CORRESP 1 filename1.htm formcorresp.htm
 

December 2, 2009


Mellissa Campbell Duru, Esquire
Special Counsel
Office of Mergers and Acquisitions
Division of Corporation Finance
U.S. Securities and Exchange Commission
Washington, D.C. 20549

USA Technologies, Inc.
Definitive Additional Materials
Filed November 20 and 24, 2009
File No. 1-33365                        


This letter responds to the comments set forth in your letter dated November 25, 2009 to George Jensen, Chairman and Chief Executive Officer of USA Technologies, Inc. (the “Company”), regarding the filing listed above.  For your convenience, we have restated the Staff’s comments and have provided the Company’s responses below such comments:

General

1.           We note that Messrs. Tirpak and Thomas or the Shareholder Advocates for Value Enhancement filed a Schedule 14A to solicit proxies for purposes of, among other things, electing their slate of directors to your board at your upcoming annual meeting.  Please be advised that you are required to file a supplement to your Schedule 14A (tagged as a “DEFR14A”) and include in your revised proxy materials disclosure regarding the contest that is material to a shareholder’s voting decision.  For example, please include disclosure required by Items 4(b) and 5(b) of Schedule 14A.

RESPONSE:

The Company has prepared and filed today with the SEC an appropriate supplement to the Proxy Statement tagged as a “DEFR14A” (the “Supplement”).

2.           Please refer to our previous comment.  Please ensure that the revised filing clarifies whether or not brokers will have discretion to vote securities for which they have not received instructions.  In addition, to the extent brokers do retain discretion to vote the securities they hold on behalf of beneficial holders, advise us, with a view toward revised disclosure, what consideration has been given to disclosing the date by which brokers must receive instructions in order to have the votes reflect security holder selections.

 
 
 

Mellissa Campbell Duru, Esquire
December 2, 2009
Page 2


RESPONSE:

The Supplement clarifies whether or not brokers will have discretion to vote securities for which they have not received instructions. To the extent that brokers have discretion to vote the securities they hold on behalf of the beneficial holders, the Supplement also reflects the date by which brokers must receive instructions in order to have the votes reflect security holder selections.

Definitive Additional Materials

3.           Support for each statement or assertion of opinion or belief must be self-evident, disclosed in the proxy materials, or provided to the staff on a supplemental basis.  Provide us with support with respect to the following non-exhaustive list of statements you make:

·
“[t]he Company is a leader in our market . . ., and,

 
·
“[r]ecently, the Company successfully negotiated a contract with one of its largest suppliers . . .[t]his will result in immediate and significant gross profits . . .” (emphasis added)

Where the basis of support is other documents, provide either complete copies of the documents or sufficient pages of information so that we can assess the context of the information upon which you rely.  Mark any supporting documents provided to identify the specific information relied upon, such as quoted statements, financial statement line items, press releases, and mathematical computations, and identify the sources of all data utilized.

RESPONSE:

The statement in the definitive additional materials dated November 20, 2009 that “[t]he Company is the leader in our market” is supported by, among other things, The Nilson Report (Issue 934, September 2009) and The Nilson Report (Issue 912, October 2008), copies of which are being provided to the Staff on a supplemental basis. The September 2009 Nilson Report states that the Company was the 6th largest shipper of point of sale terminals in 2008 and was the 34th largest in the world. The October 2008 Nilson Report states that the Company was the 6th largest shipper of point of sale terminals in 2007. None of the Company’s competitors in the beverage vending industry are reflected on these lists.  According to The Nilson Report’s website, The Nilson Report has been the world’s leading source of news and proprietary research on consumer payment systems for 39 years.  The Company is not aware of any competitor in the beverage vending industry that has a higher number of connections than the Company (approximately 57,000 as of September 30, 2009) or that processes a greater volume of transactions than the Company. Finally, each of VISA and MasterCard selected the Company’s point of sale device and network services in connection with their seeding program investments in the beverage vending industry.

As the Staff noted, the Company states in its definitive additional soliciting materials dated November 20, 2009 that “[r]ecently, the Company successfully negotiated a contract with one of its largest suppliers …[t]his will result in immediate and significant gross profits…”(emphasis  added). On November 10, 2009, the Company entered into an amendment to its communications contract with its telecommunications provider which substantially reduced the rates to be paid by the Company in connection with the transmission of data to its network from the point of sale devices.  The provisions of the amendment became effective on the date the amendment was signed. Management based its statement regarding the increase in gross profit for the quarter ended September 30, 2009 on the gross profit calculation. The calculation showed a significant increase in gross profit which would have been realized by the Company had the amendment been in place during the quarter ended September 30, 2009 (34% rather than the gross margin of 27% actually realized by the Company). The Company anticipates that gross profits will be significantly increased in the future as a result of the amendment.

