UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] Quarterly Report under Section 13 or Section 15(d) of the Securities Exchange Act
of 1934 for the quarterly period endedMarch 31, 2005
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number 0-22848
U.S. Wireless Data, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware
(State of incorporation)
84-1178691
(IRS Employer Identification No.)
420 Lexington Avenue, Suite 2450
New York, NY 10170
(Address of principal executive offices, including zip code)
(646) 452-6128
(Registrant's Telephone Number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes [ ] No [X]
As of May 16, 2005, there were outstanding 4,000,000 shares of the Registrant’s Common Stock ($0.01 par value per share).
Transitional Small Business Disclosure Format. Yes [ ] No [X]
U.S. WIRELESS DATA, INC.
TABLE OF CONTENTS
Page | |||
---|---|---|---|
PART I -- FINANCIAL INFORMATION | |||
ITEM 1. Financial Statements | |||
Consolidated Balance Sheet | 3 | ||
Consolidated Statements of Operations | 4 | ||
Consolidated Statements of Cash Flows | 5 | ||
Consolidated Statements of Stockholders’ Equity | 6 | ||
Notes to Consolidated Financial Statements | 7- | 14 | |
ITEM 2. Management’s Plan of Operation | 15- | 19 | |
ITEM 3. Controls and Procedures | 19 | ||
PART II -- OTHER INFORMATION | |||
ITEM 1. Legal Proceedings | 20 | ||
ITEM 2. Changes in Securities and Small Business | |||
Issuer Purchases of Equity Securities | 20 | ||
ITEM 3. Defaults Upon Senior Securities | 20 | ||
ITEM 4. Submission of Matters to a Vote of Security Holders | 20 | ||
ITEM 5. Other Information | 21 | ||
ITEM 6. Exhibits | 21 | ||
SIGNATURES | 22 |
2
Part I — FINANCIAL INFORMATION
ITEM 1. Financial Statements
U.S. WIRELESS DATA, INC.
CONSOLIDATED BALANCE SHEET
March 31, 2005 | |||
---|---|---|---|
ASSETS | |||
Current assets: | |||
Cash and cash equivalents in escrow | 51,000 | ||
Total assets | $51,000 | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||
Current liabilities: | |||
Accrued liabilities | $11,000 | ||
Total liabilities | 11,000 | ||
Commitments and contingencies | |||
Stockholders' equity: | |||
Preferred stock, 1,000,000 shares authorized as of | |||
March 23, 2005; no shares issued or outstanding | 0 | ||
Common stock, 19,000,000 shares authorized at $.01 par value | |||
as of March 23, 2005; 4,000,000 shares issued and | |||
outstanding as of March 31, 2005 | 40,000 | ||
Total stockholders' equity | 40,000 | ||
Total liabilities and stockholders’ equity | $51,000 | ||
Accompanying notes are an integral part of the financial statements
3
U.S. WIRELESS DATA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended March 31, | For the nine months ended March 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | 2005 | 2004 | |||||||||||||
Continuing operations | ||||||||||||||||
General and administrative expenses | $ (254,000 | ) | $ (89,000 | ) | $ (981,000 | ) | $ (89,000 | ) | ||||||||
Interest income | 0 | 0 | 0 | 3,000 | ||||||||||||
Interest expense | (1,000 | ) | (231,000 | ) | 4,000 | (515,000 | ) | |||||||||
Other income (expense) | 49,000 | 50,000 | 40,000 | 108,000 | ||||||||||||
Loss before reorganization items | (206,000 | ) | (270,000 | ) | (937,000 | ) | (493,000 | ) | ||||||||
Reorganization items | ||||||||||||||||
Gain on sale of shell | 400,000 | 0 | 400,000 | 0 | ||||||||||||
Professional fees and U.S. Trustee fees | (22,000 | ) | (370,000 | ) | (91,000 | ) | (370,000 | ) | ||||||||
Rejection of real property lease | 0 | (462,000 | ) | 0 | (462,000 | ) | ||||||||||
Interest income | 9,000 | 0 | 33,000 | 0 | ||||||||||||
Income (loss) before | ||||||||||||||||
discontinued operations | 181,000 | (1,102,000 | ) | (595,000 | ) | (1,325,000 | ) | |||||||||
Discontinued operations | ||||||||||||||||
Loss from discontinued operations | (58,000 | ) | (977,000 | ) | (305,000 | ) | (3,599,000 | ) | ||||||||
Gain on sale of discontinued operations | 5,000 | 0 | 5,000 | 0 | ||||||||||||
Loss on discontinued operations | (53,000 | ) | (977,000 | ) | (300,000 | ) | (3,599,000 | ) | ||||||||
Net income (loss) | $ 128,000 | $(2,079,000 | ) | $ (895,000 | ) | $(4,924,000 | ) | |||||||||
Basic and diluted net income (loss) per share (a): | ||||||||||||||||
Income (loss) before discontinued operations | $ 0.00 | $ 0.00 | ||||||||||||||
Loss on discontinued operations | 0.00 | 0.00 | ||||||||||||||
Net income (loss) per share | $ 0.00 | $ 0.00 | ||||||||||||||
Weighted average common shares outstanding, | ||||||||||||||||
basic and diluted 4,000,000 - 31, 2005) | 4,000,000 | 4,000,000 | ||||||||||||||
(a) See Note 4 |
Accompanying notes are an integral part of the financial statements
4
U.S. WIRELESS DATA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended March 31, | |||||||
---|---|---|---|---|---|---|---|
2005 | 2004 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net loss | $ (895,000 | ) | $(4,924,000 | ) | |||
