UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2006 |
o | 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.)
2121 Avenue of the Stars, Suite 1650
Los Angeles, CA 90067
(Address of principal executive offices, including zip code)
(310) 601-2500
(Registrant's Telephone Number, including area code)
153 East 53rd Street, 48th Floor
New York, NY 10022
(Former Address if changed since last report)
Check whether the Registrant (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 x No o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
As of May 15, 2006, there were outstanding 9,499,730 shares of the Registrant’s Common Stock ($0.01 par value per share).
Transitional Small Business Disclosure Format. Yes o No x
U.S. WIRELESS DATA, INC.
(A Development Stage Company)
MARCH 31, 2006 QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
Page | |||
Special Note Regarding Forward Looking Statements | 3 | ||
PART I -- FINANCIAL INFORMATION | 4 | ||
ITEM 1. Financial Statements (Unaudited) | 4 | ||
Condensed Consolidated Balance Sheet as of March 31, 2006 | 4 | ||
Condensed Consolidated Statements of Operations for the Three and Nine months ended March 31, 2006 and 2005 | 5 | ||
Condensed Consolidated Statements of Cash Flows for the Nine months ended March 31, 2006 and 2005 | 6 | ||
Notes to Condensed Consolidated Financial Statements | 7 | ||
ITEM 2. Management’s Discussion and Analysis and Plan of Operation | 16 | ||
ITEM 3. Controls and Procedures | 20 | ||
PART II -- OTHER INFORMATION | |||
ITEM 1. Legal Proceedings | 21 | ||
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds | |||
21 | |||
ITEM 3. Defaults Upon Senior Securities | 21 | ||
ITEM 4. Submission of Matters to a Vote of Security Holders | 21 | ||
ITEM 5. Other Information | 21 | ||
ITEM 6. Exhibits | 21 |
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In this section, “Special Note Regarding Forward-Looking Statements,” references to “we,” “us,” “our,” refer to U.S. Wireless Data, Inc.
To the extent that the information presented in this Quarterly Report on Form 10-QSB discuss financial projections, information or expectations about our products or markets, or otherwise makes statements about future events, such statements are forward-looking. We are making these forward-looking statements in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. These risks and uncertainties are described, among other places in this Quarterly Report, in “Plan of Operation”.
In addition, we disclaim any obligations to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report. When considering such forward-looking statements, you should keep in mind the risks referenced above the other cautionary statement in this Quarterly Report.
3
Part I — FINANCIAL INFORMATION
ITEM 1. Financial Statements
U.S. WIRELESS DATA, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS | March 31, 2006 | |||
Current assets: | ||||
Cash | $ | 5,217,000 | ||
Total assets | $ | 5,217,000 | ||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||
Current liabilities: | ||||
Accrued liabilities | $ | 115,000 | ||
Total liabilities | 115,000 | |||
Commitments and contingencies | ||||
Stockholders' equity: | ||||
Preferred stock, 1,000,000 shares authorized at $.01 par value, | ||||
no shares issued or outstanding at March 31, 2006 | - | |||
Common stock, 19,000,000 shares authorized at $.01 par value, | ||||
9,499,730 shares issued and outstanding | 95,000 | |||
Additional paid-in capital | 5,826,000 | |||
Deficit accumulated during development stage | (819,000 | ) | ||
Total stockholders' equity | 5,102,000 | |||
Total liabilities and stockholders' equity | $ | 5,217,000 | ||
See notes to condensed consolidated financial statements. |
4
U.S. WIRELESS DATA, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Successor | ||||||||||||||||
Company | ||||||||||||||||
Cumulative | ||||||||||||||||
Period | ||||||||||||||||
THREE MONTHS ENDED | NINE MONTHS ENDED | From Inception | ||||||||||||||
MARCH 31, | MARCH 31, | (April 1, 2005) | ||||||||||||||
Successor | Predecessor | Successor | Predecessor | To | ||||||||||||
Company | Company | Company | Company | March 31, | ||||||||||||
2006 | 2005 | 2006 | 2005 | 2006 | ||||||||||||
Continuing operations | ||||||||||||||||
General and administrative expenses | $ | (747,000 | ) | $ | (254,000 | ) | $ | (808,000 | ) | $ | (981,000 | ) | $ | (833,000 | ) | |
Interest income | 14,000 | - | 14,000 | - | 14,000 | |||||||||||
Interest expense | - | (1,000 | ) | - | 4,000 | - | ||||||||||
