accredited investor. The Agreement terminated August 30, 2009 and there were no shares issued under this agreement during the year ended June 30, 2010.

On May 22, 2009, the Company filed a registration statement with the Securities and Exchange Commission for a rights offering relating to transferable subscription rights to purchase up to $15 million of common stock and warrants (the “2009 Rights Offering”). The Company engaged William Blair & Company and Maxim Group LLC to act as the dealer-managers for the 2009 Rights Offering and MacKenzie Partners, Inc. to act as the information agent.

The 2009 Rights Offering commenced on July 13, 2009 and expired on July 31, 2009. On August 7, 2009, the closing date of the rights offering, the Company received $14,571,584 of gross proceeds. The net cash proceeds, after deduction of fees and expenses, including dealer-manager fees, was $12,958,159. In addition, the Company issued a total of 291,432 warrants to the dealer-managers to purchase the Company’s Common Stock at $2.20 per share at any time through August 6, 2012. As of June 30, 2012 no warrants have been exercised under these dealer manager agreements.

In accordance with the terms of the 2009 Rights Offering, the Company issued an aggregate of 7,285,792 shares of common stock for $2.00 per share and 7,285,792 warrants, entitling the holder to purchase one share of common stock at the exercise price of $2.20 per share of common stock commencing January 1, 2010 and through December 31, 2011. The warrants commenced trading on August 7, 2009, on The NASDAQ Global Market under the symbol USATW. During the years ended June 30, 2010 no USATW warrants were exercised to purchase shares of Common Stock. During the years ended June 30, 2012 and 2011, 4,550 and 376,355 USATW warrants were exercised at $2.20 per share resulting in the issuance of 4,550 and 376,355 shares of Common Stock, generating cash proceeds of $10,010 and $827,981, respectively.stock.

F-15

On March 16, 2010, the Company filed a registration statement with the Securities and Exchange Commission for a public offering of up to $3,000,000 of our common stock and warrants to purchase common stock (the “2010 Public Offering”). The proceeds from the offering were used for general corporate purposes, including working capital and providing financing for the manufacture by us of our ePort cashless payment products to be used by our customers participating in our JumpStart Program. The Company engaged Source Capital Group, Inc. to act as the placement agent for the offering.

F-21

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

11. COMMON

12. STOCK (CONTINUED)

The offering closed on May 12, 2010 and we sold an aggregate of 2,753,454 shares and related warrants to purchase up to 2,753,454 shares. As compensation for its services related to the offering, Source received warrants to purchase up to 165,207 shares at $1.13 per share, exercisable at any time through May 12, 2013. The warrants contain provisions for one demand registration of the sale of the underlying shares of common stock for a period of five years at our expense, and piggyback registration rights for a period of five years at our expense, and one demand registration right at the placement agent’s expense for a period of five years. The offer and sale of the warrants was exempt from registration under Section 4(2) of the Act. The investors are accredited investors. The offer and sale thereof did not involve any general advertising or solicitation and the securities contained appropriate restrictive legends under the Act. The warrants commenced trading on May 24, 2010 on The NASDAQ Global Market under the symbol USATZ. During the years ended June 30, 2012 and 2010 no USATZ warrants were exercised to purchase shares of Common Stock. During the years ended June 30, 2012 and 2010, no USATZ warrants issued under this offering were exercised; and, in the year ended June 30, 2011, 235,414 USATZ warrants were exercised at $1.13 per share for cash proceeds of $260,018.

On July 7, 2010, we sold an aggregate of 261,953 shares and related warrants (USATZ) to purchase up to 261,953 shares pursuant to a subscription rights offering which concluded on July 6, 2010 (the “2010 Rights Offering”). In connection with the offering, Source Capital Group, Inc. (“Source”) acted as dealer manager. As compensation for its services, Source received warrants to purchase up to 15,717 shares at $1.13 per share at any time through July 7, 2013. The warrants contain provisions for one demand registration of the sale of the underlying shares of common stock for a period of five years at our expense, and piggyback registration rights for a period of five years at our expense, and one demand registration right at the dealer manager’s expense for a period of five years. The Company received $235,757 of gross proceeds; after deductions for fees and expenses, net cash proceeds were $5,671. During the years ended June 30, 2010, no USATZ warrants were exercised; and, in the year ended June 30, 2011, all of the 261,953 USATZ warrants issued under this offering were exercised at $1.13 per share for cash proceeds of $296,007.

During the year ended June 30, 2012, Source elected a cashless exercise of 2,767 warrants received from acting as dealer manager for the offerings described above, resulting in the issuance of 990 shares of Common Stock. During the year ended June 30, 2011, Source elected a cashless exercise of 127,497 warrants received from acting as dealer manager for the offerings described above, resulting in the issuance of 83,472 shares of Common Stock.

On July 27, 2010, we executed a purchase agreement and a registration rights agreement (the “LPC Agreement”) with Lincoln Park Capital, LLC (“LPC”). On March 16, 2011, the Company gave written notice to LPC that it had terminated the LPC Agreement. The Company had the right under the LPC Agreement to terminate the LPC Agreement for any or no reason and without any liability whatsoever of any party to any other party under the LPC Agreement. The Company was required to terminate the LPC Agreement as a condition precedent to the closing of the March 14, 2011 Securities Purchase Agreement described below. Under the LPC Agreement, we had the right to sell to LPC up to 4,851,408 shares of our common stock at our option for an aggregate purchase price of up to $5,000,000. During the year ended June 30, 2011 we issued 150,000 shares of our common stock to LPC as a commitment fee for entering into the purchase agreement.

On March 14, 2011, the Company entered into a Securities Purchase Agreement with seven institutional investors (the “Buyers”). Pursuant thereto, on March 17, 2011 the Company sold to the Buyers 5,200,000 shares of the Company’s common stock at a price of $2.064 per share for an aggregate purchase price of $10,732,800. On March 17, 2011 the Company also issued warrants to the Buyers to purchase up to 3,900,000 shares of common stock at an exercise price of $2.6058 per share. The Buyers are accredited investors and the offer and sale of the shares and the warrants was exempt from registration under Rule 506 promulgated under Section 4(2) of the Act. BASED COMPENSATION PLANS

The Company has agreed to register the shares and the shares underlying the warrants for resale under the Act until the earlier of (i) the datethree active stock based compensation plans at June 30, 2015 as of which the Buyers may sell all of the securities covered by such registration statement without restriction pursuant to Rule 144 promulgated under the Act, or (ii) the date on which the Buyers shall have sold all of the securities covered by such registration statement. The Company is obligated to use its best efforts to cause the SEC to declare the Registration Statement effective within 90 days of the closing date of the transaction (or 120 daysshown in the event that the Registration Statement is subject to review by the SEC), and the Company is required to pay certain negotiated cash payments to the Buyers in the event that the Registration Statement is not filed within 15 days of the closing date or is not declared effective within 90 days of the closing date (or 120 days in the event that the Registration Statement is subject to review by the SEC). The Registration Statement was filed by the Company with the SEC on March 31, 2011, and declared effective by the SEC on April 29, 2011.

In connection with the above private placement offering, Chardan Capital Markets, LLC (“Chardan”), acted as exclusive placement agent. As compensation for its services, Chardan received cash compensation of $751,296 and warrants to purchase up to 364,000 shares of common stock at $2.6058 per share at any time within five years following the six-month and one day anniversary of the issuance of the warrants, March 17, 2011. We have agreed to register the shares underlying the warrants for resale under the Act on the same terms afforded to the Buyers.

F-22

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

11. COMMON STOCK (CONTINUED)

The total proceeds of $10,732,800 were reduced by $1,917,122, the fair value of the warrants which are subject to liability accounting (see Note 8), and cash issuance costs of $838,705, resulting in net cash proceeds of $9,894,095 and net proceeds related to common shares of $7,976,973. The proceeds from the offering will be used primarily to support the continuation of the Company’s JumpStart Program.

The Company’s Board of Directors has authorized various compensation plans. Activity for these plans during the years ended June 30, 2012, 2011, and 2010 are as follows:

On February 12, 2007, upon recommendation of the Compensation Committee of the Board of Directors of the Company, the Board adopted the LTIP Program for each of our three then-current executive officers. The LTIP Program was intended to ensure continuity of the Company’s executive management, to encourage stock ownership by such persons, and to align the interests of executive management with those of the shareholders.

Pursuant to and as defined in the LTIP Program, each executive would be awarded shares of the Company’s Common Stock if the Company achieves certain target goals relating to revenues, gross profit, and EBITDA (the “Target Goals”) of the Company during each of the fiscal years ended June 30, 2007, June 30, 2008 and June 30, 2009. On February 4, 2009, the Board of Directors approved the recommendation of the Compensation Committee that the final twelve month measuring period under the LTIP Program be changed from the fiscal year ended June 30, 2009 to the fiscal year ended June 30, 2010. The foregoing was approved by the Board as the Board did not believe it would be appropriate to reward senior management with bonuses during the then-current economic slowdown. EBITDA is defined as earnings before interest, taxes, depreciation, and amortization, and excludes non-cash stock payments/awards and stock options granted to officers and Board members. The Program allows for the executive officers to reduce the number of shares to be issued in order to satisfy the minimum statutory tax withholding requirements.

Through the year ended June 30, 2009, the Company had issued 359,860 shares under the LTIP Program.

During the fiscal year ended June 30, 2010, the number of eligible shares to be awarded to the executive is based upon the following weightings: 40% of eligible shares are determined by revenues; 30% of eligible shares are determined by gross profit; and 30% of eligible shares are determined by EBITDA. There are a total of 253,946 eligible shares for the 2010 fiscal year.

If the actual results for the fiscal year exceeds the Target Goals, each executive would be awarded an additional pro rata portion of the eligible shares, up to an amount no greater than 125% of the number of eligible shares. If the actual results for the fiscal year is less than the Target Goals, each executive would be awarded a lesser pro rata portion of the number of eligible shares. If minimum Target Goals for the fiscal year are not achieved, no eligible shares would be awarded to each executive.

As a result of the Board’s decision to change the final twelve month measuring date of the LTIP Program from fiscal year 2009 to fiscal year 2010, the accrued share based liability as of June 30, 2011 and 2010 was $0 and $43,171, respectively, and compensation expense during the years ended June 30, 2011, and 2010 was $54,395 and $43,171, respectively. Final settlement of the award occurred in December 2010 with 86,342 shares earned and total compensation expense recorded of $97,566.

On February 28, 2008, the Company’s shareholders approved the 2008 Stock Incentive Plan to allow up to 300,000 shares of Common Stock to be available for issuance to future or current employees, directors and consultants of the Company. Prior to the year ended June 30, 2010, the Company had issued 239,253 shares under the 2008 Stock Incentive Plan. During the years ended June 30, 2011 and 2010, the Company issued 20,747 and 40,000 shares under the 2008 Stock Incentive Plan totaling $10,208 and $87,354, respectively, based on the grant date fair value of the shares. table below:

Date Approved		Name of Plan		Type of Plan		Authorized Shares
June 2013		2013 Stock Incentive Plan		Stock			500,000
June 2014		2014 Stock Option Incentive Plan		Stock Options			750,000
June 2015		2015 Equity Incentive Plan		Stock +Stock Options			1,250,000
							2,500,000

As of June 30, 2011, all 300,000 shares of Common Stock available for issuance under the Plan had been issued.

On June 15, 2010, the Company’s shareholders approved the 2010 Stock Incentive Plan to allow up to 300,000 shares of Common Stock to be available for issuance to future or current employees, directors and consultants of the Company. During the years ended June 30, 2012, 2011 and 2010, the Company issued 120,472, 109,918 and 0 shares under the plan totaling $248,851,  $292,263 and $0, respectively based on the grant date fair value of the shares. As of June 30, 2012, 58,669 shares under the plan have been granted, but have not been issued as they are subject to various vesting provisions, and 10,941 shares are available for future issuance.

F-23

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

11. COMMON STOCK (CONTINUED)

On June 13, 2011, the Company’s shareholders approved the 2011 Stock Incentive Plan to allow up to 300,000 shares of Common Stock to be available for issuance to future or current employees, directors and consultants of the Company. During the years ended June 30, 2012 and 2011, the Company issued 141,666 and 0 shares under the plan totaling $335,636 and $0, respectively based on the grant date fair value of the shares. As of June 30, 2012, 113,334 shares under the plan have been granted, but have not been issued as they are subject to various vesting provisions, and 45,000 shares are available for future issuance.

On June 28, 2012, the Company’s shareholders approved the 2012 Stock Incentive Plan to allow up to 500,000 shares of Common Stock to be available for issuance to future or current employees, directors and consultants of the Company. During the year ended June 30, 2012, the Company did not issue any under the plan totaling and recorded of $197,613 related to the vesting of shares to be issued under this plan.

In the 2012 fiscal year, the Company entered into three agreements with Mr. Jensen, the Company’s former Chief Executive Officer –on September 27, 2011 an amended and restated employment agreement (the “Jensen Employment Agreement”)  as well as the Jensen Stock Agreement (the “Jensen Stock Agreement”); and, on October 14, 2011 a Separation Agreement and Release (the “Separation Agreement”).

The Jensen Employment Agreement continued substantially all of the previous terms and conditions of his employment agreement other than the provisions related to the Jensen Shares. The new agreement did not continue the provisions of his prior agreement which obligated the Company to pay any excise taxes attributable to any excess parachute payments which would be payable to Mr. Jensen upon the occurrence of a USA Transaction as well as the Company’s obligation to pay tax gross up payments attributable to such excise taxes. In exchange for modifying the excise tax and related gross up provisions, the Company issued an aggregate of 150,000 shares of common stock to Mr. Jensen under its stock incentive plans which were to vest as follows: 50,000 on the date the agreement was signed (September 27, 2011) by Mr. Jensen and the Company; 50,000 on the first anniversary of the date of signing (September 27, 2012); and 50,000 on the second anniversary of the date of signing (September 27, 2013).

The Jensen Stock Agreement contained the provisions relating to the issuance by the Company to Mr. Jensen of the Jensen Shares which had previously been set forth in his employment agreement. The provisions of Mr. Jensen’s prior employment agreement which required the Company to pay any excise taxes attributable to the excess parachute payments attributable to the Jensen Shares as well as the related obligation to make tax gross up payments have been retained in the Jensen Stock Agreement and continue to apply to the Jensen Shares.

Pursuant to the Separation Agreement, Mr. Jensen resigned as Chairman, Chief Executive Officer and as a Director of the Company, effective October 14, 2011. Under the Separation Agreement, the Company issued to Mr. Jensen 41,667 shares of its common stock which were awarded in connection with the signing of an amendment to his employment agreement in April 2011, which would not have otherwise vested until April 2012; and 50,000 shares of the Company’s common stock which were awarded to Mr. Jensen in connection with the signing Jensen Employment Agreement and which would not have otherwise vested until September 2012.

Pursuant to the Separation Agreement, 41,667 shares of common stock that would have vested in April 2013 in connection with the signing of an amendment to Mr. Jensen’s employment agreement in April 2011 and 50,000 shares of common stock that would have vested in September 2013 in connection with the signing of his amended and restated employment agreement in September 2011 were forfeited.

On September 27, 2011, the Company and Mr. Herbert entered into a second amendment to his employment agreement. The amendment eliminated the provisions of his prior agreement which obligated the Company to pay any excise taxes attributable to any excess parachute payments which would be received by Mr. Herbert upon the occurrence of a USA Transaction as well as the Company’s related obligation to make tax gross up payments. In exchange for eliminating the excise tax and related gross up provisions, the Company issued an aggregate of 100,000 shares of common stock to Mr. Herbert under its stock incentive plans which vest as follows: 33,333 on the date the agreement was signed by Mr. Herbert and the Company (September 27, 2011); 33,333 on the first anniversary of the date of signing (September 27, 2012); and 33,334 on the second anniversary of the date of signing (September 27, 2013).

F-24

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

11. COMMON STOCK (CONTINUED)

On November 30, 2011, the Company appointed Mr. Stephen P. Herbert as the Chairman of the Board of Directors and Chief Executive Officer of the Company and entered into an Amended and Restated Employment and Non-Competition Agreement (the “Herbert Agreement”) that replaced his prior employment agreement with the Company. Notwithstanding the Herbert Agreement, the 100,000 shares of common stock awarded to Mr. Herbert under his prior employment agreement dated September 27, 2011 would vest as follows: 33,333 on September 27, 2011; 33,333 on the first anniversary of the date of signing (September 27, 2012); and 33,334 on the second anniversary of the date of signing (September 27, 2013).

On September 27, 2011, the Company and Mr. DeMedio entered into a fifth amendment to his employment agreement pursuant to which Mr. DeMedio was granted an aggregate of 25,000 shares of common stock as a bonus for his performance during the last six months of the 2011 fiscal year which vest as follows: 8,333 on the date of signing the amendment (September 27, 2011); 8,333 on the first anniversary of such signing date (September 27, 2012); and 8,334 on the second anniversary of such signing date (September 27, 2013).

On September 15, 2011, at the recommendation of the Compensation Committee, the board of directors adopted the Fiscal Year 2012 Performance Share Plan (the “2012 Plan”) covering the Company’s executive officers. Under the 2012 Plan, each executive officer will be awarded common stock in the event the Company achieves target goals during the fiscal year ending June 30, 2012 relating to the total number of connections, total revenues, operating expenses, and operating earnings. Operating earnings is defined as earnings before interest and taxes (after bonus accruals and stock awards) and before non-operating gains or losses. The number of eligible shares to be awarded to the executives is based upon the following weightings: 30% by the total number of connections; 30% by total revenues; 10% by operating expenses; and 30% by operating earnings. No awards would be made under the 2012 Plan if either (i) none of the minimum, threshold performance target goals have been achieved, or (ii) if operating earnings for the 2012 fiscal year are not equal or better than those during the 2011 fiscal year.

If all of the target performance goals are achieved, the executive officers would be awarded the following number of shares: Mr. Herbert – 120,000 shares; and Mr. DeMedio – 50,000 shares. If all of the minimum, threshold performance target goals are achieved, the executive officers would be awarded 20% of the number of shares which would have been awarded to them if all of the target performance goals had been achieved. If all of the maximum, distinguished performance target goals are achieved, the executive officers would be awarded 150% of the number of shares which would have been awarded to them if all of the target performance goals had been achieved. If the actual results for the fiscal year are less than the target goals (but greater than the minimum, threshold performance target goals), each executive would be awarded a lesser pro rata portion of the number of eligible shares. In the event of the occurrence of a USA Transaction during the fiscal year, and provided that the executive is an employee of USA on the date of such USA Transaction, the Plan shall be terminated and each executive shall be awarded shares as of the date of such USA Transaction as if all of the target performance goals had been met. In the event that the executive’s employment with the Company is terminated by the Company for cause during the fiscal year, or if the executive resigns his employment for any reason other than for good reason during the fiscal year, then the executive shall not be entitled to earn any award under the 2012 Plan. In the event that the executive’s employment with the Company shall be terminated by the Company during the fiscal year for any reason whatsoever other than for cause, or if the executive’s employment is terminated by the executive for good reason during the fiscal year, then the executive shall be awarded shares as if all of the target performance goals had been meet. If the executive’s employment is terminated during the fiscal year as a result of death or disability, the executive shall nevertheless be eligible to earn shares under the 2012 Plan as if he had remained employed with the Company through the end of the fiscal year.

Notwithstanding the above description of the 2012 Plan, the executives would receive shares from the Company pursuant to the 2012 Plan only if and to the extent that shares would be available to be issued to the executives under the existing 2011 stock incentive plan or another stock plan that has been approved by the shareholders of the Company in accordance with NASDAQ Listing Rule 5635(c). If there would not be a sufficient number of shares available to be issued to the executives, the Company would pay to the executives an amount of cash equal to the value of those shares not available to be issued to the executives. In such event, the executives would be required to utilize the cash payment, net of any withholding, payroll or other taxes attributable to the cash payment, to purchase shares of common stock of the Company on the open market.

F-25

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

11. COMMON STOCK (CONTINUED)

As of September 15, 2011 and through June 27, 2012, there were not sufficient shares available under the existing 2011 stock incentive plan or another stock plan that had been approved by the shareholders of the Company; consequently, the Company may have been required to deliver to the executives an amount of cash equal to the value of shares earned but not available to be issued to the executives. Therefore, in accordance with ASC Topic 718, “Stock Compensation”, this award was accounted for as a liability of the Company through June 27, 2012. On June 28, 2012, the Company’s shareholders approved the 2012 Stock Incentive Plan, which includes sufficient shares for the 2012 Plan. Accordingly, for the fiscal year ended June 30, 2012 the Company recorded stock compensation expense of $197,613 for the vesting of 136,285 shares of Common Stock – 96,201 shares to Mr. Herbert and 40,084 shares to Mr. DeMedio.

Pursuant to the Separation Agreement entered into by the Company and Mr. Jensen, Mr. Jensen is not entitled to earn shares under the 2012 Plan, and therefore no award was estimated for Mr. Jensen for the fiscal 2012 year.

During the years ended June 30, 2012, 2011 and 2010, and as permitted under their employment agreements, executive officers cancelled an aggregate of 38,749, 2,217, and 5,113 shares of Common Stock, respectively, in order to satisfy an aggregate of $51,381, $2,261, and $9,668, respectively,  of payroll tax withholding obligations related to shares of Common Stock which vested during the 2009 through 2012 fiscal years.

During June 2011, the Board of Directors accepted the recommendation of the Compensation Committee that each non-employee Director serving as of June 30, 2011 receive a stock award of 10,000 shares of Common Stock under the 2010 Stock Incentive Plan valued at $2.22 per share. A total of 50,000 shares of Common Stock were awarded, and the shares vest as follows: 16,665 on June 30, 2011; 16,665 on June 30, 2012; and 16,670 on June 30, 2013. In February 2012, a non-employee member of the Board of Directors forfeited and returned to the Company 6,667 and 3,333 shares of Common Stock, respectively, awarded under this grant in June 2011. As of June 30, 2012, 29,998 shares, net, have vested and been issued. In addition, due to the February 2012 forfeiture and return and changes in the composition of the Board of Directors as approved by shareholders at the Company’s annual meeting of shareholders on June 28, 2012, as of June 30, 2012, 10,002 shares of Common Stock remain reserved for future issuance and 10,000 shares will not vest under this June 2011 grant.

During the December 31, 2011 quarter, the Company announced that Steven D. Barnhart had been elected Lead Independent Director by the Company’s independent directors. The Compensation Committee of the Board of Directors recommended, and the Board approved, that Mr. Barnhart receive compensation of $40,000 per year for acting as the lead independent director to be effective from and after the date of his appointment. Such compensation may be paid in shares of the Company rather than cash if such shares are available and subject to an appropriate agreement between Mr. Barnhart and the Company. The Company issued to Mr. Barnhart 19,175 shares of common stock attributable to his service as Lead Independent Director during the year ended June 30, 2012.

During March 2012, the Board of Directors accepted the recommendation of the Compensation Committee that each of the three non-employee Directors appointed to the Board in January 2012 receive a stock award of 10,000 shares of Common Stock under the 2010 Stock Incentive Plan valued at $0.94 per share. A total of 30,000 shares of Common Stock were awarded, and the shares vest as follows: 9,999 on April 1, 2012; 9,999 on April 1, 2013; and, 10,002 on April 1, 2014. . As of June 30, 2012, 9,999 shares have vested and been issued. Due to changes in the composition of the Board of Directors as approved by shareholders at the Company’s annual meeting of shareholders on June 28, 2012, as of June 30, 2012, 13,334 shares of Common Stock remain reserved for future issuance and 6,667 shares will not vest under this March 2012 grant.

In April 2012 a Director elected to receive compensation for service on the Company’s Board of Directors in Common Stock of the Company. For the year ended June 20, 2012, the Company issued 2,299 shares of Common Stock and recorded $3,333 of expense for this director compensation.

F-26

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

11. COMMON STOCK (CONTINUED)

As of June 30, 2012,2015, the Company had reserved shares of Common Stock for future issuance for the following:

Exercise of Common Stock Options			45,333
Exercise of Common Stock Warrants			6,782,0404,309,000
Conversions of Preferred Stock and cumulative Preferred Stock dividends			15,36298,861
Issuance under 20102013 Stock Incentive Plan			10,941321,111
Issuance under 20112014 Stock Option Incentive Plan			45,000750,000
Issuance under 2012 Stock2015 Equity Incentive Plan			500,0001,250,000
Issuance underto former Chief Executive Officer’s employment agreementOfficer upon the occurrence of a USA Transactionprescribed transaction			140,000
Total shares reserved for future issuance			7,538,6766,868,972

STOCK OPTIONS

The Company estimates the grant date fair value of the stock options it grants using a Black-Scholes valuation model. The Company’s assumption for expected volatility is based on its historical volatility data related to market trading of its own common stock. The Company bases its assumptions for expected life of the new stock option grants on the life of the option granted, and if relevant, its analysis of the historical exercise patterns of its stock options. The dividend yield assumption is based on dividends expected to be paid over the expected life of the stock option. The risk-free interest rate assumption is determined by using the U.S. Treasury rates of the same period as the expected option term of each stock option. There were no options granted during the fiscal year ended June 30, 2013.

		Year ended			Year ended
		June 30, 2015			June 30, 2014
Expected volatility		78-79%			79%
Expected life		7 years			7 years
Expected dividends		0.00%			0.00%
Risk-free interest rate		1.59-2.04%			2.22%

The 2014 Stock Option Incentive Plan was approved in June 2014 therefore there was no stock based compensation expense related to stock options for the years ended June 30, 2013 and June 30, 2014. Stock based compensation related to stock options for the year ended June 30, 2015 was $370,435. Unrecognized compensation related to stock option grants as of June 30, 2015 was $297,202.

F-16

USA Technologies, Inc.

