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 ended September 30, 1996
___ Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ______ to ______.
Commission File No.: 0-22848
U.S. Wireless Data, Inc.
(Exact name of registrant as specified in its charter)
Colorado 84-1178691
------------------------ -------------------------------
(State of incorporation) (IRS Employer Identification No.)
5700 Flatiron Parkway
Boulder, Colorado 80301
-----------------------
(Address of principal executive offices, including zip code)
(303) 440-5464
--------------
(Registrant's Telephone Number, including area code)
Check whether the issuer (1) 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 ___
As of September 30, 1995 there were outstanding 4,390,910 shares of
the Registrant's Common Stock (no par value per share).
Transitional Small Business Disclosure Format
Yes ___ No _X_
<PAGE>
U.S. WIRELESS DATA, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited)
Balance Sheet --
September 30, 1996 3
Statements of Operations --
Three Months Ended September 30, 1996 and 1995 4
Statements of Cash Flows --
Three Months Ended September 30, 1996 and 1995 5
Notes to Financial Statements 6-7
Item 2. Management's Discussion and Analysis 8-9
PART II OTHER INFORMATION
Item 1. Material Developments in Connection with Legal Proceedings
10
Item 3. Defaults Upon Senior Securities 10
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
<PAGE>
U.S. WIRELESS DATA, INC.
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30,
1996
----
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents .................. $ 14,408
Accounts receivable, net of allowance for
doubtful accounts of $23,080 ........... 81,179
Sales-type lease receivables ............... 18,784
Inventory, net ............................. 521,566
Other current assets
775
---
Total current assets .............. 636,712
Property and equipment, net ........................ 76,965
Other assets
10,295
------
Total assets ....................................... $ 723,972
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable ........................... $ 381,487
Accrued liabilities ........................ 117,374
Notes payable
398,666
-------
Total current liabilities
897,527
-------
Stockholders' equity (deficit):
Common stock, no par value, 12,000,000
shares authorized, 4,665,877 shares
issued ............................................. 4,583,108
and outstanding, stated value $1.00
Additional paid-in capital ................. 11,501,690
Accumulated deficit
(16,258,353)
-----------
Total stockholders' equity
(deficit) .......................................... (173,555)
--------
Total liabilities and stockholders' equity (deficit) $ 723,972
============
</TABLE>
U.S. WIRELESS DATA, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
9/30/96 09/30/95
-------- ----------
<S> <C> <C>
Revenue .................................. $ 387,218 $ 282,135
Cost of goods sold ....................... 265,449 250,960
Gross margin ............................. 121,769 31,175
Operating Expenses
Selling, general and administrative 171,157 415,812
Research and development
118,469 127,097
289,626 542,909
Loss from operations ..................... (167,857) (511,734)
Other income (expense)
5,967 (14,426)
Loss from continuing operations
(161,890) (526,160)
Loss from discontinued operation
-- (309,206)
Net loss ................................. $ (161,890) $ (835,366)
Earnings (loss) per share:
From continuing operations ........ $ (.03) $ (.12)
From discontinued operation ....... -- (.07)
Net loss per share ................ $ (.03) $ (.19)
Weighted average common shares outstanding 4,653,482 4,390,910
</TABLE>
U.S. WIRELESS DATA, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
09/30/96 09/30/95
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................ $(161,890) $ (526,160)
Depreciation ........................ 20,496 57,351
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable ....... 95,948 97,707
Inventory ................. (26,382) 205,553
Other assets .............. 28,608 5,771
Increase (decrease) in:
Accounts payable .......... 139,100 16,283
Accrued liabilities ....... (100,222) 87,655
Notes payable
(21,600) --
-------
Net cash used in operating activities (25,942) (55,840)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and furniture
--------- ---------
Net cash provided by investing . -- --
activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of stock
--------- ---------
Net cash provided by financing
activities ............................... -- --
INCREASE (DECREASE) IN CASH .............. (25,942) (55,840)
CASH, Beginning of period
40,350 128,381
------ -------
CASH, End of period ...................... $ 14,408 $ 72,541
========= =========
</TABLE>
U.S. WIRELESS DATA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1 -- ACCOUNTING PRINCIPLES
The balance sheet as of September 30, 1996, as well as the statements of
operations and of cash flows for the three months ended September 30, 1996 and
September 30, 1995, have been prepared by the Company without an audit. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial position, results of
operations and cash flows at September 30, 1996 and for all periods presented
have been made.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10-KSB for fiscal year end June 30, 1996.
The results of operations for interim periods presented are not necessarily
indicative of the operating results for the full year.
