SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Amendment No. 1
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 21, 2000
U.S. WIRELESS DATA, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State of Other Jurisdiction of Incorporation)
0-24742
(Commission File Number)
84-1178691
(I.R.S. Employer Identification No.)
750 Lexington Avenue
New York, New York 10022
(Address of principal executive
offices including zip code)
(212) 750-7766
(Registrant's telephone number,
including area code)
(Former name or former address, if changed since last report)
Item 2. Acquisition or Disposition of Assets.
This Amendment No. 1 hereby amends information contained in Item 7 of the Current Report on Form 8-K filed by U.S. Wireless Data, Inc. with the Securities and Exchange Commission, dated December 21, 2000 relating to its acquisition of the common stock of NXT Corporation on December 21, 2000.
On December 21, 2000, we completed our previously announced acquisition of all of the issued and outstanding shares of capital stock of NXT Corporation, a Delaware corporation, (“NXT”) pursuant to that certain Agreement and Plan of Merger dated December 13, 2000 by and among us, NXT, NXT Wireless, Inc., ourwholly-owned subsidiary, and certain stockholders of NXT, whereby, among other things, our subsidiary has merged with and into NXT and NXT became our wholly-owned subsidiary. NXT, is a leading provider of application delivery and network services for the transaction processing industry. NXT provides its processor clients with value-added credit card transaction processing services that are similar to those provided by us. However, NXT utilizes the fixed wireline telephone network, whereas we utilize wireless carriers. This acquisition brings together complementary technologies, enabling us to offer our customers a full array of services tailored to the needs of each merchant. In addition, NXT adds significant transaction volumes and revenues. NXT currently processes approximately thirty-five (35) million payment transactions per month, providing services to approximately 45,000 merchant locations.
The shareholders of NXT, including holders of certain phantom stock rights in NXT have exchanged their shares of common stock of NXT, for an aggregate of 1,125,000 shares of our common stock having an aggregate value of approximately $2,109,000. We agreed, subject to certain conditions, to pay additional consideration to the NXT shareholders, if the Daily Average Price (as defined in the Agreement) of our common stock for the twenty (20) consecutive trading days ending with the trading day immediately preceding December 21, 2002 is less than $18.40 per share, as adjusted for any stock splits, stock dividends or similar events. Such additional consideration shall be an amount equal to: (i) the number of the original 1,125,000 shares which have not previously been sold or transferred, subject to certain exceptions, multiplied by (ii) the amount, if any, not to exceed $12.40, by which such Daily Average Price is less than $18.40. Such additional consideration shall be paid to the NXT shareholders in cash, to the extent of 10% of the amount of the additional consideration to be paid by us, provided that the aggregate amount of cash paid will not exceed $500,000. Any balance of consideration due shall be paid in shares of our common stock having a value equal to the Daily Average Price, provided however, that for such purposes, in no event shall the value ascribed to our common stock be lower than $6.00 per share.
In addition to the 1,125,000 shares of common stock, we also assumed options for approximately 76,000 shares of our common stock at exercise prices ranging from $7.50 to $33.07 per share. The holders of such options may also be entitled, upon exercise of their options, to additional consideration depending on the Daily Average Price of our common stock for the twenty (20) trading days immediately preceding December 21, 2002.
In connection with the merger, Paymentech, Inc. and Merchant-Link, LLC, NXT’s two largest customers, agreed, subject to certain exceptions, to maintain certain revenue levels of business with NXT over the next twelve (12) months and twenty-four (24) months, respectively. Failure of either of these parties to maintain such levels of business for any reason could materially impair the value of the NXT acquisition to us. Paymentech, Inc. was a stockholder of NXT and Merchant-Link is a wholly-owned subsidiary of Paymentech, Inc.
In connection with the merger, American Express Travel Related Services Company, Inc., a stockholder of and service provider to NXT, agreed to provide certain services at more favorable rates and we agreed that AMEX shall be entitled to designate a person to serve as a member of our board of directors for a period of two (2) years following the closing. We also paid an aggregate of approximately $1.7 million to AMEX and Paymentech to retire certain indebtedness due from NXT to AMEX and Paymentech other than current trade payables. In addition, AMEX will be providing us with $300,000 in marketing, promotion and support funding.
Item 7. Financial Statements, Pro forma Financial Information and Exhibits.
(a) Financial statements of business acquired.
Included in this filing are the audited Balance Sheets as of December 31, 1999 and December 31, 1998 and the Statements of Operations, the Statements of Stockholders' Equity (Deficit), and Statements of Cash Flows for the acquired company, NXT Corporation, for the 4 years ended December 31, 1999 and December 31, 1998. In addition, included are the unaudited Balance Sheets as of September 30, 2000 and September 30, 1999 and the unaudited Statement of Operations and unaudited Statements of Cash Flows for the nine months ended September 30, 2000 and September 30, 1999 of NXT Corporation. |
(b) Pro forma financial information.
Included in this filing are the unaudited Pro Forma Condensed Financial Statements giving effect to the purchase of NXT Corporation common stock by U.S. Wireless Data, Inc. These pro forma condensed financial statements are presented for illustrative purposes only. The pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable. The unaudited Pro Forma Financial Statements are represented by the Condensed Balance Sheet as of September 30, 2000 and the Statement of Operations for the twelve months ended June 30, 2000 and for the three months ended September 30, 2000. |
(c) Exhibits
23.1 Accountants' Consent.
*99.1 Press Release dated as of December 18, 2000.
99.2 Financial Statements listed in Item 7(a) above.
99.3 Pro forma Financial Statements listed in Item 7(b) above.
*previously filed
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
U.S. WIRELESS DATA, INC.
(Registrant)
Dated March 6, 2001 By:/s/ Dean M. Leavitt
Name: Dean M. Leavitt
Title: Chairman & Chief Executive Officer
NXT CORPORATION
Financial Statements
December 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
The Board of Directors and Stockholders
NXT Corporation:
We have audited the accompanying balance sheets of NXT Corporation as of December 31, 1999 and 1998, and the related statements of operations, stockholders’ equity (deficit) and cash flows for the years then ended. These financial statements 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 financial statements referred to above present fairly, in all material respects, the financial position of NXT Corporation as of December 31, 1999 and 1998 and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
October 26, 2000, except as to note 10,
which is as of December 21, 2000
NXT CORPORATION
Balance Sheets
December 31, 1999 and 1998
Assets 1999 1998 ---- ---- Current assets: Cash and cash equivalents .................................. $ 531,368 169,548 Accounts receivable ........................................ 592,404 331,015 Due from affiliates ........................................ 36,429 4,355 Prepaid expenses and other assets .......................... 32,026 12,374 ------------ ------------ Total current assets ........................ 1,192,227 517,292 Property and equipment, net .................................... 424,069 437,391 Restricted cash ................................................ 175,000 -- Intangible contract benefits (net of accumulated amortization of $936,000 and $504,000, respectively) .................... 864,000 1,296,000 Deposits and other assets ...................................... 27,345 12,459 ------------ ------------ $ 2,682,641 2,263,142 ============ ============ Liabilities and Stockholders' Equity (Deficit) Current liabilities: Accounts payable ........................................... $ 659,072 551,902 Accrued expenses ........................................... 239,710 89,506 Current installments of obligations under capital leases ... 51,315 35,030 Deferred revenue ........................................... 7,697 7,697 Current portion due to MLI ................................. 32,073 44,295 Current portion due to American Express .................... 87,500 87,500 Current portion of secured note due to PTI ................. 1,400,000 -- Current portion of deferred rent ........................... 5,421 -- ------------ ------------ Total current liabilities ................... 2,482,788 815,930 Obligations under capital leases, excluding current installments 97,543 114,163 Secured note due to PTI ........................................ -- 250,000 Note due to MLI, net of current portion ........................ -- 32,080 Due to American Express, net of current portion ................ 87,500 175,000 Deferred rent, net of current portion .......................... 65,837 -- ------------ ------------ Total liabilities ............................... 2,733,668 1,387,173 ------------ ------------ Commitments and contingencies Stockholders' equity (deficit): Common stock, $.01 par value; 10,000,000 shares authorized, 6,061,758 and 5,454,007 shares issued and outstanding, respectively ............................................ 60,618 54,540 Additional paid-in capital ................................. 11,621,924 7,533,347 Accumulated deficit ........................................ (11,733,569) (6,711,918) ------------ ------------ Total stockholders' equity (deficit) ........ (51,027) 875,969 ------------ ------------ $ 2,682,641 2,263,142 ============ ============
See accompanying notes to financial statements.