Other expenses | - | 49,000 | - | 40,000 | - | |||||||||||
Loss before reorganization items | ||||||||||||||||
and discontinued operations | (733,000 | ) | (206,000 | ) | (794,000 | ) | (937,000 | ) | (819,000 | ) | ||||||
Reorganization items | ||||||||||||||||
Gain on sale of shell | - | 400,000 | - | 400,000 | - | |||||||||||
Professional fees and U.S. Trustee fees | - | (22,000 | ) | - | (91,000 | ) | - | |||||||||
Interest income | - | 9,000 | - | 33,000 | - | |||||||||||
Income (Loss) from continuing operations | (733,000 | ) | 181,000 | (794,000 | ) | (595,000 | ) | (819,000 | ) | |||||||
Discontinued operations | ||||||||||||||||
Loss on discontinued operations | - | (58,000 | ) | - | (305,000 | ) | - | |||||||||
Gain on sale of discontinued operations | - | 5,000 | - | 5,000 | - | |||||||||||
Loss from discontinued operations | - | (53,000 | ) | - | (300,000 | ) | - | |||||||||
Net income (loss) | $ | (733,000 | ) | $ | 128,000 | $ | (794,000 | ) | $ | (895,000 | ) | $ | (819,000 | ) | ||
Basic and diluted | ||||||||||||||||
Net Loss per share from | ||||||||||||||||
from continuing operations | $ | (0.12 | ) | (a | ) | $ | (0.17 | ) | (a | ) | $ | (0.18 | ) | |||
Net Loss per share from discontinued operations | - | (a | ) | - | (a | ) | - | |||||||||
Net loss per share | $ | (0.12 | ) | (a | ) | $ | (0.17 | ) | (a | ) | $ | (0.18 | ) | |||
Weighted average common shares | ||||||||||||||||
outstanding, basic and diluted | 5,988,000 | 4,000,000 | 4,598,000 | 4,000,000 | 4,598,000 | |||||||||||
See notes to condensed consolidated financial statements. | ||||||||||||||||
(a) See Note 4. |
5
U.S. WIRELESS DATA, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Successor | ||||||||||
Company | ||||||||||
Cumulative | ||||||||||
Period | ||||||||||
For the nine months ended March 31, | From Inception | |||||||||
2006 | 2005 | (April 1, 2005) | ||||||||
Successor | Predecessor | To | ||||||||
Company | Company | March 31, 2006 | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||
Net loss | $ | (794,000 | ) | $ | (895,000 | ) | $ | (819,000 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||
Provision for doubtful accounts | - | 53,000 | - | |||||||
Stock-based compensation | 381,000 | - | 381,000 | |||||||
Changes in operating assets and liabilities: | ||||||||||
Accounts receivable | - | (39,000 | ) | - | ||||||
Due from factor | - | 63,000 | - | |||||||
Due from plan sponsor | - | (400,000 | ) | - | ||||||
Due from winning auction sale bidder | - | 107,000 | - | |||||||
Prepaid and other current assets | - | 357,000 | - | |||||||
Accounts payable and accrued liabilities | 102,000 | 174,000 | 115,000 | |||||||
Accrued liabilities | - | (486,000 | ) | - | ||||||
Prepetition liabilities subject to compromise | - | (909,000 | ) | - | ||||||
Net cash used in operating activities | (311,000 | ) | (1,975,000 | ) | (323,000 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||
Decrease in restricted cash | - | 456,000 | - | |||||||
Transfer to Chapter 11 escrow accounts | - | (668,000 | ) | - | ||||||
Transfer from Chapter 11 escrow accounts | - | 1,831,000 | - | |||||||
Transfer to Liquidation Trust | - | (100,000 | ) | - | ||||||
Transfer to Plan Sponsor escrow account | - | (100,000 | ) | - | ||||||
Transfer from Plan Sponsor escrow account | - | 49,000 | - | |||||||
Net cash provided by investing activities | - | 1,468,000 | - | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||
Proceeds from common stock issuances | 5,500,000 | - | 5,500,000 | |||||||
Proceeds from Plan Sponsor | - | 100,000 | 100,000 | |||||||
Costs related to acquisition of shell | - | (49,000 | ) | (60,000 | ) | |||||
Payments for real estate lease termination | - | (456,000 | ) | - | ||||||
Net cash provided (used in) financing activities | 5,500,000 | (405,000 | ) | 5,540,000 | ||||||
Net increase (decrease) in cash and cash equivalents | 5,189,000 | (912,000 | ) | 5,217,000 | ||||||
Cash and cash equivalents, beginning of period | 28,000 | 912,000 | - | |||||||
Cash and cash equivalents, end of period | $ | 5,217,000 | $ | - | $ | 5,217,000 | ||||
See notes to condensed consolidated financial statements. |
6
U.S. WIRELESS DATA, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 are currently a “shell” company with no operations and controlled by Trinad Capital, L.P. (“Trinad”), our major shareholder. The Company intends to serve as a vehicle to effect an asset acquisition, merger, exchange of capital stock or other business combination with a domestic or foreign business.