Mellissa Campbell Duru, Esquire
December 2, 2009
Page 3


The Company has support for all of the other statements, or assertions of opinion or fact, contained in the definitive additional materials.

For example, the additional soliciting materials state that the Company’s strategic plan “is clearly focused on generating positive net income by the quarter ending December 31, 2010.” The Company has a six year monthly forecast of operations that covers the period from July 1, 2009 to June 30, 2015. The forecast indicates that the Company would have a positive net income by the quarter ending December 31, 2010, and the Company would have approximately 114,000 devices connected to its network by December 31, 2010. Management believes that the assumptions in the forecast are reasonable.

The additional soliciting materials also state that “the Company is actively engaged in activities that it hopes will ultimately culminate in the reduction of costs associated with transaction processing. If successful, this too, will have an immediate, significant and positive impact on gross margins.” The Company is working with its transaction processor, its industry membership organization and a credit card company to reduce transaction processing costs, such as interchange costs and assessment charges charged by the credit card companies. The anticipated reductions sought by the Company would reduce our transaction processing costs by approximately $50,000 per month based on current transaction processing volumes, or $150,000 per quarter, which would significantly improve our gross profits.

Finally, the additional soliciting materials state that we “plan to further reduce SG&A expenses in future quarters.” This statement is supported by the fact that, during the current quarter ending December 31, 2009, the Company has reduced the costs paid to outside consultants, primarily software and hardware developers. In addition, in future quarters, the Company anticipates reducing costs associated with SOX and PCI (Payment Card Industry) Security Standard compliance issues and making further cost reductions including, reductions in software and hardware consultant costs.
 

4.           Avoid statements that directly or indirectly impugn character, integrity or personal reputation or make charges of illegal or immoral conduct without factual foundation.  Refer to Rule 14a-9.  Please delete or provide sufficient basis in future filings for your assertions.  In this regard, we note references to the “grossly misleading” information contained in the dissidents’ filings and the statement in the letter to shareholders dated November 24, 2009 that implies the dissidents’ nominees are not independent.

Mellissa Campbell Duru, Esquire
December 2, 2009
Page 4


RESPONSE:

The Company understands that all statements in its proxy soliciting materials must have a factual foundation. This will confirm that all statements in the Company’s previous, current, as well as future filings will have such a factual foundation.

As noted by the Staff, the November 20, 2009 additional soliciting materials stated that SAVE’s preliminary proxy statement contained information regarding management’s compensation that was grossly misleading. The Company believes that, among other things, SAVE’s failure to specifically state the portion of management’s compensation that consisted of cash and of stock (noncash) was grossly misleading to shareholders, especially when these aggregate compensation amounts were also expressed as a percentage of revenues of the Company. This was also noted in the letter to the Staff from the Company’s counsel dated November 23, 2009 relating to SAVE’s preliminary proxy statement. The Company notes that the amended preliminary proxy statement filed by SAVE on Friday, November 27, 2009 specifically added the breakdown between cash compensation and stock compensation (noncash) which had not been set forth in its original preliminary proxy statement.

Finally, we have not found any statement in the Company’s letter to shareholders dated November 24, 2009 implying that SAVE’s nominees are not independent. The Company does not dispute that these nominees are independent, and the Supplement has been revised to include a statement that the nominees of SAVE are independent.                                

In connection with the responses above, the Company acknowledges that:

 
·
the Company is responsible for the adequacy and accuracy of the disclosures in its filings;

 
·
Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the Company’s filings; and

 
·
the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.


/s/ George R. Jensen, Jr.

 
 
 

Mellissa Campbell Duru, Esquire
December 2, 2009
Page 5


George R. Jensen, Jr.
Chairman and Chief Executive Officer

cc: Justin P. Klein, Esquire
     Douglas M. Lurio, Esquire
 
 
THE NILSON REPORT
(SEPTEMBER 2009)
 
 
 
 
 
 
 
 
 
 
THE NILSON REPORT
(OCTOBER 2008)