NXT CORPORATION
Statements of Operations
Years ended December 31, 1999 and 1998
1999 1998 ---- ---- Revenues: Transaction fees .......................... $ 3,035,877 1,729,220 Leased line revenue ....................... 201,493 79,734 Software development fees ................. 233,040 248,374 Other ..................................... 76,901 40,954 ----------- ----------- Total revenues ............. 3,547,311 2,098,282 ----------- ----------- Operating expenses: Transaction fees .......................... 2,578,885 1,556,742 Connection fees ........................... 309,239 160,823 Network access fees ....................... -- 150,000 Personnel costs ........................... 2,211,354 1,731,157 Stock compensation (income) ............... 1,285,025 (333,376) General and administrative ................ 709,816 459,931 Contract services ......................... 520,696 227,840 Depreciation and amortization ............. 653,022 612,286 Other ..................................... 163,198 130,985 ----------- ----------- Total operating expenses ... 8,431,235 4,696,388 ----------- ----------- Operating loss ............. (4,883,924) (2,598,106) Interest income ............................... 42,937 17,893 Gain (loss) on sale of equipment .............. (100,349) 13,039 Interest expense .............................. (80,315) (13,121) ----------- ----------- Net loss before income taxes (5,021,651) (2,580,295) Income taxes .................................. -- -- ----------- ----------- Net loss ................... $(5,021,651) (2,580,295) =========== ===========
See accompanying notes to financial statements.
NXT CORPORATION
Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1999 and 1998
Common stock Additional Total --------------------- paid-in Accumulated stockholders' Shares Amount capital deficit equity (deficit) ------ ------ ---------- ----------- --------------- Balance at December 31, 1997 ............... 5,400,007 54,000 $ 7,622,388 (4,131,623) 3,544,765 Stock compensation ...... -- -- (333,376) -- (333,376) Debt to equity conversion 54,000 540 249,460 -- 250,000 Stock issuance costs .... -- -- (5,125) -- (5,125) Net loss ................ -- -- -- (2,580,295) (2,580,295) ----------- ----------- ----------- ----------- ----------- Balance at December 31, 1998 ............... 5,454,007 54,540 7,533,347 (6,711,918) 875,969 Common stock issued to Paymentech .............. 259,179 2,592 1,197,408 -- 1,200,000 Common stock issued to Amex .......... 259,179 2,592 1,197,408 -- 1,200,000 Common stock issued to Company's President ..... 86,393 864 399,136 -- 400,000 Exercise of stock options 3,000 30 9,600 -- 9,630 Stock compensation ...... -- -- 1,285,025 -- 1,285,025 Net loss ................ -- -- -- (5,021,651) (5,021,651) ----------- ----------- ----------- ----------- ----------- Balance at December 31, 1999 ............... 6,061,758 60,618 $11,621,924 (11,733,569) (51,027) =========== =========== =========== =========== ===========
See accompanying notes to financial statements.
NXT CORPORATION
Statements of Cash Flows
Years ended December 31, 1999 and 1998
1999 1998 ---- ---- Cash flows from operating activities: Net loss .......................................................... $(5,021,651) (2,580,295) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ............................... 653,022 612,286 Loss (gain) on disposal of equipment ........................ 100,349 (13,039) Stock compensation (income) ................................. 1,285,025 (333,376) Deferred rent ............................................... 71,258 -- Decrease (increase) in accounts receivable .................. (261,389) 52,406 Decrease (increase) in prepaid expenses and other assets .... (33,450) 1,083,952 Decrease in due from/to affiliates .......................... (32,074) (100,320) Increase in accounts payable and accrued expenses ........... 257,374 498,703 Increase in deferred revenue ................................ -- 7,697 ----------- ----------- Net cash used in operating activities .............. (2,981,536) (771,986) ----------- ----------- Cash flows from investing activities: Purchases of furniture and equipment .............................. (270,176) (117,515) Patent ............................................................ (1,088) -- Proceeds from sale of equipment ................................... 2,067 20,276 ----------- ----------- Net cash used in investing activities .............. (269,197) (97,239) ----------- ----------- Cash flows from financing activities: Net proceeds from promissory note issuances ....................... 1,150,000 500,000 Proceeds from sale of common stock ................................ 2,800,000 -- Proceeds from exercise of common stock options .................... 9,630 -- Principal payments on American Express advance .................... (87,500) (87,500) Principal payments on capital lease obligations ................... (40,275) (14,043) Principal payment on notes payable ................................ (44,302) -- Restricted cash ................................................... (175,000) -- Stock issuance costs .............................................. -- (5,125) ----------- ----------- Net cash provided by financing activities .......... 3,612,553 393,332 ----------- ----------- Net increase (decrease) in cash and cash equivalents 361,820 (475,893) Cash and cash equivalents, beginning of year .......................... 169,548 645,441 ----------- ----------- Cash and cash equivalents, end of year ................................ $ 531,368 169,548 =========== =========== Supplemental disclosure of cash flow information: Interest paid ..................................................... $ 23,142 5,121 Income taxes paid ................................................. -- -- =========== =========== Supplemental disclosure of non-cash investing and financing activities: Capital lease obligations ...................................... $ 39,940 163,236 Furniture and equipment acquired with note due to MLI .......... -- 76,375 Debt converted to equity ....................................... -- 250,000 =========== ===========
See accompanying notes to financial statements.