Trinad and Management’s Plan of Operation
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; our investors will not know what operating business, if any, will be acquired, including the particular industry in which the business operates, and whether financing that could have a dilutive effect on our present stockholders will be required in connection 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.
Trinad has agreed that it will not dispose of any of our common stock held by it 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 Securities and Exchange Commission (“SEC”).
Reorganization and the Liquidation Trust
On March 18, 2005, in accordance with the Plan (as defined below under the section titled Chapter 11 Proceedings), Trinad, our Plan sponsor, became the holder of 93% of our newly issued common stock as further discussed in the paragraphs below (the “Reorganization”).
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.
In accordance with the Plan, Trinad contributed $400,000 in cash to the Predecessor Company (as defined in Note 2) and as of the close of business on March 18, 2005 (immediately before the Reorganization), all of the assets and liabilities of the Predecessor Company, with the exception of the public entity shell company, along with all contingent assets and liabilities, were transferred to the USWD Liquidation Trust (the “Liquidation Trust”). In addition, Trinad contributed $100,000 in cash to the Successor Company (as defined in Note 2) in exchange for 93% of the new common stock issued under the Plan, with the remaining 7% of the new common stock 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 our Common Stock were cancelled. In accordance with the Plan, the cash in the Liquidation Trust will be used to pay administrative costs and creditors of the Chapter 11 Proceedings. If there is any remaining cash in the Liquidation Trust, it will be used to settle a small portion
7
U.S. WIRELESS DATA, INC.
(A Development Stage Company)
NOTES CONDENSED CONSOLIDATED TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 — THE COMPANY (continued)
of the aggregate $32,302,000 liquidation preference to which the holders of our Series C Preferred Stock as of February 7, 2005 are entitled.
Chapter 11 Proceedings
On March 26, 2004 (the “Petition Date”), 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. Prior to the chapter 11 proceeding, we were principally engaged in providing wireless transaction delivery and gateway services to the payment processing industry. Since our inception, we had incurred significant losses and negative cash flow from operations.
We operated 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 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.
On January 19, 2005 we paid approximately $889,000 as an initial payment to creditors for pre-petition liabilities representing approximately 50% of “Allowed Claims”.
The following assets and liabilities from our Balance Sheet as of the close of business on March 18, 2005 immediately before the Reorganization, along with all contingent assets and liabilities, 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:
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 | |||
Prepaid 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 | |||
Pre-petition liabilities subject to compromise | 1,572,000 | |||
Total liabilities | 1,857,000 |
“Pre-petition 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 |
8
U.S. WIRELESS DATA, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 — THE COMPANY (continued)
Loan, Stock Sales and Liquidity
On September 23, 2005, the Company executed a loan agreement with Trinad whereby Trinad has agreed to loan the Company up to a principal amount of $100,000 (the “Loan”) at any time and from time to time prior to the Company’s consummation of a Next Financing (as defined below). Trinad shall make advances to the Company in such amounts, as the Company shall request from time to time. The Loan bears interest at the prime rate plus 1 percent per annum. The entire outstanding principal amount of the Loan and any accrued interest thereon shall be due and payable by the Company upon, and not prior to, the consummation of a sale of securities (other than a sale of shares of the Company’s Common Stock to officers, directors or employees of, or consultants to, the Company in connection with their provision of services to the Company), to a third party or parties with proceeds to the Company of not less than $200,000 (a “Next Financing”). As of March 31, 2006, no amounts were outstanding under the loan agreement.
During the three months ended March 31, 2006, the Company sold 5,500,000 units, consisting of one share of common stock and one warrant, at a price of $1 per unit in three private placements. The warrants have an exercise price of $2 per share and expire 1,000,000 in December 2007, 950,000 in January 2008 and 3,550,000 in March 2008. As of March 31, 2006, the Company had approximately $5,217,000 of cash, which management believes is sufficient to satisfy our monetary needs for the next fiscal year. During the three months ended March 31, 2006, the Company’s stock price was trading from $1.30 to $2.30. The Company has determined that all of the proceeds from the sale of the units were allocated to the shares of common stock contained in the units at $1 per share. As a result, no value was allocated to the warrants granted in connection with the sale of these units.