Notes to Consolidated Financial Statements

12. EQUITY BASED COMPENSATION PLANS (CONTINUED)

The following table provides information about options outstanding:

		For the Twelve Months Ended June 30,
		2015												2014												2013
		Shares				Weighted Average Exercise Price				Weighted Average Grant Date Fair Value				Shares				Weighted Average Exercise Price				Weighted Average Grant Date Fair Value				Shares				Weighted Average Exercise Price				Weighted Average Grant Date Fair Value
Options outstanding, beginning of period			120,000			$	2.05			$	1.49				-			$	-			$	-				45,333			$	7.53			$	5.34
Granted			438,888			$	1.82			$	1.30				120,000			$	2.05			$	1.49				-			$	-			$	-
Forfeited			(20,000	)		$	2.05			$	1.49				-			$	-			$	-				-			$	-			$	-
Expired			-			$	-			$	-				-			$	-			$	-				(45,333	)		$	7.53			$	5.34
Exercised			-			$	-			$	-				-			$	-			$	-				-			$	-			$	-
Options outstanding, end of period			538,888			$	1.86			$	1.33				120,000			$	2.05			$	1.49				-			$	-			$	-

The following table provides information related to options as of June 30, 2015:

		Options Outstanding								Options Exercisable
Range of Exercise Prices		Options Outstanding				Remaining Contractual Life				Shares Exercisable				Remaining Contractual Life				Weighted Average Exercise Price
$1.62 to $1.68			75,000				6.51				-				N/A				N/A
$1.78			328,888				6.16				-				N/A				N/A
$2.05			100,000				5.97				33,335				5.97			$	2.05
$2.09			10,000				6.58				-				N/A				N/A
$2.75			25,000				6.77				-				N/A				N/A
			538,888				6.21				33,335				5.97			$	2.05

The following table provides information about unvested options:

		For the Twelve Months Ended June 30,
		2015								2014								2013
		Shares				Weighted Average Grant Date Fair Value				Shares				Weighted Average Grant Date Fair Value				Shares				Weighted Average Grant Date Fair Value
Unvested options, beginning of period			120,000			$	1.49				-				-				-				-
Granted			438,888			$	1.30				120,000			$	1.49				-				-
Vested			(33,335	)		$	1.49				-				-				-				-
Forfeited			(20,000	)		$	1.49				-				-				-				-
Unvested options, end of period			505,553			$	1.32				120,000			$	1.49				-			$	-

The following table provides information about options outstanding and exercisable options:

		As of June 30,
		2015								2014								2013
		Options Outstanding				Exercisable Options				Options Outstanding				Exercisable Options				Options Outstanding				Exercisable Options
Number			538,888				33,335				120,000				-				-				-
Weighted average exercise price		$	1.86			$	2.05			$	2.05			$	-			$	-			$	-
Aggregate intrinsic value		$	451,177			$	21,668			$	7,200			$	-			$	-			$	-
Weighted average contractual term			6.21				5.97				6.97				-				-				-
Share price as of June 30		$	2.70			$	2.70			$	2.11			$	2.11			$	1.74			$	1.74

STOCK GRANTS

A summary of the status of the Company’s nonvested common shares as of June 30, 2012, 2011,2015, 2014, and 2010,2013, and changes during the years then ended is presented below:

						Weighted-Average
						Grant-Date
		Shares				Fair Value
Nonvested Shares
Nonvested at June 30, 2012			172,003			$	1.82
Granted			156,429				1.45
Vested			(204,587	)			1.72
Forfeited, Employee shares not earned			(26,699	)			1.52
Nonvested at June 30, 2013			97,146			$	1.52
Granted			10,000				2.17
Vested			(55,001	)			1.62
Forfeited, Director changes			(3,334	)			0.94
Forfeited, Employee shares not earned			(5,000	)			1.52
Nonvested at June 30, 2014			43,811			$	1.59
Granted			155,927				2.00
Vested			(181,134	)			1.89
Nonvested at June 30, 2015			18,604			$	1.88

F-17

						Weighted-Average
						Grant-Date
		Shares				Fair Value
Nonvested Shares
Nonvested at June 30, 2009			331,433			$	5.81
Granted			39,000				1.75
Vested			(40,000	)			2.47
Vested- FY 2010 (LTIP)			(86,342	)			5.90
Forfeited- FY 2010 (LTIP)			(231,091	)			5.90
Nonvested at June 30, 2010			13,000			$	1.75
Granted			305,000				2.18
Vested			(130,665	)			1.93
Nonvested at June 30, 2011			187,335			$	2.32
Granted			473,285				1.58
Vested			(380,282	)			1.73
Forfeited due to Separation Agreement			(91,667	)			2.00
Forfeited, Director changes			(16,668	)			1.71
Nonvested at June 30, 2012			172,003			$	1.82

The 172,003 nonvested shares of Common Stock

USA Technologies, Inc.

Notes to Consolidated Financial Statements

13. WARRANTS

All warrants outstanding as of June 30, 20122015 were granted under the 2010, 2011,exercisable. The following table shows exercise prices and 2012 stock incentive plans and the related to employment agreements and non-employee Boardexpiration dates for warrants outstanding as of Director grants. A discussion of assumptions used in calculating the number of shares and weighted-average grant date fair value is included above in Note 11 of the Consolidated Financial Statements.

F-27

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

12. COMMON STOCK WARRANTS AND OPTIONS

Common Stock June 30, 2015:

				Exercise
Warrants				Price				Expiration
Outstanding				Per Share				Date
	4,264,000			$	2.61			September 18, 2016
	45,000			$	2.10			December 31, 2017
	4,309,000

Warrant activity for the years ended June 30, 2012, 2011,2015, 2014, and 20102013 was as follows:

		Warrants
Outstanding at June 30, 20092012			3,030,8638,045,619
Issued			10,495,88545,000
Exercised			(399,597	)
Expired			(329,314	)
Outstanding at June 30, 2013			7,361,708
Issued			-
Exercised			(2,090,226	)
Expired			(962,482	)
Outstanding at June 30, 2014			4,309,000
Issued			-
Exercised			-
Expired			-
Outstanding at June 30, 20102015			13,526,748
Issued			4,541,670
Exercised			(1,001,219	)
Expired			(1,500,000	)
Outstanding at June 30, 2011			15,567,199
Issued			-
Exercised			(7,317	)
Expired			(7,514,263	)
Outstanding at June 30, 2012			8,045,6194,309,000

All Common Stock warrants outstanding as of June 30, 2012 were exercisable. The following table shows exercise prices and expiration dates for warrants outstanding as of June 30, 2012:

				Exercise
Warrants				Price				Expiration
Outstanding				Per Share				Date
	291,432			$	2.20			August 6, 2012(1)
	17,532			$	7.70			October 17, 2012
	46,258			$	1.13			May 12, 2013
	4,402			$	1.13			July 7, 2013
	903,955			$	5.90			September 14, 2013
	2,518,040			$	1.13			December 31, 2013
	4,264,000			$	2.6058			September 18, 2016
	8,045,619
(1)     Expired unexercised on August 6, 2012.

F-28

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

12. COMMON STOCK WARRANTS AND OPTIONS (CONTINUED)

In

On May 12, 2010, in conjunction with an October 17, 2007 Securities Purchase Agreement, the Company issued warrants to purchase up to 17,532 shares of the Company’s Common Stock at $7.70 per share at any time through October 17, 2012 to the broker dealer who acted as the exclusive placement agent in the transaction. As of June 30, 2012 no warrants have been exercised under this agreement.

In connection with a Securities Purchase Agreement with S.A.C. Capital Associates, LLC (“SAC”) entered into by the Company on March 14, 2007, the Company issued warrants to purchase 833,333 shares of Common Stock, exercisable at $6.40 per share. The warrant provided that if the Company would issue securities in the future at a purchase price that is less than the exercise price of the warrant, then the exercise price of the warrant would be reduced to such lower purchase price, provided, however, that such exercise price can never be lower than $5.90 which was the closing bid price of our shares on the day prior to the sale of our securities to SAC. The warrant also provides that in the event we issue securities at a purchase price less than the exercise price of the warrant, the number of shares issuable under the warrant shall be increased by that number of shares determined by multiplying the exercise price in effect immediately prior to such adjustment by the number of shares issuable under the warrant immediately prior to such adjustment and dividing the product thereof by the new exercise price of the warrant (which can never be less than $5.90). Under this formula, the maximum number shares would be issuable under the warrant would be 903,955. As of June 30, 2009, the original warrants to purchase 833,333 shares of Common Stock at $6.40 per share had changed to warrants to purchase 903,955 shares of Common Stock at $5.90 per share. In addition, for a period of five years, SAC has been granted the pre-emptive right to purchase that number of securities being offered for sale by the Company in order to maintain SAC’s pro-rata ownership of the Common Stock of the Company following the issuance of any such securities by the Company. The warrants are exercisable at any time through September 14, 2013 to the extent that such exercise would not result in the beneficial ownership by SAC and its affiliates of more than 9.99% of the number of shares outstanding immediately after giving effect to the issuance of shares upon exercise of the warrants. As of June 30, 2012 no warrants have been exercised under this agreement.

The warrant contains a provision that if a Fundamental Transaction occurs, notably a change in control, within ninety days of the Fundamental Transaction the warrant holder may require the Company to pay the Black-Scholes calculated value of the then unexercised warrant to the warrant holder in cash. The fair value of the 903,955 warrants was estimated using the Black-Scholes model and applying an estimated fair value adjustment related to warrant exercise restrictions, and the Company recorded a warrant liability in its Consolidated Balance Sheet of $1,126 and $93,624 at June 30, 2012 and 2011, respectively (see Note 8).

F-29

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

12. COMMON STOCK WARRANTS AND OPTIONS (CONTINUED)

In conjunction with the 2009 Rights Offering (see Note 11), the Company issued warrants to purchase 7,285,792 shares of Common Stock, exercisable at $2.20 per share at any time prior to December 31, 2011. Additionally, the Company issued each of the two dealer managers warrants to purchase 145,716 shares of Common Stock that were exercisable at $2.20 per share at any time prior to August 6, 2012. The dealer manager warrants expired unexercised in August 2012.

In conjunction with the 2010 Public Offering (see Note 11),public offering, the Company issued warrants to purchase 2,753,454 shares of Common Stock, exercisable at $1.13 per share at any time prior to December 31, 2013. Additionally,During the years ended June 30, 2014 and 2013, 2,090,226 and 369,287 of these warrants were exercised at $1.13 per share for cash proceeds of $2,361,956 and $417,294, respectively. Warrants to purchase 58,527 shares of Common Stock expired unexercised on December 31, 2013.

In conjunction with this public offering, the Company also issued to the placement agent warrants to purchase 165,207 and 15,717 shares of Common Stock, exercisable at $1.13 per share at any time prior to May 12, 2013.

In conjunction withand July 7, 2013, respectively. During the 2010 Rights Offering (see Note 11),year ended June 30, 2013 the Company issuedplacement agent elected cashless exercises of 36,186 warrants to purchase 261,953resulting in the issuance of 17,094 shares of Common Stock exercisable at $1.13 per share at any time prior to December 31, 2013. Additionally, in conjunction with the 2010 Rights Offering the Company issued the placement agentand exercised warrants to purchase 15,71713,216 shares of Common Stock at $1.13 per share at any time through July 7,for cash proceeds of $14,934. Warrants to purchase 1,258 shares of Common Stock expired unexercised in May 2013.

In

On March 17, 2011, in conjunction with the 2011 Private Placement Offering (see Note 11),a private placement offering the Company issued warrants to purchase up to 3,900,000 shares of Common Stock, exercisable at an exercise price of $2.6058 per share. Additionally, the Company issued the placement agent in this offering warrants to purchase 364,000 shares of common stock at $2.6058 per share. The 4,264,000 warrants are exercisable from September 18, 2011 through September 18, 2016.

As of June 30, 2015, no warrants have been exercised under this offering.

The 3,900,000 warrants issued under the 2011 Private Placement Offeringthis private placement offering contain a provision that if a Fundamental Transaction occurs, notably a change in control, the warrant holder may require the Company to pay the Black-Scholes calculated value of the then unexercised warrant to the warrant holder in cash. As such the Company has recorded a liability of $978,353 and $585,209 at June 30, 2015 and 2014, respectively, for the estimated fair value of the warrants in its Consolidated Balance Sheet (see Note 9). Period to period changes in the fair value of these warrants are reflected through income.

In conjunction with the Loan and Security agreement (Note 7) and as a condition of the Bank entering into the First Amendment, the Company issued to the Bank warrants to purchase up to 45,000 shares of Common Stock of the Company. The warrants are exercisable at any time prior to December 31, 2017 at an exercise price of $2.10 per share. Upon the issuance of the warrants, the fair value of the warrants was estimated,$55,962 using a Black Scholes model, which was recorded as prepaid interest and the Company recorded a warrant liabilityincluded in itsother assets on the Consolidated Balance Sheet, and is being amortized as non-cash interest expense over the remaining term of $918,566the Line of Credit as amended in January 2013. Non-cash interest of $0, $2,095 and $2,732,253 at June 30, 2012 and 2011, respectively (see Note 8).

Prior to June 30, 2009 the Company’s Board of Directors granted options to employees and Board members to purchase shares of Common Stock at prices that were at or above fair market value on the dates the options were granted. The option term and vesting schedule were established by the contracts under which the options were granted.

F-30

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

12. COMMON STOCK WARRANTS AND OPTIONS (CONTINUED)

Common Stock Option activity during$53,867 has been recognized for the years ended June 30, 2012, 2011,2015, 2014 and 2010 was as follows:

										Weighted-
						Exercise				Average
		Options				Price				Exercise
		Outstanding				Per Share				Price
Outstanding and exercisable at June 30, 2009			160,000			$	7.50-8			$	7.52
Granted			-				-				-
Expired			-				-				-
Outstanding and exercisable at June 30, 2010			160,000			$	7.50-8			$	7.52
Granted			-				-				-
Expired			(69,334	)		$	7.50			$	7.50
Outstanding and exercisable at June 30, 2011			90,666			$	7.50-8				7.53
Granted			-				-				-
Expired			(45,333	)		$	7.50-8			$	7.53
Outstanding and exercisable at June 30, 2012			45,333			$	7.50-8			$	7.53

The following table shows exercisable options, exercise prices, the weighted average remaining contractual life and the aggregate intrinsic value for options outstanding as2013, respectively. As of June 30, 2012:2015 none of these warrants has been exercised.

F-18

										Weighted Average
Options		Options				Exercise Price Per				Remaining Life				Remaining Life				Intrinsic Value-
Outstanding		Exercisable				Share				Outstanding				Exercisable				Outstanding				Exercisable
42,333			42,333				7.50				0.94				0.94				-				-
3,000			3,000				8.00				0.97				0.97				-				-
45,333			45,333								0.95				0.95				-				-

There was no compensation expense related to the vesting of options outstanding in the years ended June 30, 2012, 2011, and 2010  as all options were vested, and all related compensation expense had been recognized, prior to the June 30, 2010 fiscal year.

F-31

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

13.

14. RETIREMENT PLAN

The Company’s 401(k) Plan (the “Retirement Plan”) allows employees who have completed six months of service to make voluntary contributions up to a maximum of 100% of their annual compensation, as defined in the Retirement Plan. The Company may, in its discretion, make a matching contribution, a profit sharing contribution, a qualified non-elective contribution, and/or a safe harbor 401(k) contribution to the Retirement Plan. The Company must make an annual election, at the beginning of the plan year, as to whether it will make a safe harbor contribution to the plan. In fiscal years 20122015, 2014 and 2010,2013, the Company elected and made a safe harbor matching contributions of 100% of the participant’s first 3% and 50% of the next 2% of compensation deferred into the Retirement Plan. For fiscal year 2011, the Company did not elect to make a safe harbor contribution to the plan. The Company’s safe harbor contributions for the years  ended June 30, 20122015, 2014 and 20102013 approximated $140,000$192,000, $168,000 and $160,000,$176,000, respectively.  The Company’s discretionary contribution for the year ended June 30, 2011 approximated $42,000.

14.

15. RELATED PARTY TRANSACTIONS

During

There were no related party transactions during the years ended June 30, 2012, 2011,2015, 2014 and 2010,2013. 

16. COMMITMENTS AND CONTINGENCIES

SALE AND LEASEBACK TRANSACTIONS

In June 2014, the Company incurred approximately $744,000, $513,000, and $730,000, respectively,a third party finance company, entered into six Sale Leaseback Agreements (the “Sale Leaseback Agreements” or a “Sale Leaseback Agreement”) pursuant to which a third-party finance company purchased ePort equipment owned by the Company and used by the Company in connection with legal services provided byits JumpStart Program. As of June 30, 2014, a memberthird-party finance company completed the purchase from the Company, the ePort equipment under the first two of the Sale Leaseback Agreements.

In the quarter ended September 2014, a third-party finance company completed the purchase from the Company of the ePort equipment described in the last four of the Sale Leaseback Agreements. Upon the completion of the sale under these agreements, the Company computed a gain on the sale of its ePort equipment, which is deferred and will be amortized in proportion to the related gross rental charged to expense over the lease terms in accordance with the FASB topic ASC 840-40, “Sale Leaseback Transactions”. The computed gain on the sale will be recognized ratably over the 36-month term and charged as a reduction to the Company’s BoardJumpStart rent expense included in costs of Directors. Atservices in the Company’s Consolidated Statement of Operations. The Company is accounting for the Sale Leaseback as an operating lease and is obligated to pay to Varilease a base monthly rental for this equipment during the 36-month lease term. The future lease payment obligations under these agreements are included in the table at the bottom of this note.

Upon the completion of the sales, the Company computed gains on the sale of its ePort equipment as follows:

		Year ended June 30, 2015				Year ended June 30, 2014
Rental equipment sold, cost		$	3,873,275			$	1,918,920
Rental equipment sold, accumulated depreciation upon sale			(331,069	)			(76,032	)
Rental equipment sold, net book value			3,542,206				1,842,888
Proceeds from sale			4,993,879				2,995,095
Gain on sale of rental equipment		$	1,451,673			$	1,152,207

In accordance with the FASB topic ASC 840-40, “Sale Leaseback Transactions”, any gain shall be deferred and shall be amortized in proportion to the related gross rental charged to expense over the lease term. The computed gain on the sale will be recognized ratably over the 36 month term and charged as a reduction to the Company’s JumpStart rent expense included in costs of services in the Company’s Consolidated Statement of Operations. For the years ended June 30, 20122015 and 2011, approximately $119,000 and $25,000, respectively, were due2014 the Company recognized gains as follows:

		Year ended June 30, 2015				Year ended June 30, 2014
Beginning balance		$	1,142,685			$	-
Gain on sale of rental equipment			1,451,673				1,152,207
Recognition of deferred gain			(833,619	)			(9,522	)
Ending balance			1,760,739				1,142,685
Less current portion			860,391				380,895
Non-current portion of deferred gain		$	900,348			$	761,790

F-19

USA Technologies, Inc.

Notes to this Board member.

15.Consolidated Financial Statements

16. COMMITMENTS AND CONTINGENCIES

The Company conducts (continued)

OTHER LEASES

Other lease commitments include leases for its operations from various facilities under operating leases.facilities. The Company leases 17,249 square feet of space located in Malvern, Pennsylvania for its principal executive office and used for general administrative functions, sales activities, product development, and product development.customer support. In November 2010, the Company entered into an amended lease of its principal executive office in Malvern, Pennsylvania, which extended the lease term from December 31, 2010 to April 2016. The amendment includes rental payments of approximately $29,000 to $32,000 as well as a four month period of no rent payments and leasehold improvements of approximately $195,000. The straight-lined rent expense for this office is approximately $26,000$25,000 per month for the duration of the lease.

The Company also leases 13,377 square feet of space located in Malvern, Pennsylvania for its product warehousing shipping and customershipping support. In October 2011,November 2012, the Company amended theentered into a lease as of its operations site in Malvern, Pennsylvania, to extend theJanuary 1, 2013 through February 29, 2016. The lease term from December 31, 2011 to December 31, 2012 with the option to extend the lease thereafter for an additional 24-month period. The amendment includes monthly rental payments from $4,406 to $4,678 as well as a two month period of approximately $15,100 to $16,200.no rent payments. Beginning in January 20122013 the straight-lined rent expense for this officeoperations site is approximately $15,600$4,300 per month for the duration of the amended lease period.

F-32

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

15. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Rent expense under operating leases was approximately $502,000, $545,000,$354,000, $372,000 and $616,000$432,000 during the years ended June 30, 2012, 2011,2015, 2014, and 2010,2013, respectively. 

SUMMARY OF LEASE OBLIGATIONS

Future minimum lease payments for fiscal years subsequent to June 30, 20122015 under capital leases and non-cancellable operating leases and capital leases are as follows:

		Capital				Operating
		Leases				Leases
2013		$	209,534			$	450,368
2014			203,298				368,697
2015			45,122				377,322
2016			-				321,263
Thereafter			-				-
Total minimum lease payments		$	457,954			$	1,517,650
Less amount representing interest			31,947
Present value of net minimum lease payments			426,007
Less current obligations under capital leases			187,715
Obligations under capital leases, less current portion		$	238,292

On September 24, 2009, Mr. Herbert and

		Operating Leases				Other Operating				Total Operating				Capital
		from Sale Leaseback				Leases				Leases				Leases
2016		$	2,641,155			$	361,927			$	3,003,082			$	157,304
2017			2,641,155				810				2,641,965				131,585
2018			137,731				-				137,731				70,416
2019			-				-				-				23,361
Total minimum lease payments		$	5,420,041			$	362,737			$	5,782,778			$	382,666
Less amount representing interest															45,069
Present value of net minimum lease payments															337,597
Less current obligations under capital leases															131,583
Obligations under capital leases, less current portion														$	206,014

LITIGATION

From time to time, the Company entered into an Amended and Restated Employment Agreementis involved in various legal proceedings arising during the normal course of business which, replaced his prior employment agreement. The Agreement extendedin the term of Mr. Herbert’s employment with the Company from June 30, 2011 until September 30, 2012, and will automatically continue from year to year thereafter unless terminated asopinion of the end of the original term or any such one year renewal period by the Company or Mr. Herbert by at least 90-days notice and Mr. Herbert was granted 9,000 shares of common stock under the 2008 Stock Incentive Plan which vested as follows: 3,000 on October 1, 2009; 3,000 on April 1, 2010; and 3,000 on September 30, 2010.

The agreement continued Mr. Herbert’s base salary at $320,000 per annum. The agreement requires Mr. Herbert to devote his full time and attention to the business and affairsmanagement of the Company, will not have a material adverse effect on the Company’s financial position and obligates him notresults of operations or cash flows.

On December 30, 2014, the Company settled a legal action brought in connection with a customer billing dispute. Under the settlement, the Company agreed to engagepay approximately $690,000. Approximately $280,000 of this amount was recorded in any investments or activities which would competefiscal 2014 and $410,000 of this amount was recorded in fiscal 2015 and was reflected in Cost of Services in the Consolidated Statements of Operations.

During 2015, the Company became involved in a legal proceeding with a former non- vending customer and entities affiliated with the former customer.  The Company duringis seeking to recoup approximately $680,000 relating to certain credit card chargebacks due under the termcustomer agreement, while the former customer is seeking to recover damages alleged to have been incurred as a result of the agreement and for a period of two years thereafter. The Company has agreed to obtain and pay the premiums for a term life insurance policy in the amount of $1,500,000 on the life of Mr. Herbert while he is employedbreach by the Company. Mr. Herbert has the right to designate the beneficiary of the policy. The Company has agreed to obtain and pay the premiums for a supplemental long term disability policy covering Mr. Herbert over and above the existing long-term group disability plan of the Company. If he shall become disabled while employed by the Company, the policy would provide for monthly disability coverage of up to 65% of his monthly base compensation payable to age 65 or death.

The agreement also provides that if Mr. Herbert would terminate his employment with the Company for good reason (as defined in the agreement), or if the Company would terminate his employment without cause (as defined in the agreement), then the Company would pay to him a lump sum equal to two times his base salary on or before the termination of his employment and all unvested restricted stock awards and stock options would become immediately vested. In addition, upon any such termination of Mr. Herbert’s employment, the Company has agreed, at its cost, for a period of two years, to continue to provide Mr. Herbert with health, life and disability benefits substantially similar to those which he had been receiving immediately prior to the date of termination. The term good reason as defined in the agreement, includes: (A) a material breach of the terms of the agreement by the Company; (B) the assignment by the Company to Mr. Herbert of duties in any way materially inconsistent with his authorities, duties, or responsibilities, or a material reduction or alteration in the nature or status of his authority, duties, or responsibilities as the President of the Company; (C) the Company reduces Mr. Herbert’s annual base salary; or (D) a material reduction by the Company in the kind or level of employee benefits to which Mr. Herbert is entitled immediately prior to such reduction with the result that his overall benefit package is significantly reduced unless such failure to continue a plan, policy, practice or arrangement pertains to all plan participants generally. As a condition to Mr. Herbert receiving any payments or benefits upon his termination of his employment for good reason, Mr. Herbert shall have executed and delivered (and not revoked) a release of any and all claims, suits, or causes of action against the Company and its affiliates in form reasonably acceptable to the Company.

F-33

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

15. COMMITMENTS AND CONTINGENCIES (CONTINUED)

The agreement also provides that as a condition of the consummation of a USA Transaction (as defined in the agreement), the successor to the Company’s business or assets would agree to assume and perform Mr. Herbert’s employment agreement. If any such successor would not do so, Mr. Herbert’s employment would terminate on the date of consummation of the USA Transaction, and the Company would pay to Mr. Herbert a lump sum equal to two times his base salary on or before the termination of his employment, all unvested restricted stock awards and stock options would become immediately vested, and, at its cost, for a period of two years would continue to provide Mr. Herbert with health, life and disability benefits substantially similar to those which he is receiving immediately prior to the date of termination.

On April 14, 2011, the Company and Mr. Herbert entered into an amendment to the employment agreement. The amendment extended the term of Mr. Herbert’s employment with the Company from September 30, 2012 until June 30, 2014. In connection with the amendment, and in recognition of his dedicated and valuable service to the Company and extending the term of his employment agreement, Mr. Herbert was issued 75,000 shares of common stock under the 2010 Stock Incentive Plan which vest as follows: 25,000 on April 14, 2011; 25,000 on April 14, 2012; and 25,000 on April 14, 2013.