Note 2 -- FINANCIAL CONDITION AND LIQUIDITY
The Company currently has significant concerns regarding its financial
condition and liquidity. The Company has incurred an accumulated deficit of
approximately $16.3 million since inception and has incurred additional losses
subsequent to the year ended June 30, 1996. In order to continue as a going
concern, the Company intends to: sustain or increase revenue levels and product
margins; negotiate product development contracts; generate positive cash flow
from operations; and/or seek additional debt or equity financing.
The accompanying financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets and
liabilities that might be necessary should the Company be unable to continue as
a going concern.
Note 2 -- INVENTORIES
Inventories for the period presented are stated at the lower of cost or
market and consist primarily of finished goods.
Note 3 -- REVENUE RECOGNITION
Direct sales are recognized upon shipment of products to customers. The
Company also leases products to customers with an option to buy. The leasing
arrangements are accounted for as sales-type leases.
Note 4 -- NET LOSS PER SHARE
Net loss per common share is computed by dividing the net loss by the
weighted average number of common shares outstanding at the end of the period.
Shares issuable upon the conversion of stock options and warrants are not
included in the calculation since their effect would be anti-dilutive.
Note 5 -- DIRECT DATA, INC. ACQUISITION/DISSOLUTION
In September 1994, the Company completed the acquisition of Direct Data,
Inc. ("Direct Data"). The Company paid approximately $2 million in cash and
issued 700,000 shares (valued at $2.56 per share) of its common stock in
exchange for all outstanding shares of Direct Data. The transaction was
accounted for using the purchase method of accounting and the Company recorded
goodwill of approximately $6 million. During the fourth quarter of fiscal 1995,
the Company determined that the goodwill related to the acquisition of Direct
Data was fully impaired, and therefore, wrote-off the entire balance resulting
in a charge included in the Statement of Operations for fiscal year 1995.
In September 1995, Direct Data received notice that its bank note creditor
would not extend its loan payment terms and demanded payment on a $1.3 million
bank note. An officer and director of Direct Data and former director of the
Company (the "Officer") had personally guaranteed the note. In early October
1995, the Officer repaid the note and, pursuant to the Officer's guaranty
arrangement with the bank, became the holder of a security interest in all of
Direct Data's assets. Subsequently, on October 5, 1995, the Officer and the
Company consummated an agreement whereby in exchange for the Company's approval
of the surrender of all of Direct Data's assets ($1,032,719 at June 30, 1995 and
approximately $780,000 at October 5, 1995), the Officer released the Company
from its $1.3 million obligation (to assume the Officer's obligation under the
guaranty) and agreed that the Company would have the option to purchase 397,684
shares of the Company's common stock owned by the Officer, for a period of three
years, at a price of $.25 per share. Additionally, the Officer granted the
Company the right to vote these shares during the three year option period.
The transfer of assets to the Officer was consummated on October 5, 1995.
Immediately prior to the transfer, from September 29, 1995 to October 3, 1995,
all remaining Direct Data employees were terminated. As a result of the asset
transfer and the Officer's earlier re-payment of the bank debt, Direct Data had
no assets, no secured debt, approximately $1.6 million in unsecured trade debt
(not including the $1.9 million intercompany loan from the Company) and ceased
operations. Direct Data notified its creditors that it would be unable to pay
its remaining debts, and pursuant to the Colorado Business Corporation Act,
Direct Data was dissolved effective October 19, 1995.
Management believes that Direct Data represented a separate and material
line of business from the Company. The pretax loss on disposal has been
accounted for as a loss from a discontinued operation and prior years financial
statements have been reclassified to reflect the disposition.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
The Company was incorporated on July 30, 1991, and was in the development
stage until the quarter ended September 30, 1994. Since inception, the Company
has raised equity capital through the sale of its securities, completed
development of its initial product, negotiated agreements with suppliers of
components, developed a marketing strategy, and initiated sales of the POS-50r
portable credit card and check verification terminal. During fiscal 1995, the
Company continued to promote its product through the cellular reseller channel
and, in the second half of fiscal 1995, enhanced its marketing strategy by
focusing sales efforts on Independent Sales Organization (ISO) channels and
began development on its new CDPD product line. In fiscal 1996, the Company
continued its efforts on the POS-50r and in the second half of the year
introduced two new CDPD-based products. Substantially all the revenue of the
Company for fiscal year 1996 was derived from the sale of inventories for which
the Company had previously paid. These inventories have now been significantly
depleted. As a result, the Company must purchase inventory for future product
sales. These additional costs have, and will continue to, result in smaller per-
unit working capital infusion. Given these additional cash requirements and
lower net cash inflow, coupled with the Company's current financial condition
and sales volumes, the Company may be unable to continue as a going concern.