We do not currently have an operating business and therefore have no ability to generate cash flow from operations in order to fund our ongoing financial needs past the next fiscal year.
NOTE 2 - BASIS OF PRESENTATION
The Company may be referred to as the “Predecessor Company” for all periods through the Reorganization and as the “Successor Company” for all periods after the recognition of the Reorganization. The Reorganization was effectuated as of the close of business on March 18, 2005; however, there was virtually no activity between March 19, 2005 and March 31, 2005. Therefore, for accounting purposes, we used March 31, 2005 as the date the Reorganization was effectuated.
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 the Company on an ongoing basis. Accordingly, readers are advised not to rely on any historical financial information in considering an investment in or disposition of our stock.
There were no revenues during the three and nine month periods ended March 31, 2006 and 2005 from discontinued operations.
9
U.S. WIRELESS DATA, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - BASIS OF PRESENTATION (continued)
Basis of Presentation and Use of Estimates
The accompanying interim condensed consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America and have been prepared by us, without an audit pursuant to the rules and regulations of the Security and Exchange Commission. In the opinion of management, all adjustments have been made, which include normal recurring adjustments necessary to present fairly the condensed 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 condensed 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, 2005 on Form 10-KSB.
The accompanying condensed 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. All pre-petition claims were transferred to the Liquidation Trust on March 18, 2005 in accordance with the Reorganization. Revenues, expenses, realized gains and losses and provision for losses resulting from the reorganization are reported separately as “Reorganization items” in the accompanying condensed consolidated statements of operations.
The preparation of 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 the Petition Date 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 post-petition liabilities and allowed claims, therefore, the Company did not qualify for fresh start accounting under SOP 90-7 and continued its basis of accounting.
The Company is subject to a number of risks similar to those of other development stage companies including dependence on key individuals, dependence on outside sources of capital, completion of an asset acquisition, merger, and exchange of capital stock or other business combination with a domestic or foreign business. There are no assurances, however, that the Company will be able to obtain additional financing or achieve the completion of an asset acquisition, merger or other business combination on favorable terms.
Reclassifications
Certain amounts in the prior period condensed consolidated financial statements have been reclassified to conform to the current presentation.
10
U.S. WIRELESS DATA, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - BASIS OF PRESENTATION (continued)
Stock-based Compensation
On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning in fiscal 2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).
The Company adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006, the first day of the Company’s third quarter in fiscal year 2006. The Company’s Condensed Consolidated Financial Statements as of and for the three months ended March 31, 2006 reflect the impact of SFAS 123(R). In accordance with the modified prospective transition method, the Company’s Condensed Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). Stock-based compensation expense recognized under SFAS 123(R) for the three months ended March 31, 2006 was approximately $381,000 which consisted of warrant granted to Board Members and an Officer (See Note 8). There was no stock-based compensation expense related to employee equity awards during the three and nine months ended March 31, 2005 under APB 25.
SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period in the Company’s Condensed Consolidated Statement of Operations. Prior to the adoption of SFAS 123(R), the Company accounted for employee equity awards and employee stock purchases using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Under the intrinsic value method, no stock-based compensation expense had been recognized in the Company’s Condensed Consolidated Statement of Operations, other than as related to acquisitions, because the exercise price of the Company’s stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant.
Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
The fair value of share-based payment awards is estimated at the grant date using the Black-Scholes option valuation model. The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.
On November 10, 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. FAS 123(R)-3 “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards.” The Company has elected to adopt the modified prospective transition method provided in the FASB Staff Position for calculating the tax effects of stock-based compensation pursuant to SFAS 123(R). The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and Condensed Consolidated Statements of Cash Flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS 123(R).
11
U.S. WIRELESS DATA, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - AUCTION SALES
Loss from the discontinued operations relating to the Auction Sales are as follows:
Three months ended March 31, | Nine months ended March 31, | ||||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||
Revenues | $ | - | $ | - | $ | - | $ | - | |||||
Loss from operations | - | (93,000 | ) | - | (247,000 | ) |
NOTE 4 — NET LOSS PER SHARE
Net 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 Statements of Operations, 5,750,000 warrants to purchase shares of common stock have been excluded from the calculation since their effect would be anti-dilutive.
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 are not representative or comparable to that of the Company prior to March 18, 2005 and, accordingly, net loss per share is not presented for periods prior to March 18, 2005.