On September 27, 2011, the Company and Mr. Herbert entered into a second amendment to his employment agreement. The amendment eliminated the provisions of his prior agreement which obligated the Company to pay any excise taxes attributable to any excess parachute payments which would be received by Mr. Herbert upon the occurrence of a USA Transaction as well as the Company’s related obligation to make tax gross up payments. The new agreement also stated that the premiums for Mr. Herbert’s supplemental long term disability policy being paid by the Company would now be included in his wages and be taxable to him. In exchange for eliminating the excise tax and related gross up provisions, the Company issued an aggregate of 100,000 shares of common stock to Mr. Herbert under its stock incentive plans which vest as follows: 33,333 on the date the agreement was signed by Mr. Herbert and the Company; 33,333 on the first anniversary of the date of signing; and 33,334 on the second anniversary of the date of signing.

On November 30, 2011, the Company and Mr. Herbert entered into an Amended and Restated Employment and Non-Competition Agreement that replaced his prior employment agreement with the Company. The agreement provides for an initial term continuing through January 1, 2013, which is automatically renewed for consecutive one year periods unless terminated by either Mr. Herbert or the Company upon at least ninety days notice prior to the end of the initial term or any one year extension thereof. The agreement continues the existing compensation and fringe benefits received by Mr. Herbert under Section 2 of his prior employment agreement except that (i) his base salary is $341,227 which is equal to the base salary under his prior employment agreement plus an amount equal to the cost to the Company of the car allowance and supplemental disability insurance coverage provided to him under his prior employment agreement; (ii) the car allowance and supplemental disability insurance coverage that had been provided to him under his prior employment agreement have been discontinued; and (iii) he is eligible for a cash bonus as described in the next sentence.agreement. The agreement provides for the payment to Mr. Herbert of a cash bonus of $30,000 if the Company would achieve alldoes not believe any of the minimum threshold performance target goals underclaims asserted against it have  merit and intends to vigorously defend this matter. Additionally, the Fiscal Year 2012 Executive Performance Plan, of $50,000 if the Company would achieve all of the target performance goals under the plan, and of $75,000 if the Company would achieve all of the maximum distinguished performance target goals under the plan.

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 two years thereafter. The Company has agreed to pay the premiums for a term life insurance policy in the amount of $1,500,000 on the life of Mr. Herbert while he is employed by the Company. Mr. Herbert has the right to designate the beneficiary of the policy.

F-34

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

15. COMMITMENTS AND CONTINGENCIES (CONTINUED)

The agreement also provides that if Mr. Herbert would terminate his employment with the Company for good reason (as defined in the agreement), or if the Company would terminate his employment without cause (as defined in the agreement), or if the Company would provide Mr. Herbert with a notice of non-renewal of his employment agreement, then the Company would pay to him a lump sum equal to two times his base salary on or before the termination of his employment. The term good reason as defined in the agreement, includes: (A) a material breach of the terms of the agreement by the Company; (B) the assignment by the Company to Mr. Herbert of duties in any way materially inconsistent with his authorities, duties, or responsibilities, or a material reduction or alteration in the nature or status of his authority, duties, or responsibilities as the Chief Executive Officer of the Company; (C) the Company reduces Mr. Herbert’s annual base salary; or (D) a material reduction by the Company in the kind or level of employee benefits to which Mr. Herbert is entitled immediately prior to such reduction with the result that his overall benefit package is significantly reduced unless such failure to continue a plan, policy, practice or arrangement pertains to all plan participants generally. As a condition to Mr. Herbert receiving any payments or benefits upon the termination of his employment for good reason, Mr. Herbert shall have executed and delivered (and not revoked) a release of any and all claims, suits, or causes of action against the Company and its affiliates in form reasonably acceptable to the Company.

The agreement also provides that as a condition of the consummation of a USA Transaction (as defined in the agreement), the successor to the Company’s business or assets would agree to assume and perform Mr. Herbert’s employment agreement. If any such successor would not do so, Mr. Herbert’s employment would terminate on the date of consummation of the USA Transaction, and the Company would pay to Mr. Herbert a lump sum equal to two times his base salary on or before the termination of his employment.

On April 12, 2005, Mr. DeMedio and the Company entered into an employment agreement pursuant to which he was employed as the Chief Financial Officer of the Company. The agreement requires Mr. DeMedio 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 event that a USA Transaction (as defined in Mr. Jensen’s employment agreement) shall occur, then Mr. DeMedio has the right to terminate his agreement upon 30 days notice to the Company.

On September 24, 2009, the Company agreed to obtain and pay the premiums for a term life insurance policy in the amount of $750,000 on the life of Mr. DeMedio while he is employed by the Company. Mr. DeMedio has the right to designate the beneficiary of the policy. The Company has agreed to obtain and pay the premiums for a supplemental long term disability policy covering Mr. DeMedio over and above the existing long-term group disability plan of the Company. If he shall become disabled while employed by the Company, the policy would provide for monthly disability coverage of up to 65% of his monthly base compensation payable to age 65 or death. If Mr. DeMedio’s employment with the Company would be terminated without cause, the Company has agreed, at its cost, to continue to provide Mr. DeMedio with health insurance benefits substantially similar to those which he is receiving immediately prior to the date of termination for a one year period following such termination.

On April 14, 2011, the Company and Mr. DeMedio entered into an additional amendment to the employment agreement. The agreement extended the term of Mr. DeMedio’s employment with the Company from June 30, 2011 until June 30, 2014, and will automatically continue from year to year thereafter unless terminated as of the end of the original term or any such one year renewal period by the Company or Mr. DeMedio by at least 90-days notice. In connection with the amendment, and in recognition of his dedicated and valuable service to the Company and extending the term of his employment agreement, Mr. DeMedio was issued 25,000 shares of common stock under the 2010 Stock Incentive Plan which vest or vested as follows: 8,333 on April 14, 2011; 8,333 on April 14, 2012; and 8,334 on April 14, 2013.

Effective July 1, 2011, Mr. DeMedio’s annual base salary was increased to $220,000.

On September 27, 2011, the Company and Mr. DeMedio entered into another amendment to his employment agreement pursuant to which Mr. DeMedio was granted an aggregate of 25,000 shares of common stock as a bonus for his performance during the last six months of the 2011 fiscal year which vest as follows: 8,333 on the date of signing the amendment; 8,333 on the first anniversary of such signing date; and 8,334 on the second anniversary of such signing date. Mr. DeMedio also agreed that the premiums for his supplemental long term disability policy being paid by the Company would now be included in his wages and be taxable to him.

F-35

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USA Technologies, Inc.

Notes to Consolidated Financial Statements

16. SUBSEQUENT EVENTS

LINE OF CREDIT

On July 10, 2012, the Company entered into a Loan and Security Agreement and other ancillary documents (the “Loan Documents”) with Avidbank Corporate Finance, a division of Avidbank (the “Bank”), providing for a secured asset-based revolving line of credit in an amount of up to $3.0 million (the “Line of Credit”). The Company intends to use advances underpursue its  claims in order  to recoup the Line of Credit towards the financing of growth initiatives like its JumpStart Program.chargebacks ..

F-20

The Loan Documents provide that the aggregate amount of advances under the Line of Credit shall not exceed the lesser of (i) $3.0 million, or (ii) 75% of eligible accounts receivable as defined in the Loan Documents plus 80% of the prior two months transaction processing revenues and networking service fees as defined in the Loan Documents, provided that the amounts advanced on account of such processing revenues and service fees shall not exceed $1,000,000 without the Bank’s prior consent.

The outstanding balance of the amounts advanced under the Line of Credit will bear interest at 2% above the prime rate as published in The Wall Street Journal or 5% whichever is higher. Interest is payable by the Company to the Bank on a monthly basis, provided, that the minimum interest payable by the Company to the Bank with respect to each six month period shall be $20,000.

The Line of Credit and the Company’s obligations under the Loan Documents are secured by substantially all of the Company’s assets, including its intellectual property. The term of the Line of Credit is one year. At the time of maturity all outstanding advances under the Line of Credit as well as any unpaid interest is due and payable. Prior to maturity of the Line of Credit, the Company may prepay amounts due under the Line of Credit without penalty, and subject to the terms of the Loan Documents, may re-borrow any such amounts.

The Loan Documents contain customary affirmative and negative covenants. The Loan Documents also require the Company to achieve a minimum Adjusted EBITDA, as defined in the Loan Documents, measured on a quarterly basis, and to maintain a balance of $3.0 million of unrestricted cash in accounts with the Bank. The Loan Documents also contain customary events of default, including, among other things, payment defaults, breaches of covenants, and bankruptcy and insolvency events, subject to grace periods in certain instances. Upon an event of default, the Bank may declare all of the outstanding obligations of the Company under the Line of Credit and Loan Documents to be immediately due and payable, and exercise any other rights provided for under the Loan Documents.

COMMON STOCK AND COMMON STOCK WARRANTS

In July 2012, the Board of Directors accepted the recommendation of the Compensation Committee that each of the three non-employee Directors who joined the Board after March 31, 2012 receive a stock award of 10,000 shares of Common Stock. A total of 30,000 shares of Common Stock were awarded with a grant date fair value of $1.45 per share, and vest as follows: 9,999 on August 10, 2012; 9,999 on August 10, 2013; and, 10,002 on August 10, 2014.

Warrants to purchase up to 291,432 shares of Common Stock, issued in conjunction with the 2009 Rights Offering (see Notes 11 and 12), exercisable at $2.20 per share expired unexercised on August 6, 2012.

PROXY CONTEST AND LITIGATION

The Company commenced a legal action against SAVE in May 2012. As part of the litigation, SAVE filed counterclaims against the Company and Stephen P. Herbert relating to, among other things, the June 28, 2012 annual meeting of shareholders. On August 16, 2012, the Company and SAVE entered into a Settlement and Release Agreement (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the SAVE Group and the SAVE Nominees have accepted the election of all of the Company’s director nominees by the shareholders at the June 28, 2012 annual meeting of shareholders and have agreed not to contest or challenge the election results and the Company, the SAVE Group, the SAVE Nominees and the USAT Directors have agreed to dismiss with prejudice the civil action filed on May 3, 2012 in the United States District Court for the Eastern District of Pennsylvania known as USA Technologies, Inc. v. Bradley Tirpak, et al., v. Stephen P. Herbert (Civil Action No. 12-2399-TJS) as well as all of the claims and counterclaims alleged therein.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures.

The principal executive officer and principal financial officer have evaluated the Company’s disclosure controls and procedures as of June 30, 2012.2015. Based on this evaluation, they conclude that because of the material weakness in our internal control over financial reporting discussed below, the disclosure controls and procedures were not effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 isare recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 isare accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Notwithstanding the material weakness discussed below, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that the consolidated financial statements included in this Form 10-K present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

(b) Management’s annual report on internal control over financial reporting.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rules 13a-15(f). The Company’s internal control over financial reporting is a process effectedaffected by the Company’s management to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

In designing and evaluating our disclosureinternal controls and procedures, our management recognized that disclosureinternal controls and procedures, no matter how well conceived and operated, can provide only a reasonable, not absolute, assurance that the objectives of the disclosureinternal controls and procedures are met.

The Company’s management assessed the effectiveness of its internal control over financial reporting as of June 30, 2012.2015. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission inCommission’s 2013 Internal Control—Integrated Framework. Based on its assessment, management believes that, asidentified deficiencies in both the design and operating effectiveness of June 30, 2012, the Company’s internal control over financial reporting, which when aggregated, represent a material weakness in internal control. The most significant of these was the process over the reconcilement, analysis and management oversight of certain customer accounts receivable balances related to customer processing and service fees. The procedures in place did not identify a large number of small balance accounts that may be uncollectible and were not appropriately dispositioned, collected, remediated, reserved-for and/or written-off. As a result, the Company changed its June 30, 2015 financial results included in its September 10, 2015 press release by increasing its bad debt reserve by approximately $450,000, resulting in an after-tax charge of approximately $270,000 relating to these customer accounts receivable. A material weakness is effective.

a deficiency or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a result of this material weakness, management concluded that the Company did not maintain effective control over financial reporting as of June 30, 2015. 

The Company’s internal controls over financial reporting with respect to the reconcilement, analysis and management oversight of certain customer accounts receivable balances are being evaluated and will be adjusted appropriately and remediated as soon as is practical.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to an exemption for smaller reporting companies under Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

(c) Changes in internal control over financial reporting.

There have been no changes during the quarter ended June 30, 20122015 in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.reporting except those reported in section 9 A (b) above.

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Item 9B. Other Information.

Not Applicable.

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PART III

Item 10. Directors,, Executive Officers and Corporate Governance.

DIRECTORS AND EXECUTIVE OFFICERS

Our Directors and executive officers, on August 31, 2012,September 15, 2015, together with their ages and business backgrounds were as follows:

Name		Age		Position(s) Held
Deborah G. Arnold (4)Steven D. Barnhart (2)(3)		6253		Director
Steven D. BarnhartJoel Brooks (1)(2)(3)(4)	50	56		Director
David M. DeMedio		4144		Chief FinancialServices Officer
Stephen P. Herbert		4952		Chief Executive Officer, Chairman of the Board of Directors
Joel Brooks (1)		53		Director
Frank A. Petito, III Albin F. Moschner(1)(3)		44		Director
Albin F. Moschner(3)		59		Director
Jack E. Price (1)(3)(4)		6762		Director
William J. Reilly, Jr.(1)(4)		6366		Director
William J. Schoch (4)		4750		Director
J. Duncan Smith		56		Chief Financial Officer

 

(1) Member of Audit Committee

(2) Lead independent director

(3) Member of Compensation Committee

(4) Member of Nominating and Corporate Governance Committee

Deborah G. Arnold joined

Each member of the Board of Directors ofwill hold office until the Company in February, 2012. Ms. Arnold is a member of our Nominating Committee. She has served on the Advisory Board of the Grameen Technology Center since October 20082016 annual shareholders’ meeting and was on the Advisory Board of United Nations Year of Microfinance and Women in Technology International from January 2005 to December 2006. Ms. Arnold was Vice President of global consumer products at Visa International from May 2001 to October 2006, and prior thereto she led the global smart card migration effort from October 1998 to May 2001. Ms. Arnold also led the development of a new payment product, Visa Horizon, for emerging markets from July 1995 to September 1998. Prior to joining Visa, she held a variety of executive positions in the telecommunications and financial services industries. Inuntil his or her consulting practice, Ms. Arnold has supported various organizations in the strategic planning and marketing of their products and programs. Shesuccessor has been deeply involved in driving the development of Near Field Communication technologyelected and standards, initially as a founding member of the NFC Forum in 2004 and since 2011 as the director of the 165+ member organization. Ms. Arnold holds a Bachelor of Arts degree from Duke University, obtained in 1972, as well as a certificate from Universite de Lausanne in Lausanne, Switzerland, awarded in 1971. We believe that Ms. Arnold’s record within the payments industry, both domestically and internationally, and her track record of helping companies develop strategies to capitalize on the abundant opportunities in the industry provide the requisite qualifications, skills, perspectives, and experiences to serve on our Board of Directors.

qualified.

Steven D. Barnhart was appointed to the Board of Directors in October 2009. Mr. Barnhart is Chairman of our Nominating Committeethe Company’s lead independent director and is a member of our Audit and Compensation Committees. Mr. Barnhart’s current term as a Director expires at the 2013 annual shareholders’ meeting. On November 14, 2011, the independent directors of the Company unanimously elected Mr. Barnhart as the Company’s first lead independent director.Committee. Since August 22, 2012,September 2014, Mr. Barnhart has been servingserved as the Senior Vice President and Chief Financial Officer for Bankrate, Inc. From August 2012 to June 2014, Mr. Barnhart served as the Senior Vice President and Chief Financial Officer of Sears Hometown and Outlet Stores, Inc., currently a subsidiary of Sears Holdings Corporation. From January 2010 to June 2012, Mr. Barnhart served as the Senior Vice President and Chief Financial Officer of Bally Total Fitness. Mr. Barnhart was Chief Executive Officer and President of Orbitz Worldwide from 2007 to January 2009, after holding other executive positions since 2003, when he joined the company. Prior to Orbitz Worldwide, he worked for PepsiCo and the Pepsi Bottling Group from 1990 to 2003, where he was Finance Director for the Southeast Business Unit of the Pepsi Bottling Group, and also held other regionalvarious finance and strategic positions for PepsiCo and Frito-Lay.strategy roles at PepsiCo. Mr. Barnhart received a Bachelor of ScienceArts degree in Economics in 1984 from the College of the University of Chicago and a Masters in Business Administration in 1988 from the University of Chicago.Chicago-Booth School of Business. Mr. Barnhart served on the Board of Directors of Orbitz Worldwide from 2007 to January 2009. We believe Mr. Barnhart’s extensive executive experience and leadership skills, and prior public board experience provide the requisite qualifications, skills, perspectives, and experiences to serve on our Board of Directors.

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Joel Brooks joined the Board of Directors of the Company during March 2007. Mr. Brooks’ current term as a Director expires at the 2013 annual shareholders’ meeting. Mr. Brooks is the ChairmanChair of our Audit Committee. Since December 2000,May 2015, Mr. Brooks has served as the Vice President, Finance, for MeiraGTx Limited. From December 2000 until May 2015, Mr. Brooks served as the Chief Financial Officer, Treasurer and Secretary of Sevion Therapeutics, Inc. (formerly Senesco Technologies, Inc.), a biotechnology company whose shares are traded on the NYSE Amex Exchange.OTCQB. From September 1998 until November 2000, Mr. Brooks was the Chief Financial Officer of Blades Board and Skate, LLC, a retail establishment specializing in the action sports industry. Mr. Brooks was Chief Financial Officer from 1997 until 1998 and Controller from 1994 until 1997 of Cable and Company Worldwide, Inc. He also held the position of Controller at USA Detergents, Inc. from 1992 until 1994, and held various positions at several public accounting firms from 1983 through 1992. Mr. Brooks received his Bachelor of Science degree in Commerce with a major in Accounting from Rider University in February 1983. We believe Mr. Brooks’ extensive accounting and finance background, and his executive experience at Senesco TechnologiesSevion Therapeutics, Inc. provide the requisite qualifications, skills, perspectives, and experiences to serve on our Board of Directors.

David M. DeMedio joined the Company on a full-time basis in March 1999 as Controller. In the summer of 2001, Mr. DeMedio was promoted to Director of Financial Services where he was responsible for the sales and financial data reporting to customers, the Company’s turnkey banking services and maintaining and developing relationships with credit card processors and card associations. In July 2003, Mr. DeMedio served as interim Chief Financial Officer through April 2004. From April 2004 until April 2005, Mr. DeMedio served as Vice President - Financial & Data Services. On April 12, 2005, he was appointed as the Company’s Chief Financial Officer and continued in that role until August 31, 2015, when he was appointed as the Company’s Chief Services Officer. From 1996 to March 1999, prior to joining the Company, Mr. DeMedio had been employed by Elko, Fischer, Cunnane and Associates, LLC as a supervisor in its accounting and auditing and consulting practice. Prior thereto, Mr. DeMedio held various accounting positions with Intelligent Electronics, Inc., a multi-billion reseller of computer hardware and configuration services. Mr. DeMedio graduated with a Bachelor of Science in Business Administration from Shippensburg University and is a Certified Public Accountant. From October 2007 until September 2008, Mr. DeMedio was a Director of GammaCan International, Inc.

Stephen P. Herbert has been our Chief Executive Officer and Chairman since November 30, 2011. Mr. Herbert’s current term as a Director expires at the 2013 annual shareholders’ meeting. He was elected a Directordirector in April 1996, and joined the Company on a full-time basis on May 6, 1996 as Executive Vice President. During August 1999, Mr. Herbert was appointed President and Chief Operating Officer of the Company. On October 5, 2011, Mr. Herbert was appointed as interim Chief Executive Officer and Chairman, and on November 30, 2011, he was appointed as the Chairman of the Board of Directors and Chief Executive Officer of the Company. 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. We believe Mr. Herbert’s position as the President and Chief Operating Officer of our Company until October 5, 2011 and as Chairman and Chief Executive Officer of the Company thereafter, his intimate knowledge and experience with all aspects of our Company, and his extensive vending experience at PepsiCo before joining our Company provide the requisite qualifications, skills, perspectives, and experiences to serve on our Board of Directors.

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Albin F. Moschner joined the Board of Directors of the Company in April, 2012. His current term as a Director expires atHe is the 2013 annual shareholders’ meeting. He isChair of our Compensation Committee and a member of our CompensationAudit Committee. Mr. Moschner served at Leap Wireless International, Inc. as the Chief Operating Officer from July 2008 to February 2011 and as Chief Marketing Officer from August 2004 to June 2008. Prior to joining Leap Wireless, Mr. Moschner served as President of the Verizon Card Services division of Verizon Communications, Inc. From January 1999 to December 2000, Mr. Moschner was President of One Point Services at One Point Communications. Mr. Moschner served at Zenith Electronics Corporation as President and Chief Executive Officer from 1995 to 1996 and as President, Chief Operating Officer and Director from 1994 to 1995. Mr. Moschner has also served in various managerial capacities at Tricord Systems, Inc. and International Business Machines Corp. Mr. Moschner has also been serving on the Board of Wintrust Financial Corporation since 1994. Mr. Moschner holds a Bachelor of Engineering in Electrical Engineering from The City College of New York, awarded in 1974, and a masters degree in Electrical Engineering awarded by Syracuse University in 1979. We believe that Mr. Moschner’s marketing, manufacturing and wireless industry experience and long standing prior public board experience provide the requisite qualifications, skills, perspectives, and experiences to serve on our Board of Directors.

Frank A. Petito, III

William J. Reilly, Jr., joined the Board of Directors of the Company in February,July 2012. His current term as a Director expires at the 2013 annual shareholders’ meeting. Mr. PetitoHe is a member of our Compensation Committee. He is President of Orbitz for Business,Audit and has also served as Senior Vice President ofNominating and Corporate Development for Orbitz Worldwide, Inc., which he joined in March 2002. Prior to joining Orbitz, Mr. Petito was a co-founder and CFO of Unexplored, Inc., a venture-backed online travel and services company from 1999 to 2001. He was an investment banker, and served as Vice President of mergers and acquisitions, at Hambrecht & Quist, a technology-focused investment bank in San Francisco from 1996 to 1999. Prior to that, Mr. Petito was an investment banker at Roberts Capital Markets from 1992 to 1994. He started his career at Morgan Stanley where he as an investment banker from 1990 to 1992. Mr. Petito obtained his MBA from Stanford Graduate School of Business in 1996 and his undergraduate degree from Princeton University in 1990. We believe that Mr. Petito’s breadth of experience at both large and small companies and his track record of successfully operating in a high growth, technology environment provide the requisite qualifications, skills, perspectives, and experiences to serve on our Board of Directors.

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Jack E. Price was appointed to the Board of Directors in October 2009. Mr. Price is Chairman of our Compensation Committee and a member of our Nominating Committee. Mr. Price’s current term as a Director expires at the 2013 annual shareholders’ meeting. Mr. Price was President and Chief Executive Officer of NovaRay Medical Inc. from 2007 to March 2009. Prior to that, he was President and Chief Executive Officer of VSM MedTech Ltd. from 2003 to 2006, and was President and Division Chief Executive Officer of Philips Medical Systems, North America from 1996 to 2003, having joined Philips Medical Systems in 1993 as Vice President and General Manager. He was also with General Electric Medical Systems from 1988 to1993, where he held Vice President and General Manager positions. Mr. Price received his undergraduate degree from the University of Oregon. Mr. Price is also Chairman of The Radiological Society of North America Board of Trustees. Mr. Price served on the Board of Directors of NovaRay Medical, Inc. from 2007 to 2009 and of Health Solutions Systems, Inc. from May 1, 2008 to March 2010. We believe Mr. Price’s extensive executive experience, leadership skills and prior public company board experience provide the requisite qualifications, skills, perspectives, and experiences to serve on our Board of Directors.

William J. Reilly, Jr., joined the Board in July 2012. His current term as a Director expires at the 2013 annual shareholders’ meeting.Governance Committees. He has been an independent consultant since January 2011. From September 2004 to November 2010, Mr. Reilly was President and Chief Executive Officer of Realtime Media, Inc., an interactive promotional marketing firm serving the pharmaceutical and consumer packaged goods markets. Following the sale of Realtime Media, Inc. in November 2010, Mr. Reilly was retained as a consultant until January 2011. From September 2002 to September 2004, Mr. Reilly was a principal at Chesterbrook Growth Partners, independent consultants to the private equity community. Between 1989 and 2002, Mr. Reilly served at various positions at Checkpoint Systems Inc., a multinational manufacturer and marketer of products and services for automatic identification, retail security, pricing and brand promotion, including as Chief Operating Officer, Executive Vice President, Senior Vice President of the Americas and Pacific Rim and Vice President of Sales. Prior to that, Mr. Reilly held national and sales management positions at companies in the medical electronics and telecommunications industries, including Minolta Corporation, Megatech Pty. Ltd. and Multitone Electronics PLC. He has also served on the Board of Veramark Technologies, Inc., a telecommunications software firm, from June 1997 to May 2008. Mr. Reilly graduated from Mount St. Mary’s University with a bachelors of science degree in Psychology in 1970. We believe that Mr. Reilly’s executive, business development and international experience provide the requisite qualifications, skills, perspectives and experiences to serve on our Board of Directors.