(1) Summary of Significant Accounting Policies
NXT Corporation (“NXT” or the “Company”) was incorporated in Delaware on November 20, 1995. The Company provides data transaction transport and custom software development services. The Company operates in the credit card industry, which is highly competitive and subject to risks of technological obsolescence. The Company is dependent upon revenues generated from transactions with certain related parties within the industry, and the majority of its financing has been provided by these related parties. |
(a) Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. |
(b) Revenue Recognition
Transaction fee revenue is earned from the translation and transport of credit card transactions and is recognized as the services are provided. Leased line revenue is recognized as the services are provided. Software development fee revenue is derived from the development of customized software and is recognized upon delivery of the software. Amounts received in advance of meeting the revenue recognition criteria are deferred. |
(c) Depreciation, Amortization and Recoverability of Long-Lived Assets
Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives, as follows: |
Computer and office equipment 3 years
Computer software 3 years
Furniture and fixtures 5 years
Leasehold improvements 5 years or lease term, if shorter
Equipment under capital lease is amortized over the shorter of the lease term or its estimated useful life. |
NXT’s policy is to review its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are recognized as the excess of the carrying amount over the fair market value of the asset. |
(d) Income Taxes
The Company recognizes income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. |
(e) Stock-Based Compensation
The Company accounts for employee stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25,Accounting for Stock Issued toEmployees, and complies with the disclosure provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123,Accounting for Stock-Based Compensation. Under APB Opinion No. 25, compensation expense is based upon the difference, if any, between the fair value of the Company’s stock and the exercise price on the date of the grant. Options to purchase common stock granted to other than employees as consideration for goods or services rendered are measured at fair value and are recognized as the goods or services are provided. |
(f) Cash and Cash Equivalents
The Company considers all highly liquid financial instruments with original maturities of three months or less to be cash equivalents. Cash equivalents of $531,046 and $169,348 at December 31, 1999 and 1998, respectively, consist of overnight repurchase agreements. The Company maintains its cash in bank accounts which, at times, may exceed federally insured limits. |
Restricted cash at December 31, 1999 consists of a certificate of deposit in the amount of $175,000 in support of a letter of credit held by the lessor of a portion of the Company’s office space. |
(g) Software Development Costs
Software development costs are expensed as incurred. SFAS No. 86,Accounting for the Costs of ComputerSoftware to be Sold, Leased, or Otherwise Marketed, does not materially affect the Company. |
(h) Comprehensive Income
In 1998, the Company adopted SFAS No. 130,Reporting Comprehensive Income.SFAS No. 130 establishes standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. The statement requires additional disclosures in the financial statements, but does not affect the Company’s financial position or results of operations. Net loss as reported in the statements of operations is the Company’s only component of comprehensive income during all periods presented. |
(i) Liquidity
During 1999 and 1998, the Company incurred significant net losses and did not generate sufficient cash flows from operations to cover operating expenses and other obligations. At December 31, 1999, the Company had negative working capital of approximately ($1,291,000) and an accumulated deficit of approximately $12,000,000. The Company has future cash requirements to continue to fund its operations and planned growth and there can be no assurance that the Company will be able to obtain adequate financing or generate sufficient cash flows necessary to satisfy these cash requirements. |
(2) Related Party Transactions
The Company receives from and provides services to two of its major shareholders, Paymentech, Inc. ("PTI"), a subsidiary of First USA Inc. and its subsidiary, Merchant Link, Inc. ("MLI"), and American Express Travel Related Services Company, Inc. ("Amex"). Additionally, the Company's president is the majority owner of Maximize, Inc. ("Maximize") which transacts certain business with the Company. During 1999 and 1998 the Company had the following transactions with PTI, MLI, Amex, and Maximize: |
(a) PTI
During 1999 and 1998, the Company recorded approximately $1,148,000 and $705,000, respectively, in transaction fee revenue from PTI for monthly data transport services, $89,000 and $0, respectively, for leased line revenue, and $3,000 and $21,000, respectively, for software development services. At December 31, 1999 and 1998, accounts receivable from PTI were approximately $241,000 and $80,000, respectively. |
On July 31, 1998, the Company issued an unsecured promissory note to PTI in the amount of $250,000 with a maturity date of January 31, 1999. On January 4, 1999, the note was canceled and reissued as a secured promissory note with a maturity date of January 31, 2000. The secured promissory note bears interest at 8 percent per annum and is convertible into common stock at $4.63 per share. During 2000, PTI further extended the maturity date to December 31, 2000. |
Also on January 4, 1999, the Company issued an additional secured promissory note to PTI in the amount of $400,000 with a maturity date of January 31, 2000. The note was cancelled on September 3, 1999 and the balance was converted into a secured convertible promissory note with a maturity date of January 31, 2000 that permits borrowings up to $2,400,000. The note bears interest at 8 percent per annum and is convertible into common stock at $4.63 per share. At December 31, 1999, the Company had outstanding borrowings of $1,150,000 against the note, plus accrued interest of approximately $65,000. During 2000, the Company borrowed the remaining $1,250,000 of principal available under the note, and PTI extended the maturity date of the note to December 31, 2000. |
(b) MLI
MLI uses the NXT network for transaction transport services as contracted for in a service agreement dated June 21, 1996. MLI also leases office space to NXT and has provided certain additional services including, during 1998, monthly management consulting services at cost, in addition to office space and supplies. During 1999 and 1998, the Company recorded transaction fee revenue of approximately $1,367,000 and $1,020,000, respectively, and incurred expenses of $132,000 and $148,000, respectively, for network monitoring costs. During 1998, NXT incurred $102,000 for salaries and related costs relating to management consulting services and $220,000 for office space and supplies. The Company also recorded software development fee revenue of approximately $128,000 and $33,000 during 1999 and 1998, respectively. At December 31, 1999 and 1998, accounts receivable from MLI were approximately $263,000 and $190,000 respectively, and accounts payable were $36,000 and $148,000, respectively. |
Effective September 1, 1998, the Company began subleasing office space which had previously been shared by MLI and the Company. This sublease expires on August 30, 2001. Upon entering the sublease the Company acquired from MLI existing furniture and fixtures in exchange for a secured promissory note totaling $76,375. The note bears interest at 8 percent per annum and is payable in equal installments of $3,327 commencing October 1, 1998 and continuing for an additional 24 months thereafter. |
(c) Amex
Pursuant to an agreement with Amex dated January 29, 1996, as amended on October 14, 1997 (the “Agreement” or the “amended Agreement”), the Company provides to, and receives from, Amex various services related to the transport and management of credit card transactions. In each of 1999 and 1998, the Company recorded revenue from Amex of approximately $80,000 from transaction fees and leased line reimbursements, and $0 and $68,000, respectively, from software development and other services. The Company also recognized costs of sales to Amex of approximately $2,544,000 and $1,707,000 for transaction transport services, host connection fees and transaction commissions during 1999 and 1998, respectively. As of December 31, 1999 and 1998, included in the accounts payable balance was approximately $488,000 and $290,000, respectively, due to Amex. Amex has agreed to defer all charges incurred by NXT since March 2000 until December 31, 2000. |
Pursuant to the Agreement between the Company and AMEX, NXT is required to reimburse Amex a $350,000 advance made to NXT in 1995. Such reimbursement is non-interest bearing and is payable in equal monthly installments in the amount of $7,292 commencing January 1, 1998 and continuing for an additional 47 months thereafter. |
Also, in accordance with the terms of the amended Agreement, NXT was also required to pay Amex a fee of $300,000. Such fee was payable in twenty-four equal monthly installments of $12,500 (on a non-interest bearing basis), commencing on January 1, 1997, and was fully repaid in December 1998. |
(d) Maximize
During 1999 and 1998, the Company recorded revenue from Maximize of approximately $64,000 and $124,000, respectively, for software development services and data support fees. During 1999, Maximize refunded to NXT approximately $15,000 for staff salary costs for administrative services and approximately $33,000 for office expenses. |
(e) President of the Company
On July 31, 1998, the Company issued a $250,000 unsecured convertible promissory note to the Company’s president. In September 1998, the Company’s president converted the note into common stock at a rate of $4.63 per share, resulting in the issuance of 54,000 shares. |
(3) Property and Equipment
Property and equipment consists of the following at December 31, 1999 and 1998:
1999 1998 ---- ---- Computer equipment $ 660,982 560,685 Computer software 99,538 53,280 Office furniture and equipment 150,865 144,632 Leasehold improvements 16,930 4,312 --------- --------- 928,315 762,909 Less accumulated depreciation and amortization (504,246) (325,518) --------- --------- $ 424,069 437,391 ========= =========
Included in computer equipment at December 31, 1999 and 1998 is $62,939 and $162,236, respectively, of computer and network equipment under capital leases with accumulated amortization of $17,453 and $18,712, respectively. |
(4) Lease Commitments
NXT has entered into capital leases for certain computer and network equipment that expire on various dates through 2002. On September 1, 1998, the Company entered into a noncancelable operating lease for office space, previously shared by MLI and the Company (note 2), that expires August 30, 2001. During 1999, the Company entered into an operating lease with an unrelated party for additional office space. |
Upon the expiration of the existing sublease with MLI in August 2001, the Company has committed to renew their existing lease agreement with the lessor at the then prevailing market rate. |
Future minimum lease payments under noncancelable operating leases and the present value of future minimum lease payments on capital leases as of December 31, 1999, are as follows: |
Capital Operating Year ending December 31, leases leases ------- --------- 2000 $ 64,324 558,970 2001 62,713 590,992 2002 44,065 641,880 2003 -- 661,136 2004 -- 680,970 2005 and thereafter -- 3,389,836 ---------- ---------- 171,102 $ 6,523,784 ========== Less amount representing interest at 10% (22,244) ---------- Present value of net minimum lease payments 148,858 Less current installments (51,315) ---------- Obligations under capital leases, excluding current installments $ 97,543 ==========
Rent expense for 1999 and 1998 was approximately $411,000 and $240,000, respectively.