12
U.S. WIRELESS DATA, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 — SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of non-cash financing and investing activities:
Nine months ended March 31, 2006 and 2005
1. | Conversion of 10,000 shares of Series C Convertible Preferred Stock into 16,667 shares of Common Stock during the nine months ended March 31, 2005. |
NOTE 6 - EQUITY TRANSACTIONS
During the three months ended March 31, 2006, the Company sold 5,500,000 units, consisting of one share of common stock and one warrant, at a price of $1 per unit in three private placements for net proceeds of $5,500,000. The warrants have an exercise price of $2 per share and expire 1,000,000 in December 2007, 950,000 in January 2008 and 3,550,000 in March 2008. During the three months ended March 31, 2006, the Company’s stock price was trading from $1.30 to $2.30. The Company has determined that all of the proceeds from the sale of the units were allocated to the shares of common stock contained in the units at $1 per share. As a result, no value was allocated to the warrants granted in connection with the sale of these units.
NOTE 7 —RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board (“FASB”) issued Staff Position 109-1 (“FSP 109-1”), Application of FASB Statement No. 109 (FASB No. 109”), “Accounting for Income Taxes”, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004. FSP 109-1 clarifies guidance that applies to the new deduction for qualified domestic production activities. When fully phased-in, the deduction will be up to 9% of the lesser of “qualified production activities income” or taxable income. FSP 109-1 clarifies that the deduction should be accounted for as a special deduction under FASB No. 109 and will reduce tax expense in the period or periods that the amounts are deductible on the tax return. Any tax benefits resulting from the new deduction will be effective for the Company’s fiscal year ending March 31, 2006. This staff position is not expected to have a material impact on the Company’s condensed consolidated financial statements.
The FASB issued SFAS 153, Exchange of Nonmonetary Assets, which changes the guidance in Accounting Principles Board (APB) Opinion 29, Accounting for Nonmonetary Transactions. This statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for the nonmonetary assets exchange occurring in the fiscal period beginning after June 15, 2005. The Company does not believe the adoption of SFAS No. 153 will have a material impact on the Company’s condensed consolidated financial statements.
In June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and SFAS 3. The statement applies to all voluntary changes in accounting for and reporting of a change in accounting principle. SFAS is effective for accounting changes and error corrections made in the fiscal year beginning December 15, 2005. The Company does not believe the adoption of SFAS No. 154 will have a material impact on the Company’s condensed consolidated financial statements.
In February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an Amendment of FASB Statements No. 133 and 140” (“SFAS No. 155”). SFAS No. 155 allows financial instruments that contain an embedded derivative and that otherwise would require bifurcation to be accounted for as a whole on a fair value basis, at the holders’ election. SFAS No. 155 also clarifies and amends certain other provisions of SFAS No. 133 and SFAS No. 140. This statement is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. We do not expect that the adoption of SFAS No. 155 will have a material impact on our condensed consolidated financial condition or results of operations.
In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets—an Amendment of FASB Statement No. 140” (“SFAS No. 156”). SFAS No. 156 provides guidance on the accounting for servicing assets and liabilities when an entity undertakes an obligation to service a financial asset by entering into a servicing contract. This statement is effective for all transactions in fiscal years beginning after September 15, 2006. We do not expect that the adoption of SFAS No. 156 will have a material impact on our condensed consolidated financial condition or results of operations.