William J. Schoch joined the Board of Directors of the Company in July 2012. His current term as a Director expires atHe is the 2013 annual shareholders’ meeting. Hechair of our Nominating and Corporate Governance Committee. Mr. Schoch is the President and Chief Executive Officer of Western Payments Alliance, a non-profit payments association and has served in that capacity since March 2008. He serves on the Boards of Western Payments Alliance and NACHA, an industry trade association and the administrator of the Automated Clearing House (ACH) Network, and is on the steering committee of NACHA’s Council for Electronic Billing and Payment. From 1997 to 2008, Mr. Schoch worked at Visa International where, as the Vice President of Emerging Market Initiatives, he was responsible for the global development of the Visa Money Transfer Platform. Prior to that, Mr. Schoch served as a Vice President at Citibank, N.A. from 1989 to 1997 and as an Associate Director at NACHA from 1986 to 1989. Mr. Schoch obtained a Bachelor of Arts degree in 1986 from Indiana University of Pennsylvania with a major in Public Policy and a minor in Economics. We believe that Mr. Schoch’s experience and familiarity with the electronic payments industry and his leadership experience provide the requisite qualifications, skills, perspectives and experiences to serve on our Board of Directors.

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J. Duncan Smith joined the Company on a full-time basis as its Chief Financial Officer starting August 31, 2015. From April 2005 until July 2015, Mr. Smith served as the CFO, Executive Vice President, and Treasurer of Bryn Mawr Bank Corporation, a $3 billion bank holding company for The Bryn Mawr Trust Company and its subsidiaries. In such role, Mr. Smith oversaw all financial functions and was also responsible for treasury functions, capital market activities and investor relations. From March 1993 until March 2005, Mr. Smith was the CFO of First Chester County Corporation in West Chester, Pennsylvania, a community bank holding corporation. From April 1998 to March 1993, Mr. Smith served as CFO of Security First Bank, in Media, Pennsylvania, a start-up banking operation. Mr. Smith also has approximately seven years of experience with several public accounting firms including Grant Thornton and Ernst & Young. Mr. Smith graduated with a Bachelor of Science/ Bachelor of Arts in Accounting degree from Shippensburg University, a Masters in Business Administration from Pennsylvania State University’s School of Graduate Professional Studies and a Masters’ Degree in Taxation from Widener University. Mr. Smith is a certified public accountant.

AUDIT COMMITTEE FINANCIAL EXPERT

The Board of Directors has a standing Audit Committee presently consisting of each of Mr. Brooks (Chairman), and Messrs. Barnhart, Price,Reilly and Reilly.Moschner. The Company’s Board of Directors has determined that Joel Brooks ishas met the additional independence criteria required for Audit Committee financial expert serving on the Audit Committee as defined bymembership under applicable SEC rules. The Board has also determined that Mr. Brooks is “independent” as such term is defined by applicable SEC rules.

NASDAQ listing standards.

CODE OF BUSINESS CONDUCT AND ETHICS

Our Board has adopted a Code of Ethics, which applies to all executive officers, directors and employees of the Company, including our Chief Executive Officer, Chief Financial Officer, Chief Services Officer and Controller. A copy of our Code of Business Conduct and Ethics is accessible on the Company’s website,www.usatech.com.

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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors and executive officers, and persons who own more than 10% of the Company’s Common Stock, to file with the Securities and Exchange Commission reports of ownership and changes in ownership of Common Stock. Officers, directors and greater than 10% beneficial owners are required by Securities and Exchange Commission regulations to furnish the Company with copies of all Section 16(a) forms they file.

We believe that, during the 2015 fiscal year, all of the Company’s directors and executive officers filed reports required by Section 16(a) on a timely basis.

Item 11. ExecutiveExecutive Compensation.

COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion Andand Analysis

From July 1, 2009, provides information about our compensation program for our named executive officers as of June 30, 2015 (collectively, the “named executive officers”): Stephen P. Herbert- Chairman and through October 2009, ourChief Executive Officer; David M. DeMedio- Chief Financial Officer; Michael Lawlor-Senior Vice President of Sales and Business Development; and Maeve Duska- Senior Vice President of Marketing.

Fiscal Year 2015 Business Highlights

The Compensation Committee consistedhas developed a compensation policy that is designed to attract and retain key executives responsible for the Company’s success and motivate management to enhance long-term shareholder value.

Fiscal year 2015 financial highlights, compared to the prior year, included:

·

37% increase in total revenues to $58.1 million;

·

22% increase in license and transaction fee revenues to $43.6 million;

·

115% increase in equipment sale revenues to $14.4 million primarily attributable to the QuickStart program which was reintroduced in September 2014;

·

Total connections to the Company’s cashless payment and telemetry service, ePort Connect®, grew by 57% to 333,000; and

·

Year-end cash position of $11.4 million as compared to $9.1 million as of the end of the prior fiscal year.

Notwithstanding the substantial progress made by the Company during the 2015 fiscal year, the Company did not achieve all of Steven Katz and William Van Alen, Jr. Effective October 2009, our Compensation Committee consisted of Mr. Katz, Mr. Van Alen and Jack Price. Effective February 2010, our Compensation Committee consisted of Mr. Katz, Mr. Price and Peter Michel. Effective May 2010 and through June 28, 2011, our Compensation Committee was comprised of Jack Price, Steven Barnhart, and Peter Michel. Effective June 28, 2011, and through July 24, 2012,the target goals established by the Compensation Committee consistedfor compensation of Messrs. Priceour executive officers under the Fiscal Year 2015 Short-Term Incentive Plan (“2015 STI Plan”) and Barnhart. From July 24, 2012Fiscal Year 2015 Long-Term Incentive Performance Share Plan (“2015 LTI Stock Plan”). When the target goals were established, the Committee believed that the attainment of the target goals would represent a significant achievement for management and through the date of this Form 10-K, thewere designed to stretch individual and corporate performance.

Our 2015 Compensation Committee consisted of Messrs. Price, Barnhart, PetitoGoals and Moschner.

Objectives

The Compensation Committee is responsible for annually reviewing and recommending to the Board for approval the corporate goals and objectives relevant to the compensation and compensation changes forof the executive officers of the Company.Company, evaluating the executive officers’ performance in light of those goals and objectives, and recommending for approval to the Board the executive officers’ compensation levels based on this evaluation. The compensation of the two other employees named in the Summary Compensation Table isMr. Lawlor and Ms. Duska was determined by our Chief Executive Officer in consultation with the executive officers.Compensation Committee. The Chief Executive Officer assistsassisted the Committee in determiningestablishing the compensation of allour other executive officers and the other executive officers do not have a role in determining their own compensation.officer, David DeMedio. Our Chief Executive Officer regularly provides information to the Compensation Committee. The Compensation Committee considers each component of executive compensation in light of total compensation. In considering adjustments to the total compensation of the executive officers, the Compensation Committee also considers the value of previousChief Executive Officer is not present during voting or deliberations on his compensation. The Compensation Committee has, from time to time, retained aan independent compensation consultant, Buck Consultants, LLC, as deemed necessary to assist the Committee to makein making appropriate recommendations regarding our executive officer’sofficers’ compensation.

We have developed a compensation policy that is designed to attract and retain key executives responsible for our success and motivate management to enhance long-term shareholder value. The Compensation Committee believes that compensation of the Company’s executive officers should encourage creation of shareholder value and achievement of strategic corporate objectives, and the Committee seeks to align the interests of the Company’s shareholders and management by integrating compensation with the Company’s annual and long-term corporate and financial objectives. The Compensation Committee also ties a significant portion of each executive officer’s compensation to key operational and financial goals and performance.

We have also designed and implemented our compensation package in order to be competitive with other companies in our peer group, as compiled by our compensation consultant, and to motivate and retain our executive officers. Our compensation package also takes into account individual responsibilities and performance.

Certain elements of our compensation reflect different compensation objectives. For example, as base salaries are generally fixed in advance of the year in which the compensation will be earned, the Committee believes that it is appropriate to determine base salaries with a focus on similarly situated officers at comparable peer group companies while also having them reflect the officer’s performance. On the other hand, annual bonuses and long-term incentives are better able to reflect the Company’s performance as measured by total number of connections, total revenues, non-GAAP net income, adjusted EBIDTA, and cash generated from operations. In addition, annual bonuses and long-term incentive awards, including the performance goals they are based on, help us achieve our goal of retaining executives, and motivating executive officers to increase shareholder value. The other elements of compensation reflect the Committee’s and Board’s philosophy that personal benefits, including retirement and health benefits, should be available to all employees on a non-discriminatory basis.

Our Executive Compensation Practices

Our compensation program for our executive officers features many commonly used “best practices” including:

·

Pay-for-performance. A substantial part of our executive officer’s pay is, in our view, performance based. For the 2015 fiscal year, our Chief Executive Officer had approximately 62% of his total target compensation tied to performance while our Chief Financial Officer had approximately 55% of his total target compensation tied to performance.

·

Stretch performance goals. Our performance target goals under our 2015 STI Plan and 2015 LTI Stock Plan are designed to stretch individual and organizational performance in order to receive target payouts.

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·

Capped payouts under incentive plans. Both our long-term and short-term bonus programs have maximum payout amounts in order to discourage excessive risk taking.

·

Stock ownership guidelines. We have significant ownership guidelines. Our Chief Executive Officer is required to hold common stock with a value equal to a multiple of three times his base salary and our Chief Financial Officer is required to hold common stock with a value equal to one time his base salary.

·

No Tax Gross-Up Provisions. Our compensation program does not include any excise tax gross-up provisions with respect to payments contingent upon a change of control.

·

Limited perquisites for our executives. Perquisites are not a significant portion of our executive officers’ compensation, representing 1% of Mr. Herbert’s and 1% of Mr. DeMedio’s total target compensation.

·

Independent compensation consultant. The Committee has from time to time retained an independent compensation consultant, Buck Consultants, LLC, to review the executive compensation programs and practices.

·

No payment on change of control without a “double trigger”. Payments under our employment agreements require two events for vesting – both the change of control and a “good reason” for termination of employment.

·

No repricing of underwater options. Our stock option incentive plan does not permit repricing or the exchange of underwater stock options without shareholder approval.

Pay-for-Performance Review

Pay-for-performance is an important component of our compensation philosophy and is evident in the structure of our compensation program. Our compensation approach is designed to motivate our executive officers to substantially contribute to the Company’s long-term sustainable growth. Our pay-for-performance approach provides that a large portion of our executive officers’ total compensation should be in the form of short-term and long-term incentive awards with performance hurdles designed to stretch individual and organizational performance.

Reinforcing pay-for-performance is a significant underpinning of our compensation program. During the 2015 fiscal year, a total of 62% of Mr. Herbert’s and 55% of Mr. DeMedio’s total target compensation was in the form of performance-based variable compensation designed to motivate them to deliver strong business performance and create shareholder value. These compensation elements were dependent upon the Company’s achievement of pre-established financial and other business goals recommended by the Committee as well as individual goals established by the Committee or consisted of stock option awards which are inherently performance based as they only deliver value if the stock price increases. All stock options awarded by the Committee are exercisable at the closing share price on the date of the grant. Based on actual results, the annual variable compensation amount and the ultimate value of the equity compensation awards could have been significantly reduced if the Company or management did not perform.

For fiscal year 2015, the targeted aggregate compensation of our named executive officers consisted of the following components expressed as a percentage of total compensation:

Named Executive Officer		Base Salary		Annual Bonus		Long-Term Incentive Compensation		Perquisites & Other Benefits		Total Compensation
Stephen P. Herbert		37%		15%		47%		1%		100%
David M. DeMedio		44%		11%		44%		1%		100%
Michael Lawlor		49%		49%		0%		2%		100%
Maeve Duska		63%		37%		0%		0%		100%

The long-term incentive compensation in the above table does not reflect the one-time awards to Mr. Herbert of non-qualified stock options to purchase up to 150,000 shares, to Mr. DeMedio of non-qualified stock options to purchase up to 90,000 shares, to Mr. Lawlor of incentive stock options to purchase up to 25,000 shares, or to Ms. Duska of incentive stock options to purchase up to 25,000 shares. The foregoing awards are, however, reflected in the table set forth below as long-term incentive compensation. The long-term incentive compensation in the above table and in the table set forth below each reflect the awards to Mr. Herbert of incentive stock options to purchase up to 55,555 shares and to Mr. DeMedio of incentive stock options to purchase up to 33,333 shares.

For fiscal year 2015, the aggregate compensation actually paid or awarded to our named executive officers consisted of the following components expressed as a percentage of total compensation:

Named Executive Officer		Base Salary		Annual Bonus		Long-Term Incentive Compensation		Perquisites & Other Benefits		Total Compensation
Stephen P. Herbert		40%		12%		47%		1%		100%
David M. DeMedio		47%		6%		46%		1%		100%
Michael Lawlor		64%		15%		18%		3%		100%
Maeve Duska		73%		15%		12%		0%		100%

Peer Group Analysis

In July 2014, the Company obtained an updated analysis from Buck Consultants, LLC which contained a new peer group and updated the compensation analysis that had been previously performed. Buck Consultants, LLC assembled a peer group of 15 companies that it deemed comparable to the Company on the basis of size, market capitalization, industry, or financial performance. The peer group consisted of:

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·	Clearfield, Inc.		·	Netsol Technologies, Inc.		·	Procera Networks, Inc.
·	Immersion Corp.		·	Local Corp.		·	Tangoe, Inc.
·	Digimarc Corp.		·	Numerex Corp.		·	Transact Technologies, Inc.
·	Jive Software, Inc.		·	Onvia, Inc.		·	Westell Technologies, Inc.
·	LGL Group, Inc.		·	Planar Systems, Inc.		·	Planet Payment, Inc.

When making compensation decisions, the Committee reviews the aggregate target compensation paid to an executive officer relative to the compensation paid to similarly situated executives, to the extent available, at our peer companies. For fiscal year 2015, the Committee recommended a compensation program for our executive officers consisting of target level compensation approximately equal to the 50th percentile for similarly situated officers at the peer group companies compiled by Buck Consultants.

Elements of Compensation

This section describes the various elements of our compensation program for our named executive officers during the 2015 fiscal year. The components of compensation reflected in our named executive officers’ compensation program are set forth in the following table:

Element		Key Characteristics		Why We Pay this Element		How We Determine the Amount
Base Salary		Fixed compensation component payable in cash. Reviewed annually and adjusted when appropriate.		Provide a base level of competitive cash compensation for executive talent.		Experience, job scope, peer group, and individual performance.
Annual Bonus		Variable compensation component payable in cash or stock based on performance as compared to annually-established company and/or individual performance goals.		Motivate and reward executives for performance on key operational, financial and personal measures during the year.		Organizational and individual performance, with actual payouts based on the extent to which performance goals are satisfied.
Long Term Incentives		Variable compensation component payable in restricted stock or stock options.		Alignment of long term interests of management and shareholders. Retention of executive talent.		Organizational and individual performance, with actual awards based on the extent to which goals are satisfied.
Perquisites and Other Personal Benefits		Fixed compensation component to provide basic competitive benefits.		Provide a base level of competitive compensation for executive talent.		Periodic review of benefits provided generally to all employees.

Base Salary

Base salary is the fixed component of our named executive officers’ annual cash compensation and is set with the goal of attracting talented executives and adequately compensating and rewarding them for services rendered during the fiscal year. The Compensation Committee reviews our executive officers’ base salary on an annual basis.

The base salaries of each of our executive officers reflect the individual’s level of responsibility and performance. In recommending base salaries of our executive officers to the Board of Directors, the Compensation Committee also considers changes in duties and responsibilities, our business and financial results, and its knowledge of base salaries paid to executive officers of our peer group. The base salaries of each of Ms. Duska and Mr. Lawlor were established by our Chief Executive Officer after discussions with each employee.

None of our named executive officer’s base salaries were increased during the 2015 fiscal year.

Annual Bonus

Performance-based annual bonuses are based on each named executive officer’s achievement of performance goals. Annual bonuses are intended to provide officers with an opportunity to receive additional cash compensation based on their individual performance and Company results, including the achievement of pre-determined Company and/or individual performance goals. Performance-based bonuses are included in the compensation package because they incentivize our named executive officers, in any particular year, to pursue particular objectives that are consistent with the overall goals and strategic direction that the Board has set for the Company for that year.

The Committee believes that the annual performance-based bonus reinforces the pay-for-performance nature of our compensation program.

Fiscal Year 2015 Short-Term Incentive Plan

At the recommendation of the Compensation Committee, the Board of Directors adopted the 2015 STI Plan covering Messrs. Herbert and DeMedio. Pursuant to the 2015 STI Plan, each executive officer would earn a cash bonus in the event that the Company achieved during the 2015 fiscal year certain annual financial goals (80% weighting) and certain annual specific performance goals relating to the executive officer which were established by the Compensation Committee (20% weighting). The annual financial goals are total revenues (30% weighting), cash generated from operations (30% weighting), and non-GAAP net income (40% weighting). Assuming the minimum threshold target goal would be achieved for a particular metric, the amount of the cash bonus to be earned would be determined on a pro rata basis, provided that the bonus would not exceed the maximum distinguished award for that metric.

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The individual performance goals established by the Committee for Mr. Herbert included developing a long-term financial model, implementing a management reorganization plan to support growth of the Company, and continuing to evolve enterprise risk management. The individual performance goals established by the Committee for Mr. DeMedio included developing a long-term financial model, securing QuickStart funding sources to support the growth of the Company, and continuing to evolve enterprise risk management.

The Committee set the cash bonus opportunity for each executive officer as a percentage of his respective annual base salary as set forth in the following table.

Named Executive Officer		Threshold Performance				Target Performance				Distinguished Performance
Stephen P. Herbert			-				40	%			80	%
David M. DeMedio			-				25	%			50	%

Below were the threshold, target and distinguished cash bonus award target opportunities for our executive officers:

Named Executive Officer		Threshold Performance				Target Performance				Distinguished Performance
Stephen P. Herbert		$	-			$	136,491			$	272,982
David M. DeMedio		$	-			$	59,469			$	118,938

Mr. Herbert earned a cash bonus of $101,732, representing 29.8% of his base salary, and Mr. DeMedio earned a cash bonus of $31,242 representing 13.1% of his base salary, under the 2015 STI Plan. The Committee determined that Mr. Herbert had achieved the individual maximum distinguished performance goals established by the Committee (200%) and Mr. DeMedio had achieved 90% of the individual target performance goals established by the Committee. Based on the actual performance of the Company during the 2015 fiscal year, the minimum threshold performance targets established under the 2015 STI Plan were not met for operating cash and non-GAAP net income. Revenues for the fiscal year were in excess of the target goal but less than the maximum distinguished target goal.

The cash bonuses were paid to the executive officers in September 2015.

Other Named Executive Officers’ Cash Bonus

For the fiscal year ended June 30, 2015, the cash bonuses earned by Mr. Lawlor and Ms. Duska were based upon the attainment of financial target goals by the Company relating to connections (35% weighting), revenues (15% weighting), non-GAAP net income (25% weighting), and adjusted EBITDA (25% weighting). Based on the actual performance of the Company during the 2015 fiscal year, the minimum threshold performance targets were not met for non-GAAP net income and adjusted EBITDA. Connections for the fiscal year were in excess of the minimum threshold target goal but less than the target goal and revenues were in excess of the target goal but less than the maximum distinguished target goal. The cash bonuses were paid to the officers in September 2015.

Duska Stock Bonus

During July 2014, and subsequent to the end of the 2014 fiscal year, Ms. Duska was awarded 24,155 vested shares of common stock as a one-time bonus in recognition of her performance during the 2014 fiscal year. Although the Compensation Committee considered this bonus to be part of Ms. Duska's fiscal year 2014 compensation and is not considered to be part of her compensation for the 2015 fiscal year under this Compensation Discussion and Analysis, this stock award is reflected as required by applicable disclosure regulations in the fiscal year 2015 compensation tables set forth below.

Long-Term Incentive Compensation

As described above, the Committee believes that a substantial portion of each executive officer’s compensation should be in the form of long-term incentive compensation in order to further align the interests of our executive officers and shareholders.

Fiscal Year 2015 Long-Term Incentive Performance Share Plan

At the recommendation of the Compensation Committee, the Board of Directors adopted the 2015 LTI Stock Plan covering Messrs. Herbert and DeMedio. Under the 2015 LTI Stock Plan, each executive officer would be awarded shares of common stock in the event that certain metrics relating to the Company’s 2015 fiscal year would result in specified ranges of year-over-year percentage growth. The metrics are total number of connections as of June 30, 2015 as compared to total number of connections as of June 30, 2014 (50% weighting), and adjusted EBITDA earned during the 2015 fiscal year as compared to adjusted EBITDA earned during the 2014 fiscal year (50% weighting). The shares awarded under the 2015 LTI Stock Plan would vest as follows: one-third on the date of issuance; one-third on the first anniversary of the date of issuance; and one-third on the second anniversary of the date of issuance.

At the time of the establishment of the 2015 LTI Stock Plan, the Compensation Committee believed that the attainment of the target goals under the 2015 LTI Stock Plan would represent a significant achievement for management, and were designed to stretch the Company’s and management’s performance during the fiscal year.

The Committee established target long-term award levels for each executive officer as a percentage of his respective annual base salary as indicated in the table set forth below.

Named Executive Officer		Threshold Performance				Target Performance				Distinguished Performance
Stephen P. Herbert			-				100	%			200	%
David M. DeMedio			-				75	%			150	%

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The table set forth below lists the value of the shares that would have been awarded to the executive officers under the 2015 LTI Stock Plan if all of the minimum threshold performance goals had been achieved, if all of the target performance goals had been achieved, and if all of the distinguished performance goals had been achieved. Assuming the minimum threshold target goal was achieved for a particular metric, the number of shares to be awarded for that metric was required to be determined on a pro-rata basis, provided that the award could not exceed the maximum distinguished award for that metric.

Named Executive Officer		Threshold Performance				Target Performance				Distinguished Performance
Stephen P. Herbert		$	-			$	341,227			$	682,454
David M. DeMedio		$	-			$	179,653			$	359,306

Based on the actual performance of the Company during the 2015 fiscal year, the minimum threshold performance target established under the 2015 LTI Stock Plan was not met for adjusted EBITDA. Connections for the fiscal year were in excess of the minimum threshold but less than the target goal. Consequently, the stock award to each executive officer under the 2015 LTI Stock Plan was as follows:

		Number of Shares				Value of Shares as of June 30, 2015
Stephen P. Herbert			42,678			$	115,230
David M. DeMedio			22,314			$	60,247

The shares awarded to Mr. Herbert had a value equal to 33.8% of his annual base salary, and the shares awarded to Mr. DeMedio had a value equal to 25.3% of his annual base salary. The shares were issued (subject to the vesting requirements) to the executive officers in September 2015.

Stock Option Awards

During August 2014, Mr. Herbert was awarded incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), to purchase up to 55,555 shares at an exercise price of $1.80 per share. The options vest on September 1, 2015, and expire if not exercised prior to September 1, 2021. Mr. Herbert was also awarded non-qualified stock options to purchase up to 150,000 shares at an exercise price of $1.80 per share. The options vest as follows: one-third on September 1, 2015; one-third on September 1, 2016; and one-third on September 1, 2017. The options expire if not exercised prior to September 1, 2021.     

During August 2014, Mr. DeMedio was awarded incentive stock options intended to qualify under Section 422 of the Code to purchase up to 33,333 shares at an exercise price of $1.80 per share. The options vest on September 1, 2015, and expire if not exercised prior to September 1, 2021. Mr. DeMedio was also awarded non-qualified stock options to purchase up to 90,000 shares at an exercise price of $1.80 per share. The options vest as follows: one-third on September 1, 2015; one-third on September 1, 2016; and one-third on September 1, 2017. The options expire if not exercised prior to September 1, 2021.

During April 2015, Mr. Lawlor was awarded incentive stock options intended to qualify under Section 422 of the Code to purchase up to 25,000 shares at an exercise price of $2.75 per share. The options vest as follows: one-third on April 8, 2016; one-third on April 8, 2017; and one-third on April 8, 2018. The options expire if not exercised prior to April 8, 2022.

During January 2015, Ms. Duska was awarded incentive stock options intended to qualify under Section 422 of the Code to purchase up to 25,000 shares at an exercise price of $1.62 per share. The options vest as follows: one-third on January 2, 2016; one-third on January 2, 2017; and one-third on January 2, 2018. The options expire if not exercised prior to January 2, 2022.

Perquisites and Other Benefits

Our named executive officers were entitled to the health care coverage, group insurance and other employee benefits provided to all of our other employees.

Post-Termination Compensation

As set forth in his employment agreement, upon the termination of Mr. Herbert’s employment under certain circumstances, including termination by the Company without cause or by a notice of non-renewal of the employment agreement, or under certain circumstances following a change of control of the Company, the Company has agreed to pay Mr. Herbert a lump sum amount equal to two times his annual base salary and all restricted stock awards or stock options would become vested as of the date of termination.

As set forth in his employment agreement, upon the termination of Mr. DeMedio’s employment under certain circumstances, including termination by the Company without cause or by a notice of non-renewal of the employment agreement, or under certain circumstances following a change of control of the Company, the Company has agreed to pay Mr. DeMedio a lump sum amount equal to one times his annual base salary and all restricted stock awards or stock options would become vested as of the date of termination.

We believe that these provisions are an important component of each executive’s employment arrangement and will help to secure the continued employment and dedication of our executive officers, notwithstanding any concern that they might have at such time regarding their own continued employment, prior to or following a change of control.

The Committee notes that there would be no payments to our executive officers upon a change of control without a “double trigger”. Payments under our employment agreements require two events for vesting – both the change of control and a “good reason” for termination of employment.

Additional information regarding what would have been received by our executive officers had termination occurred on June 30, 2015 is found under the heading “Potential Payments upon Termination or Change of Control” on page 43 of this Form 10-K.

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Stock Ownership Policy

We believe that providing our executive officers who have responsibility for the Company’s management and growth with an opportunity to increase their ownership of Company stockshares aligns the interests of the executive officers with those of the shareholders. In furtherance thereof, in April 2011, the Board approvedOur Stock Ownership Guidelines that were recommended by the Compensation Committee. These guidelines provide that the Chief Executive Officer should own shares with a value of at least three times his annual base salary, and the Chief Financial Officer should own shares with a value of at least one time his annual base salary. The guidelines provide that the executive officers have a period of five years to attain these levels of ownership.