Adjustments to reconcile net loss to net cash used in | |||||||
operating activities: | |||||||
Depreciation and amortization from discontinued operations | 0 | 437,000 | |||||
Accretion of bridge loan discount | 0 | 282,000 | |||||
Provision for rejected real property lease | 0 | 462,000 | |||||
Amortization of deferred financing costs | 0 | 32,000 | |||||
Provision for doubtful accounts | 53,000 | 18,000 | |||||
Deferred rent | 0 | 11,000 | |||||
Write-down of inventory | 0 | 79,000 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (39,000 | ) | (122,000 | ) | |||
Due from factor | 63,000 | 57,000 | |||||
Due from Plan Sponsor | (400,000 | ) | 0 | ||||
Due from winning auction sale bidder | 107,000 | 0 | |||||
Inventory | 0 | 53,000 | |||||
Deferred cost of revenue | 0 | (73,000 | ) | ||||
Prepaids and other current assets | 357,000 | 74,000 | |||||
Accounts payable | 174,000 | 608,000 | |||||
Accrued liabilities | (486,000 | ) | 11,000 | ||||
Accrued restructuring expense | 0 | 65,000 | |||||
Customer advances | 0 | (273,000 | ) | ||||
Deferred revenue | 0 | 116,000 | |||||
Other liabilities | 0 | (144,000 | ) | ||||
Prepetition liabilities | (909,000 | ) | 0 | ||||
Net cash (used in) operating activities | (1,975,000 | ) | (3,231,000 | ) | |||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Purchase of property and equipment | 0 | (201,000 | ) | ||||
Decrease in restricted cash | 456,000 | 625,000 | |||||
Transfer to Chapter 11 escrow accounts | (668,000 | ) | 0 | ||||
Transfer from Chapter 11 escrow accounts | 1,831,000 | 0 | |||||
Transfer to Liquidation Trust | (100,000 | ) | 0 | ||||
Transfer to Plan Sponsor escrow account | (100,000 | ) | 0 | ||||
Transfer from Plan Sponsor escrow account | 49,000 | 0 | |||||
Net cash provided by investing activities | 1,468,000 | 424,000 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Proceeds from DIP loan | 0 | 925,000 | |||||
Proceeds from bridge loan | 0 | 2,750,000 | |||||
Accrued interest on bridge loan | 0 | 91,000 | |||||
Financing costs of bridge loan | 0 | (90,000 | ) | ||||
Proceeds from notes payable | 0 | 700,000 | |||||
Payment of notes payable | 0 | (700,000 | ) | ||||
Proceeds from Plan Sponsor | 100,000 | 0 | |||||
Costs related to acquisition of shell | (49,000 | ) | 0 | ||||
Payments for real estate lease termination | (456,000 | ) | (625,000 | ) | |||
Payments of obligations under capital lease | 0 | (111,000 | ) | ||||
Net cash (used in) provided by financing activities | (405,000 | ) | 2,940,000 | ||||
Net (decrease) increase in cash and cash equivalents | (912,000 | ) | 133,000 | ||||
Cash and cash equivalents, beginning of period | 912,000 | 602,000 | |||||
Cash and cash equivalents, end of period | $ 0 | $ 735,000 | |||||
Accompanying notes are an integral part of the financial statements
5
U.S. WIRELESS DATA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the year ended June 30, 2004 and the nine months ended March 31, 2005 (Unaudited)
Series C Convertible Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shares | Amount | Shares | Capital | Equity | Deficit | Equity | |||||||||||||
BALANCE AT JUNE 30, 2003 | 3,548,700 | $ 36,000 | 17,628,716 | $ 176,000 | $ 142,688,000 | $(142,635,000 | ) | $ 265,000 | |||||||||||
Conversion of Series C convertible | |||||||||||||||||||
preferred stock | (308,500 | ) | (4,000 | ) | 514,173 | 5,000 | (1,000 | ) | 0 | 0 | |||||||||
Issuance of warrants for bridge loan | 0 | 0 | 0 | 0 | 780,000 | 0 | 780,000 | ||||||||||||
Termination of warrants for bridge loan | 0 | 0 | 0 | 0 | (390,000 | ) | 0 | (390,000 | ) | ||||||||||
Net income | 0 | 0 | 0 | 0 | 0 | 1,185,000 | 1,185,000 | ||||||||||||
BALANCE AT JUNE 30, 2004 | 3,240,200 | $ 32,000 | 18,142,889 | $ 181,000 | $ 143,077,000 | $(141,450,000 | ) | $ 1,840,000 | |||||||||||
Conversion of Series C convertible | |||||||||||||||||||
preferred stock | (10,000 | ) | 0 | 16,667 | 1,000 | 0 | (1,000 | ) | 0 | ||||||||||
Cancelation and transfer to | |||||||||||||||||||
Liquidation Trust for Reorganization | (3,230,200 | ) | $(32,000 | ) | (18,159,556 | ) | (182,000 | ) | (143,077,000 | ) | 142,346,000 | (945,000 | ) | ||||||
Capital contribution | 0 | 0 | 4,000,000 | 40,000 | 60,000 | 0 | 100,000 | ||||||||||||
Acquisition costs | 0 | 0 | 0 | 0 | (60,000 | ) | 0 | (60,000 | ) | ||||||||||
Net loss | 0 | 0 | 0 | 0 | 0 | (895,000 | ) | (895,000 | ) | ||||||||||
BALANCE AT MARCH 31, 2005 | 0 | $ 0 | 4,000,000 | $ 40,000 | $ 0 | $ 0 | $ 40,000 | ||||||||||||
Accompanying notes are an integral part of the financial statements
6
U.S. WIRELESS DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended March 31, 2005 and 2004
(Unaudited)
NOTE 1 — THE COMPANY
