RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

Overview

Concurrently with the filing of this Form 10-Q, the Company filed its Annual Report on Form 10-K for the fiscal year ended June 30, 2019 containing our audited consolidated financial statements for the fiscal years ended June 30, 2019 and 2018, which have not previously been filed, as well as restatements of the following previously filed consolidated financial statements: (i) our audited consolidated financial statements for the fiscal year ended June 30, 2017; (ii) our selected financial data as of and for the fiscal years ended June 30, 2017, 2016 and 2015 contained in Item 6 of the Form 10-K; and (iii) our unaudited condensed consolidated financial statements for the fiscal quarters ended September 30, 2017 and 2016, December 31, 2017 and 2016, and March 31, 2018 and 2017, in Note 20, “Unaudited Quarterly Data” of the Notes to Consolidated Financial Statements.

We have not filed and do not intend to file amendments to any of our previously filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods affected by the restatements of our consolidated financial statements. In addition, we have not filed and do not intend to file a separate Annual Report on Form 10-K for the fiscal year ended June 30, 2018. Concurrent with this filing, we are filing our Quarterly Reports on Form 10-Q for each of the fiscal quarters ended September 30, 2018 and March 31, 2019 (together with this Form 10-Q, the “Fiscal Year 2019 Form 10-Qs”). We have not timely filed our Annual Report on Form 10-K for the fiscal year ended June 30, 2018 and the Fiscal Year 2019 Form 10-Qs as a result of the internal investigation of the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) and the subsequent restatement of certain of our prior period financial statements as more fully described below.

Background

On September 11, 2018, the Company announced that the Audit Committee with the assistance of independent legal and forensic accounting advisors, was in the process of conducting an internal investigation of current and prior period matters relating to certain of the Company’s contractual arrangements, including the accounting treatment, financial reporting and internal controls related to such arrangements. The Audit Committee’s investigation focused principally on certain customer transactions entered into by the Company during fiscal years 2017 and 2018.

On January 14, 2019, the Company reported that the Audit Committee’s internal investigation was substantially completed, the principal findings of the internal investigation, and the remedial actions to be implemented by the Company as a result of the internal investigation. The Audit Committee found that, for certain of the customer transactions under review, the Company had prematurely recognized revenue. The Audit Committee proposed certain adjustments to previously reported revenues related to fiscal quarters occurring during the 2017 and 2018 fiscal years of the Company. In most cases, revenues that had been recognized prematurely were, or were expected to be, recognized in subsequent quarters, including quarters subsequent to the quarters impacted by the investigative findings. The investigation further found that certain items that had been recorded as expenses, such as the payment of marketing or servicing fees, were more appropriately treated as contra-revenue items in earlier fiscal quarters.

On February 4, 2019, the Board of Directors of the Company, upon the recommendation of the Audit Committee, and based upon the adjustments to previously reported revenues proposed by the Audit Committee, determined that the following financial statements previously issued by the Company should no longer be relied upon: (1) the audited consolidated financial statements for the fiscal year ended June 30, 2017; and (2) the quarterly and year-to-date unaudited condensed consolidated financial statements for September 30, 2017, December 31, 2017, and March 31, 2018.

On October 7, 2019, the Board of Directors of the Company, upon the recommendation of the Audit Committee, and based upon the non-investigatory adjustments described below, determined that the following financial statements previously issued by the Company should no longer be relied upon: (1) the audited consolidated financial statements for the fiscal year ended June 30, 2015; (2) the audited consolidated financial statements for the fiscal year ended June 30, 2016; and (3) the quarterly and year-to-date unaudited condensed consolidated financial statements for September 30, 2016, December 31, 2016, and March 31, 2017.

In addition to the Audit Committee investigation matter described above, the Company also corrected for (i) out of period adjustments and errors related to the Company's acquisition and financial integration of Cantaloupe and (ii) out of period adjustments and errors identified during management's review of significant accounts and transactions.

The acquisition and financial integration-related adjustments referred to in (i) above were made in the restatement and relate to errors in the purchase accounting for our acquisition of Cantaloupe and errors in periods subsequent to the acquisition resulting from an ineffective integration of the financial systems and processes of the acquired entity with those of the Company.