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U.S. WIRELESS DATA, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 - EXECUTIVE COMPENSATION
On January 18, 2006, upon the appointment of Mr. David Chazen as President and a member of the Board of Directors, the Company has agreed to compensate Mr. Chazen for his services as President at a rate of $10,000 per month. This compensation arrangement can be terminated by either the Company or Mr. Chazen upon written notice to the other party. In addition, for agreeing to serve as a member of the Company’s Board of Directors, Mr. Chazen was granted a warrant to purchase 150,000 shares of the Company’s common stock, having an exercise price of $1.00 and an expiration date of January 18, 2008. Furthermore, on January 18, 2006, Mr. Barry Regenstein, a member of the Company’s Board of Directors, was granted, for his services as a member, a warrant to purchase 50,000 shares of the Company’s common stock, having an exercise price of $1.00 and an expiration date of January 18, 2008. The warrants granted to Messrs. Chazen and Regenstein contain standard piggyback registration rights, provided, however, the shares of common stock issued upon exercise will be subject to restrictions on resale for a period of one year from the date of exercise. The Company recognized approximately $300,000 of stock-based compensation expense related to the issuance of the warrants.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
Expected Life (years) | 2 | |||
Interest Rate | 4.35 | % | ||
Volatility | 446 | % | ||
Dividend Yield | 0 |
On February 13, 2006, upon the appointment of Mr. David Goddard as a member of the Board of Directors, he was granted a warrant to purchase 50,000 shares of the Company’s common stock, having an exercise price of $1.00 and an expiration date of February 13, 2008. The warrant contains standard piggyback registration rights, provided, however, the shares of common stock issued upon exercise will be subject to restrictions on resale for a period of one year from the date of exercise. The Company recognized approximately $81,000 of stock-based compensation expense related to the issuance of the warrants.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
Expected Life (years) | 2 | |||
Interest Rate | 4.68 | % | ||
Volatility | 321 | % | ||
Dividend Yield | 0 |
NOTE 9 - RELATED PARTY TRANSACTION
On March 10, 2006, a Management Agreement with Trinad Management, LLC ("Trinad") and the Company, pursuant to which Trinad agrees to provide the Company with certain management services (the "Management Services"), including without limitation, the sourcing, structuring and negotiation of a potential business combination involving the Company became effective. As compensation for such Management Services the Company shall pay Trinad a monthly management fee of $30,000 for a period of five years. The Company may terminate the agreement by paying a termination fee of $1,000,000. Trinad and its affiliates collectively own approximately 55% of the Company's issued and outstanding Common Stock.
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U.S. WIRELESS DATA, INC.
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 - SUBSEQUENT EVENTS
On April 20, 2006, the Company, provided a bridge loan of $300,000 to StarVox Communications, Inc. (“StarVox”). The loan has a term of 120 days. The loan provides for an interest rate of 10% per annum and is secured by a lien on all of the assets of StarVox.
On April 26, 2006, the Company announced that it has executed a letter of intent which sets forth the preliminary terms and conditions of a proposed merger transaction between the Company and StarVox. In connection with the merger, the shareholders of StarVox will exchange their shares of capital stock in StarVox for capital stock of the Company. The number of shares of the Company’s stock to be received by the shareholders of StarVox will be dependent upon certain events and conditions at the time of closing.
StarVox is a facilities-based next generation Infrastructure and Applications service provider, that offers wholesale and retail traditional voice services and enhanced VoIP services over its domestic VoIP network and its international wholesale network. StarVox’s domestic VoIP network provides over 300 Points of Presence (POPs) which allows access from about 80% of business sites. StarVox also provides local services to about 65% of business sites. A full suite of traditional and enhanced products is available to wholesale and retail customers. The international wholesale network offers reliable cost effective worldwide connectivity to both established and emerging carriers. StarVox owns both its application technologies and domestic and international VoIP networks, which gives it a competitive advantage. StarVox works with a variety of channels (such as, ISPs, CLECs, Telecom Agents, Carriers, Affinity Groups, Property Management Groups, etc.) that are interested in migrating customers from traditional separate voice and data communications connections to a converged voice/data connection. StarVox offers a complete “turnkey” package of services to its channels with individual branding. StarVox services target small, medium and larger sized businesses (both single site and multi-site) that are interested in lowering their communications monthly costs by 20% to 40% by migrating to a converged service.
The closing of the transaction is subject to certain conditions, including execution of a definitive merger agreement and the completion of due diligence. There can be no assurance that the merger will be consummated or, if consummated, that it will be consummated on the terms set forth in the letter of intent.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND 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; (ii) our ability to carry out our operating strategy; and (iii) 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. (“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 are currently a “shell” company with no operations and controlled by Trinad Capital, L.P. (“Trinad”), our major stockholder. The Company intends to serve as a vehicle to effect on asset acquisition, merger and exchange of capital stock or other business combination with a domestic or foreign business.
The Company may be referred to as the “Predecessor Company” for all periods through the Reorganization (as defined below) and as the “Successor Company” for all periods after the recognition of the Reorganization. The Reorganization was effectuated as of the close of business on March 18, 2005; however, there was virtually no activity between March 19, 2005 and March 31, 2005. Therefore, for accounting purposes, we used March 31, 2005 as the date the Reorganization was effectuated.
As a result of (i) the sale of virtually all of our operating assets in the Auction Sales (as defined below), and (ii) the Reorganization, very little of what is included in this Report on Form 10-QSB is relevant to any assessment of the Company on an ongoing basis. Accordingly, readers are advised not to rely on any historical information in considering an investment in or disposition of our stock.