U.S. Wireless Data, Inc. (“USWD”, the “Company”, “we”, “us”, “our” or similar terms) was incorporated in the state of Colorado on July 30, 1991 and was reincorporated in the state of Delaware on October 6, 2000. We were operating under the Chapter 11 Proceedings (as defined below) and as of May 21, 2004, we sold all of our operations in the Auction Sales (as defined below). Subsequent to the Auction Sales, we had no assets or operations other than those related to the Chapter 11 Proceedings. Prior to that time, we were principally engaged in providing wireless transaction delivery and gateway services to the payment processing industry. On December 27, 2004, the bankruptcy court confirmed our Amended Plan of Reorganization (the “Plan”) and as of the close of business on March 18, 2005, our assets, liabilities and contingencies were transferred to a “Liquidation Trust” (as provided for under the terms of the Plan) and the Company effectuated the completion of the Reorganization (as defined below), thereby emerging from the Chapter 11 Proceedings.
Reorganization
On March 18, 2005 we filed the last of our remaining late filings with the Securities and Exchange Commission (“SEC”), and in accordance with the Plan, as of such date, Trinad Capital, L.P. (“Trinad”), our Plan sponsor, became the holder of 93% of our newly issued common stock as further discussed in the next paragraph below (the “Reorganization”).
In accordance with the Plan, Trinad contributed $500,000 in cash to us in exchange for 93% of the new common stock to be issued under the Plan, with the remaining 7% of the new common stock being issued to the holders of record of our Series C preferred stock and our common stock as of February 7, 2005, with 3.5% going to each class. Simultaneously, all of our originally outstanding Series C preferred stock and common stock were cancelled. Of such $500,000 from Trinad, $100,000 was retained by us to fund the expenses of remaining public and $400,000 was funded to the USWD Liquidation Trust to pay administrative costs, creditors and, possibly, a small portion of the liquidation preference. If there is any remaining cash in the Liquidation Trust, it will be used to settle a small portion of the aggregate $32,302,000 liquidation preference to which the holders of our Series C preferred stock are entitled as of February 7, 2005.
Trinad, a hedge fund dedicated to investing in micro-cap companies, is seeking to raise additional capital with a view to making us an attractive vehicle with which to acquire a business. It will then seek a suitable acquisition candidate. No such business has been identified and we are therefore subject to a number of risks, including: any acquisition consummated by us may turn out to be unsuccessful; investors in us will not know what operating business, if any, will be acquired, including the particular industry in which the business operates, and whether dilutive financing will be required therewith; the historical operations of a specific business opportunity may not necessarily be indicative of the potential for the future; we may acquire a company in the early stage of development causing us to incur further risks; we may be dependent upon the management of an acquired business which has not proven its abilities or effectiveness; we will be controlled by a small number of stockholders and such control could prevent the taking of certain actions that may be beneficial to other stockholders; our common stock will likely be thinly traded, and the public market may provide little or no liquidity for holders of our common stock.
7
U.S. WIRELESS DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended March 31, 2005 and 2004
(Unaudited)
Trinad has agreed that it will not dispose of any of its common stock until an acquisition transaction has been consummated and a Current Report on Form 8-K setting forth the terms of the acquisition and audited financial statements of the acquisition target have been filed with the SEC.
Additionally, on March 18, 2005 Robert Ellin became a director and our Chief Executive Officer, Jay Wolf became a director and our Chief Operating Officer and Chief Financial Officer and Barry Regenstein became a director. Robert Ellin and Jay Wolf are the Managing Member and Managing Director of Trinad, respectively, while Barry Regenstein is an outside consultant to Trinad.
Chapter 11 Proceedings
Since the Company’s inception, the Company has incurred significant losses and negative cash flow from operations. As of March 18, 2005, we had an accumulated deficit of approximately $142 million. Management’s concerns about capital led it to take additional steps to cut costs, dispose of operations and, on March 26, 2004, we filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Court”), in re U.S. Wireless Data, Inc., Case Number 04-12075.
We were operating as a debtor-in-possession (“DIP”) under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Court (the “Chapter 11 Proceedings”) until the Reorganization.