The significant account and transaction review adjustments referred to in (ii) above were made in the restatement and relate to revenue recognition, deferred income tax accounting, sales-tax reserves, reserves for bad debts, inventory reserves, sale-leaseback accounting, balance sheet classification of preferred stock, and various other matters.

Effect of Restatement on Previously Filed December 31, 2017 Form 10-Q

A summary of the impact of these matters on income (loss) before taxes is presented below:



($ in thousands)	Increase / (Decrease) Restatement Impact
	Three months ended December 31, 2017
Audit Committee Investigation-related Adjustments:
Revenue	$	(866	)
Costs of sales	$	(1,225	)
Gross profit	$	359
Operating loss	$	359
Loss before income taxes	$	357

Acquisition and Financial Integration-related Adjustments:
Revenue	$	(60	)
Costs of sales	$	(33	)
Gross profit	$	(27	)
Operating loss	$	(288	)
Loss before income taxes	$	(223	)

Significant Account and Transaction Review and Other:
Revenue	$	(47	)
Costs of sales	$	313
Gross profit	$	(360	)
Operating loss	$	(775	)
Loss before income taxes	$	(1,041	)



($ in thousands)	Increase / (Decrease) Restatement Impact
	Six months ended December 31, 2017
Audit Committee Investigation-related Adjustments:
Revenue	$	(1,277	)
Costs of sales	$	(1,060	)
Gross profit	$	(217	)
Operating loss	$	(217	)
Loss before income taxes	$	(219	)

Acquisition and Financial Integration-related Adjustments:
Revenue	$	(60	)
Costs of sales	$	(33	)
Gross profit	$	(27	)
Operating loss	$	(288	)
Loss before income taxes	$	(223	)

Significant Account and Transaction Review and Other:
Revenue	$	6
Costs of sales	$	810
Gross profit	$	(804	)
Operating loss	$	(1,397	)
Loss before income taxes	$	(1,927	)

A summary of the impact of these matters on the condensed consolidated balance sheet is presented below, excluding any tax effect from the restatement adjustments in the aggregate:



($ in thousands)	Increase / (Decrease) Restatement Impact
	As of December 31, 2017
Audit Committee Investigation-related Adjustments:
Accounts receivable	$	(1,774	)
Finance receivables, net	$	(1,269	)
Inventory, net	$	2,166
Prepaid expenses and other current assets	$	25
Other assets	$	76
Property and equipment, net	$	(162	)
Accounts payable	$	106
Accrued expenses	$	580

Acquisition and Financial Integration-related Adjustments:
Cash and cash equivalents	$	(26	)
Accounts receivable	$	1,133
Finance receivables, net	$	(1,324	)
Inventory, net	$	(500	)
Prepaid expenses and other current assets	$	(35	)
Finance receivables due after one year, net	$	(191	)
Other assets	$	(139	)
Property and equipment, net	$	721
Goodwill	$	4,121
Accrued expenses	$	785
Deferred revenue	$	(153	)
Common stock	$	3,469

Significant Account and Transaction Review and Other:
Accounts receivable	$	(8	)
Finance receivables, net	$	371
Inventory, net	$	(861	)
Prepaid expenses and other current assets	$	(150	)
Other assets	$	(600	)
Finance receivables due after one year, net	$	703
Property and equipment, net	$	(737	)
Accounts payable	$	27
Accrued expenses	$	9,087
Capital lease obligation and current obligations under long-term debt	$	367
Capital lease obligation and long-term debt, less current portion	$	697
Deferred revenue	$	(27	)
Deferred gain from sale-leaseback transactions	$	(198	)
Deferred gain from sale-leaseback transactions, less current portion	$	(49	)
Common stock	$	(372	)

The restatement adjustments were tax effected and any tax adjustments reflected in the condensed consolidated financial statements in this note relate entirely to the tax effect on the restatement adjustments.

The tables below present the effect of the financial statement adjustments related to the restatement discussed above of the Company's previously reported financial statements as of and for the three and six months ended December 31, 2017.