Trinad and Management’s Plan of Operation
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; our investors will not know what operating business, if any, will be acquired, including the particular industry in which the business operates, and whether financing that could have a dilutive effect on our present stockholders will be required in connection 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.
Trinad has agreed that it will not dispose of any of our common stock held by it 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 Securities and Exchange Commission (“SEC”).
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Reorganization and the Liquidation Trust
On March 18, 2005, in accordance with the Plan (as defined below under the section titled Chapter 11 Proceedings), Trinad, our Plan sponsor, became the holder of 93% of our newly issued common stock as further discussed in the paragraphs below (the “Reorganization”).
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, and Barry Regenstein is an outside consultant to Trinad.
In accordance with the Plan, Trinad contributed $400,000 in cash to the Predecessor Company and as of the close of business on March 18, 2005 (immediately before the Reorganization), all of the assets and liabilities of the Predecessor Company, with the exception of the public entity shell company, along with all contingent assets and liabilities, were transferred to the USWD Liquidation Trust (the “Liquidation Trust”). In addition, Trinad contributed $100,000 in cash to the Successor Company in exchange for 93% of the new common stock issued under the Plan, with the remaining 7% of the new common stock 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 our Common Stock were cancelled. In accordance with the Plan, the cash in the Liquidation Trust will be used to pay administrative costs and creditors of the Chapter 11 Proceedings. 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 as of February 7, 2005 are entitled.
Chapter 11 Proceedings
On March 26, 2004 (the “Petition Date”), 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 (the “Chapter 11 Proceeding”). Prior to the chapter 11 proceeding, we were principally engaged in providing wireless transaction delivery and gateway services to the payment processing industry. Since our inception, we had incurred significant losses and negative cash flow from operations.
We operated 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 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.
On January 19, 2005 we paid approximately $889,000 as an initial payment to creditors for pre-petition liabilities representing approximately 50% of “Allowed Claims”.
The following assets and liabilities from our Balance Sheet as of the close of business on March 18, 2005 immediately before the Reorganization, along with all contingent assets and liabilities, 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:
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 | |||
Prepaid and other current assets | 13,000 | |||
$ | 2,802,000 |
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LIABILITIES | ||||
Current liabilities: | ||||
Accounts payable | $ | 212,000 | ||
Accrued liabilities | 73,000 | |||
Total liabilities not subject to compromise | 285,000 | |||
Pre-petition liabilities subject to compromise | 1,572,000 | |||
Total liabilities | 1,857,000 |
“Pre-petition 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 |
Loan, Stock Sales and Liquidity
On September 23, 2005, the Company executed a loan agreement with Trinad whereby Trinad has agreed to loan the Company up to a principal amount of $100,000 (the “Loan”) at any time and from time to time prior to the Company’s consummation of a Next Financing (as defined below). Trinad shall make advances to the Company in such amounts, as the Company shall request from time to time. The Loan bears interest at the prime rate plus 1 percent per annum. The entire outstanding principal amount of the Loan and any accrued interest thereon shall be due and payable by the Company upon, and not prior to, the consummation of a sale of securities (other than a sale of shares of the Company’s Common Stock to officers, directors or employees of, or consultants to, the Company in connection with their provision of services to the Company), to a third party or parties with proceeds to the Company of not less than $200,000 (a “Next Financing”). As of March 31, 2006, no amounts were outstanding under the loan agreement.
During the nine months ended March 31, 2006, the Company sold 5.5 million units consisting of one share of common stock and one warrant at a price of $1 per unit in three private placements for net proceeds of $5,500,000. The warrants have an exercise price of $2 per share and expire in December 2007. As of March 31, 2006, the Company had approximately $5,200,000 of cash, which management believes is sufficient to satisfy our monetary needs for the next fiscal year.
Loan Receivable and Letter of Intent
On April 20, 2006, the Company, provided a bridge loan of $300,000 to StarVox Communications, Inc. (“StarVox”). The loan has a term of 120 days. The loan provides for an interest rate of 10% per annum and is secured by a lien on all of the assets of StarVox.
On April 26, 2006, the Company announced that it has executed a letter of intent which sets forth the preliminary terms and conditions of a proposed merger transaction between the Company and StarVox. In connection with the merger, the shareholders of StarVox will exchange their shares of capital stock in StarVox for capital stock of the Company. The number of shares of the Company’s stock to be received by the shareholders of StarVox will be dependent upon certain events and conditions at the time of closing.