On May 11, 2004, we completed the bankruptcy auctions for the sale of (i) our Synapse point-of-sale gateway business, and (ii) our vending operations (collectively, the “Auction Sales”). Transaction Network Services (“TNS”) was awarded by the Court as the winning bidder for each of the operations offered for sale. TNS paid $6 million in cash for our wireless payment processing business and $3.7 million in cash for our wireless vending business, for an aggregate purchase price of $9.7 million in cash. The sales to TNS were completed on May 21, 2004.
On December 27, 2004, the Court confirmed our Amended Plan of Reorganization (the “Plan”). Additional details concerning the Plan are in the Amended Disclosure Statement filed with the Court in November 2004 in support of the Plan, the Amended Plan of Reorganization and Order Confirming Amended Plan of Reorganization, each of which is filed as an exhibit to Form 8-K filed with the SEC on January 18, 2005.
8
U.S. WIRELESS DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended March 31, 2005 and 2004
(Unaudited)
On January 19, 2005 we paid approximately $889,000 as an initial payment to creditors for prepetition liabilities representing approximately 50% of “Allowed Claims”.
The following assets and liabilities from our Balance Sheet as of March 18, 2005 immediately before the Reorganization, along with all contingent assets and liabilities, were transferred to the Liquidation Trust:
ASSETS | |||
Current assets: | |||
Cash and cash equivalents | $ 100,000 | ||
Cash and cash equivalents in escrow | 2,225,000 | ||
Due from Plan Sponsor | 400,000 | ||
Due from winning auction sale bidder | 64,000 | ||
Prepaids and other current assets | 13,000 | ||
$2,802,000 | |||
LIABILITIES | |||
Current liabilities: | |||
Accounts payable | $ 212,000 | ||
Accrued liabilities | 73,000 | ||
Total liabilities not subject to compromise | 285,000 | ||
Prepetition liabilities subject to compromise | 1,572,000 | ||
Total liabilities | 1,857,000 | ||
“Prepetition liabilities subject to compromise” were as follows: | |||
Accounts payable | $1,154,000 | ||
Accrued liabilities | 206,000 | ||
Obligation for rejected real property lease | 212,000 | ||
$1,572,000 | |||
The Liquidation Trust is entirely for the benefit of the holders of the Series C Preferred Stock as of the record date, after payment of administrative costs and allowed claims in accordance with the provisions of the Plan, and is not an asset of the Company.
Going Concern and Liquidity Uncertainties
We believe that the $100,000 contributed to us by Trinad should be sufficient to satisfy our monetary needs for the balance of the calendar year and that Trinad has the financial wherewithal and intent to fund our financial needs to the extent reasonably necessary. Since our emergence from bankruptcy through the Reorganization, we have no liabilities related to the Chapter 11 Proceedings, we do not currently have an operating business and we have extremely limited cash under new management.
9
NOTE 2 – BASIS OF PRESENTATION
As a result of (i) the sale of virtually all of our operating assets, and (ii) the Reorganization; the historical financial statements are irrelevant to any assessment of our operations on an ongoing basis. Accordingly, readers are advised not to rely on any historical financial information in considering an investment in or the disposition of our stock.
Basis of Consolidation and Auction Sales
Our consolidated financial statements include the accounts of our former wholly-owned subsidiary, UNS Corporation, formerly known as NXT Corporation (“NXT”). UNS Corporation was dormant during the period July 1, 2003 through its dissolution on December 11, 2003.
During March 2004, our Board of Directors approved and authorized management to seek the sale of our operations which were sold in the Auction Sales. We closed the sales of our operations included in the Auction Sales on May 21, 2004. Such operations have been classified as discontinued operations in the accompanying consolidated financial statements.
Basis of Presentation and Use of Estimates
The accompanying financial statements have been prepared by us, without an audit. In the opinion of management, all adjustments have been made, which include normal recurring adjustments necessary to present fairly the consolidated financial statements. Operating results for the periods presented are not necessarily indicative of the operating results for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. We believe that the disclosures provided are adequate to make the information presented not misleading. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report for the year ended June 30, 2004 on Form 10-KSB.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 dates of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
All of the common stock that was outstanding prior to March 26, 2004 was cancelled and new shares of common stock were issued in accordance with the Plan. The reorganization value of the assets of the emerging entity immediately before the date of confirmation exceeded the total of all postpetition liabilities and allowed claims, therefore, the Company did not qualify for fresh start accounting under SOP 90-7 and continued its basis of accounting.
Reclassifications
Certain amounts in the prior period financial statements have been reclassified to conform to the current presentation.
10
U.S. WIRELESS DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended March 31, 2005 and 2004
(Unaudited)
Stock-based Compensation
We account for employee stock-based compensation cost using the intrinsic value method of accounting prescribed by the Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock Based-Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” for employee stock arrangements. Restricted stock or stock awards are recorded as compensation expense over the vesting period, if any, based on the market value on the date of grant.
For options issued to non-employees, we utilize the fair value method prescribed in SFAS No. 123.