(5) Income Taxes
No provision has been made for income taxes as the Company incurred losses during 1999 and 1998. The actual income tax provision differs from the expected income tax benefit computed using the statutory Federal income tax rate of 34 percent applied to pretax loss as a result of the following: |
1999 1998 ---- ---- Statutory Federal income tax rate (34)% (34)% Increase (reduction) in income tax resulting from: State income taxes, net of Federal tax (6) (6) Change in valuation allowance 39 40 Other 1 -- ---- ---- Effective tax rate -- % -- % ==== ====
The Company has net operating loss carryforwards available for income tax purposes of approximately $7,200,000 at December 31, 1999 which expire in varying amounts, if unused, through 2019. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 1999 and 1998 are as follows: |
1999 1998 ---- ---- Deferred tax assets: Net operating loss carryforward $ 2,879,936 1,478,796 Phantom stock 854,523 413,813 Employee stock options 189,350 116,050 Capital lease obligations 59,543 59,677 Other 41,911 9,642 ---------- ---------- Total deferred tax assets 4,025,263 2,077,978 Valuation allowance (3,980,863) (2,029,067) ---------- ---------- Net deferred tax assets 44,400 48,911 Deferred tax liability - tax depreciation in excess of book (44,400) (48,911) ---------- ---------- Net deferred income taxes $ -- -- ========== ===========
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax asset will not be realized. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the net operating loss carryforwards are available to reduce income taxes payable, management has established a valuation allowance for the full amount of the deferred tax assets at December 31, 1999 and 1998. The net change in the valuation allowance during the years ended December 31, 1999 and 1998 was an increase of $1,951,796 and $1,040,889, respectively. |
(6) Stock Options
In April 1998, the Company adopted the NXT 1998 Stock Option Plan that provides for the granting to employees and officers stock options to purchase up to 963,728 shares of the Company’s common stock. Options granted under the plan can be incentive stock options or non-qualified stock options at the discretion of the board of directors. Option exercise prices are required to be at the fair value of the Company’s common stock as determined by the Stock Option Committee at the date of grant, except that the Stock Option Committee may fix the option price of an option not intended to be an incentive stock option at a price that is less than fair market value. Options have a term of up to ten years (or five years for incentive stock options for holders of more than 10 percent of the Company’s common stock) and may be exercisable in whole or in part at any time as the Stock Option Committee shall determine and set forth in each individual option agreement. |
NXT applies APB Opinion No. 25 in accounting for its options grants to employees. In 1999 and 1998 the Company recognized in operating expenses approximately $106,000 and $290,000, respectively, of stock compensation expense in connection with options granted below fair value during 1998. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company’s net loss for the years ended December 31, 1999 and 1998 would have been approximately $5,106,000 and $2,679,000, respectively. |
The weighted-average fair value of stock options granted during 1999 and 1998 was $1.03 and $1.45, respectively, on the date of grant using the Black-Scholes option pricing model with the following assumptions: |
Expected dividend yield 0%
Average risk-free interest rates 5.34%
Expected life 5 years
In October 1999, the Company issued 25,000 options to a consultant with an exercise price of $4.13. These options were vested over a 90-day period ended January 18, 2000. The Company recorded compensation expense of approximately $77,000 during the year ended December 31, 1999 in connection with the issuance of these options. As of December 31, 1999, none of these options have been exercised. |
The following is a summary of activity related to stock options for 1999 and 1998:
Weighted average exercise Number price of shares -------- --------- December 31, 1997 $ -- -- Granted 2.38 538,738 Canceled 2.03 (38,642) ----- --------- December 31, 1998 2.40 500,096 Granted 4.56 191,867 Exercised 3.21 (3,000) Canceled 3.08 (170,921) ----- --------- December 31, 1999 $ 2.97 518,042 ===== =========
The following table summarizes information about outstanding and exercisable options at December 31, 1999:
Weighted average remaining Number contract Number Exercise prices outstanding life exercisable ----------- --------- ----------- $1.05 175,948 6.34 126,961 $3.21 150,255 7.87 39,508 $4.13 25,000 10.00 16,667 $4.63 166,839 9.05 5,059 --------- ------ -------- 518,042 7.83 188,195 ========= ====== ========
(7) Stockholders’ Equity
In May 1999, the Company issued 259,179 shares of common stock to each of PTI and Amex, and 86,393 shares of common stock to the Company’s President, for $4.63 per share, resulting in aggregate proceeds to the Company of $2,800,000. |
In June 1997, the Company entered into two separate Phantom Stock Agreements with two employees. During 1999 and 1998, they collectively owned 517,266 shares of phantom stock. Upon the occurrence of certain events, these agreements provide for payment to the phantom shareholders, in an amount equal to the then fair market value of the Company’s common stock for each share of phantom stock. The payment may be made in cash or common stock, at the option of the Company. During 1999 and 1998, NXT recorded in operating expenses approximately ($1,102,000) and $623,502 of compensation income (expense), respectively, for the phantom shares based on changes in the fair value of the Company’s common stock. |
Warrants to purchase 366,100 shares of common stock at an exercise price of $3.33 which were issued to PTI on July 1, 1997 in connection with the issuance of common stock remain outstanding at December 31, 1999. These warrants are subject to certain anti-dilution adjustments and expire in July 2002. As of December 31, 1999, none of these warrants have been exercised. |
On October 14, 1997, Amex purchased 1,350,007 shares of common stock (the “Amex Investment”). As consideration for the common stock, Amex entered into the amended Agreement in which Amex agreed to waive $1,200,000 of future charges for transaction transport services and related fees, which was recognized as prepaid contract costs. During 1998, the Company incurred all of the charges related to the prepaid contract costs. Also under the terms of the amended Agreement, Amex committed to a variety of concessions to NXT, including a reduction or waiver of certain other future charges and fees, valued at approximately $1,800,000, which are classified as intangible contract benefits in the accompanying financial statements and are being amortized on a straight-line basis over the five-year term of the amended Agreement. Amortization for each of 1999 and 1998 was $432,000. |
(8) Retirement Plan
During 1997, the Company established a qualified defined contribution retirement plan under the provisions of Internal Revenue Code Section 401(k). The participants may contribute whole percentage or dollar amounts of salary each pay period, subject to annual federal limitations. The Company may contribute amounts to the plan on a discretionary basis. No Company contributions were made to the plan during 1999 or 1998. |
(9) Significant Customers and Concentration of Credit Risk
During 1999 and 1998, the Company’s three largest customers were related parties and accounted for substantially all of the Company’s revenues. Accounts receivable from these three customers also represent substantially all of the Company’s accounts receivable balances as of December 31, 1999 and 1998. |
(10) Subsequent Event
On December 21, 2000, U.S. Wireless Data, Inc. purchased all of NXT's outstanding common stock. |
NXT CORPORATION
BALANCE SHEETS
(Unaudited)