The effect of the restatement on the previously filed condensed consolidated balance sheet as of December 31, 2017 is as follows:



	As of December 31, 2017
($ in thousands)	As Previously Reported			Adjustments			As Restated

Assets
Current assets:
Cash and cash equivalents	$	15,386		$	(26	)	$	15,360
Accounts receivable	15,472			(765		)	14,707
Finance receivables, net	5,517			(2,221		)	3,296
Inventory, net	11,215			804			12,019
Prepaid expenses and other current assets	1,971			(361		)	1,610
Total current assets	49,561			(2,569		)	46,992

Non-current assets:
Finance receivables due after one year, net	11,215			513			11,728
Other assets	1,120			(662		)	458
Property and equipment, net	12,622			(179		)	12,443
Deferred income taxes	14,774			(14,774		)	—
Intangibles, net	30,910			—			30,910
Goodwill	64,449			(46		)	64,403
Total non-current assets	135,090			(15,148		)	119,942

Total assets	$	184,651		$	(17,717	)	$	166,934

Liabilities, convertible preferred stock and shareholders’ equity
Current liabilities:
Accounts payable	$	23,775		$	133		$	23,908
Accrued expenses	6,798			9,825			16,623
Capital lease obligations, current obligations under long-term debt, and collateralized borrowings	5,121			367			5,488
Income taxes payable	6			(6		)	—
Deferred revenue	595			135			730
Deferred gain from sale-leaseback transactions	198			(198		)	—
Total current liabilities	36,493			10,256			46,749

Long-term liabilities:
Revolving credit facility	10,000			—			10,000
Deferred income taxes	—			91			91
Capital lease obligations, long-term debt, and collateralized borrowings, less current portion	23,874			696			24,570
Accrued expenses, less current portion	65			—			65
Deferred gain from sale-leaseback transactions, less current portion	49			(49		)	—
Total long-term liabilities	33,988			738			34,726

Total liabilities	$	70,481		$	10,994		$	81,475
Commitments and contingencies
Convertible preferred stock:
Series A convertible preferred stock, 900,000 shares authorized, 445,063 issued and outstanding, with liquidation preference of $19,109 at December 31, 2017	—			3,138			3,138
Shareholders’ equity:
Preferred stock, no par value, 1,800,000 shares authorized, no shares issued	—			—			—
Series A convertible preferred stock, 900,000 shares authorized, 445,063 issued and outstanding, with liquidation preference of $19,109 at December 31, 2017	3,138			(3,138		)	—
Common stock, no par value, 640,000,000 shares authorized, 53,619,898 shares issued and outstanding at December 31, 2017	307,053			3,097			310,150
Accumulated deficit	(196,021		)	(31,808		)	(227,829		)
Total shareholders’ equity	114,170			(31,849		)	82,321
Total liabilities, convertible preferred stock and shareholders’ equity	$	184,651		$	(17,717	)	$	166,934

The effect of the restatement on the previously filed condensed consolidated statement of operations for the three and six months ended December 31, 2017 is as follows:



	Three months ended December 31, 2017
($ in thousands, except per share data)	As Previously Reported			Adjustments			As Restated

Revenue:
License and transaction fees	$	22,853		$	661		$	23,514
Equipment sales	9,653			(1,635		)	8,018
Total revenue	32,506			(974		)	31,532

Costs of sales:
Cost of services	14,362			(6		)	14,356
Cost of equipment	8,943			(939		)	8,004
Total costs of sales	23,305			(945		)	22,360
Gross profit	9,201			(29		)	9,172

Operating expenses:
Selling, general and administrative	8,329			676			9,005
Integration and acquisition costs	3,335			—			3,335
Depreciation and amortization	737			—			737
Total operating expenses	12,401			676			13,077
Operating loss	(3,200		)	(705		)	(3,905		)

Other income (expense):
Interest income	251			73			324
Interest expense	(494		)	(276		)	(770		)
Total other expense, net	(243		)	(203		)	(446		)

Loss before income taxes	(3,443		)	(908		)	(4,351		)
(Provision) benefit for income taxes	(9,073		)	9,230			157

Net loss	(12,516		)	8,322			(4,194		)
Preferred dividends	—			—			—
Net loss applicable to common shares	$	(12,516	)	$	8,322		$	(4,194	)
Net loss per common share
Basic	$	(0.24	)	$	0.16		$	(0.08	)
Diluted	$	(0.24	)	$	0.16		$	(0.08	)
Weighted average number of common shares outstanding
Basic	52,150,106			—			52,150,106
Diluted	52,150,106			—			52,150,106



