SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
Quarterly Report under Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended December 31, 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) (IRSEmployer Identification No.)
4851 Independence Street, Suite 189
Wheat Ridge, Colorado 80033
---------------------------
(Address of principal executive offices, including zip code)
(303) 431-6858
(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 December 31, 1996 there were outstanding 4,983,852 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 --
December 31, 1996 3
Statements of Operations --
Three Months and Six Months Ended
December 31, 1996 and 1995 4
Statements of Cash Flows --
Six Months Ended December 31, 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>
<TABLE>
<CAPTION>
U.S. WIRELESS DATA, INC.
BALANCE SHEET
(Unaudited)
December 31,
1996
----
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 18,428
Accounts receivable, net of allowance for
doubtful accounts of $19,662 58,069
Sales-type lease receivables 15,020
Inventory, net 448,319
Other current assets
60
--
Total current assets 539,896
Property and equipment, net 57,910
Notes receivable 27,950
Other assets
10,295
------
Total assets $ 636,051
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 332,688
Accrued liabilities 103,355
Notes payable
398,666
-------
Total current liabilities
834,709
-------
Stockholders' equity:
Common stock, no par value, 12,000,000
shares authorized, 4,983,852 4,901,084
shares issued and outstanding
Additional paid-in capital 11,227,111
Accumulated deficit
(16,326,853)
-----------
Total stockholders' equity (198,658)
Total liabilities and stockholders' equity $ 636,051
============
</TABLE>
See Accompanying Notes
<PAGE>
<TABLE>
<CAPTION>
U.S. WIRELESS DATA, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
12/31/96 12/31/95 12/31/96 12/31/95
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue ....................... $ 415,695 $ 392,084 $ 802,913 $ 674,219
Cost of goods sold
221,848 359,792 487,297 610,752
------- ------- ------- -------
Gross margin .................. 193,847 32,292 315,616 63,467
Operating Expenses
Selling, general and ... 169,619 300,182 340,406 715,993
administrative
Research and development 95,019 123,518 213,488 250,616
------ ------- ------- -------
264,638 423,700 553,894 966,609
------- ------- ------- -------
(Loss) from operations ........ (70,791) (391,408) (238,278) (903,142)
Other income/(expense) ........ 1,921 (3,862) 7,888 (18,288)
----- ------ ----- -------
(Loss) from continuing
operations .................... (68,870) (395,270) (230,390) (921,430)
------- -------- -------- --------
(Loss) from discontinued
operation ..................... -- -- -- (309,206)
--------
Net (loss) .................... $ (68,870) $ (395,270) $ (230,390) $(1,230,636)
=========== =========== =========== ===========
Net (loss) per share:
From continuing ........ $ (.01) $ (.09) $ (.05) $ (.21)
operations
From discontinued
operation ..................... -- -- -- (.07)
----
Net loss per share ..... $ (.01) $ (.09) $ (.05) $ (.28)
=========== =========== =========== ===========
Weighted average common shares
outstanding ................... 4,738,458 4,390,910 4,732,261 4,390,910
</TABLE>
See Accompanying Notes
<PAGE>
<TABLE>
<CAPTION>
U.S. WIRELESS DATA, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
12/31/96 12/31/95
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................... $(230,390) $(921,430)
Depreciation ....................... 39,051 23,354
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable ...... 119,057 269,092
Inventory ................ 46,866 534,028
Other assets ............. 33,088 23,108
Increase (decrease) in:
Accounts payable ......... 90,301 7,190
Accrued liabilities
(114,241) (11,275)
-------- -------
Net cash used in operating (16,268) (75,933)
activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and furniture
500 48,201
--- ------
Net cash used in investing 500 48,201
activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Note receivable .................... (27,950) --
Repayment of notes payable ......... (21,600) --
Net proceeds from issuance of stock
43,396 --
------
Net cash provided by ...... (6,154) --
financing activities
INCREASE (DECREASE) IN CASH ............. (21,922) (27,732)
CASH, Beginning of period
40,350 128,381
------ -------
CASH, End of period ..................... $ 18,428 $ 100,649
========= =========
</TABLE>
See Accompanying Notes
<PAGE>
U.S. WIRELESS DATA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1 -- ACCOUNTING PRINCIPLES
The balance sheet as of December 31, 1996, as well as the
statements of operations for the three and six months ended
December 31, 1996 and December 31, 1995, and statement of cash
flows for the six months ended December 31, 1996 and December
31, 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
December 31, 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 has significant concerns regarding its financial
condition and liquidity. The Company has incurred an
accumulated deficit of approximately $16 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 needs to: sustain or increase revenue levels, maintain
product margins; secure additional product software and hardware
development contracts; successfully deploy its own direct sales
organization for its new CDPD products; generate positive cash
flow from operations; and/or secure additional debt or equity
financing.
Note 3 -- REVENUE RECOGNITION
Direct sales are recognized upon shipment of products to
customers. Sales to reseller organizations are recognized upon
the Company's receipt of payment from the reseller.
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. Exercisable 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.
<PAGE>
In September 1995, Direct Data received notice that its bank
note creditor would not extend the 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.