September 30, September 30, ASSETS 2000 1999 ------ ------------ ------------ Current assets: Cash and Cash Equivalents .................................. $ 994,912 761,379 Accounts Receivable ........................................ 666,348 552,371 Due from Affiliates ........................................ 489 4,552 Prepaid Expenses and Other Assets .......................... 42,914 34,456 ------------ ------------ Total Current Assets ........................ 1,704,663 1,352,758 ------------ ------------ Furniture and Equipment Office and Computer Equipment .............................. 880,818 727,432 Furniture and Fixtures ..................................... 183,169 158,586 Accumulated Depreciation and Amortization .................. (666,085) (454,132) ------------ ------------ Furniture and Equipment, net ................ 397,902 431,886 ------------ ------------ Other Assets Restricted Cash ............................................ 175,000 175,000 Intangible Contract Benefits (net of Accumulated Amortization $1,260,000 and $828,000) .................. 540,000 972,000 Prepaid Deposits ........................................... 24,996 24,713 Other Assets ............................................... 1,410 1,447 ------------ ------------ Total Other Assets ......................... 741,406 1,173,160 ------------ ------------ Total Assets .................................................. $ 2,843,971 2,957,804 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY --------------------- Current liabilities: Accounts Payable and Accrued Expenses ...................... $ 2,829,438 732,265 Accrued Compensation and Benefits .......................... 191,373 110,763 Current Installments of Obligations under Capital Leases ... 56,006 50,003 Deferred Revenue ........................................... 4,031 7,031 Current Portion of Note due to MLI ......................... 3,302 37,989 Current Portion due to American Express .................... 87,500 87,500 Secured Note due to Stockholder ............................ 2,650,000 650,000 Current Portion of Deferred Rent ........................... 8,368 3,247 ------------ ------------ Total Current Liabilities ................... 5,830,018 1,678,798 Obligations under Capital Leases, Excluding Current Installments ................................... 57,761 110,864 Note due to MLI, net of Current Portion .................... -- 3,305 Due to American Express, net of Current Portion ............ 65,625 109,375 Deferred Rent, net of Current Portion ...................... 86,815 58,140 ------------ ------------ Total Liabilities ............................... 6,040,219 1,960,482 ------------ ------------ Stockholders' Equity (Deficit) Common Stock Par Value $0.01; 10,000,000 shares authorized, 6,061,754 and 6,058,754 shares issued and outstanding at September 30, 2000 and September 30, 1999 ............ 60,618 60,588 Additional Paid In Capital ................................. 11,651,404 11,767,071 Accumulated Deficit ........................................ (14,908,270) (10,830,337) ------------ ------------ Total Stockholders' Equity (Deficit) ........ (3,196,248) 997,322 ------------ ------------ Total Liabilities and Stockholders' Equity (Deficit) ........... $ 2,843,971 2,957,804 ============ ============
NXT CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
Nine Months Ended September 30, September 30, 2000 1999 ------------ ------------ Revenues Application Rental ........................ $ 116,894 94,817 Activation Revenue ........................ 50 3,270 Transaction Revenue ....................... 3,400,146 2,064,539 Leased Line Revenue ....................... 311,437 150,263 Software Development Revenue .............. 179,950 130,830 Other Revenue ............................. 23,000 8,600 ----------- ----------- Total Revenue ...................... 4,031,477 2,452,319 ----------- ----------- Cost of Services Sold Transaction Transport Expense ............. 2,576,171 1,768,940 Leased Line Expense ....................... 313,827 221,926 Discount Rate ............................. -- -- Other ..................................... 311 -- ----------- ----------- Total Cost of Services Sold ........ 2,890,309 1,990,866 ----------- ----------- Gross Profit .................................. 1,141,168 461,453 Operating Expenses Salaries and Related ...................... 2,494,275 1,590,195 Deferred Compensation ..................... 12,737 1,439,772 Rent ...................................... 436,113 289,547 Supplies .................................. 21,435 22,903 Office Related ............................ 19,681 7,193 Telephone ................................. 54,348 47,652 Travel .................................... 88,495 49,424 Legal ..................................... 110,733 154,508 Outside Services .......................... 146,007 257,585 Repairs & Maintenance ..................... 58,547 27,622 Equipment Rental .......................... 15,030 8,198 Marketing & Promotional ................... 43,901 395 Recruiting & Retention 141,428 54,548 Other ..................................... 23,930 15,160 Depreciation .............................. 161,841 169,783 Amortization .............................. 324,845 324,844 ----------- ----------- Total Operating Expenses ........... 4,153,346 4,459,329 ----------- ----------- Operating Income .............................. (3,012,178) (3,997,876) Interest Income ............................... 28,121 36,579 Gain (Loss) on Disposal of Fixed Assets ....... -- (100,349) Interest Expense .............................. (190,644) (56,773) ----------- ----------- Net Loss Before Income Taxes .................. $(3,174,701) (4,118,419) =========== ===========
NXT CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30, September 30, 2000 1999 ------------ ------------- Cash Flows from Operating Activities: Net Loss .......................................................... $(3,174,701) (4,118,419) Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities Depreciation and Amortization ............................... 486,684 494,627 Loss on Disposal of Equipment ............................... -- 100,349 Stock Compensation .......................................... 29,480 1,439,772 Decrease in Deferred Rent ................................... (2,297) (255) Increase in Deferred Rent Expense ........................... 26,222 61,642 Increase in Accounts Receivable ............................. (73,944) (220,989) Increase in Prepaid Expenses and Other Assets ............... (10,793) (35,685) Decrease (Increase) in Due from/to Affiliates ............... 35,940 (1,506) Increase in Accounts Payable and Accrued Expense ............ 1,902,585 101,419 Increase in Interest Due on Loans from Stkhldrs ............. 137,705 38,455 Increase in Accrued Comp and Benefits ....................... 81,739 61,746 Decrease in Deferred Revenue ................................ (3,666) (666) ----------- ----------- Net Cash Used in Operating Activities ................... (565,046) (2,079,510) ----------- ----------- Cash Flows from Investing Activities: Purchases of Furniture and Equipment .............................. (132,398) (226,755) Proceeds from Sale of Equipment ................................... -- 2,067 ----------- ----------- Net Cash Used in Investing Activities ................... (132,398) (224,688) ----------- ----------- Cash Flows from Financing Activities: Proceeds from Promissory Note Issuances ........................... 1,250,000 400,000 Proceeds from Sale of Common Stock ................................ -- 2,800,001 Principal Payments on American Express Advance .................... (21,875) (65,625) Principal Payments on Capital Lease Obligations ................... (38,366) (28,266) Principal Payments on Notes Payable ............................... (28,771) (35,081) Restricted Cash ................................................... -- (175,000) ----------- ----------- Net Cash Provided by in Financing Activities ............ 1,160,988 2,896,029 ----------- ----------- Net Increase in Cash and Cash Equivalents ............... 463,544 591,831 Cash and Cash Equivalents Beginning of Period ......................... 531,368 169,548 ----------- ----------- Cash and Cash Equivalents, End of Period .............................. $ 994,912 761,379 =========== ===========
(1) Basis of Presentation
The accompanying financial statements included herein have been prepared by NXT Corporation (“NXT” or the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Rule 310 of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the fiscal year.