	Six months ended December 31, 2017
($ in thousands, except per share data)	As Previously Reported			Adjustments			As Restated

Revenue:
License and transaction fees	$	42,797		$	114		$	42,911
Equipment sales	15,326			(1,446		)	13,880
Total revenue	58,123			(1,332		)	56,791

Costs of sales:
Cost of services	27,688			(85		)	27,603
Cost of equipment	14,033			(198		)	13,835
Total costs of sales	41,721			(283		)	41,438
Gross profit	16,402			(1,049		)	15,353

Operating expenses:
Selling, general and administrative	15,075			854			15,929
Integration and acquisition costs	4,097			—			4,097
Depreciation and amortization	982			—			982
Total operating expenses	20,154			854			21,008
Operating loss	(3,752		)	(1,903		)	(5,655		)

Other income (expense):
Interest income	331			73			404
Interest expense	(703		)	(540		)	(1,243		)
Total other expense, net	(372		)	(467		)	(839		)

Loss before income taxes	(4,124		)	(2,370		)	(6,494		)
(Provision) benefit for income taxes	(8,605		)	8,734			129

Net loss	(12,729		)	6,364			(6,365		)
Preferred dividends	(334		)	—			(334		)
Net loss applicable to common shares	$	(13,063	)	$	6,364		$	(6,699	)
Net loss per common share
Basic	$	(0.26	)	$	0.13		$	(0.13	)
Diluted	$	(0.26	)	$	0.13		$	(0.13	)
Weighted average number of common shares outstanding
Basic	49,861,735			—			49,861,735
Diluted	49,861,735			—			49,861,735

The effect of the restatement on the previously filed condensed consolidated statement of cash flows for the six months ended December 31, 2017 is as follows:



	Six months ended December 31, 2017
($ in thousands)	As Previously Reported			Adjustments			As Restated

OPERATING ACTIVITIES:
Net loss	$	(12,729	)	$	6,364		$	(6,365	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Non-cash stock-based compensation	1,356			(372		)	984
(Gain) loss on disposal of property and equipment	(83		)	3			(80		)
Non-cash interest and amortization of debt discount	86			8			94
Bad debt expense	291			91			382
Provision for inventory reserve	—			1,091			1,091
Depreciation and amortization	3,476			(198		)	3,278
Excess tax benefits	67			—			67
Deferred income taxes	8,537			(8,696		)	(159		)
Recognition of deferred gain from sale-leaseback transactions	(93		)	93			—
Changes in operating assets and liabilities:
Accounts receivable	(5,290		)	(42		)	(5,332		)
Finance receivables, net	7,958			(626		)	7,332
Inventory, net	(5,822		)	(1,793		)	(7,615		)
Prepaid expenses and other current assets	(606		)	604			(2		)
Accounts payable and accrued expenses	6,950			754			7,704
Deferred revenue	—			570			570
Income taxes payable	40			(80		)	(40		)
Net cash provided by operating activities	4,138			(2,229		)	1,909

INVESTING ACTIVITIES:
Purchase of property and equipment, including rentals	(1,767		)	33			(1,734		)
Proceeds from sale of property and equipment, including rentals	157			—			157
Cash paid for acquisitions, net of cash acquired	(65,181		)	—			(65,181		)
Net cash used in investing activities	(66,791		)	33			(66,758		)

FINANCING ACTIVITIES:
Proceeds from transfer of finance receivables	—			1,075			1,075
Payment of debt issuance costs	(445		)	—			(445		)
Proceeds from issuance of long-term debt	25,100			—			25,100
Proceeds from revolving credit facility	10,000			—			10,000
Issuance of common stock in public offering, net	39,888			—			39,888
Repayment of line of credit	—			(7,111		)	(7,111		)
Repayment of capital lease obligations and long-term debt	(9,249		)	8,206			(1,043		)
Net cash provided by financing activities	65,294			2,170			67,464

Net increase in cash and cash equivalents	2,641			(26		)	2,615
Cash and cash equivalents at beginning of year	12,745			—			12,745
Cash and cash equivalents at end of period	$	15,386		$	(26	)	$	15,360