Prior to the effective date of the Plan, we had four fixed stock-based compensation plans. The exercise price of each option granted pursuant to these plans was equal to the market price of the Company’s common stock on the date of grant. Accordingly, pursuant to APB No. 25, no compensation cost has been recognized for such grants. Had compensation cost been determined based on the fair value at the grant dates for such awards consistent with the method prescribed by SFAS No. 123, the Company’s net loss and loss per share for the periods indicated would have been as follows:
Three months ended March 31, | Nine months ended March 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | 2005 | 2004 | |||||||||||||
Income (loss) before discontinued | ||||||||||||||||
operations | $ 181,000 | $ (1,102,000 | ) | $ (595,000 | ) | $ (1,325,000 | ) | |||||||||
Loss on discontinued operations | (53,000 | ) | (977,000 | ) | (300,000 | ) | (3,599,000 | ) | ||||||||
Net income (loss), as reported | $ 128,000 | $ (2,079,000 | ) | $ (895,000 | ) | $ (4,924,000 | ) | |||||||||
Deduct: Total stock-based | ||||||||||||||||
compensation expense determined | ||||||||||||||||
under fair value based method | -- | (147,000 | ) | (139,000 | ) | (919,000 | ) | |||||||||
Pro forma net income (loss) | $ 128,000 | $ (2,226,000 | ) | $(1,034,000 | ) | $ (5,843,000 | ) | |||||||||
Per share, as reported (a) | ||||||||||||||||
Before discontinued operations | $ -- | $ (a) | $ -- | $ (a) | ||||||||||||
From discontinued operations | -- | (a) | -- | (a) | ||||||||||||
Net income (loss) | $ -- | $ (a) | $ -- | $ (a) | ||||||||||||
Per share, pro forma (a) | ||||||||||||||||
Before discontinued operations | $ -- | $ (a) | $ -- | $ (a) | ||||||||||||
From discontinued operations | -- | (a) | -- | (a) | ||||||||||||
Net income (loss) | $ -- | $ (a) | $ -- | $ (a) | ||||||||||||
(a) See Note 4.
11
U.S. WIRELESS DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended March 31, 2005 and 2004
(Unaudited)
In determining the fair value of each option, we used the Black-Scholes option-pricing model as prescribed by SFAS No. 123 using the following assumptions: dividend yield of zero, expected volatility of 123%, an average expected option life of 3.5 years and an average risk-free interest rate of 2.31% for the year ended June 30, 2003. We did not grant options during the year ended June 30, 2004 or the nine months ended March 31, 2005.
As of the effective date of the Plan and as provided for under the provisions of the Plan, all outstanding warrants and options expired worthless.
NOTE 3 – AUCTION SALES
Revenues and loss from the discontinued operations relating to the Auction Sales are as follows:
Three months ended March 31, | Nine months ended March 31, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | 2005 | 2004 | |||||||||||||
Revenues | $ -- | $ 1,433,000 | $ -- | $ 3,992,000 | ||||||||||||
Loss from operations | (58,000 | ) | (977,000 | ) | (305,000 | ) | (3,599,000 | ) |
NOTE 4 — NET INCOME (LOSS) PER SHARE
Loss per common share is computed in accordance with the provisions of SFAS No. 128, “Earnings per Share”. SFAS No. 128 establishes standards for the computation, presentation, and disclosure of earnings per share. Basic per share amounts are computed by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding during the year. Diluted per share amounts incorporate the incremental shares issuable upon the assumed exercise of the Company’s stock options and warrants and assumed conversion of convertible securities. During the periods presented in the Consolidated Statements of Operations, such incremental amounts have been excluded from the calculation since their effect would be anti-dilutive. Such stock options, warrants and conversions could potentially dilute earnings per share in the future.
As of the close of business on March 18, 2005, our assets, liabilities and contingencies were transferred to the Liquidation Trust (as provided for under the terms of the Plan) and the Company effectuated the completion of the Reorganization. In addition, all issued and outstanding shares of the Company’s capital stock were cancelled and new shares were issued. The Company’s current operations is not representative nor comparable to that of the Company prior to March 18, 2005 and, accordingly, loss per share is not presented for periods prior to March 18, 2005.
12
U.S. WIRELESS DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended March 31, 2005 and 2004
(Unaudited)
NOTE 5 — SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information:
$0 and $96,000 was paid in cash for interest for the nine months ended March 31, 2005 and 2004, respectively.
Supplemental disclosure of non-cash financing and investing activities:
Nine months ended March 31, 2005
1. | Conversion of 10,000 shares of Series C Convertible Preferred Stock into 16,667 shares of Common Stock. |
2. | As of the effective date of the Plan and as provided for under the provisions of the Plan, all outstanding warrants and options expired worthless. |
3. | All originally outstanding Series C preferred stock and common stock were cancelled upon the effectuation of the Reorganization. |
4. | All Chapter 11 related assets and liabilities were transferred to the Liquidation Trust. |
5. | New common stock aggregating 4,000,000 shares were issued as follows: |
o | 3,720,000 shares of common stock to Trinad Capital, L.P. |
o | 140,000 shares of common stock prorata to the holders of Series C preferred shares held as of February 7, 2005. |
o | 140,000 shares of common stock prorata to the holders of common shares held as of February 7, 2005. |
Nine months ended March 31, 2004
1. | Conversion of 308,500 shares of Series C Convertible Preferred Stock into 514,173 shares of Common Stock. |
2. | Issuance of warrant in connection with the Bridge Loan, exercisable for 10,000,000 shares of Common Stock valued at $780,000. Amended and restated for 5,000,000 shares on March 26, 2004. |
3. | Accretion of Bridge Loan discount of $282,000. |
4. | Reversal of $390,000 of debt discount and adjustment of additional paid-in capital for the same amount for the amended and restated warrant. |
NOTE 6 — COMMITMENTS AND CONTINGENCIES
In accordance with the Plan, all commitments and contingencies prior to the Reorganization were transferred to the Liquidation Trust.