(2) Summary of Significant Accounting Policies
NXT Corporation was incorporated in Delaware on November 20, 1995. The Company provides data transaction transport and custom software development services. The Company operates in the credit card industry, which is highly competitive and subject to risks of technological obsolescence. The Company is dependent upon revenues generated from transactions with certain related parties within the industry, and the majority of its financing has been provided by these related parties. |
(a) Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. |
(b) Revenue Recognition
Transaction fee revenue is earned from the translation and transport of credit card transactions and is recognized as the services are provided. Leased line revenue is recognized as the services are provided. Software development fee revenue is derived from the development of customized software and is recognized upon delivery of the software. Amounts received in advance of meeting the revenue recognition criteria are deferred. |
(c) Depreciation, Amortization and Recoverability of Long-Lived Assets
Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives, as follows: |
Computer and office equipment 3 years
Computer software 3 years
Furniture and fixtures 5 years
Leasehold improvements 5 years or lease term, if shorter
Equipment under capital lease is amortized over the shorter of the lease term or its estimated useful life. |
NXT’s policy is to review its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are recognized as the excess of the carrying amount over the fair market value of the asset. |
(d) Income Taxes
The Company recognizes income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. |
(e) Stock-Based Compensation
The Company accounts for employee stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25,Accounting for Stock Issued toEmployees, and complies with the disclosure provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123,Accounting for Stock-Based Compensation. Under APB Opinion No. 25, compensation expense is based upon the difference, if any, between the fair value of the Company’s stock and the exercise price on the date of the grant. Options to purchase common stock granted to other than employees as consideration for goods or services rendered are measured at fair value and are recognized as the goods or services are provided. |
(f) Cash and Cash Equivalents
The Company considers all highly liquid financial instruments with original maturities of three months or less to be cash equivalents. Cash equivalents of $994,912 and $761,379 at September 30, 2000 and 1999, respectively, consist of overnight repurchase agreements. The Company maintains its cash in bank accounts which, at times, may exceed federally insured limits. |
Restricted cash at September 30, 2000 and 1999 consists of a certificate of deposit in the amount of $175,000 in support of a letter of credit held by the lessor of a portion of the Company’s office space. |
(g) Software Development Costs
Software development costs are expensed as incurred. SFAS No. 86,Accounting for the Costs of ComputerSoftware to be Sold, Leased, or Otherwise Marketed, does not materially affect the Company. |
(h) Comprehensive Income
In 1998, the Company adopted SFAS No. 130,Reporting Comprehensive Income.SFAS No. 130 establishes standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. The statement requires additional disclosures in the financial statements, but does not affect the Company’s financial position or results of operations. Net loss as reported in the statements of operations is the Company’s only component of comprehensive income during all periods presented. |
(i) Liquidity
During the nine months ended September 30, 2000 and 1999, the Company incurred significant net losses and did not generate sufficient cash flows from operations to cover operating expenses and other obligations. At September 30, 2000, the Company had negative working capital of approximately $4,125,000 and an accumulated deficit of approximately $14,900,000. The Company has future cash requirements to continue to fund its operations and planned growth and there can be no assurance that the Company will be able to obtain adequate financing or generate sufficient cash flows necessary to satisfy these cash requirements. |
(3) Related Party Transactions
The Company receives from and provides services to two of its major shareholders, Paymentech, Inc. (“PTI”), a subsidiary of First USA Inc. and its subsidiary, Merchant Link, Inc. (“MLI”), and American Express Travel Related Services Company, Inc. (“Amex”). Additionally, the Company’s president was the majority owner of Maximize, Inc. (“Maximize”) until July 5, 2000 when all the assets were sold to PTI for $1,000,000 in cash. During the nine months ended September 30, 2000 and 1999, the Company had the following transactions with PTI, MLI, Amex, and Maximize: |
(a) PTI
During the nine months ended September 30, 2000 and 1999, the Company recorded approximately $770,000 and $817,000, respectively, in transaction fee revenue from PTI for monthly data transport services, $46,000 and $73,000 for leased line revenue, and $167,000 and $2,000 for software development services. At September 30, 2000 and 1999, accounts receivable from PTI was approximately $70,000 and $221,000, respectively. |
On July 31, 1998, the Company issued an unsecured promissory note to PTI in the amount of $250,000 with a maturity date of January 31, 1999. On January 4, 1999, the note was canceled and reissued as a secured promissory note with a maturity date of January 31, 2000. The secured promissory note bears interest at 8 percent per annum and is convertible into common stock at $4.63 per share. During 2000 PTI further extended the maturity date to December 31, 2000. |
Also on January 4, 1999, the Company issued an additional secured promissory note to PTI in the amount of $400,000 with a maturity date of January 31, 2000. The note was cancelled on September 3, 1999 and the balance was converted into a secured convertible promissory note with a maturity date of January 31, 2000 that permits borrowings up to $2,400,000. The note bears interest at 8 percent per annum and is convertible into common stock at $4.63 per share. By September 30, 2000, the Company had borrowed the full amount of the note of $2,400,000, plus accrued interest of approximately $203,000. On March 3, 2000, PTI extended the maturity date of the note to December 31, 2000. |
(b) MLI
MLI uses the NXT network for transaction transport services as contracted for in a service agreement dated June 21, 1996. MLI also leases office space to NXT and has provided certain services in addition to office space. During the nine months ended September 30, 2000 and 1999, the Company recorded transaction fee revenue of approximately $1,967,000 and $978,000, respectively, and incurred expenses of $17,000 and $106,000, respectively, for network monitoring costs. The Company also recorded leased line revenue of approximately $86,000 and $3,000, and software development fee revenue of approximately $3,000 and $49,000 during the nine months ended September 30, 2000 and 1999. At September 30, 2000 and 1999, respectively, accounts receivable from MLI was approximately $492,000 and $149,000, respectively, and accounts payable was $2,000 and $0, respectively. |
Effective September 1, 1998, the Company began subleasing office space, which had previously been shared by MLI and the Company. This sublease expires on August 30, 2001. Upon entering the sublease the Company acquired from MLI existing furniture and fixtures in exchange for a secured promissory note totaling $76,375. The note bears interest at 8 percent per annum and is payable in equal installments of $3,327 commencing October 1, 1998 and continuing for an additional 24 months thereafter. |
(c) Amex
Pursuant to an agreement with Amex dated January 29, 1996, as amended on October 14, 1997 (the “Agreement” or the “amended Agreement”), the Company provides to, and receives from, Amex various services related to the transport and management of credit card transactions. In each of the nine months ended September 30, 2000 and 1999, the Company recorded revenue from Amex of approximately $9,000 and $41,000, respectively, from transaction fees, leased line reimbursements and other services, and $0 and $29,000 from software development. The Company also recognized costs of sales to Amex of approximately $2,574,000 and $1,769,000 for transaction transport services, host connection fees and transaction commissions during the nine months ended September 30, 2000 and 1999. As of September 30, 2000 and 1999, included in the accounts payable balance was approximately $2,341,000 and $476,000, respectively due to Amex. Amex has agreed to defer all charges incurred by NXT since March 2000 until December 31, 2000. |
Pursuant to the Agreement between the Company and Amex, NXT is required to reimburse Amex a $350,000 advance made to NXT in 1995. Such reimbursement is non-interest bearing and is payable in equal monthly installments in the amount of $7,292 commencing January 1, 1998 and continuing for an additional 47 months thereafter. Amex has agreed to defer reimbursement by NXT from April 2000 until December 31, 2000. |