In 1993, the Company established a contractual relationship with Solectron
Corporation in Milpitas, California for subcontract manufacturing of the
POS-50r. The Company ordered and received approximately 2,900 POS-50r terminals
through June 1995. The Company built a large inventory of finished goods in
anticipation of filling orders from customers. Because of higher-than-desirable
inventory levels and poor sales results, the Company stopped production by
Solectron in April 1994. Discussions with Solectron during the Company's third
fiscal quarter of 1995 led to a conclusion that $1.4 million of raw materials
inventory held by Solectron should be recorded as a liability on the Company's
financial statements. During fiscal 1996, the Company negotiated an arrangement
whereby Solectron sold all of the raw materials inventory and concurrently
signed a mutual release with the Company. As a result, the Company recognized a
$1,099,412 gain on the restructuring of its debt to Solectron. The Company then
signed an agreement with a third party for the future manufacture and sale of an
additional 2,000 POS-50r units.
During fiscal 1995, the Company acquired all of the outstanding shares of
Direct Data, a distributor of POS-related products. During fiscal year 1996, the
Direct Data assets were surrendered to Direct Data's secured creditor in lieu of
the creditor's foreclosure on a past due $1.3 million obligation. Direct Data
was left with no assets, ceased operations, and was dissolved on October 19,
1995. As a result of the surrender of Direct Data's assets in settlement of the
$1.3 million obligation and the dissolution of Direct Data in fiscal 1996, the
Company recognized a gain on restructuring of payables and debt of $2,332,411.
Net Sales
Net sales of $387,218 for the first fiscal quarter of 1997 increased from
net sales of $282,135 generated during first fiscal quarter of 1996. This
increase is attributable to: a) the sale of approximately 100 more POS-50r units
than in previous year, and; b) the sale of approximately $40,000 of the
Company's new CDPD products.
Gross Margin
Gross margins increased from $31,175 in the first fiscal quarter of 1996 to
$121,769 for the first fiscal quarter of 1997. This increase was mainly
attributable to: a) more favorable product margins of the Company's CDPD product
line, and; b) a decrease in inventory reserve requirements of $80,000.
Operating Expense
Selling, general and administrative expenses decreased from $415,812 in the
first fiscal quarter of 1996 to $171,157 in the first fiscal quarter of 1997.
This increase was due primarily to: a) significant reductions in all
advertising, promotion, public relations and investor relations programs due to
lack of working capital, and; b) headcount reductions in sales, marketing and
administration over 1996 staffing levels.
Research and development expenses decreased from $127,097 in the first
fiscal quarter of 1996 to $118,469 in the first fiscal quarter of 1997, due
primarily to a sublease agreement on a portion of the engineering leased
facility.
Other Income/(Expense)
Other income/(expense) increased from $(14,246) in the first fiscal quarter
of 1996 to $5,967 in the first fiscal quarter of 1997. This increase was due
primarily to a $15,000 loss on sale of assets which was incurred during first
quarter of fiscal 1996.
Financial Condition, Capital Resources and Liquidity
The Company continues to have significant concerns regarding its financial
condition and liquidity. Since May 1995, when the Company was notified that the
transaction to sell its Direct Data subsidiary had been terminated, the Company
has continued to reduce its expenses through cost controls and workforce
reduction. It also has been successful in securing additional orders from its
largest customer, CSI, and in selling off the majority of its finished goods
inventory, for which it had previously paid. As a result, the Company has been
able to maintain operations, although it has been unable to significantly reduce
its obligation to its largest creditor. The Company has recently negotiated
favorable arrangements for future manufacture of its products with little or no
cash required until the finished product is sold. While this will significantly
assist the Company's cash flow, it can no longer rely on the full sales price of
the product to meet its working capital requirements. Instead, it must succeed
on the gross margin of its product sales. This will require that the Company
achieve an increased order rate on its POS-50r and new CDPD products. The
Company has engaged in discussions with terminal providers and transaction
processors regarding potential engineering development contracts, which if
entered into would provide additional working capital to the Company. While the
Company believes that its relationship with CSI continues to be strong, the
Company is highly dependent upon its sales to CSI, and the loss of, or a
significant decrease in those sales would have a material adverse effect on the
Company's cash position and its ability to sustain operations.
As a result of these developments, including the failure to sell Direct
Data, and its subsequent liquidation, and in order to continue as a going
concern, the Company will need to increase its revenue levels and product
margins, negotiate product development contracts, generate positive cash flow
from operations and/or acquire additional debt or equity financing.
Part II
The information required for Part II, Items 2 and 4 are not applicable.