StarVox is a facilities-based next generation Infrastructure and Applications service provider, that offers wholesale and retail traditional voice services and enhanced VoIP services over its domestic VoIP network and its international wholesale network. Starvox’s domestic VoIP network provides over 300 Points of Presence (POPs) which allows access from about 80% of business sites. StarVox also provides local services to about 65% of business sites. A full suite of traditional and enhanced products is available to wholesale and retail customers. The international wholesale network offers reliable cost effective worldwide connectivity to both established and emerging carriers. StarVox owns both its application technologies and domestic and international VoIP networks, which gives it a competitive advantage. StarVox works with a variety of channels (such as, ISPs, CLECs, Telecom Agents, Carriers, Affinity Groups, Property Management Groups, etc.) that are interested in migrating customers from traditional separate voice and data communications connections to a converged voice/data connection. StarVox offers a complete “turnkey” package of services to its channels with individual branding. StarVox services target small, medium and larger sized businesses (both single site and multi-site) that are interested in lowering their communications monthly costs by 20% to 40% by migrating to a converged service.
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The closing of the transaction is subject to certain conditions, including execution of a definitive merger agreement and the completion of due diligence. There can be no assurance that the merger will be consummated or, if consummated, that it will be consummated on the terms set forth in the letter of intent.
MANAGEMENT CHANGES
On January 18, 2006, upon the appointment of Mr. David Chazen as President and a member of the Board of Directors (as discussed below), the Company has agreed to compensate Mr. Chazen for his services as President at a rate of $10,000 per month. This compensation arrangement can be terminated by either the Company or Mr. Chazen upon written notice to the other party. In addition, for agreeing to serve as a member of the Company’s Board of Directors, Mr. Chazen was granted a warrant to purchase 150,000 shares of the Company’s common stock, having an exercise price of $1.00 and an expiration date of January 18, 2008. Furthermore, on January 18, 2006, Mr. Barry Regenstein, a member of the Company’s Board of Directors, was granted, for his services as a member, a warrant to purchase 50,000 shares of the Company’s common stock, having an exercise price of $1.00 and an expiration date of January 18, 2008. The warrants granted to Messrs. Chazen and Regenstein contain standard piggyback registration rights, provided, however, the shares of common stock issued upon exercise will be subject to restrictions on resale for a period of one year from the date of exercise.
On February 13, 2006, upon the appointment of Mr. David Goddard as a member of the Board of Directors, he was granted a warrant to purchase 50,000 shares of the Company’s common stock, having an exercise price of $1.00 and an expiration date of February 13, 2008. The warrant contains standard piggyback registration rights, provided, however, the shares of common stock issued upon exercise will be subject to restrictions on resale for a period of one year from the date of exercise.
The Company has valued the warrants issued at approximately $381,000 using the Black-Scholes Model, which was charged to compensation expense in the third quarter.
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 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 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.
All of the common stock that was outstanding prior to the Petition Date 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 post-petition liabilities and allowed claims, therefore, the Company did not qualify for fresh start accounting under SOP 90-7 and continued its basis of accounting.
Stock-Based Compensation
On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning in fiscal 2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).
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The Company adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006, the first day of the Company’s third quarter in fiscal year 2006. The Company’s Condensed Consolidated Financial Statements as of and for the three and nine months ended March 31, 2006 reflect the impact of SFAS 123(R). In accordance with the modified prospective transition method, the Company’s Condensed Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). Stock-based compensation expense recognized under SFAS 123(R) for each of the three and nine months ended March 31, 2006 was approximately $381,000 which consisted of warrant granted to Board Members and an Officer (See Note 8). There was no stock-based compensation expense related to employee equity awards during the three and nine months ended March 31, 2005 under APB 25.
SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period in the Company’s Condensed Consolidated Statement of Operations. Prior to the adoption of SFAS 123(R), the Company accounted for employee equity awards and employee stock purchases using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Under the intrinsic value method, no stock-based compensation expense had been recognized in the Company’s Condensed Consolidated Statement of Operations, other than as related to acquisitions, because the exercise price of the Company’s stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant.
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, 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
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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
Exhibit No. | Description of Exhibit | |
31.1 | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 |
31.2 | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 |
32.1 | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 |
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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 15 , 2006 | By: | /s/ Robert Ellin | |
Robert Ellin | |||
Chief Executive Officer | |||
(Principal Executive Officer) | |||
Dated: May 15, 2006 | /s/ Jay Wolf | ||
Jay Wolf | |||
Chief Operating Officer and | |||
Chief Financial Officer | |||
(Principal Financial Officer) |
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