In order to be competitive with compensation offered by other companies in our custom peer group, as compiled by our compensation consultant, and to motivate and retain executive officers, the Company intends to offer a total compensation package competitive with other companies in our custom peer group as well as take into account individual responsibilities and performance. The annual compensation package for our executives primarily consists of all or some of the following:

●           a base salary;

●           stock options;

●           restricted stock awards;

●           cash and stock bonuses;

●           long-term stock incentive awards; and

●           other benefits.

Base Salary

Base salary is the fixed component of our executive officer’s annual cash compensation and is set with the goal of attracting talented executives and adequately compensating and rewarding them for services rendered during the fiscal year. Our executive officers’ employment agreements specify the level of salary to which the officer is entitled, subject to review of our board of directors or Compensation Committee from time to time. During November 2011, and in connection with his appointment as Chief Executive Officer, we recommended that Mr. Herbert’s existing base salary be increased by an amount equal to the annual costs to the Company of the car allowance and supplemental long-term disability insurance coverage which had previously been provided to him and which had been discontinued. On September 5, 2012, the Board approved our recommendation that Mr. Herbert’s base salary be increased by an amount equal to the annual premiums being paid by the Company for a life insurance policy on Mr. Herbert’s life that was being discontinued. Effective July 1, 2011, we increased Mr. DeMedio’s base salary approximately eighteen percent in order for his base salary to more competitive with the base salaries of chief financial officers of the companies in our custom peer group as compiled by our compensation consultant. On September 5, 2012, the Board approved our recommendation that Mr. DeMedio’s base salary be increased by the annual amount of the car allowance that was being discontinued. The base salaries of our executive officers reflect the individual’s level of responsibility and performance. In recommending base salaries of our executive officers to the board of directors, the Compensation Committee also considers changes in duties and responsibilities, our business and financial results, the relationship among base salaries paid to others within our Company, and its knowledge of base salaries paid to executive officers of our custom peer group. The base salaries for each of Messrs. Sagady and Lawlor are set forth in their respective employment agreements, and were established by our Chief Executive Officer after discussions with each employee.

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As set forth in his employment agreement, upon the termination of Mr. Herbert’s employment under certain circumstances, including termination by him with good cause or by the Company without cause or by a notice of non-renewal of the employment agreement, the Company has agreed to pay him a lump sum amount equal to two times his annual base salary. We believe that these provisions are an important component of the executive’s employment arrangements.

Stock Options

Stock options serveEach executive officer has until April 2016 to ensure that executive management is properly focused on shareholder value. Stock options align management incentives with shareholder’s objectives because options granted at fair value have value only if the stock price increases over time. A vesting schedule also keeps the executives focused on long term performance and not short term gains. No stock options have been issued to our executive officers or employees during the 2010, 2011, or 2012 fiscal years.

Restricted Stock Awards

During the 2010, 2011, and 2012 fiscal years, the Compensation Committee has recommended that restricted stock be awarded to our executive officers. These restricted stock awards become vested over a period of time, and are issued under the Company’s incentive stock compensation plans. During September 2009, and in conjunctioncomply with the executionpolicy.

Our Stock Ownership Guidelines provide that each non-employee director should own shares of their amended and restated employment agreements, we awarded an aggregatecommon stock with a value of 39,000 shares under our stock incentive plan as a bonus to Messrs. Jensen and Herbert. During April 2011, and based upon past performance and in consideration ofat least five times his or her annual cash retainer. For this purpose, the extension of their employment agreements, we awarded an aggregate of 225,000 shares under our stock incentive plan to our executive officers. During September 2011, we issued 150,000 shares under our incentive stock plan to Mr. Jensen and 100,000 shares under our incentive stock plan to Mr. Herbert in exchangeannual retainer shall include the annual retainer for service on the elimination of certain provisions in their employment agreements requiring the Company to pay excise taxes and related tax gross up payments in connection with excess parachute payments in the event of a change in control of the Company. The Compensation CommitteeBoard as well as the annual retainer for serving on one (but not more than one) Committee of the Board for a total share value of at least $150,000. Each director has until June 30, 2016 to comply with the stock ownership requirements, and future directors would have five years to comply.

For purposes of these guidelines, “shares” include shares owned by the executive officer or director or by such person’s immediate family members residing in the same household and include non-vested restricted stock awards held by the executive officer or non-employee director.

Effect Of 2015 Say-On-Pay Vote

At the 2015 annual meeting of shareholders, over 88% of the votes cast on the advisory vote on the compensation of our named executive officers believed that these provisions were no longer appropriate given current compensation practices and represented good corporate governance. During September 2011, we issued 25,000 shares under our incentive stock plan to Mr. DeMedio as a bonus for performance during the last six monthsin favor of the 2011 fiscal year.

On September 5, 2012,Company’s executive compensation disclosed in the proxy statement. The Compensation Committee considered the vote, and even though the results convey strong shareholder support for the Company’s executive compensation programs and the Compensation Committee’s decisions, the Committee determined that it was in recognition of his successful leadershipthe best interest of the Company following the separation of the former CEO as well as his successful leadership in connection with the implementation of the Company’s financial turnaround plan, the Board approvedand its shareholders to continue to evaluate our recommendationexecutive compensation programs and, awarded Mr. Herbert 71,429 shares of unvested common stock under our stock incentive plan having a value of $100,000. These shares would become vested upon the attainment of various closing prices for thirty consecutive trading days at any time during  the three year period following the date of the award. One-third of the shares would become vested if the closing price would be at least $2.00 per share, one-third of the shares would become vested if the closing price would be at least $2.25 per share, and one-third of the shares would become vested if the closing price would be at least $2.50 per share.

Cash and Stock Bonuses

In additionappropriate, to base salary, we may award variable cash bonus awards to our executives as well as shares available under our incentive stock compensation plans.

On September 15, 2011, at the recommendation of the Compensation Committee, the board of directors adopted the Fiscal Year 2012 Performance Share Plan (the “2012 Plan”) covering the Company’s executive officers. Under the 2012 Plan, each executive officer will be awarded common stock in the event the Company achieves target goals during the fiscal year ending June 30, 2012 relating to the total number of connections, total revenues, operating expenses, and operating earnings. Operating earnings is defined as earnings before interest and taxes (after bonus accruals and stock awards) and before non-operating gains or losses. The number of eligible shares to be awarded to the executives is based upon the following weightings: 30% by the total number of connections; 30% by total revenues; 10% by operating expenses; and 30% by operating earnings. No awards would be made under the 2012 Plan if either (i) none of the minimum, threshold performance target goals have been achieved, or (ii) if operating earnings for the 2012 fiscal year are not equal or better than those during the 2011 fiscal year.

If all of the target performance goals are achieved, the executive officers would be awarded the following number of shares: Mr. Herbert – 120,000 shares; and Mr. DeMedio – 50,000 shares. If all of the minimum, threshold performance target goals are achieved, the executive officers would be awarded 20% of the number of shares which would have been awarded to them if all of the target performance goals had been achieved. If all of the maximum, distinguished performance target goals are achieved, the executive officers would be awarded 150% of the number of shares which would have been awarded to them if all of the target performance goals had been achieved. If the actual results for the fiscal year are less than the target goals (but greater than the minimum, threshold performance target goals), each executive would be awarded a lesser pro rata portion of the number of eligible shares. 

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Based upon the financial results of the Company for the fiscal year ended June 30, 2012, the minimum threshold targets under the 2012 Plan relating to revenues and connections were met. As a result of the approximately $2.2 million of expenses incurred in connection with the proxy contest and related litigation and the $975,000 of expenses incurred in connection with the separation of the former Chief Executive Officer of the Company, operating earnings were less than those for the 2011 fiscal year and the minimum threshold targets under the 2012 Plan relating to operating expenses and operating earnings were not met.

On September 5, 2012, the Board of Directors of the Company approved the recommendation of the Compensation Committee that the expenses incurred in connection with the proxy contest and related litigation and the separation of the former Chief Executive Officer of the Company should be excluded from the operating expenses and operating earnings metrics under the 2012 Plan. The Compensation Committee and the Board did not believe that costs related to these unusual non-operating events should be included for purposes of evaluating operating performance under the 2012 Plan.

On this adjusted basis, operating earnings were better than those of the 2011 fiscal year and met the target goal under the 2012 Plan, and operating expenses met the maximum, distinguished target goal under the 2012 Plan, resulting in the award of 136,285 shares, as follows: Stephen P. Herbert, Chief Executive Officer- 96,201 shares; and David M. DeMedio, Chief Financial Officer- 40,084 shares.

Mr. Herbert’s November 30, 2011 employment agreement with the Company provides that he will receive a cash bonus of $30,000 if the Company would achieve the minimum threshold target goals under the 2012 Plan, of $50,000 if the Company would achieve the target goals under the 2012 Plan, and of $75,000 if the Company would achieve the maximum distinguished target goals under the 2012 Plan. Based on performance against the 2012 Plan, on the adjusted basis approved by the Board of Directors described above, Mr. Herbert earned a cash bonus of $40,000.

On September 5, 2012, at the recommendation of the Compensation Committee, the board of directors adopted the Fiscal Year 2013 Performance Share Plan (the “2013 Plan”) covering the Company’s executive officers. Under the 2013 Plan, each executive officer would be awarded common stock in the event the Company achievesstrengthen certain performance goals during the fiscal year ending June 30, 2013. The metrics under the 2013 Plan as well as the relative weightingsaspects of these metrics are identical to those originally set forth in the 2012 Plan. No awards would be made under the 2013 Plan if either (i) none of the minimum, threshold performance target goals have been achieved, or (ii) if operating earnings for the 2013 fiscal year are not equal or better than those during the 2012 fiscal year.

If all of the target goals are achieved under the 2013 Plan, the executive officers would be awarded shares having the following value: Mr. Herbert – $275,000; and Mr. DeMedio – $100,000 shares. If all of the minimum, threshold performance target goals are achieved, the executive officers would be awarded shares having the following value: Mr. Herbert – $75,000; and Mr. DeMedio – $25,000. If all of the maximum, distinguished performance target goals are achieved, the executive officers would be awarded shares having the following value: Mr. Herbert – $550,000; and Mr. DeMedio – $200,000. If the actual results for the fiscal year are less than the target goals (but greater than the minimum, threshold performance target goals), each executive would be awarded a lesser pro rata number of shares and if actual results are greater than the maximum, distinguished goals, each executive would be awarded a greater pro rata number of shares. The Compensation Committee believes that the attainment of the target goals under the 2013 Plan would represent a significant achievement for management.

On September 5, 2012, the Board also approved our recommendation that Mr. Herbert would earn a cash bonus of $30,000 if he achieved certain minimum threshold target goals during the 2013 fiscal year, of $50,000 if he achieved target goals, and of $75,000 if he achieved maximum distinguished target goals during the 2013 fiscal year. The specific strategic performance goals to be utilized for purposes of Mr. Herbert’s bonus plan are to be established by the Compensation Committee and approved by the Board.

Long-Term Stock Incentive Awards

During February 2007, at the recommendation of the Compensation Committee, the board of directors adopted the LTIP Program covering the Company’s executive officers – Messrs. Jensen, Herbert and DeMedio. The purpose of the LTIP Program was to ensure continuity of the Company’s executives, encourage stock ownership by the executives, align the interests of the executives with those of the shareholders, and provide incentives and rewards to the executives who are largely responsible for the management and growth of the Company. The last fiscal year covered by the LTIP Program was the fiscal year ended June 30, 2010.

Under the LTIP Program, each executive officer was awarded common stock of the Company in the event the Company achieved target goals relating to each of revenues, GP and EBITDA during each of the fiscal years ended June 30, 2007, June 30, 2008, and June 30, 2010. EBITDA is defined as earnings before interest, taxes, depreciation, and amortization, and excludes non-cash stock payments/awards and stock options granted to officers and members of the board of directors. During each such fiscal year, the number of eligible shares to be awarded to the executive was based upon the following weightings: 40% of eligible shares was determined by revenues; 30% of eligible shares was determined by GP; and 30% of eligible shares was determined by EBITDA.

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If the target goal (100%) for revenues, GP, and EBITDA was achieved by the Company during the applicable fiscal year, the executive officers would be awarded the following number of shares: Mr. Jensen – 178,570 shares; Mr. Herbert – 53,713 shares; and Mr. DeMedio – 21,664 shares.

If actual revenues, GP, or EBITDA for a particular fiscal year exceeded the target goals, each executive would be awarded additional eligible shares, up to an amount no greater than 125% of the number of eligible shares. If the actual revenues, GP, or EBITDA for a particular fiscal year were less than the target goals, each executive would be awarded a lesser pro rata portion of the number of eligible shares. If minimum target goals for revenues, GP, or EBITDA for a particular fiscal year were not achieved, no eligible shares would be awarded to each executive. 

Based upon the financial results of the Company for the fiscal year ended June 30, 2010, a lower than target goal (85%) relating to revenues was met and the minimum target goals relating to GP and EBITDA were not met. As a result, the Company issued to the executive officers of a total of 86,342 shares under the LTIP Program for the 2010 fiscal year, as follows: Mr. Jensen-60,716 shares; Mr. Herbert- 18,261 shares; and Mr. DeMedio- 7,365 shares.

Other Benefits

During the 2010, 2011 and 2012 fiscal years, our executive officers were entitled to the health care coverage, group insurance and other employee benefits provided to all of our employees. We have recently recommended to the Board and the Board has approved the discontinuance of some of our executive officers’ fringe benefits which are in excess of those generally available to the Company’s other employees. In this regard, in November 2011, Mr. Herbert’s automobile allowance was discontinued and the Company ceased paying the premiums for a supplemental long-term disability policy for Mr. Herbert over and above the existing long-term group disability plan of the Company. On September 5, 2012, the Board approved our recommendation that the Company discontinue payment of the premiums for a $1,500,000 face amount life insurance policy on Mr. Herbert. On September 5, 2012, the Board approved our recommendation that the Company discontinue payment of the automobile allowances for each of Messrs. DeMedio, Lawlor and Sagady. As discussed above, the base salaries of the executives were increased by an amount equal to the annual payments attributable to these discontinued fringe benefits.

As discussed elsewhere in this Form 10-K, the Company has agreed to pay health insurance for a one year period following Mr. DeMedio’s termination of employment by the Company without cause.

programs.

Impact of Taxation and Accounting Considerations on Executive Compensation

The Compensation Committee and the Board of Directors take into account tax and accounting consequences of the compensation program and weigh these factors when setting total compensation and determining the individual elements of any named executive officer’s compensation package.

The restricted stock and option awards to our named executive officers under our equity incentive stock plans or under the 2012 Plan or 2013 Plan provide that the executiveofficer is responsible for any withholding or payroll tax obligations incurred by the Company in connection with the award, and that the executiveofficer may satisfy any such obligations by, among other things, either the delivery to the Company of a cash payment equal to the obligations, or the assignment or transfer to the Company of shares having a value equal to the obligations, or such other method that shall be satisfactory to the Company.

In order to have any benefits payable to the executive officers under their supplemental long term disability policies not be included in their taxable income, the Compensation Committee recommended to the Board of Directors that the premiums therefore should be included in their wages from the Company, and such a change was included in each of their September 2011 employment contract revisions. As discussed above, the supplemental long-term disability policy of Mr. Herbert was discontinued in November 2011. 

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COMPENSATION COMMITTEE REPORT

The following “Compensation Committee Report” shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.

The Compensation Committee reviewed the above Compensation Discussion and Analysis and discussed its contents with Company management. Based on the review and discussions, the Committee has recommended to the Board of Directors that this Compensation Discussion and Analysis be included in the Form 10-K for the fiscal year ended June 30, 2012.

Respectfully submitted:

Jack E. Price, Chairman

Steven D. Barnhart

Albin F. Moschner

Frank A. Petito, III

49

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Summary Compensation Table

The following table sets forth certain information with respect to compensation paid or accrued by the Company during the fiscal years ended June 30, 2012, 2011,2015, 2014, and 20102013 to each of theour named executive officers and employees of the Company named below: 

Name and
Principal		Fiscal										Stock				All Other
Position		Year		Salary				Bonus (3)				Awards (4)				Compensation (5)				Total
George R. Jensen, Jr.		2012		$	113,941			$	-			$	171,000			$	425,111			$	710,052
Former Chief Executive Officer		2011		$	365,000			$	-			$	293,750			$	31,137			$	689,887
& Chairman of the Board (1)		2010		$	365,000			$	-			$	52,500			$	38,675			$	456,175
Stephen P. Herbert		2012		$	332,246			$	40,000			$	391,300			$	18,748			$	782,294
Chief Executive Officer, President		2011		$	320,000			$	-			$	176,250			$	24,874			$	521,124
& Chairman of the Board (2)		2010		$	320,000			$	-			$	15,750			$	32,412			$	368,162
David M. DeMedio		2012		$	219,615			$	-			$	134,542			$	18,190			$	372,347
Chief Financial Officer		2011		$	195,000			$	-			$	58,750			$	19,175			$	272,925
		2010		$	195,000			$	-			$	-			$	28,941			$	223,941
Cary Sagady		2012		$	193,066			$	64,680			$	-			$	16,016			$	273,762
Sr. VP Product Management &		2011		$	188,606			$	88,689			$	-			$	10,444			$	287,739
Network Solutions		2010		$	185,000			$	13,209			$	-			$	15,997			$	214,206
Michael Lawlor		2012		$	173,745			$	96,320			$	36,200			$	15,197			$	321,462
VP of Sales & Business		2011		$	166,077			$	148,170			$	-			$	10,283			$	324,530
Development		2010		$	-			$	-			$	-			$	-			$	-

officers: 

		Fiscal												Stock				Option				All Other
Name and Principal Position		Year				Salary				Bonus (1)				Awards (2)				Awards (3)				Compensation (4)				Total
Stephen P. Herbert			2015			$	341,227			$	101,732			$	341,227			$	261,055			$	10,400			$	1,055,641
Chief Executive Officer, President			2014			$	341,227			$	29,673			$	341,227			$	-			$	10,000			$	722,127
& Chairman of the Board			2013			$	341,227			$	51,250			$	111,399			$	-			$	10,000			$	513,876
David M. DeMedio			2015			$	239,537			$	31,242			$	178,406			$	156,633			$	2,562			$	608,380
Chief Financial Officer			2014			$	237,875			$	17,238			$	213,709			$	-			$	-			$	468,822
			2013			$	234,265			$	-			$	4,024			$	-			$	4,813			$	243,102
Maeve Duska			2015			$	179,800			$	36,512			$	50,000			$	28,773			$	-			$	295,085
Sr. VP of Marketing			2014			$	155,708			$	9,572			$	-			$	-			$	-			$	165,280
			2013			$	133,000			$	40,450			$	-			$	-			$	6,750			$	180,200
Michael Lawlor			2015			$	179,800			$	44,186			$	-			$	50,283			$	7,830			$	282,099
Sr. VP of Sales & Business			2014			$	179,800			$	15,953			$	-			$	-			$	8,670			$	204,423
Development			2013			$	179,800			$	62,930			$	-			$	-			$	10,000			$	252,730

(1)

Mr. Jensen resigned his employment with the Company on October 14, 2011.

(2)	Mr. Herbert was formerly the Company’s President and Chief Operating Officer through October 4, 2011 and interim Chairman and Chief Executive Officer from October 5 through November 28, 2011. Mr. Herbert was named Chairman of the Board, Chief Executive Officer and President on November 30, 2011.

(3)	For fiscal year 2012, representsRepresents cash bonuses earned upon such person’s performance during the fiscal year or upon the attainment by the Company of certain target goals.

(4)

40

(2)

In accordance with FASB ASC Topic 718, the price of our common stock on the grant date equals the grant date fair value of these stock awards.

(5)

The following table shows each component For fiscal year 2015, represents (i) 191,701 shares with a value of $341,227 that would have been earned by Mr. Herbert under the 2015 LTI Stock Plan if all of the column above titled “All Other Compensation.”target goals had been achieved, (ii) 100,228 shares with a value of $178,406 that would have been earned by Mr. DeMedio under the 2015 LTI Stock Plan if all of the target goals had been achieved, and (iii) 24,155 shares with a value of $50,000 granted to Ms. Duska as a bonus on July 28, 2014. Based on the actual financial results, Mr. Herbert was awarded 42,678 shares with a grant date value of $75,967 and Mr. DeMedio was awarded 22,314 shares with a grant date value of $39,719 under the 2015 LTI Stock Plan. If all of the maximum target levels had been achieved under the 2015 LTI Stock Plan, Mr. Herbert would have earned 383,457 shares with a grant date value of $682,554, and Mr. DeMedio would have earned 200,456 shares with a grant date value of $356,812. The shares earned under the 2015 LTI Stock Plan vest as follows: one-third on June 30, 2015; one-third on June 30, 2016; and one-third on June 30, 2017.

50

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				Company				Long-term
				401(k)				Disability				Life
				Matching				Insurance				Insurance				Auto
Name and Principal Position		Fiscal Year		Contributions				Premiums				Premiums				Allowance				Severance				Total
George R. Jensen, Jr.		2012		$	3,104			$	-			$	5,555			$	5,500			$	410,952			$	425,111
Former Chief  Executive Officer		2011		$	2,262			$	5,445			$	5,555			$	17,875			$	-			$	31,137
& Chairman of the Board (1)		2010		$	9,800			$	5,445			$	5,555			$	17,875			$	-			$	38,675
Stephen P. Herbert		2012		$	9,800			$	-			$	1,385			$	7,563			$	-			$	18,748
Chief Executive Officer, President		2011		$	2,262			$	3,352			$	1,385			$	17,875			$	-			$	24,874
& Chairman of the Board		2010		$	9,800			$	3,352			$	1,385			$	17,875			$	-			$	32,412
David M. DeMedio		2012		$	-			$	-			$	315			$	17,875			$	-			$	18,190
Chief Financial Officer		2011		$	-			$	985			$	315			$	17,875			$	-			$	19,175
		2010		$	9,800			$	951			$	315			$	17,875			$	-			$	28,941
Cary Sagady		2012		$	8,012			$	-			$	204			$	7,800			$	-			$	16,016
Sr. VP Product Management &		2011		$	1,708			$	732			$	204			$	7,800			$	-			$	10,444
Network Solutions		2010		$	8,073			$	-			$	124			$	7,800			$	-			$	15,997
Michael Lawlor		2012		$	7,193			$	-			$	204			$	7,800			$	-			$	15,197
VP of Sales & Business		2011		$	1,547			$	732			$	204			$	7,800			$	-			$	10,283
Development		2010		$	-			$	-			$	-			$	-			$	-			$	-

(1)           Mr. Jensen resigned his employment with the Company on October 14, 2011.

(3)

In accordance with FASB ASC Topic 718, the Black-Scholes value on the grant date equals the grant date fair value of these option awards. For fiscal year 2015, represents (i) 55,555 incentive stock options valued at $70,555 and 150,000 non-qualified stock options valued at $190,500 awarded to Mr. Herbert on August 28, 2015, (ii) 33,333 incentive stock options valued at $42,333 and 90,000 non-qualified stock options valued at $114,300 awarded to Mr. DeMedio on August 28, 2015, (iii) 25,000 incentive stock options valued at $28,773 awarded to Ms. Duska on January 2, 2015 and vesting one-third on January 2, 2016; one-third on January 2, 2017; and one-third on January 2, 2018, and (iv) 25,000 incentive stock options valued at $50,283 awarded to Mr. Lawlor on April 8, 2015 and vesting one-third on April 8, 2016; one-third on April 8, 2017; and one-third on April 8, 2018 . The incentive stock options awarded to Messrs. Herbert and DeMedio vested on September 1, 2015. The non-qualified stock options awarded to Messrs. Herbert and DeMedio vest as follows: one-third on September 1, 2015; one-third on September 1, 2016; and one-third on September 1, 2017.

(4)

During the 2015 fiscal year, represents matching 401(k) contributions for Messrs. Herbert, DeMedio and Lawlor.

Grants Of Plan-Based Awards Table

The table below summarizes the amounts of awards granted to our named executive officers and employees during the fiscal year ended June 30, 2012:

				Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1)												Estimated Future Payouts Under Equity Incentive Plan Awards												All Other Stock Awards: Number of Shares of Stock or				Grant Date Fair Value of Stock and Option (3)
		Grant
Name		Date		Threshold ($)				Target ($)				Maximum ($)				Threshold (#)				Target (#)				Maximum (#)				Units (#)				Awards ($)
George R. Jensen, Jr.	(2)	9/15/2011			-				-				-				45,000				225,000				337,500				-			$	-
		9/27/2011			-				-				-				-				-				-				100,000			$	171,000
Stephen P. Herbert		9/15/2011			-				-				-				24,000				120,000				180,000				-			$	220,300
		9/27/2011			-				-				-				-				-				-				100,000			$	171,000
		11/29/2011			30,000				50,000				75,000				-				-				-				-			$	-
David M. DeMedio		9/15/2011			-				-				-				10,000				50,000				75,000				-			$	91,792
		9/27/2011			-				-				-				-				-				-				25,000			$	42,750
Cary Sagady					-				-				-				-				-				-				-			$	-
Michael Lawlor		4/27/2012			-				-				-				-				-				-				20,000			$	36,200

2015:

				Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1)												Estimated Future Payouts Under Equity Incentive Plan Awards (2)												All Other Stock Awards: Number of Shares of Stock or Units (3)				All Other Option Awards: Number of Securities Underlying Options (4)				Exercise or Base Price of Option Awards				Grant Date Fair Value of Stock and Option Awards (5)
Name		Grant Date		Threshold ($)				Target ($)				Maximum ($)				Threshold (#)				Target (#)				Maximum (#)				Units (#)				Units (#)				$/Sh				Awards ($)
Stephen P. Herbert					-				136,491				272,982				-				-				-				-				-				-			$	-
		8/28/2014			-				-				-				-				191,701				383,402				-				-				-			$	341,227
		8/28/2014			-				-				-				-				-				-				-				205,555				-			$	261,055
David M. DeMedio					-				59,469				118,938				-				-				-				-				-				-			$	-
		8/28/2014			-				-				-				-				100,228				200,456				-				-				-			$	178,406
		8/28/2014			-				-				-				-				-				-				-				123,333				-			$	156,633
Maeve Duska					-				107,880				134,850				-				-				-				-				-				-			$	-
		7/28/2014			-				-				-				-				-				-				24,155				-				-			$	50,000
		1/2/2015			-				-				-				-				-				-				-				25,000				1.62			$	28,773
Michael Lawlor					-				179,800				224,750				-				-				-				-				-				-			$	-
		4/8/2015			-				-				-				-				-				-				-				25,000				2.75			$	50,283

(1)

In November 2011, our Board of Directors approvedRepresents awards granted to Messrs. Herbert and DeMedio under the Amended and Restated Employment and Non-Competition Agreement between the Company and Stephen P Herbert.2015 STI Plan. The Agreementplan provides for the payment to Mr. Herbertaward of a cash bonus of $30,000 if the Company would achieve all targets are achieved as follows: Mr. Herbert - $136,491 and Mr. DeMedio - $59,469. If none of the minimum, threshold performance target goals undertargets are achieved, the Fiscal Year 2012 Executive Performance Plan, of $50,000 if the Companyexecutive officers would achieve all of the target performance goals under the plan, and of $75,000 if the Company would achievenot earn a cash bonus. If all of the maximum distinguished performance target goals are achieved, the executive officers would earn a cash bonus as follows: Mr. Herbert – $272,982 and Mr. DeMedio – $118,938. Mr. Herbert was awarded $101,732 and Mr. DeMedio was awarded $31,242 under the plan.