(d) Maximize
During the nine months ended September 30, 2000 and 1999, the Company recorded revenue from Maximize of approximately $49,000 and $47,000, respectively, for software development services and data support fees. During the nine months ended September 30, 2000 Maximize refunded to NXT approximately $23,000 for staff salary costs for administrative services and approximately $42,000 for office expenses. |
(4) Property and Equipment
Property and equipment consists of the following at September 30: |
2000 1999 ---- ---- Computer equipment $ 767,749 633,712 Computer software 113,070 93,720 Office furniture and equipment 166,238 150,575 Leasehold improvements 16,930 8,011 ---------- ----------- 1,063,987 886,018 Less accumulated depreciation and amortization (666,085) (454,132) ---------- ----------- $ 397,902 431,886 ========== ===========
Included in computer equipment at September 30, 2000 and 1999 is $62,939 of computer and network equipment under capital leases with accumulated amortization of $33,188 and $9,078, respectively. |
(5) Lease Commitments
NXT has entered into capital leases for certain computer and network equipment that expire on various dates through 2002. On September 1, 1998, the Company entered into a noncancelable operating lease for office space, previously shared by MLI and the Company (note 3), that expires August 30, 2001. During 1999, the Company entered into an operating lease with an unrelated party for additional office space. |
Upon the expiration of the existing sublease with MLI in August 2001, the Company has committed to renew their existing lease agreement with the lessor at the then prevailing market rate. |
Future minimum lease payments under noncancelable operating leases and the present value of future minimum lease payments on capital leases as of September 30, 2000 are as follows: |
Capital Operating Year ending December 31, leases leases ------- --------- 2000 $ 16,463 140,943 2001 64,242 590,992 2002 45,594 641,880 2003 509 661,136 2004 -- 680,970 2005 and thereafter -- 3,389,836 --------- ----------- 126,808 $ 6,105,757 =========== Less amount representing interest at 10% (13,041) --------- Present value of net minimum lease payments 113,767 Less current installments (56,006) --------- Obligations under capital leases, excluding current installments $ 57,761 =========
Rent expense for the nine months ended September 30, 2000 and 1999 was approximately $417,000 and $272,000, respectively. |
(6) Income Taxes
No provision has been made for income taxes as the Company incurred losses during the nine months ended September 30, 2000 and 1999. |
(7) Stockholders’ Equity
In May 1999, the Company issued 259,179 shares of common stock to each of PTI and Amex, and 86,393 shares of common stock to the Company’s President, for $4.63 per share, resulting in aggregate proceeds to the Company of $2,800,000. |
In June 1997, the Company entered into two separate Phantom Stock Agreements with two employees. During the nine months ended September 30, 2000 and 1999, they collectively owned 517,266 shares of phantom stock. Upon the occurrence of certain events, these agreements provide for payment to the phantom shareholders, in an amount equal to the then fair market value of the Company’s common stock for each share of phantom stock. The payment may be made in cash or common stock, at the option of the Company. During the nine months ended September 30, 2000 and 1999, NXT recorded in operating expenses $0 and $1,360,000, compensation income (expense), respectively, for the phantom shares based on changes in the fair value of the Company’s common stock. |
Warrants to purchase 366,100 shares of common stock at an exercise price of $3.33 which were issued to PTI on July 1, 1997 in connection with the issuance of common stock remain outstanding at December 31, 1999. These warrants are subject to certain anti-dilution adjustments and expire in July 2002. As of September 30, 2000, none of these warrants have been exercised. |
On October 14, 1997, Amex purchased 1,350,007 shares of common stock (the “Amex Investment”). As consideration for the common stock, Amex entered into the amended Agreement in which Amex agreed to waive $1,200,000 of future charges for transaction transport services and related fees, which was recognized as prepaid contract costs. During 1998, the Company incurred all of the charges related to the prepaid contract costs. Also under the terms of the amended Agreement, Amex committed to a variety of concessions to NXT, including a reduction or waiver of certain other future charges and fees, valued at approximately $1,800,000, which are classified as intangible contract benefits in the accompanying financial statements and are being amortized on a straight-line basis over the five-year term of the amended Agreement. Amortization for each of the nine months ended September 30, 2000 and 1999 was $324,000. |
(8) Retirement Plan
During 1997, the Company established a qualified defined contribution retirement plan under the provisions of Internal Revenue Code Section 401(k). The participants may contribute percentage or dollar amounts of salary each pay period, subject to annual federal limitations. The Company may contribute amounts to the plan on a discretionary basis. |
Effective January 1, 2000, the Company amended the 401(k) plan to include an employer match for all participating employees. The Company contributes 25% of the first 4% of the employee’s contribution not to exceed 1% of the employee’s annual salary. Employer contributions vest over a four year period beginning with the employee’s date of hire. During the nine months ended September 30, 2000, the Company has contributed approximately $14,600 in matching funds. |
(9) Significant Customers and Concentration of Credit Risk
During the nine months ended September 30, 2000 and 1999, the Company’s two largest customers accounted for substantially all of the Company’s revenues or approximately 78% and 81%, respectively, of the Company’s revenues. Accounts receivable from these related customers also represent 85% and 73%, respectively, of the Company’s accounts receivable balances as of September 30, 2000 and 1999. |
(10) Subsequent Events
On December 21, 2000, U.S. Wireless Data, Inc. purchased all of NXT's outstanding common stock. |
On December 21, 2000, U.S. Wireless Data, Inc. paid approximately $1,752,000 of NXT’s debt to Amex and PTI. Approximately $1,052,000 was paid to Amex and $700,000 was paid to PTI. NXT converted the remaining debt owed to Amex and PTI into NXT common stock immediately prior to the purchase of its common stock by U.S. Wireless Data, Inc. |
U.S. WIRELESS DATA, INC.
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Financial Statements give effect to the purchase of NXT Corporation (“NXT”) by U.S. Wireless Data, Inc. (“USWD”). These pro forma condensed financial statements are presented for illustrative purposes only. The pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable.
The Unaudited Pro Forma Condensed Financial Information is prepared using the purchase method of accounting. For the purpose of the Unaudited Pro Forma Condensed Financial Information presented below, the purchase price has been calculated based upon the price of $1.875 per share of USWD Common Stock.
Under the purchase method of accounting, tangible and identifiable intangible assets acquired and liabilities assumed are recorded at their estimated fair values. The excess of the purchase price, including estimated direct fees and expenses related to the acquisition over the net assets acquired represents goodwill, and is classified as goodwill, on the accompanying unaudited pro forma balance sheet. The estimated fair values and useful lives are based on valuation by management which is subject to final adjustment.
The Pro Forma Condensed Balance Sheet of USWD as at September 30, 2000 reflects the financial position of USWD after giving effect to the purchase of NXT and assumes the acquisition took place on September 30, 2000. The Pro Forma Condensed Statement of Operations for the fiscal year ended June 30, 2000 and the three months ended September 30, 2000 assumes the purchase occurred on July 1, 1999.
The unaudited Pro Forma Condensed Financial Information is provided for illustrative purposes only and does not purport to represent what the actual results of operations or financial position of USWD would have been had the acquisition occurred on the date assumed, nor is it necessarily indicative of future results of operation or financial position.
The pro forma assumptions and adjustments are described in the accompanying notes presented on the following pages. The Unaudited Pro Forma Condensed Financial Information should be read in conjunction with the audited financial statements of USWD in USWD’s Annual Report on Form 10-KSB for the year ended June 30, 2000, the unaudited financial statements of USWD in the Quarterly Report on Form 10-QSB for the period ended September 30, 2000 and December 31, 2000, and the audited financial statements of NXT for the year ended December 31, 1999 and the unaudited financial statements for the nine months ended September 30, 2000, included herein.
U.S. Wireless Data Inc.
