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ACQUISITION | 9 Months Ended
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Mar. 31, 2018
ACQUISITION. |
ACQUISITION | 3. ACQUISITION OF CANTALOUPE SYSTEMS, INC. On November 9, 2017, the Company acquired all of the outstanding equity interests of Cantaloupe pursuant to the Merger Agreement, for approximately $84.7 million in aggregate consideration. Cantaloupe is a premier provider of cloud and mobile solutions for vending, micro markets, and office coffee service. The acquisition expanded the Company’s existing platform to become an end-to-end enterprise platform integrating Cantaloupe’s Seed Cloud which provides cloud and mobile solutions for dynamic route scheduling, automated pre-kitting, responsive merchandising, inventory management, warehouse and accounting management, as well as cashless vending. In addition to new technology and services, due to Cantaloupe’s existing customer base, the acquisition expands the Company’s footprint into new global markets. The fair value of the purchase price consideration consisted of the following:
($ in thousands) |  |  |
Cash consideration, net of cash acquired (1) |  | $ | (65,181)
USAT shares issued as stock consideration (2) |  |  | (19,810)
Post-closing adjustment for working capital (3) |  |  | 253
Total consideration |  | $ | (84,738)
| (1) |  | The Cash Consideration is subject to certain post-closing adjustments, including with respect to the Company’s net working capital, as set forth in the Merger Agreement.
| (2) |  | Represents the stock consideration amount pursuant to the terms and conditions of the Merger Agreement equal to the 3,423,367 USAT Shares issued by the Company, multiplied by the fair market value per share of the USAT common stock, as determined by the Merger Agreement. Pursuant to an Escrow Agreement, 1,496,707 of the USAT Shares, with a value of $8.7 million as determined under the Merger Agreement, were not delivered to the former stockholders or warrant holders of Cantaloupe but are to be held in escrow for a minimum of fifteen months following the acquisition as partial security for certain indemnification obligations of the former stockholders and warrant holders of Cantaloupe under the Merger Agreement.
| (3) |  | During the third quarter ended March 31, 2018, the Company recorded a receivable of $232 thousand and cancelled 3,577 of our shares that had been held in escrow with a fair value of $21 thousand to reflect the final net working capital adjustment, as set forth in the Merger Agreement.
The Company financed a portion of the purchase price with proceeds from a $25.0 million term loan (“Term Loan”) and $10.0 million of borrowings under a line of credit (“Revolving Credit Facility”), provided by JPMorgan Chase Bank, N.A., for an aggregate principal amount of $35.0 million. Refer to Note 10 for additional details. The acquisition of Cantaloupe was accounted for as a business combination using the acquisition method. Under the acquisition method of accounting, the assets acquired and liabilities assumed in the transaction were recorded at the date of acquisition at their respective fair values using assumptions that are subject to change. The Company has not finalized its valuation of certain assets and liabilities recorded in connection with this transaction. Thus, the estimated measurements recorded to date are subject to change and any changes will be recorded as adjustments to the fair value of those assets and liabilities and residual amounts will be allocated to goodwill. The final valuation adjustments may also require adjustment to the consolidated statements of operations and cash flows. The final determination of these fair values will be completed as soon as possible but no later than one year from the acquisition date. The following table summarizes the fair value of total consideration transferred to the holders of all of the outstanding equity interests of Cantaloupe at the acquisition date of November 9, 2017:
|  | Cantaloupe
($ in thousands) |  | Systems, Inc.
Accounts receivable |  | $ | 3,232
Finance receivables, current portion |  |  | 1,640
Inventory |  |  | 782
Prepaid expense and other current assets |  |  | 682
Finance receivables, less current portion |  |  | 3,483
Other assets |  |  | 50
Property and equipment |  |  | 1,573
Intangibles |  |  | 30,800
Goodwill |  |  | 52,704
Total assets acquired |  |  | 94,946
Accounts payable |  |  | (1,591)
Accrued expenses |  |  | (1,832)
Deferred revenue |  |  | (626)
Capital lease obligations and current obligations under long-term debt |  |  | (666)
Capital lease obligations and long-term debt, less current portion |  |  | (1,134)
Deferred income tax liabilities |  |  | (4,359)
Total net assets acquired |  | $ | 84,738
Amounts allocated to intangible assets included $18.9 million related to customer relationships, $10.3 million related to developed technology, and $1.6 million related to trade names. The fair value of the acquired customer relationships was determined using the excess earnings method. The fair value of both the acquired developed technology and the acquired trade names was determined using the relief from royalty method. The estimated useful life of the acquired intangible assets ranged from 6 to 18 years, with a weighted average estimated useful life of 13 years. The related amortization will be recorded on a straight-line basis. Goodwill of $52.7 million arising from the acquisition includes the expected synergies between Cantaloupe and the Company, the value of the employee workforce, and intangible assets that do not qualify for separate recognition at the time of acquisition. The goodwill, which is not deductible for income tax purposes, was assigned to the Company’s only reporting unit. The amount of Cantaloupe revenues included in the Company’s Consolidated Statements of Operations for the three and nine months ended March 31, 2018 is $8.9 million and $13.6 million, respectively. The amount of Cantaloupe earnings included in the Company’s Consolidated Statements of Operations for the three and nine months ended March 31, 2018 is $0.9 million and $2.7 million, respectively. The Cantaloupe earnings for the three and nine months ended March 31, 2018 included an income tax provision of $0.3 million and an income tax benefit of $1.4 million, respectively. Supplemental disclosure of pro forma information The following supplemental unaudited pro forma information presents the combined results of USAT and Cantaloupe as if the acquisition of Cantaloupe occurred on July 1, 2016. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the acquisition been made on July 1, 2016, nor are they indicative of any future results. The pro forma results include adjustments for the preliminary purchase accounting impact of the Cantaloupe acquisition (including, but not limited to, amortization associated with the acquired intangible assets, and the interest expense and amortization of deferred financing fees associated with the Term Loan and Revolving Credit Facility that were used to finance a portion of the purchase price, along with the related tax impacts) and the alignment of accounting policies. Other material non-recurring adjustments are reflected in the pro forma and described below:
|  | Three months ended March 31, |  | Nine months ended March 31,
(In thousands, except per share data) |  | 2018 |  | 2017 |  | 2018 |  | 2017
Revenues |  | $ | 35,832 |  | $ | 32,265 |  | $ | 103,474 |  | $ | 86,969
Net income (loss) attributable to USAT |  |  | 2,488 |  |  | (339) |  |  | (8,064) |  |  | (6,898)
Net income (loss) attributable to USAT common shares |  | $ | 2,154 |  | $ | (673) |  | $ | (8,732) |  | $ | (7,566)
Net income (loss) per share: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.04 |  | $ | (0.01) |  | $ | (0.16) |  | $ | (0.14)
Diluted |  | $ | 0.04 |  | $ | (0.01) |  | $ | (0.16) |  | $ | (0.14)
Weighted average number of common shares outstanding: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 53,637,085 |  |  | 53,334,396 |  |  | 53,601,684 |  |  | 52,686,654
Diluted |  |  | 54,234,566 |  |  | 53,334,396 |  |  | 53,601,684 |  |  | 52,686,654
The supplemental unaudited pro forma earnings for the three and nine months ended March 31, 2018 were adjusted to exclude $1.7 million and $5.8 million of integration and acquisition costs, respectively. The supplemental unaudited pro forma earnings for the nine months ended March 31, 2017 were adjusted to include $5.8 million of integration and acquisition costs.

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