Represents cash bonus opportunity for Ms. Duska and Mr. Lawlor if all of the target goals were achieved and if all maximum target goals are achieved. Ms. Duska was awarded $26,512 and Mr. Lawlor was awarded $44,186.

(2)

Represents awards granted under the 2015 LTI Stock Plan. The plan provides for the award of shares having the following value if all targets are achieved; Mr. Herbert - $341,227 and Mr. DeMedio - $178,406. If none of the minimum threshold year-over-year percentage target goals are achieved, the executive officers would not be awarded any shares; and if all maximum distinguished targets are achieved the executive officers would be awarded shares having the following value; Mr. Herbert - $682,454 and Mr. DeMedio - $356,812. The number of shares in the table above represents the total dollar value of the award divided by the grant date value of the share. Mr. Herbert was awarded 42,678 shares and Mr. DeMedio was awarded 22,314 shares under the plan of which one-third vested on June 30, 2015, one-third vests on June 30, 2016 and one-third vests on June 30, 2017.

(3)

Represents a stock award of 24,155 shares granted to Ms. Duska and which vested immediately.

(4)

Represents awards granted to Messrs. Herbert and DeMedio as follows: Mr. Herbert - 55,555 incentive stock options and 150,000 non-qualified stock options; and Mr. DeMedio - 33,333 incentive stock options and 90,000 non-qualified stock options. The incentive stock options awarded to Messrs. Herbert and DeMedio vested on September 1, 2015. The non-qualified stock options awarded to Messrs. Herbert and DeMedio vest as follows: one-third on September 1, 2015; one-third on September 1, 2016; and one-third on September 1, 2017.

(2)41

Mr. Jensen resigned his employment with the Company on October 14, 2011.

Represents 25,000 incentive stock options granted to Ms. Duska which vest one-third on January 2, 2016; one-third on January 2, 2017; and one-third on January 2, 2018. Represents 25,000 incentive stock options granted to Mr. Lawlor which vest one-third on January 2, 2016; one-third on January 2, 2017; and one-third on January 2, 2018

(3)(5)

Amount represents the grant date fair value determined in accordance with ASC 718. For Messrs. Herbert and DeMedio, represents the grant date value of 191,701 shares and 100,228 shares, respectively, which would have been awarded if the target goals had been achieved under the 2015 LTI Stock Plan. Based on the actual financial results, Mr. Herbert was awarded 42,678 shares with a grant date value of $75,967 and Mr. DeMedio was awarded 22,314 shares with a grant date value of $39,719 under the 2015 LTI Stock Plan.

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Outstanding Equity Awards At Fiscal Year-End

The following table shows information regarding unexercised stock options and unvested equity awards granted to the named executive officers as of the fiscal year ended June 30, 2015:

		Option Awards														Stock Awards
Name		Number of Securities Underlying Unexercised Options(#) Exercisable				Number of Securities Underlying Unexercised Options(#) Unexercisable				Option Exercise Price($)				Option Expiration Date		Number of Shares or Units of Stock That Have Not Vested (#)				Market Value of Shares or Units of Stock That Have Not Vested($)
Stephen P. Herbert			-				205,555	(1)		$	1.80			9/1/2021
			-				-			$	-						12,216	(2)		$	32,983
			-				-			$	-						28,452	(3)		$	76,820
David M. DeMedio			-				123,333	(1)		$	1.80			9/1/2021
			-				-			$	-						6,387	(2)		$	17,245
			-				-			$	-						14,876	(3)		$	40,165
Maeve Duska			-				25,000	(1)		$	1.62			1/2/2022			-			$	-
Michael Lawlor			-				25,000	(1)		$	2.75			4/8/2022			-			$	-

(1)

Reflects options awarded during the fiscal year ended June 30, 2015. Options vest as follows: Mr. Herbert – 105,555 options on September 1, 2015, 50,000 on September 1, 2016 and 50,000 on September 1, 2017; Mr. DeMedio – 63,333 options on September 1, 2015, 30,000 on September 1, 2016 and 30,000 on September 1, 2017; Ms. Duska - 8,334 options on January 2, 2016, 8,333 on January 2, 2017 and 8,333 on January 2, 2018; and Mr. Lawlor – 8,334 options on April 8, 2016, 8,333 on April 8, 2017 and 8,333 on April 8, 2018.

(2)

Reflects shares awarded under the 2014 LTI Stock Plan. Shares vest on June 30, 2016. The closing market price on June 30, 2015, or $2.70 per share, was used in the calculation of market value.

(3)

Reflects shares awarded under the 2015 LTI Stock Plan. Shares vest one-half on June 30, 2016 and one-half on June 30, 2017. The closing market price on June 30, 2015, or $2.70 per share, was used in the calculation of market value.

Option Exercises And Stock Vested

The following table sets forth information regarding options exercised and shares of common stock acquired upon vesting by our named executive officers and employees during the fiscal year ended June 30, 2012:

		Option Awards								Stock Awards
		Number of								Number of
		Shares				Value				Shares				Value
		Acquired on				Realized on				Acquired on				Realized on
Name		Exercise (#)				Exercise ($)				Vesting (#)				Vesting ($)
George R. Jensen, Jr. (1)			-			$	-				141,667			$	195,500
Stephen P. Herbert (2)			-			$	-				154,534			$	229,991
David M. DeMedio (3)			-			$	-				56,750			$	83,537
Cary Sagady			-			$	-				-			$	-
Michael Lawlor			-			$	-				-			$	-

2015:

(1)

Represents 50,000 shares valued at $1.71 per share that vested on September 27, 2011, and 91,667 shares valued at $1.20 per share that vested on October 14, 2011. Mr. Jensen resigned his employment with the Company on October 14, 2011.42

(2)	Represents 33,333 shares valued at $1.71 per share that vested on September 27, 2011, 25,000 shares valued at $1.34 per share that vested on April 14, 2012 and 96,201 shares valued at $1.45 that vested on June 30, 2012.

(3)	Represents 8,333 shares valued at $1.71 per share that vested on September 27, 2011, 8,333 shares valued at $1.34 per share that vested on April 14, 2012 and 40,084 shares valued at $1.45 that vested on June 30, 2012.

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Outstanding Equity Awards At Fiscal Year-End

The following table shows information regarding unexercised stock options and unvested equity awards granted to the executive officers as of the fiscal year ended June 30, 2012:

		Option Awards									Stock Awards
Name		Number of Securities Underlying Unexercised Options(#) Exercisable				Option Exercise Price($)			Option Expiration Date		Number of Shares or Units of Stock That Have Not Vested (#)				Market Value of Shares or Units of Stock That Have Not Vested($)
George R. Jensen, Jr. (5)			25,000	(1)		$	7.50		6/29/2013			-				-
Stephen P. Herbert			6,000	(1)		$	7.50		6/29/2013			25,000	(2)		$	36,250
												66,667	(3)		$	96,667
David M. DeMedio			2,333	(1)		$	7.50		6/29/2013			8,333	(2)		$	12,083
												16,667	(3)		$	24,167
Cary Sagady			-			$	-					-				-
Michael Lawlor			-			$	-					20,000	(4)		$	29,000

(1)           Options vested and became exercisable on June 30, 2008.

(2)	Reflects shares granted under amendments dated April 14, 2011, to employment agreements. Shares vest on April 14, 2013. The closing market price on June 30, 2012, or $1.45 per share, was used in the calculation of market value.

(3)

Reflects shares granted under amendments dated September 27, 2011, to employment agreements. Mr. Herbert’s shares vest as follows: 33,333 shares vest on September 27, 2012 and 33,334 shares vest on September 27, 2013. Mr. DeMedio’s shares vest as follows: 8,333 shares vest on September 27, 2012 and 8,334 shares vest on September 27, 2013. The closing market price on June 30, 2012, or $1.45 per share, was used in the calculation of market value.

(4)

Reflects shares granted under an amendment dated April 27, 2012, to an employment agreement. Mr. Lawlor’s shares vest as follows: 5,000 shares on September 30, 2012; 5,000 shares on December 31, 2012; 5,000 shares on March 31, 2013; and 5,000 shares on June 30, 2013. The closing market price on June 30, 2012, or $1.45 per share, was used in the calculation of market value.

(5)	Mr. Jensen resigned his employment with the Company on October 14, 2011.

		Option Awards								Stock Awards
		Number of								Number of
		Shares				Value				Shares				Value
		Acquired on				Realized on				Acquired on				Realized on
Name		Exercise (#)				Exercise ($)				Vesting (#)				Vesting ($)
Stephen P. Herbert			-			$	-				50,251			$	140,201
David M. DeMedio			-			$	-				13,825			$	37,328
Maeve Duska			-			$	-				24,155			$	50,000
Michael Lawlor			-			$	-				-			$	-

Executive Employment Agreements

Stephen P. Herbert

On September 24, 2009, Mr. Herbert and the Company entered into an Amended and Restated Employment Agreement which replaced his prior employment agreement. The Agreement extended the term of

Mr. Herbert’s employment withagreement provides that he has been appointed Chairman and is employed as the Chief Executive Officer. The agreement provided for an initial term continuing through January 1, 2013, which is automatically renewed for consecutive one year periods unless terminated by either Mr. Herbert or the Company upon at least 90 days’ notice prior to the end of the initial term or any one year extension thereof.

David M. DeMedio

Mr. DeMedio’s employment agreement provides that he is employed as the Chief Services Officer of the Company effective August 31, 2015 and as Chief Financial Officer prior thereto. The agreement provided for an initial term from June 30, 2011 until SeptemberJune 30, 2012,2014, and will automatically continue from year to year thereafter unless terminated as of the end of the original term or any such one year renewal period by the Company or Mr. HerbertDeMedio by at least 90-days90-days’ notice. Mr. Herbert was granted 9,000 shares

Maeve Duska

Ms. Duska is employed as Vice President of common stock under the 2008 Stock Incentive Plan which vested as follows: 3,000 on October 1, 2009; 3,000 on April 1, 2010;Marketing. Ms. Duska is covered by all standard fringe and 3,000 on September 30, 2010.

The agreement continued Mr. Herbert’s base salary at $320,000 per annum. The agreement requires Mr. Herbertemployee benefits made available to devote his full time and attention to the business and affairsother employees of the Company, including medical and obligates him not to engage in any investments or activities which would competedental insurance, paid vacation and holidays, a 401(k) plan and a long-term disability plan.

Michael Lawlor

Mr. Lawlor’s employment agreement provides that he is employed as Senior Vice President of Sales and Business Development through June 30, 2013. Mr. Lawlor’s employment with the Company duringshall automatically continue for consecutive one-year periods unless terminated by either party upon notice of at least 60 days prior to the termend of each one-year extension.

Mr. Lawlor is eligible to earn an annual discretionary bonus in the maximum amount of 100% of his annual base salary based upon the Company’s and/or his performance. Mr. Lawlor is also entitled to be covered by all standard fringe and employee benefits made available to other employees of the Company, including medical and dental insurance, paid vacation and holidays, a 401(k) plan and a long-term disability plan.

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL

The employment agreements of Messrs. Herbert and DeMedio include provisions for the payment to the executives upon termination of employment under certain conditions or if a successor to the Company’s business or assets does not agree to assume and perform his employment agreement and foras a condition to the consummation of a USA Transaction.

The term “USA Transaction” means: (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, or (iii) a change in the composition of the Board of Directors of the Company over a period of two years thereafter. The Company has agreedtwelve (12) months or less such that the continuing directors fail to obtain and pay the premiums forconstitute a term life insurance policy in the amount of $1,500,000 on the life of Mr. Herbert while he is employed by the Company. Mr. Herbert has the right to designate the beneficiarymajority of the policy. The Company has agreed to obtain and pay the premiums for a supplemental long term disability policy covering Board.

Mr. Herbert over and above the existing long-term group disability plan of the Company. If he shall become disabled while employed by the Company, the policy would provide for monthly disability coverage of up to 65% of his monthly base compensation payable to age 65 or death.

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TheHerbert’s employment agreement also provides that if Mr. Herbert would terminate his employment with the Company for good reason, (as defined in the agreement), or if the Company would terminate his employment without cause, (as defined in the agreement), then the Company would pay to him a lump sum equal to two times his base salary on or before the termination of his employment and all unvested restricted stock awards and stock options would become immediately vested. In addition, upon any such termination of Mr. Herbert’s employment, the Company has agreed, at its cost, for a period of two years, to continue to provide Mr. Herbert with health, life and disability benefits substantially similar to those which he had been receiving immediately prior to the date of termination. The term good reason as defined in the agreement, includes: (A) a material breach of the terms of the agreement by the Company; (B) the assignment by the Company to Mr. Herbert of duties in any way materially inconsistent with his authorities, duties, or responsibilities, or a material reduction or alteration in the nature or status of his authority, duties, or responsibilities as the President of the Company; (C) the Company reduces Mr. Herbert’s annual base salary; or (D) a material reduction by the Company in the kind or level of employee benefits to which Mr. Herbert is entitled immediately prior to such reduction with the result that his overall benefit package is significantly reduced unless such failure to continue a plan, policy, practice or arrangement pertains to all plan participants generally. As a condition to Mr. Herbert receiving any payments or benefits upon his termination of his employment for good reason, Mr. Herbert shall have executed and delivered (and not revoked) a release of any and all claims, suits, or causes of action against the Company and its affiliates in form reasonably acceptable to the Company.

The agreement also provides that as a condition of the consummation of a USA Transaction (as defined in the agreement), the successor to the Company’s business or assets would agree to assume and perform Mr. Herbert’s employment agreement. If any such successor would not do so, Mr. Herbert’s employment would terminate on the date of consummation of the USA Transaction, and the Company would pay to Mr. Herbert a lump sum equal to two times his base salary on or before the termination of his employment, all unvested restricted stock awards and stock options would become immediately vested, and, at its cost, for a period of two years would continue to provide Mr. Herbert with health, life and disability benefits substantially similar to those which he is receiving immediately prior to the date of termination.

On April 14, 2011, the Company and Mr. Herbert entered into an amendment to the employment agreement. The amendment extended the term of Mr. Herbert’s employment with the Company from September 30, 2012 until June 30, 2014. In connection with the amendment, and in recognition of his dedicated and valuable service to the Company and extending the term of his employment agreement, Mr. Herbert was issued 75,000 shares of common stock under the 2010 Stock Incentive Plan which vest as follows: 25,000 on April 14, 2011; 25,000 on April 14, 2012; and 25,000 on April 14, 2013.

On September 27, 2011, the Company and Mr. Herbert entered into a second amendment to his employment agreement. The amendment eliminated the provisions of his prior agreement which obligated the Company to pay any excise taxes attributable to any excess parachute payments which would be received by Mr. Herbert upon the occurrence of a USA Transaction as well as the Company’s related obligation to make tax gross up payments. The new agreement also stated that the premiums for Mr. Herbert’s supplemental long term disability policy being paid by the Company would now be included in his wages and be taxable to him. In exchange for eliminating the excise tax and related gross up provisions, the Company issued an aggregate of 100,000 shares of common stock to Mr. Herbert under its stock incentive plans which vest as follows: 33,333 on the date the agreement was signed by Mr. Herbert and the Company; 33,333 on the first anniversary of the date of signing; and 33,334 on the second anniversary of the date of signing.

On November 30, 2011, the Company and Mr. Herbert entered into an Amended and Restated Employment and Non-Competition Agreement that replaced his prior employment agreement with the Company. The agreement provides for an initial term continuing through January 1, 2013, which is automatically renewed for consecutive one year periods unless terminated by either Mr. Herbert or the Company upon at least ninety days notice prior to the end of the initial term or any one year extension thereof. The agreement continues the existing compensation and fringe benefits received by Mr. Herbert under Section 2 of his prior employment agreement except that (i) his base salary is $341,227 which is equal to the base salary under his prior employment agreement plus an amount equal to the cost to the Company of the car allowance and supplemental disability insurance coverage provided to him under his prior employment agreement; (ii) the car allowance and supplemental disability insurance coverage that had been provided to him under his prior employment agreement have been discontinued; and (iii) he is eligible for a cash bonus as described in the next sentence. The agreement provides for the payment to Mr. Herbert of a cash bonus of $30,000 if the Company would achieve all of the minimum threshold performance target goals under the Fiscal Year 2012 Performance Share Plan, of $50,000 if the Company would achieve all of the target performance goals under the plan, and of $75,000 if the Company would achieve all of the maximum distinguished performance target goals under the plan.

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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 two years thereafter. The Company has agreed to pay the premiums for a term life insurance policy in the amount of $1,500,000 on the life of Mr. Herbert while he is employed by the Company. Mr. Herbert has the right to designate the beneficiary of the policy.

The agreement also provides that if Mr. Herbert would terminate his employment with the Company for good reason (as defined in the agreement), or if the Company would terminate his employment without cause (as defined in the agreement), or if the Company would provide Mr. Herbert with a notice of non-renewal of his employment agreement, then the Company would pay to him a lump sum equal to two times his base salary on or before the termination of his employment. employment and all restricted stock awards and stock options would become vested as of the date of termination.

The term good“good reason,” as defined in the agreement, includes: (A) a material breach of the terms of the agreement by the Company; (B) the assignment by the Company to Mr. Herbert of duties in any way materially inconsistent with his authorities, duties, or responsibilities, or a material reduction or alteration in the nature or status of his authority, duties, or responsibilities as the Chief Executive Officer of the Company; (C) the Company reduces Mr. Herbert’s annual base salary; or (D) a material reduction by the Company in the kind or level of employee benefits to which Mr. Herbert is entitled immediately prior to such reduction with the result that his overall benefit package is significantly reduced unless such failure to continue a plan, policy, practice or arrangement pertains to all plan participants generally. As a condition to Mr. Herbert receiving any payments or benefits upon the termination of his employment for good reason, Mr. Herbert shall have executed and delivered (and not revoked) a release of any and all claims, suits, or causes of action against the Company and its affiliates in form reasonably acceptable to the Company.

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The agreement also provides that as a condition of the consummation of a USA Transaction, (as defined in the agreement), the successor to the Company’s business or assets would agree to assume and perform Mr. Herbert’s employment agreement. If any such successor would not do so, Mr. Herbert’s employment would terminate on the date of consummation of the USA Transaction, and the Company would pay to Mr. Herbert a lump sum equal to two times his base salary on or before the termination of his employment.

David M. DeMedio

On April 12, 2005, Mr. DeMedio and the Company entered into an employment agreement pursuant to which he was employed as the Chief Financial Officer of the Company. The agreement requires Mr. DeMedio 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 event that a USA Transaction (as defined in the agreement) shall occur, then Mr. DeMedio has the right to terminate his agreement upon 30 days notice to the Company.

On September 24, 2009, the Company agreed to obtain and pay the premiums for a term life insurance policy in the amount of $750,000 on the life of Mr. DeMedio while he is employed by the Company. Mr. DeMedio has the right to designate the beneficiary of the policy. The Company has agreed to obtain and pay the premiums for a supplemental long term disability policy covering Mr. DeMedio over and above the existing long-term group disability plan of the Company. If he shall become disabled while employed by the Company, the policy would provide for monthly disability coverage of up to 65% of his monthly base compensation payable to age 65 or death. If Mr. DeMedio’s employment with the Company would be terminated without cause, the Company has agreed, at its cost, to continue to provide Mr. DeMedio with health insurance benefits substantially similar to those which he is receiving immediately prior to the date of termination for a one year period following such termination.

On April 14, 2011, the Company and Mr. DeMedio entered into an additional amendment to the employment agreement. The agreement extended the term of Mr. DeMedio’s employment with the Company from June 30, 2011 until June 30, 2014, and will automatically continue from year to year thereafter unless terminated as of the end of the original term or any such one year renewal period by the Company or Mr. DeMedio by at least 90-days notice. In connection with the amendment, and in recognition of his dedicated and valuable service to the Company and extending the term of his employment agreement, Mr. DeMedio was issued 25,000 shares of common stock under the 2010 Stock Incentive Plan which vest or vested as follows: 8,333 on April 14, 2011; 8,333 on April 14, 2012; and 8,334 on April 14, 2013.

Effective July 1, 2011, Mr. DeMedio’s annual base salary was increased to $220,000.

On September 27, 2011, the Company and Mr. DeMedio entered into another amendment to his employment agreement pursuant to which Mr. DeMedio was granted an aggregate of 25,000 shares of common stock as a bonus for his performance during the last six months of the 2011 fiscal year which vest as follows: 8,333 on the date of signing the amendment; 8,333 on the first anniversary of such signing date; and 8,334 on the second anniversary of such signing date. Mr. DeMedio also agreed that the premiums for his supplemental long term disability policy being paid by the Company would now be included in his wages and be taxable to him.

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Cary Sagady

On July 2, 2008, the Company and Mr. Sagady entered into an employment agreement pursuant to which the Company continued to employ Mr. Sagady as a Senior Vice President, Product Development for a one-year term. Mr. Sagady’s employment with the Company shall automatically continue for consecutive one-year periods unless terminated by either party upon notice of at least 60 days prior to the end of each one-year extension. Effective January 1, 2011, Mr. Sagady’s base salary has been $192,500 per annum. In addition, Mr. Sagady is eligible to earn an annual discretionary bonus in the maximum amount of 60% of his annual base salary based upon his performance. Mr. Sagady is also entitled to be reimbursed by the Company for all reasonable expenses incurred by him in connection with his employment duties. Upon renewal of his employment agreement in April 2009, Mr. Sagady was issued an additional 5,000 shares of common stock that vested quarterly in fiscal year 2010. Mr. Sagady is also entitled to be covered by all standard fringe and employee benefits made available to other employees of the Company, including medical and dental insurance, paid vacation and holidays, a 401(k) plan and a long-term disability plan. The agreement requires Mr. Sagady 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.

Michael Lawlor

On June 7, 2010, the Company and Mr. Lawlor entered into an employment agreement pursuant to which the Company employed Mr. Lawlor as a Senior Vice President, Sales and Business Development through June 30, 2011. The Company issued to Mr. Lawlor an incentive bonus of $10,000 upon the signing of his employment agreement and on the renewal of the agreement, on April 1, 2011, Mr. Lawlor was issued 10,000 shares of common stock. Mr. Lawlor’s employment with the Company shall automatically continue for consecutive one-year periods unless terminated by either party upon notice of at least 60 days prior to the end of each one-year extension. In addition, Mr. Lawlor is eligible to earn an annual discretionary bonus in the maximum amount of 100% of his annual base salary based upon his performance. Mr. Lawlor is also entitled to be reimbursed by the Company for all reasonable expenses incurred by him in connection with his employment duties. Mr. Lawlor is also entitled to be covered by all standard fringe and employee benefits made available to other employees of the Company, including medical and dental insurance, paid vacation and holidays, a 401(k) plan and a long-term disability plan. 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.

On April 27, 2012, the Company and Mr. Lawlor entered into the first amendment to the employment agreement. The agreement extended the term of Mr. Lawlor’s employment with the Company from June 30, 2012 until June 30, 2013, and will automatically continue from year to year thereafter unless terminated as of the end of the original term or any such one year renewal period by the Company or Mr. Lawlor by at least 60-days notice. In connection with the amendment, Mr. Lawlor shall receive a base salary of $179,800 per year and an incentive bonus of 20,000 shares of common stock which vest as follows: 5,000 shares on September 30, 2012; 5,000 shares on December 31, 2012; 5,000 shares on March 31, 2013; and 5,000 shares on June 30, 2013.

George R. Jensen, Jr.

On September 24, 2009, Mr. Jensen, the Company’s former Chief Executive Officer, and the Company entered into an Amended and Restated Employment Agreement which replaced his prior employment agreement. The Agreement extended the term of Mr. Jensen’s employment with the Company from June 30, 2011 until September 30, 2012. Mr. Jensen was granted 30,000 shares of common stock under the 2008 Stock Incentive Plan which vested as follows: 10,000 on October 1, 2009; 10,000 on April 1, 2010; and 10,000 on September 30, 2010.

The agreement continued Mr. Jensen’s base salary at $365,000 per annum. The Company has agreed to obtain and pay the premiums for a term life insurance policy in the amount of $2,000,000 on the life of Mr. Jensen while he is employed by the Company. Mr. Jensen has the right to designate the beneficiary of the policy. The Company has agreed to obtain and pay the premiums for a supplemental long term disability policy covering Mr. Jensen over and above the existing long-term group disability plan of the Company.