We have provided a former officer with an indemnity for such person’s assistance with the preparation of this report and other matters.
We are not currently subject to any material legal proceedings. However, we may from time to time become a party to legal proceedings arising in the ordinary course of our business.
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U.S. WIRELESS DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended March 31, 2005 and 2004
(Unaudited)
NOTE 7 – SETTLEMENT AND RELEASE AGREEMENT REGARDING THE AT&T ACTION
On February 23, 2005, we entered into a Settlement and Release Agreement (the “Agreement”) with Cingular Wireless, LLC (successor in interest to AT&T Wireless Services, Inc.) in order to settle the previously disclosed arbitration relating to the “AT&T Action” between the parties.
The Agreement was to become effective when all of the following events have occurred: (a) the Agreement has been fully executed by the parties; (b) we have submitted the Agreement to the United States Bankruptcy Court for the Southern District of New York and that court has entered an order (“Order”) approving the Agreement; and (c) the period for appealing the Order has expired and no appeal has been filed or the Order has been affirmed on appeal.
The Agreement was executed by both parties and was submitted to the bankruptcy court on March 8, 2005. The court approved the agreement at a hearing held on March 31, 2005.
In accordance with the Plan, all rights related to, and all obligations arising from, this matter and the Agreement were transferred to the Liquidation Trust at the close of business on March 18, 2005.
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ITEM 2. MANAGEMENT’S PLAN OF OPERATION
Special Note Regarding Forward-Looking Statements
We may, in discussions of our future plans, objectives and expected performance in periodic reports filed by us with the Securities and Exchange Commission (“SEC”) (or documents incorporated by reference therein) and in written and oral presentations made by us, include projections or other forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933 or Section 21E of the Securities Act of 1934, as amended. Such projections and forward-looking statements are based on assumptions, which we believe are reasonable but are, by their nature, inherently uncertain. You are cautioned that any such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward looking statements as a result of various factors. The factors that might cause such differences include, among others, the following: (i) our inability to obtain sufficient cash to fund ongoing obligations and continue as a going concern; (iii) our ability to carry out our operating strategy; and (iv) other factors including those discussed below. We undertake no obligation to publicly update or revise forward looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-QSB or to reflect the occurrence of unanticipated events.
Overview
U.S. Wireless Data, Inc. was incorporated on July 30, 1991 in the State of Colorado. On October 6, 2000, we reincorporated in the state of Delaware. Until May 21, 2004, we were principally engaged in providing wireless transaction delivery and gateway services to the payment processing industry.
On March 26, 2004, we filed a petition for relief under Chapter 11 of the United States Bankruptcy Code. On May 11, 2004, the United States Bankruptcy Court (the “Court”) conducted an auction of our assets and on May 21, 2004, the sale of all of our assets and operations to Transactional Network Services, Inc. (“TNS”) closed. TNS paid $6,000,000 for our wireless payment processing business and $3,700,000 for our wireless vending business.
On December 27, 2004, the bankruptcy court confirmed our Amended Plan of Reorganization (the “Plan”) and as of the close of business on March 18, 2005, our assets, liabilities and contingencies were transferred to a “Liquidation Trust” (as provided for under the terms of the Plan) and the Company effectuated the completion of the Reorganization (as defined below), thereby emerging from the Chapter 11 Proceedings.
On March 18, 2005 we filed the last of our remaining late filings with the Securities and Exchange Commission (“SEC”), and in accordance with the Plan, as of such date, Trinad Capital, L.P. (“Trinad”), our Plan sponsor, became the holder of 93% of our newly issued common stock as further discussed in the next paragraph below (the “Reorganization”).
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In accordance with the Plan, Trinad contributed $500,000 in cash to us in exchange for 93% of the new common stock to be issued under the Plan, with the remaining 7% of the new common stock being issued to the holders of record of our Series C preferred stock and our common stock as of February 7, 2005, with 3.5% going to each class. Simultaneously, all of our originally outstanding Series C preferred stock and common stock were cancelled. Of such $500,000 from Trinad, $100,000 was retained by us to fund the expenses of remaining public and $400,000 was funded to the USWD Liquidation Trust to pay administrative costs, creditors and, possibly, a small portion of the liquidation preference. If there is any remaining cash in the Liquidation Trust, it will be used to settle a small portion of the aggregate $32,302,000 liquidation preference to which the holders of our Series C preferred stock are entitled as of February 7, 2005.
As a result of (i) the sale of virtually all of our operating assets, and (ii) the Reorganization; the historical financial statements are irrelevant to any assessment of our operations on an ongoing basis. Accordingly, readers are advised not to rely on any historical financial information in considering an investment in or the disposition of our stock.