ITEM 1 -- MATERIAL DEVELOPMENTS IN CONNECTION WITH LEGAL PROCEEDINGS
In early September 1994, two shareholders filed a Colorado state court
class action lawsuit in Denver District Court against the Company, three of its
directors, and others (Jacques A. Machol III, et al. v. U.S. Wireless Data,
Inc., et al.). The lawsuit alleges various fraudulent acts, omissions and
misrepresentations by the defendants in connection with the initial public
offering of and subsequent trading in the Company's stock.
A second shareholder class action complaint against the Company, three of
its directors, and others was filed by one shareholder in late September 1994 in
U.S. District Court, Denver, Colorado (Jeffry Appel on behalf of himself and all
others similarly situated, v. Maurice R. Caldwell Jr., Rod L. Stambaugh, Leonard
Trout, Donald L. Walford, Frank LaHue, U.S. Wireless Data, Inc., among others).
The complaint also arises out of the Company's public offering and makes
allegations similar to those made in the first complaint. The Denver District
Court lawsuit has been stayed by court order so as to avoid duplication with the
U.S. District Court lawsuit.
In February 1995, another class action complaint was filed in U.S. District
Court, Denver, Colorado by the same plaintiff who had previously filed the
Colorado State Court class action in early September 1994 (Jacques A. Machol III
and Prism Partners I on behalf of themselves and all others similarly situated,
v. U.S. Wireless Data, Inc., Maurice R. Caldwell Jr., Rod L. Stambaugh, Leonard
Trout, Donald L. Walford, Frank LaHue, among others). The Defendants and
allegations are the same as in the original and subsequent lawsuits. The court
has consolidated the two federal cases and trial has been scheduled for March
1997. Several settlement discussions have been held, but to date, no formal
agreement has been reached.
The Company believes these lawsuits are without merit and denies that it
engaged in any fraudulent acts or omissions, or otherwise violated Federal or
Colorado law. In each case, the Company intends to vigorously contest the
litigation on its merits, as well as the suitability of the plaintiff
shareholders to act for the alleged class. Nonetheless, because litigation of
this type involves inherent risks, it is not possible for the Company at this
time to make an assessment of potential exposure, nor to predict with precision
what the ultimate outcome will be.
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
The Company is indebted to Omron Systems, Inc. ("Omron") under a Secured
Installment Note dated March 27, 1995, for the principal amount of $472,800 and
interest thereon. The terms of such note required the Company to make payments
of principal and interest each month from April 1995 through December 1995, at
which time the note became due. The Company made one principal payment, has
continued to make monthly interest payments in accordance with the terms of the
note, but has made no other principal payments under this note and for that
reason is in default. The Company believes that as of the date of the filing of
this report, the total amount due under such note is $398,666. The note is
secured by 1,770 credit card terminals which are not currently needed by the
Company for its business operations. Subsequent to the end of the third fiscal
quarter 1996, the Company has entered into discussion with Omron regarding the
possible restructuring or mutually agreeable settlement of this note.
ITEM 5 -- OTHER INFORMATION
On October 23, 1996 the Company announced that, in a continuing effort to
reduce costs, it would consolidate its operations in Colorado Springs, Colorado.
The Company previously had offices in Boulder and Colorado Springs. Also, as
previously reported on Form 8-K, and as part of this restructuring, the Company
announced that Michael J. Brisnehan, its president and chief executive officer
since July 1995 had resigned, effective immediately. The position was filled by
Rod L. Stambaugh, chairman, and former vice president of marketing and business
development. Mr. Brisnehan has remained on the Company's board of directors.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits required by Item 601 of Regulation S-B
None
b) Reports on Form 8-K
There were no reports on Form 8-K that were filed
during the fiscal quarter ended September 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. WIRELESS DATA, INC.
Registrant
Date: November 14, 1996 By: \s\ Rod L. Stambaugh
President and Chief Executive
Officer
<TABLE> <S> <C>
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<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> jun-30-1997
<PERIOD-START> jul-1-1996
<PERIOD-END> sep-30-1996
<EXCHANGE-RATE> 1
<CASH> 14,408
<SECURITIES> 0
<RECEIVABLES> 104,259
<ALLOWANCES> 23,080
<INVENTORY> 521,567
<CURRENT-ASSETS> 636,713
<PP&E> 419,787
<DEPRECIATION> 342,822
<TOTAL-ASSETS> 723,972
<CURRENT-LIABILITIES> 897,528
<BONDS> 0
0
0
<COMMON> 4,583,109
<OTHER-SE> (4,756,663)
<TOTAL-LIABILITY-AND-EQUITY> 723,972
<SALES> 384,022
<TOTAL-REVENUES> 387,218
<CGS> 345,681
<TOTAL-COSTS> 265,449
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,405
<INCOME-PRETAX> (161,890)
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<INCOME-CONTINUING> (161,890)
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