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The agreement also provides that if Mr. Jensen would terminate his employment with the Company for good reason (as defined in the agreement), or if the Company would terminate his employment without cause (as defined in the agreement), then the Company would pay to him a lump sum equal to two times his base salary on or before the termination of his employment and all unvested restricted stock awards and stock options would immediately become vested. In addition, upon any such terminationvested as of Mr. Jensen’s employment, the Company has agreed, at its cost, for a period of two years, to continue to provide Mr. Jensen with health, life and disability benefits substantially similar to those which he had been receiving immediately prior to the date of termination. The term good reason as defined in the agreement, includes: (A) a material breach of the terms of the Agreement by the Company; (B) the assignment by the Company to Mr. Jensen of duties in any way materially inconsistent with his authorities, duties, responsibilities, and status, as the Chief Executive Officer of the Company, or a material reduction or alteration in the nature or status of his authority, duties, or responsibilities; (C) the Company reduces Mr. Jensen’s annual base salary; or (D) a material reduction by the Company in the kind or level of employee benefits to which Mr. Jensen is entitled immediately prior to such reduction with the result that his overall benefit package is significantly reduced unless such failure to continue a plan, policy, practice or arrangement pertains to all plan participants generally. As a condition to Mr. Jensen receiving any payments or benefits upon his termination of his employment for good reason, Mr. Jensen shall have executed and delivered (and not revoked) a release of any and all claims, suits, or causes of action against the Company and its affiliates in form reasonably acceptable to the Company.

The agreement also provides that upon the occurrence of a USA Transaction, the Company will issue to Mr. Jensen 140,000 shares of common stock subject to adjustment for stock splits or combinations (the “Jensen Shares”). Mr. Jensen is not required to pay any additional consideration for the Jensen Shares. At the time of any USA Transaction, all of the Jensen Shares 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 Jensen Shares are irrevocable and fully vested, represent an unconditional obligation of the Company, and will not be affected by the termination of Mr. Jensen’s employment with the Company for any reason whatsoever.

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, or (iii) a change in the composition of the Board of Directors of the Company over a period of twelve (12) months or less such that the continuing directors fail to constitute a majority of the Board.

On April 14, 2011, the Company and Mr. Jensen entered into an amendment to the employment agreement. The amendment extended the term of Mr. Jensen’s employment with the Company from September 30, 2012 until June 30, 2014. In connection with the amendment, Mr. Jensen was issued 125,000 shares of common stock under the 2010 Stock Incentive Plan which vest as follows: 41,666 on April 14, 2011; 41,667 on April 14, 2012; and 41,667 on April 14, 2013.

On September 27, 2011, the Company and Mr. Jensen entered into an amended and restated employment agreement, as well as the Jensen Stock Agreement described below. The new employment agreement continued substantially all of the previous terms and conditions of his prior employment agreement other than the provisions related to the Jensen Shares. The new agreement did not continue the provisions of his prior agreement which obligated the Company to pay any excise taxes attributable to any excess parachute payments which would be received by Mr. Jensen upon the occurrence of a USA Transaction as well as the Company’s related obligation to make tax gross up payments. The new agreement also stated that the premiums for Mr. Jensen’s supplemental long term disability policy being paid by the Company would now be included in his wages and be taxable to him. In exchange for modifying the excise tax and related gross up provisions, the Company issued an aggregate of 150,000 shares of common stock to Mr. Jensen under its stock incentive plans which vest as follows: 50,000 on the date the agreement was signed by Mr. Jensen and the Company; 50,000 on the first anniversary of the date of signing; and 50,000 on the second anniversary of the date of signing.

On September 27, 2011, the Company and Mr. Jensen also entered into a new agreement (the “Jensen Stock Agreement”) which contained the provisions relating to the issuance by the Company to Mr. Jensen of the Jensen Shares which had previously been set forth in his employment agreement. The provisions of Mr. Jensen’s prior employment agreement which required the Company to pay any excise taxes attributable to the excess parachute payments attributable to the Jensen Shares as well as the related obligation to make tax gross up payments have been retained in the Jensen Stock Agreement and continue to apply to the Jensen Shares.

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On October 14, 2011, the Company and Mr. Jensen entered into a Separation Agreement and Release (the “Separation Agreement”). Pursuant to the Separation Agreement, Mr. Jensen resigned as Chairman, Chief Executive Officer and as a Director of the Company, effective immediately. The Separation Agreement states that the Company shall provide Mr. Jensen with (i) a lump sum payment of $365,000 which is equal to one year’s base salary subject to applicable payroll and tax withholding; (ii) a lump sum payment of $17,875 which is equal to one year’s car allowance subject to applicable payroll and tax withholding; (iii) a lump sum payment of $28,077 which is attributable to Mr. Jensen’s unused vacation subject to applicable payroll and tax withholding; (iv) group medical and dental insurance coverage for one year at no cost to Mr. Jensen; (v) the 41,667 shares of the Company’s common stock which were awarded to Mr. Jensen in connection with the signing of an amendment to his employment agreement in April 2011 and which would not have otherwise vested until April 2012; and (vi) the 50,000 shares of the Company’s common stock which were awarded to Mr. Jensen in connection with the signing of his amended and restated employment agreement in September 2011 and which would not have otherwise vested until September 2012. The Separation Agreement provides that the confidentiality and restrictive covenant provisions of Mr. Jensen’s September 2011 amended and restated employment agreement and the Jensen Stock Agreement shall remain in full force and effect in accordance with their terms. Except for the payments and benefits provided in the Seperation Agreement, Mr. Jensen is not entitled to any further payments or benefits from the Company including any payments, awards or benefits provided for under his employment agreement. Mr. Jensen has released the Company and certain other parties from and against any and all claims he may have, subject to any rights to indemnification or coverage which he may have under any existing insurance policies of the Company, the bylaws of the Company, or the existing indemnification agreement between him and the Company. Mr. Jensen has also agreed to certain standstill provisions for a three year period.

Potential Payments Upon Termination Or Change Of Control

As described above, each of the employment agreements of our executive officers include provisions for the payment and/or the provision of benefits to the executives upon termination of employment under certain conditions or if a successor to the Company’s business or assets does not agree to assume and perform his employment agreement as a condition to the consummation of a USA Transaction.

The term USA Transaction means: (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, or (iii) a change in the composition of the Board of Directors of the Company over a period of twelve (12) months or less such that the continuing directors fail to constitute a majority of the Board.

If Mr. Herbert’s employment had been terminated as of June 30, 20122015 (when the closing price per share was $1.45)$2.70) (i) by him for good reason, or (ii) by the Company without cause, or (iii) if a successor to the Company’s business or assets had not agreed to assume and perform his employment agreement as a condition to the consummation of a USA Transaction, then Mr. Herbert would have been entitled to receive: (a) a cash bonus in the amount of $50,000 as if USA had achieved all of the target performance goals under the 2012 Performance Share Plan during the fiscal year; (b) an aggregate cash payment of twice his annual base salary or $682,454; and (c)(b) an aggregate of 91,66728,452 shares previously issuedgranted to him under his employment agreement,the 2015 LTI Stock Plan, which would become automatically vested as of the date of termination, with a value of $132,917.

As described above,$76,820; (c) 12,216 shares previously granted to him under the 2014 LTI Stock Plan, which would automatically become vested as of the date of termination, with a value of $32,983; and (d) options exercisable for 205,555 shares at $1.80 per share would automatically become vested as of the date of termination with a value of $185,000.

Mr. DeMedio’s employment agreement provides that (i) if following a USA Transaction, Mr. DeMedio’sDeMedio would terminate his employment with the Company would be terminated byfor good reason, or (ii) if the Company would terminate his employment at any time without cause, or (iii) if the Company would provide Mr. DeMedio with a notice of non-renewal of his employment agreement, then the Company would pay health insurance premiums forto him a lump sum equal to one year period followingtimes his base salary on or before the termination of his employment and all restricted stock awards and stock options would become vested as of the date of termination.

The term “good reason” as defined in the amendment includes any of the following which have occurred within 12 months following a USA Transaction: (A) a material breach of the terms of the agreement by the Company; (B) the assignment by the Company to Mr. DeMedio of duties in any way materially inconsistent with his authorities, duties, or responsibilities and status as Chief Financial Officer, or a material reduction or alteration in the nature or status of his authority, duties, or responsibilities as Chief Financial Officer; (C) the Company reduces Mr. DeMedio’s annual base salary; or (D) a reduction by the Company in the kind or level of employee benefits to which Mr. DeMedio is entitled immediately prior to such reduction with the result that his overall benefit package is significantly reduced unless such failure to continue a plan, policy, practice or arrangement pertains to all plan participants generally. As a condition to Mr. DeMedio receiving any payments or benefits upon the termination of his employment for good reason, Mr. DeMedio shall have executed and delivered (and not revoked) a release of any and all claims, suits, or causes of action against the Company and its affiliates in form reasonably acceptable to the Company.

The amendment also provides that as a condition of the consummation of a USA Transaction, the successor to the Company’s business or assets would agree to assume and perform Mr. DeMedio’s employment agreement. If any such successor would not do so, Mr. DeMedio’s employment would terminate on the date of consummation of the change in control, and the Company would pay to Mr. DeMedio a lump sum equal to one times his base salary and all restricted stock awards and stock options would become vested.

If Mr. DeMedio’s employment had been so terminated as of June 30, 2015 (when the closing price per share was $2.70), then Mr. DeMedio would have been entitled to receive: (a) an aggregate amountcash payment of $16,824. The aforesaid premium amount is based on an estimated monthly premiumone times his annual base salary or $239,537; and (b) 14,876 shares granted to him under the 2015 LTI Stock Plan, which would become automatically vested as of $1,402.

the date of termination, with a value of $40,165; (c) 6,387 shares previously granted to him under the 2014 LTI Stock Plan which would automatically become vested as of the date of termination, with a value of $17,245; and (d) options exercisable for 123,333 shares at $1.80 per share would automatically become vested as of the date of termination with a value of $111,000.

Compensation Committee Interlocks And Insider Participation

During the fiscal year 2012, Jack Price,2015, Albin F. Moschner and Steven D. Barnhart and Peter Michel served at various times as members of the Compensation Committee of our boardBoard of directors.Directors. No member of the Compensation Committee was, during fiscal year 2015, an employeeofficer or former employee of the Company or any of our subsidiaries, or was formerly an officer of the Company or any of our subsidiaries, or had any relationship with usrelationships requiring disclosure herein.

by us under Item 404 of Regulation S-K of the General Rules and Regulations of the Securities and Exchange Commission.

During the 2012last fiscal year, none of our executive officers served as: (i) a member of the compensation committee (or other committee of the board of directors performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served on our Compensation Committee; (ii) a director of another entity, one of whose executive officers served on our Compensation Committee; or (iii) a member of the compensation committee (or other committee of the board of directors performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served as a director on our board of directors.

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Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis included in this Form 10-K with the Company's management. Based upon such review and the related discussions, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Form 10-K.

Compensation Committee

Albin F. Moschner

Steven D. Barnhart

Compensation Of Non-Employee Directors

Members of the Board of Directors who are not employees of the Company receive cash and equity compensation for serving on the boardBoard of directors,Directors, as determined from time to time by the Compensation Committee with subsequent approval thereof by the boardBoard of directors.Directors. Each member of the Board has the option, in his or her discretion, to receive cash or stock, or some combination thereof, in payment of the compensation due for his or her service on the Board.

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Director Compensation Table

The table below summarizes the compensation earned or paid in cash by the Company to non-employee Directors during the fiscal year ended June 30, 2012.

Name		Fees Earned or Paid in Cash($)(3)				Stock Awards ($)(4)				Total($)
Deborah G. Arnold (1)		$	10,833			$	9,400			$	20,233
Steven D. Barnhart		$	75,000			$	-			$	75,000
Joel Brooks		$	30,000			$	-			$	30,000
Steve G. Illes (1)		$	8,333			$	3,133			$	11,466
Douglas M. Lurio		$	20,000			$	-			$	20,000
Albin F. Moschner		$	3,333			$	-			$	3,333
Frank A. Petito, III (1)		$	10,833			$	9,400			$	20,233
Jack E. Price		$	50,000			$	-			$	50,000
Bradley M. Tirpak (2)		$	22,500			$	-			$	22,500

(1)           Appointed as a Director effective February 3, 2012.

(2)           Resigned as a Director effective March 2, 2012.

(3)           During fiscal year ended June, 30, 2012, and included in the above table, we paid the following fees during the fiscal year:

2015.

Name		Fees Earned or Paid in Cash($)(2)				Stock Awards ($)				Option Awards ($)				Total($)
Deborah G. Arnold (1)		$	23,333			$	-			$	-			$	23,333
Steven D. Barnhart		$	72,500			$	-			$	-			$	72,500
Joel Brooks		$	40,000			$	-			$	-			$	40,000
Albin F. Moschner		$	47,500			$	-			$	-			$	47,500
William J. Reilly, Jr.		$	40,000			$	-			$	-			$	40,000
William J. Schoch		$	32,500			$	-			$	-			$	32,500

(1)

Resigned as a director effective January 23, 2015.

(2)

During fiscal year ended June 30, 2015, we paid the following fees:

●

Director: each of Messrs. Barnhart, Brooks, Lurio and PriceDirector received $20,000. Mr. Tirpak received $15,000. Messrs. Illes and Petito, and$25,000. Ms. Arnold each received $8,333. Mr. Moschner received $3,333, which he elected to receive in Common Stock and was issued 2,299 shares.$14,583.

●

Lead Independent Director: Mr. Barnhart received $25,000. $40,000.

●

Audit Committee: Mr. Brooks received $15,000 as Committee Chair, and each of Messrs. Moschner and Reilly received $7,500.

●

Compensation Committee: Mr. Moschner received $15,000 as Committee Chair and Mr. Barnhart received $7,500.

●

Nominating and Corporate Governance Committee: Ms. Arnold received $8,750 as Committee Chair, and each Messrs. Reilly and Schoch received $7,500.

During the fiscal year ended June 30, 2015, the following directors elected to receive their fees, or a portion thereof, in the Company’s common stock in lieu of cash:

●

Mr. Barnhart elected to receive this in Common Stock34,631 shares for $72,500 of fees; Ms. Arnold elected to receive 12,979 shares for $23,333 of fees; Mr. Reilly elected to receive 9,915 shares for $20,000 of fees; and was issued 19,175 shares.Mr. Schoch elected to receive 15,525 shares for $32,500 of fees.

●45

Audit Committee: each of Messrs. Barnhart, Brooks and Price received $10,000.

●

Compensation Committee: each of Messrs. Barnhart and Price received $10,000. Mr. Petito received $2,500.

●

Nominating Committee: each of Messrs. Barnhart and Price received $10,000. Mr. Tirpak received $7,500 and Ms. Arnold received $2,500.

(4)	Amounts represent the aggregate fair value of Common Stock granted to the members of our Board of Directors during the year ended June 30, 2012. No stock options were granted to the members of our Board of Directors during the year ended June 30, 2012.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.

Common Stock

The following table sets forth, as of June 30, 2012,September 15, 2015, the beneficial ownership of the common stock of each of the Company’s directors and executive officers, the other employees named in the summary compensation tableSummary Compensation Table set forth above, as well as by the Company’s directors and executive officers as a group. Except as set forth below, theThe 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:

Name and Address of Beneficial Owner(1)		Number of Shares of Common Stock Beneficially Owned(2)		Percent of Class
Deborah G. Arnold		10,000	(3)	*
9704 Clos du Lac Circle
Loomis, CA 95630
Steven D. Barnhart		151,362	(4)	*
1143 N. Sheridan Road
Lake Forest, IL 60045
Joel Brooks		35,000	(5)	*
303 George Street, Suite 140
New Brunswick, New Jersey 08901
David M. DeMedio		108,484	(6)	*
100 Deerfield Lane, Suite 140
Malvern, Pennsylvania 19355
Stephen P. Herbert		350,608	(7)	1.07%
100 Deerfield Lane, Suite 140
Malvern, Pennsylvania 19355
Steve G. Illes		708,946	(8)	2.17%
1926 Roadrunner Avenue
Thousand Oaks, CA 91320
Michael Lawlor		35,552	(9)	*
100 Deerfield Lane, Suite 140
Malvern, Pennsylvania 19355
Douglas M. Lurio		76,904	(10)	*
2005 Market Street, Suite 3120
Philadelphia, Pennsylvania 19103
Albin F. Moschner		407,100	(11)	1.24%
660 Northcroft Court
Lake Forest, Illinois 60045
Frank A. Petito, III		20,000	(12)	*
1111 Elmwood Avenue
Wilmette, IL 60091
Jack E. Price		10,000	(13)	*
12942 NE 24th Street
Bellevue, WA 98005
Cary Sagady		5,050		*
100 Deerfield Lane, Suite 140
Malvern, Pennsylvania 19355
S.A.V.E. Partners, IV, LLC		2,550,609	(14)	7.80%
500 West Putnam Avenue, Suite 400
Greenwich, Connecticut 06830
All Directors and Executive Officers		1,878,404		5.71%
As a Group (10 persons)

*           Less than one percent (1%)

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		Number of Shares of Common Stock				Percent of
Name and Address of Beneficial Owner(1)		Beneficially Owned(2)				Class
Steven D. Barnhart			281,495	(3)			*
1143 N. Sheridan Road
Lake Forest, IL 60045
Joel Brooks			41,667	(3)			*
100 Deerfield Lane, Suite 140
Malvern, PA 19355
David M. DeMedio			213,169	(4)			*
100 Deerfield Lane, Suite 140
Malvern, Pennsylvania 19355
Maeve Duska			200				*
100 Deerfield Lane, Suite 140
Malvern, Pennsylvania 19355
Stephen P. Herbert			468,860	(5)			1.30%
100 Deerfield Lane, Suite 140
Malvern, Pennsylvania 19355
Michael Lawlor			35,552				*
100 Deerfield Lane, Suite 140
Malvern, Pennsylvania 19355
Albin F. Moschner			447,474	(6)			1.25%
660 Northcroft Court
Lake Forest, Illinois 60045
William J. Reilly, Jr.			63,159	(7)			*
1280 South Concord Road
West Chester, PA 19382
William J. Schoch			64,150	(3)			*
300 Montgomery Street, #400
San Francisco, CA 94104
All Directors and Executive Officers As a Group (8 persons)			1,587,474				4.4%

*

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 Series A Preferred Stock, or shares of Common Stock issuable upon exercise of warrants and options currently exercisable, or exercisable within 60sixty days of June 30, 2012,September 15, 2015, are deemed to be beneficially owned for purposes hereof.

(2)	The percentage of common stock beneficially owned is based on 32,687,89035,854,655 shares outstanding as of June 30, 2012.September 15, 2015.

(3)	Includes 10,000 shares issued to Ms. Arnold as a non-employee director of the Company as of April 1, 2012 which vest or vested as follows: 3,333 shares on April 1, 2012, 3,333 shares on April 1, 2013 and 3,334 shares on April 1, 2014.

(4)	Includes 32,538 shares underlying common stock warrants. Includes 10,000 shares issued to Mr. Barnhart as a non-employee director of the Company as of June 30, 2011 which vest or vested as follows: 3,333 shares on June 30, 2011, 3,333 shares on June 30, 2012 and 3,334 shares on June 30, 2013.

(5)	Includes 10,000 shares issued to Mr. Brooks as a non-employee director of the Company as of June 30, 2011 which vest or vested as follows: 3,333 shares on June 30, 2011, 3,333 shares on June 30, 2012 and 3,334 shares on June 30, 2013.

(6)

Includes 2,333 shares underlying stock options. Includes 25,0006,667 shares of common stock issued to Mr. DeMedio on April 14, 2011 which vest orunderlying vested as follows: 8,333 on April 14, 2011; 8,333 on April 14, 2012; and 8,334 on April 14, 2013, and 25,000 shares of common stock issued as of September 27, 2011 which vest or vested as follows: 8,333 on September 27, 2011; 8,333 on September 27, 2012; and 8,334 on September 27, 2013.options.

(7)    (4)

Includes 32,01033,333 shares underlying incentive stock options and 30,000 shares underlying non-qualified stock options.

(5)

Includes 62,010 shares of common stock beneficially owned by Mr. Herbert’s child, 27,440 shares of common stock beneficially owned by his spouse and 6,000105,000 shares underlying vested stock options. Includes 75,000 shares of common stock issued to Mr. Herbert on April 14, 2011 which vest or vested as follows: 25,000 on April 14, 2011; 25,000 on April 14, 2012; and 25,000 on April 14, 2013, and 100,000 shares of common stock issued as of September 27, 2011 which vest or vested as follows: 33,333 on September 27, 2011; 33,333 on September 27, 2012; and 33,334 on September 27, 2013.

(8)    (6)

Includes 10,000 shares issued to Mr. Illes as a non-employee director of the Company as of April 1, 2012 which vest or vested as follows: 3,333 shares on April 1, 2012, 3,333 shares on April 1, 2013 and 3,334 shares on April 1, 2014. Includes 126 shares underlying Series A Convertible Preferred Stock, and 34,4201,358 shares of common stock underlying preferred stock and 6,667 shares underlying vested stock options.

(7)

Includes 100 shares of common stock warrants.beneficially owned by Mr. Reilly’s child, 97 shares underlying preferred stock and 6,667 shares underlying vested stock options.

46

(9)	Includes 20,000 shares issued to Mr. Lawlor in connection with the First Amendment to his Employment and Non-Competition Agreement dated as of April 27, 2012, which vest as follows: 5,000 on September 30, 2012; 5,000 on December 31, 2012; 5,000 on March 31, 2013; and 5,000 on June 30, 2013.

(10)	Includes 3,000 shares underlying stock options. Includes 10,000 shares issued to Mr. Lurio as a non-employee director of the Company as of June 30, 2011 which vest or vested as follows: 3,333 shares on June 30, 2011, 3,333 shares on June 30, 2012 and 3,334 shares on June 30, 2013.

(11)	Includes 132,100 shares underlying common stock warrants.

(12)	Includes 10,000 shares issued to Mr. Petito as a non-employee director of the Company as of April 1, 2012 which vest or vested as follows: 3,333 shares on April 1, 2012, 3,333 shares on April 1, 2013 and 3,334 shares on April 1, 2014.

(13)	Includes 10,000 shares issued to Mr. Price as a non-employee director of the Company as of June 30, 2011 which vest or vested as follows: 3,333 shares on June 30, 2011, 3,333 shares on June 30, 2012 and 3,334 shares on June 30, 2013.

(14)

Based upon an amended Schedule 13D filed with the Securities and Exchange Commission on June 8, 2012, S.A.V.E. Partners, IV, LLC (“SAVE”) is a limited liability company, the managing member of which is Locke Partners I LLC, a limited liability company (“Locke”). Each of Bradley M. Tirpak and Craig W. Thomas are co-managing members of Locke and, by virtue of their relationship with Locke, share the power to vote and dispose of the shares beneficially owned by SAVE.

Preferred Stock

There

Preferred Stock

Other than the 7,000 shares of preferred stock beneficially owned by Mr. Moschner and 500 shares of preferred stock beneficially owned by Mr. Reilly, there were no shares of preferred stock that were beneficially owned as of June 30, 2012September 15, 2015 by the Company’s directors or named executive officers, or the other employees named in the Summary Compensation Table set forth above.

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Iofficers.

temItem 13. Certain Relationships and Related Transactions, and Director Independence.

During the fiscal year ended June 30, 2012, the Company incurred professional fees of approximately $744,000 in connection with legal services rendered to the Company by Lurio & Associates, P.C., a law firm of which Douglas M. Lurio, a Director during the 2012 fiscal year, is President. Of such amount of professional fees, approximately $236,000 was attributable to issues arising from the proxy contest and related litigation, and approximately $103,000 was attributable to issues arising from the Audit Committee’s investigation and the resignation of our former CEO.

REVIEW, APPROVAL OR RATIFICATION OF TRANSACTIONS WITH RELATED PERSONS

Our policy is that all related party transactions, which are required to be disclosed under Item 404 of Regulation S-K promulgated under the Securities Act of 1933, as amended, are to be reviewed and approved by the Audit Committee for any possible conflicts of interest. This policy is evidenced in the Charter of the Audit Committee of the Board of Directors of the Company.

DIRECTOR INDEPENDENCE

The Board of Directors has determined that Deborah G. Arnold, Steven D. Barnhart, Joel Brooks, Albin F. Moschner, Frank A. Petito, III, Jack E. Price, William J. Reilly, Jr., and William J. Schoch, which members constitute a majorityall of the currently serving Board of Directors other than Mr. Herbert, are independent in accordance with the applicable listing standards of The NASDAQ Stock Market Inc.

LLC.

The Board of Directors has a standing Audit Committee, Nominating and Corporate Governance Committee, and Compensation Committee.

The Audit Committee of the Board of Directors presently consists of Mr. Brooks (Chairman), Mr. Barnhart, Mr. PriceMoschner and Mr. Reilly. The Audit Committee recommends the engagement of the Company’s independent accountants and is primarily responsible for approving the services performed by the Company’s independent accountants, for reviewing and evaluating the Company’s accounting principles, reviewing the independence of independent auditors, and reviewing the adequacy and effectiveness of the Company’s internal controls. The Audit Committee operates pursuant to a charter that was last amended and restated by the Board of Directors on April 11, 2006, a copy of which is accessible on the Company’s website,www.usatech.com.

The Compensation Committee of the Board of Directors presently consists of Mr. PriceMoschner (Chairman), Mr. Barnhart, Mr. Moschner and Mr. Petito.Barnhart. The Board of Directors has determined that each of the current members of the Compensation Committee is independent in accordance with the applicable listing standards of The Nasdaq Stock Market LLC. The Committee reviews and recommends compensation and compensation changes for the executive officers of the Company and administers the Company’s stock option and restricted stock grant plans. The Compensation Committee operates pursuant to a charter that was adopted by the Board in September 2007 and amended in May 2013, a copy of which is accessible on the Company’s website,www.usatech.com.