Pro Forma Condensed Balance Sheet
(Unaudited)
September 30, 2000 --------------------------------------------------------------------- U.S. Wireless NXT Pro Forma September 30, 2000 Data, Inc. Corporation Adjustments Combined --------------------------------------------------------------------- ASSETS Current assets Cash ................................ $ 36,680,000 $ 994,912 $ (1,741,000)(b)/(d) $ 35,933,912 Accounts receivable, net ............ 218,000 666,348 -- 884,348 Notes receivable .................... 82,000 -- 41,000 (b) 123,000 Other receivable .................... 176,000 489 -- 176,489 Inventory, net ...................... 39,000 -- -- 39,000 Other current assets ................ 222,000 42,914 -- 264,914 ------------ ------------ ------------ ------------ 37,417,000 1,704,663 (1,700,000) 37,421,663 Restricted cash ..................... 576,000 175,000 -- 751,000 Property and equipment, net ......... 2,116,000 397,902 -- 2,513,902 Goodwill ............................ -- 540,000 11,019,344 (b) 11,559,344 Other assets ........................ 103,000 26,406 -- 129,406 ------------ ------------ ------------ ------------ Total assets ........................ $ 40,212,000 $ 2,843,971 $ 9,319,344 $ 52,375,315 ============ ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities Accounts payable .................... $ 1,684,000 $ 2,829,438 $ (2,356,198)(d) $ 2,157,240 Accrued liabilities ................. 1,073,000 191,373 801,000 (d)/(f) 2,065,373 Notes payable ....................... -- 2,740,802 (2,740,802)(d) -- Other current liabilities ........... -- 60,037 -- 60,037 ------------ ------------ ------------ ------------ 2,757,000 5,821,650 (4,296,000) 4,282,650 Deferred rent ....................... 157,000 8,368 -- 165,368 Notes payable ....................... -- 65,625 (65,625)(d) -- Other liabilities ................... -- 144,576 -- 144,576 Deposit due to sub lessor ........... 107,000 -- -- 107,000 ------------ ------------ ------------ ------------ Total liabilities ................... 3,021,000 6,040,219 (4,361,625) 4,699,594 ------------ ------------ ------------ ------------ COMMITMENTS AND CONTINGENCIES Contingent consideration for acquistion ........................ -- -- 455,000 (e) 455,000 ------------ ------------ ------------ ------------ Total commitments and contingencies ..................... -- -- 455,000 455,000 ------------ ------------ ------------ ------------ Total stockholders' equity (deficit). 37,191,000 (3,196,248) 13,225,969(e)/(d) 47,220,721 ------------ ------------ ------------ ------------ Total liabilities and stockholders' equity (deficit) ... $ 40,212,000 $ 2,843,971 $ 9,319,344 $ 52,375,315 ============ ============ ============ ============
U.S. Wireless Data Inc.
Pro Forma Condensed Statement of Operations
For the Twelve Months Ended June 30, 2000 (a) ------------------------------------------------------------- (Unaudited) U.S. (Unaudited) Combined Wireless NXT Pro Forma Pro Forma Date, Inc. Corporation Adjustments Results ------------------------------------------------------------- Net revenues: ...................... $ 597,000 $ 4,712,575 -- $ 5,309,575 Cost of revenues: .................. 896,000 3,610,869 -- 4,506,869 ------------ ------------ --------- ---------- Gross loss ......................... (299,000) 1,101,706 -- 802,706 ------------ ------------ --------- ---------- Operating expenses: Selling, general and administrative. 6,826,000 6,455,889 $ 1,101,934(c) 14,383,823 Research and development ........... 1,330,000 -- -- 1,330,000 ------------ ------------ --------- ---------- Total operating expense ............ 8,156,000 6,455,889 1,101,934 15,713,823 ------------ ------------ --------- ---------- Loss from operations ............... (8,455,000) (5,354,183) (1,101,934) (14,911,117) Interest income .................... 644,000 32,920 -- 676,920 Interest expense ................... (797,000) (135,529) -- (932,529) Other income (expense) ............. 84,000 (100,349) -- (16,349) ------------ ------------ --------- ---------- Net loss ........................... (8,524,000) (5,557,141) (1,101,934) (15,183,075) Preferred stock dividends .......... (45,746,000) -- -- (45,746,000) ------------ ------------ --------- ---------- Net loss available to common stockholders ....................... $(54,270,000) $ (5,557,141) $ (1,101,934) ($60,929,075) ============ ============ ========= ========== Basic and diluted net loss per share (after deduction of preferred stock dividends) Net loss available to common stockholders ................... $ (2.26) $ 0 0 $ (2. 43) ============ ============ ========= ========== Weighted average common shares outstanding basic and diluted ...... 23,976,000 -- 1,125,000 25,101,000 (h) ============ ============ ========= ==========
U.S. Wireless Data Inc.
Pro Forma Condensed Statement of Operations
(Unaudited)
For the three months ended September 30, 2000(a) ------------------------------------------------------------------- Combined U.S. Wireless NXT Pro Forma Pro Forma Data, Inc. Corporation Adjustments Results -------------------------------------------------------------------- Net revenues: ...................... $ 151,000 $ 1,466,206 -- $ 1,617,206 Cost of revenues: .................. 106,000 993,859 -- 1,099,859 ------------ ------------ ------------ ------------ Gross profit (loss) ................ 45,000 472,347 -- 517,347 ------------ ------------ ------------ ------------ Operating expenses: Selling, general and administrative. 3,260,000 1,309,613 $ 275,484(c) 4,845,097 Research and development ........... 350,000 -- -- 350,000 ------------ ------------ ------------ ------------ Total operating expense ............ 3,610,000 1,309,613 275,484 5,195,097 ------------ ------------ ------------ ------------ Loss from operations ............... (3,565,000) (837,266) (275,484) (4,677,750) Interest income .................... 627,000 18,795 -- 645,795 Interest expense ................... -- (96,750) -- (96,750) Other income ....................... 10,000 -- -- 10,000 ------------ ------------ ------------ ------------ Net loss ........................... ($ 2,928,000) ($ 915,221) ($ 275,484) ($ 4,118,705) ============ ============ ============ ============ Basic and diluted net loss per share (after deduction of preferred stock dividends) Net loss available to common stockholders' .................. $ (0.35) $ -- $ -- $ (0.44) ============ ============ ============ ============ Weighted average common shares outstanding basic and diluted ...... 8,335,000 -- 1,125,000 9,460,000 (h) ============ ============ ============ ============
U.S. Wireless Data Inc.
Notes to the Pro Forma Condensed Financial Statements
a) U.S. Wireless Data, Inc. (“USWD”) has acquired NXT Corporation (“NXT”). For the purposes of these Pro Forma Condensed Financial Statements the information relating to NXT, which has a year-end of December 31, has been recast to conform to USWD’s year-end of June 30, 2000. Accordingly, the twelve months ended June 30, 2000 of NXT, includes net revenues and net loss of approximately $2,565,000 and $2,260,000 for the six month period ended June 30, 2000 and omits approximately $1,400,000 and $1,724,000 for the six months ended June 30, 1999, respectively.
b) Represents a note receivable due from current employees of NXT from the conversion of phantom shares, which required withholding taxes to be paid for approximately $41,000.
c) Represents the applicable amortization expense for intangible assets. The intangible assets have been estimated by management to have a useful life of 10 years and are subject to final adjustment.
d) To reflect the conversion of $3,717,000 in accounts payable and notes payable to equity and retirement of debt of $1,700,000 for Amex and Paymentech coinciding with the acquisition.
e) To reflect the issuance of 1,125,000 shares of USWD common stock valued at $2,109,000 to shareholders of NXT and contingently issuable consideration of approximately $4,658,000 to shareholders of NXT, elimination of stockholders’ equity (deficit_ of NXT, liabilities of NXT not assumed and cash payments to shareholders of NXT. The contingently issuable consideration includes approximately $455,000 in cash and 2,242,000 shares of USWD common stock valued at $4,203,000.
f) Adjusted to reflect incurrence of an estimated $1,055,000 of non-recurring merger-related costs, which have been reflected in the purchase price. These costs include fees for financial advisors, legal advisors, accountants and other costs. This amount does not include any costs incurred to integrate and restructure the operations of USWD and NXT. These integration and restructuring costs, which consist of payments to NXT employees for wages, severance and benefits to the date of the acquisition, are estimated to be $200,000.
g) The purchase price of NXT, is approximately $13,863,000, which includes purchased assets of approximately $2,844,000 and assumed liabilities of approximately $6,040,000. The amount of the purchase price that is allocated to goodwill, based on management estimates, is approximately $11,019,000. An independent third party is currently valuing the intangible assets.
h) Represents the weighted average number of common stock outstanding for the period and 1,125,000 shares of USWD’s common stock issued as a result of the merger. This does not include 2,242,000 shares of common stock contingently issuable two years from the date of closing depending on the average share price of USWD common stock.