Discontinued Operations
During March 2004, our Board of Directors approved and authorized management to seek the sale of our operations which were sold in the Auction Sales. In accordance with accounting principles generally accepted in the United States of America, we classified our former operations sold in the Auction Sales as discontinued operations and have eliminated such operations from the discussion that follows except where indicated.
Management’s Plan of Operation
On March 18, 2005 we filed the last of our remaining late filings with the Securities and Exchange Commission (“SEC”), and in accordance with the Plan, as of such date, Trinad Capital, L.P. (“Trinad”), our Plan sponsor, became the holder of 93% of our newly issued common stock as further discussed in the next paragraph below (the “Reorganization”).
Trinad, a hedge fund dedicated to investing in micro-cap companies, is seeking to raise additional capital with a view to making us an attractive vehicle with which to acquire a business. It will then seek a suitable acquisition candidate. No such business has been identified and we are therefore subject to a number of risks, including: any acquisition consummated by us may turn out to be unsuccessful; investors in us will not know what operating business, if any, will be acquired, including the particular industry in which the business operates, and whether dilutive financing will be required therewith; the historical operations of a specific business opportunity may not necessarily be indicative of the potential for the future; we may acquire a company in the early stage of development causing us to incur further risks; we may be dependent upon the management of an acquired business which has not proven its abilities or effectiveness; we will be controlled by a small number of stockholders and such control could prevent the taking of certain actions that may be beneficial to other stockholders; our common stock will likely be thinly traded, and the public market may provide little or no liquidity for holders of our common stock.
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Trinad has agreed that it will not dispose of any of its common stock until an acquisition transaction has been consummated and a Current Report on Form 8-K setting forth the terms of the acquisition and audited financial statements of the acquisition target have been filed with the SEC.
As a result of the sale of virtually all of our operating assets, the historical financial statements are irrelevant to any assessment of our operations on an ongoing basis. Accordingly, readers are advised not to rely on any historical financial information in considering an investment in or the disposition of our stock.
We believe that the $100,000 contributed to us by Trinad should be sufficient to satisfy our monetary needs for the balance of the calendar year and that Trinad has the financial wherewithal and intent to fund our financial needs to the extent reasonably necessary. Since our emergence from bankruptcy through the Reorganization, we have no liabilities related to the Chapter 11 Proceedings, we do not currently have an operating business and we have extremely limited cash under new management.
As described more fully above, subsequent to the Reorganization, our plan of operation is to merge or effect a business combination with a domestic or foreign private operating entity. We may seek to raise additional capital first to make ourselves more attractive to acquisition candidates. We believe that there are perceived benefits to being a “reporting company” with a class of publicly-traded securities which may be attractive to private entities. Other than activities relating to such financing attempting to locate such a candidate, we do not currently anticipate conducting any operations.
We may enter into a definitive agreement with a wide variety of private businesses without limitation as to their industry or revenues. It is not possible at this time to predict when, if ever, we will enter into a business combination with any such private company or the industry or the operating history, revenues, future prospects or other characteristics of any such company. Trinad intends to raise capital to make us a more attractive acquisition vehicle and then seek a suitable merger candidate. Trinad has not identified anyone for acquisition at this juncture.
CRITICAL ACCOUNTING POLICIES
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
Estimates and assumptions
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 dates of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Financial Reporting by Entities in Reorganization under the Bankruptcy Code
The accompanying consolidated financial statements have been prepared in accordance with Statement of Position 90-7 (“SOP 90-7”), “Financial Reporting by Entities in Reorganization under the Bankruptcy Code”. SOP 90-7 requires that the financial statements for periods subsequent to the Chapter 11 filing petition distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business.
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All of the common stock that was outstanding prior to March 26, 2004 was cancelled and new shares of common stock were issued in accordance with the Plan. The reorganization value of the assets of the emerging entity immediately before the date of confirmation exceeded the total of all postpetition liabilities and allowed claims, therefore, the Company did not qualify for fresh start accounting under SOP 90-7 and continued its basis of accounting.
Revenue Recognition from Discontinued Operations
The following discussion relates to our operations prior to the Reorganization at the close of business on March 18, 2005. We currently have no business operations and when we acquire or start a business, our revenue recognition policy will be determined at that time.
We adopted the provisions of Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (“SAB 101”), which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the Securities and Exchange Commission. In addition, we follow the guidance contained in Emerging Issues Task Force position No. 00-21 with respect to sales arrangements with multiple deliverables.
We adopted Emerging Issues Task Force (EITF) No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, which is being applied on a prospective basis. The consensus addresses how to account for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. Revenue arrangements with multiple deliverables are required to be divided into separate units of accounting if the deliverables in the arrangement meet certain criteria. Arrangement consideration must be allocated among the separate units of accounting based on their relative fair values. The consensus also supersedes certain guidance set forth in SEC Staff Accounting Bulletin Number 101, Revenue Recognition in Financial Statements (SAB 101). SAB 101 was amended in December 2003 by Staff Accounting Bulletin Number 104 (SAB 104). The adoption of this pronouncement did not have a material impact on our financial statements.
We derived revenue from two primary sources from our discontinued operations: service fees and product (equipment) sales.