The Nominating and Corporate Governance Committee of the Board of Directors presently consists of Ms. ArnoldMr. Schoch (Chairman), Mr. Barnhart, Mr. Price, Mr. Reilly and Mr. Schoch.Reilly. The Board of Directors has determined that each of the current members of the Nominating and Corporate Governance Committee is independent in accordance with the applicable listing standards of The Nasdaq Stock Market LLC. The Committee recommends to the entire Board of Directors for selection any nominees for director. The Nominating and Corporate Committee operates pursuant to a charter that was adopted by the Board of Directors on November 3, 2009,October 26, 2012, a copy of which is accessible on the Company’s website,www.usatech.com.

47

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Item 14. Principal Accounting Fees and Services.

AUDIT AND NON-AUDIT FEES

During the fiscal year ended June 30, 20122015 and 2011,2014, fees in connection with services rendered by McGladrey LLP were as set forth below:

		Fiscal				Fiscal
		2012				2011
Audit Fees		$	197,500			$	190,000
Audit-Related Fees			20,500				24,000
Tax Fees			-				5,100
All Other Fees			-				-
Total		$	218,000			$	219,100

		Fiscal				Fiscal
		2015				2014
Audit Fees		$	274,000			$	225,530
Audit-Related Fees			33,203				5,800
Tax Fees			-				9,500
All Other Fees			-				-
Total		$	307,203			$	240,830

Audit fees consisted of fees for the audit of our annual financial statements and review of quarterly financial statements as well as services normally provided in connection with statutory and regulatory filings or engagements, consents and assistance with and reviews of Company documents filed with the Securities and Exchange Commission.

Audit related fees were primarily incurred in connection with our equity offerings, and fees in connection with attending the annual shareholders meeting.

Tax fees related to the review of our analysis of the timing and extent to which the Company can utilize future tax deductions in any year, which may be limited by provisions of the Internal Revenue Code regarding changes in ownership of corporations (i.e. IRS Code Section 382).

AUDIT COMMITTEE PRE-APPROVAL POLICY

The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm on a case-by-case basis.

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63

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PART IIV

V

Item 15. Exhibits,, Financial Statement Schedules.

Exhibit Number		Description
Exhibit Number		Description
3.1		Amended and Restated Articles of Incorporation of the Company filed January 26, 2004 (Incorporated by reference to Exhibit 3.1.193.1.20 to Form 10-QSB filed on February 12, 2004).
3.1.1		First Amendment to Amended and Restated Articles of Incorporation of the Company filed on March 17, 2005 (Incorporated by reference to Exhibit 3.1.1 to Form S-1 Registration Statement No. 333-124078).
3.1.2		Second Amendment to Amended and Restated Articles of Incorporation of the Company filed on December 13, 2005 (Incorporated by reference to Exhibit 3.1.2 to Form S-1 Registration Statement No. 333-130992).
3.1.3		Third Amendment to Amended and Restated Articles of Incorporation of the Company filed on February 7, 2006 (Incorporated by reference to Exhibit 3.1.3 to Form 10-K filed on September 30, 2013).
3.1.4		Fourth Amendment to Amended and Restated Articles of Incorporation of the Company filed on July 25, 2007. (Incorporated by reference to Exhibit 3.1.3 to Form 10-K filed September 23, 2008).
3.1.43.1.5		FourthFifth Amendment to Amended and Restated Articles of Incorporation of the Company filed on March 6, 2008. (Incorporated by reference to Exhibit 3.1.4 to Form 10-K filed September 23, 2008).
3.2		Amended and Restated By-Laws of the Company dated as of April 24, 2014 (Incorporated by reference to Exhibit 3(ii)3(i) to Form10-Q/AForm8-K filed on February 22, 2010)April 30, 2014).
4.1		FormWarrant dated January 1, 2013 in favor of Warrant No. SAC-001 issued to S.A.C. Capital Associates, LLCAvidbank Holdings, Inc. (Incorporated by reference to Exhibit 4.24.1 to Form 8-K filed on March 15, 2007)April 19, 2013).
4.2		Registration Rights Agreement between the Company and S.A.C. Capital Associates, LLC dated March 14, 2007 (Incorporated by reference to Exhibit 4.3 to Form 8-K filed on March 15, 2007).
4.3		Warrant No.CR-001 dated March 16, 2011 in favor of Cranshire Capital, L.P. (Incorporated by reference to Exhibit 4.1 of Form S-1 filed March 31, 2011).
4.4		Warrant No.CR-002 dated March 16, 2011 in favor of Freestone Advantage Partners, LP (Incorporated by reference to Exhibit 4.2 of Form S-1 filed March 31, 2011).
4.5		Warrant No.CR-003 dated March 16, 2011 in favor of Iroquois Master Fund Ltd. (Incorporated by reference to Exhibit 4.3 of Form S-1 filed March 31, 2011).
4.6		Warrant No.CR-004 dated March 16, 2011 in favor of Kingsbrook Opportunities Master Fund LP (Incorporated by reference to Exhibit 4.4 of Form S-1 filed March 31, 2011).
4.7		Warrant No.CR-005 dated March 16, 2011 in favor of Hudson Bay Master Fund Ltd. (Incorporated by reference to Exhibit 4.5 of Form S-1 filed March 31, 2011).
4.8		Warrant No.CR-006 dated March 16, 2011 in favor of Cowen Overseas Investment LP (Incorporated by reference to Exhibit 4.6 of Form S-1 filed March 31, 2011).
4.9		Warrant No.CR-007 dated March 16, 2011 in favor of Ramius Select Equity Fund LP (Incorporated by reference to Exhibit 4.7 of Form S-1 filed March 31, 2011).
4.10		Warrant No.CRA-001 dated March 17, 2011 in favor of Chardan Capital Markets, LLC (Incorporated by reference to Exhibit 4.8 of Form S-1 filed March 31, 2011).
4.11		Warrant No.CRA-002 dated March 17, 2011 in favor of Jonathan Schechter (Incorporated by reference to Exhibit 4.9 of Form S-1 filed March 31, 2011).
4.12		Warrant No.CRA-003 dated March 17, 2011 in favor of Joseph Reda (Incorporated by reference to Exhibit 4.10 of Form S-1 filed March 31, 2011).
4.13		Warrant No.CRA-004 dated March 17, 2011 in favor of Adam Selkin (Incorporated by reference to Exhibit 4.11 of Form S-1 filed March 31, 2011).

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10.1		Agreement of Lease between Pennswood Spring Mill Associates, as landlord, and the Company, as tenant, dated September 2002, and the Rider thereto (Incorporated by reference to Exhibit 10.21 to Form 10-KSB filed on September 28, 2004).
10.2		Agreement of Lease between Deerfield Corporate Center 1 Associates LP, as landlord, and the Company, as tenant, dated March 2003 (Incorporated by reference to Exhibit 10.22 to Form 10-KSB filed on September 28, 2004).
10.310.2		Amendment to Office Space Lease dated as of April 1, 2005 by and between the Company and Deerfield Corporate Center Associates, LP. (Incorporated by reference to Exhibit 10.19.1 to Form S-1 Registration Statement No. 333-124078).
10.410.3		Employment and Non-Competition Agreement between the Company and David M. DeMedio dated April 12, 2005 (Incorporated by reference to Exhibit 10.22 to Form S-1 Registration Statement No. 333-124078).
10.510.4		First Amendment to Employment and Non-Competition Agreement between the Company and David M. DeMedio dated May 11, 2006 (Incorporated by reference to Exhibit 10.3 to Form 10-Q filed on May 15, 2006).
10.610.5		Option Certificate (No. 200) dated April 12, 2005 in favor of David M. DeMedioUSA Technologies, Inc. 2013 Stock Incentive Plan (Incorporated by reference to Exhibit 10.2310.6 to Form S-1 Registration Statement No. 333-124078)10-K filed on September 30, 2013).
10.7		Option Certificate (No. 201) dated May 11, 2006 in favor of George R. Jensen, Jr. (Incorporated by reference to Exhibit 10.21 to Form 10-K filed on September 28, 2006).
10.8		Option Certificate (No. 202) dated May 11, 2006 in favor of Stephen P. Herbert. (Incorporated by reference to Exhibit 10.21 to Form 10-K filed on September 28, 2006).
10.9		Option Certificate (No. 203) dated May 11, 2006 in favor of David M. DeMedio. (Incorporated by reference to Exhibit 10.21 to Form 10-K filed on September 28, 2006).
10.10		Option Certificate (No. 206) dated April 21, 2006 in favor of Steven Katz. (Incorporated by reference to Exhibit 10.21 to Form 10-K filed on September 28, 2006).
10.11		Option Certificate (No. 207) dated April 21, 2006 in favor of Douglas M. Lurio. (Incorporated by reference to Exhibit 10.21 to Form 10-K filed on September 28, 2006).
10.12		Option Certificate (No. 208) dated April 21, 2006 in favor of Albert Passner. (Incorporated by reference to Exhibit 10.21 to Form 10-K filed on September 28, 2006).
10.13		Option Certificate (No. 209) dated July 20, 2006 in favor of Stephen W. McHugh. (Incorporated by reference to Exhibit 10.21 to Form 10-K filed on September 28, 2006).
10.14		USA Technologies, Inc. 2010 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 to Form S-8 filed April 14, 2011).
10.15		USA Technologies, Inc. 2011 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 to Form S-8 filed October 28, 2011).
10.16**		USA Technologies, Inc. 2012 Stock Incentive Plan.
10.17		Amendment to Agreement of Lease between BMR-Spring Mill Drive, L.P., as landlord, and the Company, as tenant, dated January 15, 2007 (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed on February 13, 2007).
10.18		Second Amendment to Agreement of Lease between BMR-Spring Mill Drive, L.P., as landlord, and the Company, as tenant, dated December 28, 2010. (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed on January 20, 2011).
10.19		Third Amendment to Agreement of Lease between BMR-Spring Mill Drive, LP as landlord, and the Company, as tenant, dated October 10, 2011. (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed on February 8, 2012).
10.2010.6		Second Amendment to Employment and Non-Competition Agreement dated March 13, 2007, between the Company and David M. DeMedio (Incorporated by reference to Exhibit 10.34 to Form S-1 filed April 12, 2007).
10.2110.7		Form of Indemnification Agreement between the Company and each of its officers and Directors (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed May 14, 2007).

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10.22		First Amendment to MasterCard PayPass Participation Agreement dated August 17, 2007 between the Company, MasterCard International Incorporated and Coca Cola Enterprises Inc. And Its Bottling Subsidiaries. (Incorporated by reference to Exhibit 10.26 to Form 10-K filed September 27, 2007).
10.2310.8		Third Amendment to Employment and Non-Competition Agreement between the Company and David M. DeMedio dated September 22, 2008. (Incorporated by reference to Exhibit 10.29 to Form 10-K filed September 24, 2008).
10.24		Amended and Restated Employment and Non-Competition Agreement between the Company and George R. Jensen, Jr., dated September 27, 2011. (Incorporated by reference to Exhibit 10.23 to Form 10-K filed September 27, 2011).
10.25		Separation Agreement and Release between the Company and George R. Jensen, Jr., dated October 14, 2011 (Incorporated by reference to Exhibit 10.1 to Form 8-K filed October 17, 2011).
10.26		Amended and Restated Employment and Non-Competition Agreement between the Company and Stephen P. Herbert dated September 24, 2009. (Incorporated by reference to Exhibit 10.31 to Form 10-K filed September 25, 2009).
10.27		Securities Purchase Agreement dated March 14, 2011 between the Company and each of the Buyers (Incorporated by reference to Exhibit 10.1 of Form 8-K filed on March 14, 2011).
10.28		Promotional Agreement between the Company and Visa U.S.A. Inc., dated October 12, 2011 (Portions of this exhibit were redacted pursuant to a confidential treatment request) (Incorporated by reference to Exhibit 10.1 to Post-Effective Amendment No.4 to Form S-1 Registration Statement No. 333-165516).
10.2910.9		Letter from the Company to David M. DeMedio dated September 24, 2009. (Incorporated by reference to Exhibit 10.32 to Form 10-K filed September 25, 2009).
10.30		Settlement Agreement dated February 4, 2010 by and among USA Technologies, Inc., Shareholder Advocates For Value Enhancement, Bradley M. Tirpak, Craig W. Thomas, and certain other parties (Incorporated by reference to Exhibit 10.1 to Form 8-K filed on February 5, 2010).
10.31		Second Settlement Agreement dated May 19, 2011 by and among USA Technologies, Inc., Shareholder Advocates For Value Enhancement, Bradley M. Tirpak, Craig W. Thomas, Peter A. Michel and certain other parties (Incorporated by reference to Exhibit 99.1 to Form 8-K filed on June 1, 2011).
10.32		Third Settlement Agreement dated March 2, 2012 by and among USA Technologies, Inc., Shareholder Advocates For Value Enhancement, Bradley M. Tirpak, Craig W. Thomas and certain other parties (Incorporated by reference to Exhibit 99.1 to Form 8-K filed on March 5, 2012).
10.33		Settlement and Release Agreement dated as of August 16, 2012 by and among USA Technologies, Inc., Shareholder Advocates For Value Enhancement, Bradley M. Tirpak, Craig W. Thomas and certain other parties (Incorporated by reference to Exhibit 99.1 to Form 8-K filed on August 16, 2012).
10.34		Jensen Stock Agreement between the Company and George R. Jensen, Jr., dated September 27, 2011. (Incorporated by reference to Exhibit 10.29 to Form 10-K filed September 27, 2011).
10.35		Second Amendment to Employment and Non-Competition Agreement dated September 27, 2011 between the Company and Stephen P. Herbert. (Incorporated by reference to Exhibit 10.30 to Form 10-K filed September 27, 2011).
10.3610.10		Amended and Restated Employment and Non-Competition Agreement between the Company and Stephen P. Herbert dated November 30, 2011. (Incorporated by reference to Exhibit 10.1 to Form 8-K filed December 5, 2011).
10.3710.11		Fifth Amendment to Employment and Non-Competition Agreement dated as of July 1, 2011 between the Company and David M. DeMedio. (Incorporated by reference to Exhibit 10.31 to Form 10-K filed September 27, 2011).
10.3810.12		Sixth Amendment to Employment and Non-Competition Agreement dated September 27, 2011 between the Company and David M. DeMedio. (Incorporated by reference to Exhibit 10.32 to Form 10-K filed September 27, 2011).

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10.3910.13		Employment and Non-Competition Agreement dated June 7, 2010 between the Company and Michael Lawlor (Incorporated by reference to Exhibit 10.22 to Form 10-K filed on September 30, 2013).

49

10.14		First Amendment to Employment and Non-competition Agreement dated April 27, 2012 between the Company and Michael Lawlor (Incorporated by reference to Exhibit 10.23 to Form 10-K filed on September 30, 2013).
10.15		Second Amendment to Office Space Lease dated as of November 17, 2010 by and between the Company and Liberty Malvern, LP. (Incorporated by reference to Exhibit 10.2 to Form 10-Q filed on January 20, 2011).
10.40**10.16		USA Technologies, Inc. 2014 Stock Option Incentive Plan (Incorporated  by reference to Appendix A to the Company’s Definitive Proxy Statement on form DEF 14A filed on May 15, 2014).
10.17		Loan and Security Agreement between the Company and Avidbank Corporate Finance, a division of Avidbank, dated as of June 21, 2012. 2012 (Incorporated by reference to Exhibit 10.40 to Form 10-K filed on September 25, 2012).
10.41**10.18		First Amendment to Loan and Security Agreement dated as of January 1, 2013 between the Company and Avidbank Corporate Finance, a division of Avidbank (Incorporated by reference to Exhibit 10.1 to Form 8-K filed on April 18, 2013).
10.19		Second Amendment to Loan and Security Agreement dated as of April 2, 2013 between the Company and Avidbank Corporate Finance, a division of Avidbank (Incorporated by reference to Exhibit 10.2 to Form 8-K filed on April 18, 2013).
10.20		Third Amendment to Loan and Security Agreement dated as of April 11, 2013 between the Company and Avidbank Corporate Finance, a division of Avidbank (Incorporated by reference to Exhibit 10.3 to Form 8-K filed on April 18, 2013).
10.21		Fourth Amendment to Loan and Security Agreement dated as of April 29, 2013 between the Company and Avidbank Corporate Finance, a division of Avidbank (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed on May 14, 2013)
10.22		Fifth Amendment to Loan and Security Agreement dated as of September 26, 2013 between the Company and Avidbank Corporate Finance, a division of Avidbank (Incorporated by reference to Exhibit 10.30 to Form 10-K filed September 30, 2013).
10.23		Intellectual Property Security Agreement between the Company and Avidbank Corporate Finance, a division of Avidbank, dated as of June 21, 2012.2012 (Incorporated by reference to Exhibit 10.41 to Form 10-K filed on September 25, 2012).
10.24		Seventh Amendment to Employment and Non-Competition Agreement dated as of November 7, 2013 between the Company and David M. DeMedio. (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed November 13, 2013).
10.25		Sixth Amendment to Loan and Security Agreement dated as of May 15, 2014 between the Company and Avidbank Corporate Finance, a division of Avidbank (Incorporated by reference to Exhibit 10.28 to Form 10-K filed on September 29, 2014).
10.26		Seventh Amendment to Loan and Security Agreement dated as of June 17, 2014 between the Company and Avidbank Corporate Finance, a division of Avidbank (Incorporated by reference to Exhibit 10.29 to Form 10-K filed on September 29, 2014).
10.27		Eighth Amendment to Loan and Security Agreement dated as of June 30, 2014 between the Company and Avidbank Corporate Finance, a division of Avidbank (Incorporated by reference to Exhibit 10.30 to Form 10-K filed on September 29, 2014).
10.28		Master Lease Agreement by and between the Company and Varilease Finance, Inc. as of June 26, 2014 (Incorporated by reference to Exhibit 10.31 to Form 10-K filed on September 29, 2014).
10.29		Sale Leaseback Agreement and Schedule No. 1 by and between the Company and Varilease Finance, Inc. as of June 26, 2014 (Incorporated by reference to Exhibit 10.32 to Form 10-K filed on September 29, 2014).
10.30		Sale Leaseback Agreement and Schedule No. 2 by and between the Company and Varilease Finance, Inc. as of June 26, 2014 (Incorporated by reference to Exhibit 10.33 to Form 10-K filed on September 29, 2014).
10.31		Sale Leaseback Agreement and Schedule No. 3 by and between the Company and Varilease Finance, Inc. as of June 26, 2014 (Incorporated by reference to Exhibit 10.34 to Form 10-K filed on September 29, 2014).
10.32		Sale Leaseback Agreement and Schedule No. 4 by and between the Company and Varilease Finance, Inc. as of June 26, 2014 (Incorporated by reference to Exhibit 10.35 to Form 10-K filed on September 29, 2014).
10.33		Sale Leaseback Agreement and Schedule No. 5 by and between the Company and Varilease Finance, Inc. as of June 26, 2014 (Incorporated by reference to Exhibit 10.36 to Form 10-K filed on September 29, 2014).
10.34		Sale Leaseback Agreement and Schedule No. 6 by and between the Company and Varilease Finance, Inc. as of June 26, 2014 (Incorporated by reference to Exhibit 10.37 to Form 10-K filed on September 29, 2014).
10.35		Amendment No. 1 to Schedule No. 1 to Sale Leaseback Agreement by and between the Company and Varilease Finance, Inc. as of July 9, 2014 (Incorporated by reference to Exhibit 10.38 to Form 10-K filed on September 29, 2014).
10.36		Amendment No. 1 to Schedule No. 2 to Sale Leaseback Agreement by and between the Company and Varilease Finance, Inc. as of July 9, 2014 (Incorporated by reference to Exhibit 10.39 to Form 10-K filed on September 29, 2014).
10.37		Amendment No. 1 to Schedule No. 3 to Sale Leaseback Agreement by and between the Company and Varilease Finance, Inc. as of July 25, 2014 (Incorporated by reference to Exhibit 10.40 to Form 10-K filed on September 29, 2014).

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10.38		Amendment No. 1 to Schedule No. 4 to Sale Leaseback Agreement by and between the Company and Varilease Finance, Inc. as of July 29, 2014 (Incorporated by reference to Exhibit 10.41 to Form 10-K filed on September 29, 2014).
10.39		Amendment No. 1 to Schedule No. 5 to Sale Leaseback Agreement by and between the Company and Varilease Finance, Inc. as of July 30, 2014 (Incorporated by reference to Exhibit 10.42 to Form 10-K filed on September 29, 2014).
10.40		Amendment No. 1 to Schedule No. 6 to Sale Leaseback Agreement by and between the Company and Varilease Finance, Inc. as of August 1, 2014 (Incorporated by reference to Exhibit 10.43 to Form 10-K filed on September 29, 2014).
10.41		Visa Incentive Agreement between the Company and Visa U.S.A. Inc., dated as of November 14, 2014 (Portions of this exhibit were redacted pursuant to a confidential treatment request) (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed February 17, 2015).
10.42		Ninth Amendment to Loan and Security Agreement dated as of September 30, 2015 by and between the Company and Avidbank Corporate Finance, a division of Avidbank (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed November 14, 2014).
10.43		Tenth Amendment to Loan and Security Agreement dated as of April 17, 2015 by and between the Company and Avidbank Corporate Finance, a division of Avidbank (Incorporated by reference to Exhibit 10.1 to Form 10-Q filed May 15, 2015).
10.44		Mastercard Acceptance Agreement by and between the Company and Mastercard International Incorporated (Incorporated by reference to Exhibit 10.2 to Form 10-Q filed May 15, 2015) (Portions of this exhibit were redacted pursuant to a confidential treatment request).
10.45**		First Amendment to Mastercard Acceptance Agreement by and between the Company and Mastercard International Incorporated dated April 27, 2015 (Portions of this exhibit were redacted pursuant to a confidential treatment request).
10.46**		Third Party Payment Processor Agreement dated April 24, 2015 by and among the Company, JPMorgan Chase Bank, N.A. and Paymentech, LLC (Portions of this exhibit were redacted pursuant to a confidential treatment request).
10.47**		Eleventh Amendment to Loan and Security Agreement dated as of May 19, 2015 by and between the Company and Avidbank Corporate Finance, a division of Avidbank.
10.48**		Twelfth Amendment to Loan and Security Agreement dated as of June 18, 2015 by and between the Company and Avidbank Corporate Finance, a division of Avidbank.
10.49		Letter agreement dated July 22, 2015 by and between the Company and J. Duncan Smith (Incorporated by reference to Exhibit 10.1 to Form 8-K filed August 4, 2015).
21		List of significant subsidiaries of the Company (Incorporated by reference to Exhibit 21 to Form S-1 filed on March 16, 2010).
23.1**		Consent of McGladrey LLP, Independent Registered Public Accounting Firm.
31.1**		Certifications of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.2**		Certifications of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
32**		Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**		Filed herewith.

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** Filed herewith

67

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Item 15(a).

SCHEDULE II

USA TECHNOLOGIES, INC.

VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED JUNE 30, 2012, 2011,2015, 2014, AND 20102013

										Deductions
										uncollectible
		Balance at				Additions				receivables				Balance
		beginning				charged to				written off, net				at end
ACCOUNTS RECEIVABLE		of period				earnings				of recoveries				of period
June 30, 2015		$	63,000			$	594,000			$	163,000			$	494,000
June 30, 2014		$	18,000			$	94,000			$	49,000			$	63,000
June 30, 2013		$	25,000			$	69,000			$	76,000			$	18,000
		Balance at				Additions				Deductions,				Balance
		beginning				charged to				Shrinkage and				at end
INVENTORY		of period				earnings				obsolescence				of period
June 30, 2015		$	765,000			$	551,000			$	372,000			$	944,000
June 30, 2014		$	727,000			$	164,000			$	126,000			$	765,000
June 30, 2013		$	712,000			$	135,000			$	120,000			$	727,000

52

										Deductions
										uncollectible
		Balance at				Additions				receivables				Balance
		beginning				charged to				written off, net				at end
ACCOUNTS RECEIVABLE		of period				earnings				of recoveries				of period
June 30, 2012		$	113,000			$	(46,000	)		$	42,000			$	25,000
June 30, 2011		$	41,000			$	92,000			$	20,000			$	113,000
June 30, 2010		$	42,000			$	(1,000	)		$	-			$	41,000

		Balance at				Additions				Deductions,				Balance
		beginning				charged to				Shrinkage and				at end
INVENTORY		of period				earnings				obsolescence				of period
June 30, 2012		$	628,000			$	136,000			$	52,000			$	712,000
June 30, 2011		$	741,000			$	11,000			$	124,000			$	628,000
June 30, 2010		$	596,000			$	171,000			$	26,000			$	741,000

68

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	USA TECHNOLOGIES, INC.
	By: /s/	/s/ Stephen P. Herbert
	Stephen P. Herbert, Chairman
	and Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SIGNATURES		TITLE		DATE
/s/ Stephen P. Herbert		Chairman of the Board of Directors		September 25, 201230, 2015
Stephen P. Herbert		and Chief Executive Officer
		(Principal Executive Officer)
/s/ David M. DeMedioJ. Duncan Smith, CPA		Chief Financial Officer (Principal		September 25, 201230, 2015
David M. DeMedioJ. Duncan Smith, CPA		Accounting Officer)
/s/ Deborah G. ArnoldSteven D. Barnhart		Director		September 25, 2012
Deborah G. Arnold
/s/ Steven D. Barnhart		Director		September 25, 201230, 2015
Steven D. Barnhart
/s/ Joel Brooks		Director		September 25, 201230, 2015
Joel Brooks
/s/ Albin F. Moschner		Director		September 25, 201230, 2015
Albin F. Moschner

/s/ Frank A. Petito, III		Director		September 25, 2012
Frank A. Petito, III
/s/ Jack PriceWilliam J. Reilly, Jr.		Director		September 25, 201230, 2015
Jack PriceWilliam J. Reilly, Jr.
/s/ William J. Reilly, Jr.Schoch		Director		September 25, 2012
William J. Reilly, Jr.

/s/ William J. Schoch		Director		September 25, 201230, 2015
William J. Schoch

53

69