Services.Service fees consist of: (a) one-time, non-refundable service activation fees; (b) monthly minimum subscription fees for the availability of service; (c) fees for transactions delivered on wireless or other methods through our hosts; and (d) other fees, including administration and other fees for certain wireless services, certain charges for telecommunications connections between us and a party, and installation fees and expenses. Service fees are generated from our Synapse Service. Service activation fees are recognized ratably over the estimated average life of a customer contract. All other service revenues are recognized as services are provided.
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Product sales.Product sales (i.e., sales of equipment) are primarily derived from the sale of our proprietary Synapse Enabler and Synapse Adapter products. Revenues from product sales are recognized upon shipment and acceptance, although product sales of our Synapse Enabler for Vending are recognized ratably over the life of the customer contract upon activation.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We currently have no floating rate indebtedness, hold no derivative instruments, and do not earn foreign-sourced income. Accordingly, changes in interest rates or currency exchange rates do not generally have a direct effect on our financial position. Changes in interest rates may affect the amount of interest we earn on available cash balances as well as the amount of interest we pay on borrowings. To the extent that changes in interest rates and currency exchange rates affect general economic conditions, we may also be affected by such changes.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-QSB, have concluded that, based on such evaluation, our disclosure controls and procedures were adequate and effective to ensure that material information relating to us, including our consolidated subsidiaries, was made known to them by others within those entities, particularly during the period in which this Quarterly Report on Form 10-QSB was being prepared.
(b) Changes in Internal Controls. There were no significant changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 26, 2004, we filed a petition for relief under Chapter 11 of the Bankruptcy Code with the Court. On May 21, 2004, the Court closed the sale of all of our assets and operations to TNS. We were operating as a debtor-in-possession (“DIP”) under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Court (the “Chapter 11 Proceedings”). On December 27, 2004, the Court confirmed our Plan and as of the close of business on March 18, 2005, our assets, liabilities and contingencies were transferred to the Liquidation Trust (as provided for under the terms of the Plan) and the Company effectuated the completion of the Reorganization, thereby emerging from the Chapter 11 Proceedings.
On March 12, 2004, we were served with a complaint filed by U.S.A. Technologies, Inc. in the District Court for the District of Delaware, alleging infringement of one patent relating to certain aspects of our technology to enable vending machines to accept credit cards and seeking unspecified damages and injunctive relief. We believe this suit is without merit and intended to vigorously defend such action. The suit had been stayed by virtue of our bankruptcy filing and was subject to the Chapter 11 Proceedings. In conjunction with the Reorganization, the suit was transferred to the Liquidation Trust in accordance with the Plan.
We are not currently subject to any other material legal proceedings. However, we may from time to time become a party to legal proceedings arising in the ordinary course of our business.
ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
In conjunction with the Reorganization, all of the common stock and Series C preferred stock that was outstanding prior to March 26, 2004 was cancelled and new shares of common stock were issued in accordance with the Plan.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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ITEM 5. OTHER INFORMATION
Reconstituted Board of Directors and Officers
In conjunction with the Reorganization, on March 18, 2005 Robert Ellin became a director and our Chief Executive Officer, Jay Wolf became a director and our Chief Operating Officer and Chief Financial Officer and Barry Regenstein became a director. Robert Ellin and Jay Wolf are the Managing Member and Managing Director of Trinad, respectively, while Barry Regenstein is an outside consultant to Trinad.
Amended and Restated Certificate of Incorporation
On March 23, 2005, we filed an Amended and Restated Certificate of Incorporation with the State of Delaware, which is included below as an Exhibit to this filing.
Settlement and Release Agreement regarding the AT&T Action
On February 23, 2005, we entered into a Settlement and Release Agreement (the “Agreement”) with Cingular Wireless, LLC (successor in interest to AT&T Wireless Services, Inc.) in order to settle the previously disclosed arbitration relating to the “AT&T Action” between the parties.
The Agreement was to become effective when all of the following events have occurred: (a) the Agreement has been fully executed by the parties; (b) we have submitted the Agreement to the United States Bankruptcy Court for the Southern District of New York and that court has entered an order (“Order”) approving the Agreement; and (c) the period for appealing the Order has expired and no appeal has been filed or the Order has been affirmed on appeal.
The Agreement was executed by both parties and was submitted to the bankruptcy court on March 8, 2005. The court approved the agreement at a hearing held on March 31, 2005.
In accordance with the Plan, all rights related to, and all obligations arising from, this matter and the Agreement were transferred to the Liquidation Trust.
ITEM 6. EXHIBITS
Exhibit No. Description of Exhibit
3 | Amended and Restated Certificate of Incorporation |
31.1 | Section 302 Certifications by the Chief Executive Officer |
31.2 | Section 302 Certifications by the Chief Financial Officer |
32.1 | Section 906 Certifications by the Chief Executive Officer |
32.2 | Section 906 Certifications by the Chief Financial Officer |
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SIGNATURES
In accordance with Section 13 or 15 of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
U.S. WIRELESS DATA, INC. | |||
Dated: May 16, 2005 | By:/s/ Robert Ellin | ||
Robert Ellin | |||
Chief Executive Officer | |||
(Principal Executive Officer) | |||
Dated: May 16, 2005 | /s/ Jay Wolf | ||
Jay Wolf | |||
Chief Operating Officer and | |||
Chief Financial Officer | |||
(Principal Financial Officer) |
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