<PAGE>
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. Beginning
September 1996, the Company received its first shipment of an
enhanced version of the POS-50r manufactured by Uniform Industrial
Corporation. Although product margins are higher, the Company must
succeed on the gross margin which will result in a smaller per-unit
working capital infusion. With 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 if additional
revenue is not realized from the sale of its new CDPD products.
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 to facilitate
promptly 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 entered
into an agreement with Uniform Industrial Corporation 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.
On October 23, 1996, in a continuing effort to reduce costs, the
Company closed its Boulder office and consolidated operations in
Colorado Springs, Colorado. A small customer service and POS-50
deployment office was opened in Wheat Ridge, Colorado. As part of
the restructuring plan, Michael J. Brisnehan, its president and
chief executive officer resigned, and Rod L. Stambaugh, chairman and
former vice president of marketing and business development was
appointed president and chief executive officer. A new direct sales
and marketing program for one of the Company's new CDPD products
will be initiated to increase revenues and realize recurring revenue
from merchant processing services.
Net Sales
Net sales of $415,695 for the second fiscal quarter of 1997
increased from net sales of $392,084 generated during second fiscal
quarter of 1996. This increase is attributable to the sale of
approximately 70 fewer POS-50r units than in previous year offset by
the sale of approximately $70,000 more of the Company's CDPD
products.
<PAGE>
Gross Margin
Gross margins increased from $32,292 in the second fiscal quarter of
1996 to $193,847 for the second fiscal quarter of 1997. This
increase was mainly attributable to more favorable product margins
of the Company's POS-50r product line, as a result of a more
favorable manufacturing arrangement with Uniform Industrial
Corporation.
Operating Expenses
Selling, general and administrative expenses decreased from $300,182
in the second fiscal quarter of 1996 to $169,619 in the second
fiscal quarter of 1997. This decrease 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, and; c) the consolidation
of the Boulder office.
Research and development expenses decreased from $123,518 in the
second fiscal quarter of 1996 to $95,019 in the second 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 $(3,862) in the second fiscal
quarter of 1996 to $1,921 in the second fiscal quarter of 1997.
This increase was primarily due to a $3,700 gain on the sale of
certain fixed assets during second quarter of fiscal 1997.
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 now manufactures an enhanced version of the
POS-50r under a new manufacturing agreement with Uniform Industrial
Corporation, that allows higher product margins 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. In
December, the Company secured two software development contracts and
is negotiating for additional hardware and software development
contracts which, if entered into, would provide additional working
capital to the Company and a new product it can offer through its
own sales organization.
While the Company believes that its relationship with CSI continues
to be strong, the Company is highly dependent upon it 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
threaten 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, maintain product margins, successfully execute a
direct sales and marketing program with its new CDPD products,
secure additional hardware and software development contracts,
generate positive cash flow from operations and/or secure additional
debt or equity financing.
<PAGE>
Part II
The information required for Part II, Items 2 and 5 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 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 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. Currently, the court is deciding
whether to consolidate the two federal cases.
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 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.
On January 7, 1997, counsel for the plaintiffs advised the
court that plaintiffs and major defendants have reached a
settlement in principle, and therefore requested that the trial
date of March 24. 1997 be vacated and held in abeyance pending
the filing of settlement papers. As of the date of this
filing, final settlement documents have not been filed with the
court.
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
The Company is indebted to Omron Systems, Inc. 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,
and monthly interest payments through October, 1996, 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. In December, the Company was contacted by Omron
regarding the transfer of 40 terminals, resulting in a $9,600
reduction in the installment note. The Company completed this
transfer on January 3, 1997, however, as of the date of the
filing of this report, the total amount due under such note is
$389,066. The Company continues to discuss options with Omron
regarding the possible restructuring or mutually agreeable
settlement of this note.
<PAGE>
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 filed 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. As part of the restructuring
plan, the Company plans to launch an aggressive sales program with
one of its new CDPD products. This plan involves the creation of
its own sales organization in which the new product will be sold
directly to existing merchants that currently have a Verifone TRANZ
330 or TRANZ 380 dial up type terminal. The new CDPD product simply
enables the merchants existing dial up terminal to authorize credit
and debit card transactions via the CDPD network resulting in sub-
five second response time, lower discount rates and the elimination
of a phone line and the costs associated with it.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits required by Item 601 of Regulation S-B
27 Financial Data Schedule
b) Reports on Form 8-K
During the Company's fiscal quarter ended December 31,
1996 one report was filed on October 28, 1996 under Item 5
announcing the resignation of Michael J. Brisnehan as
president and CEO.
<PAGE>
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: February 13, 1997 By: \s\ Rod L.Stambaugh
- ----- ----------------- --------------------------
President and Chief Executive Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> OCT-1-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 18,428
<SECURITIES> 0
<RECEIVABLES> 77,731
<ALLOWANCES> 19,662
<INVENTORY> 448,319
<CURRENT-ASSETS> 539,896
<PP&E> 419,287
<DEPRECIATION> 361,377
<TOTAL-ASSETS> 636,051
<CURRENT-LIABILITIES> 834,709
<BONDS> 0
0
0
<COMMON> 4,901,084
<OTHER-SE> (5,099,742)
<TOTAL-LIABILITY-AND-EQUITY> 636,051
<SALES> 414,554
<TOTAL-REVENUES> 415,695
<CGS> 219,348
<TOTAL-COSTS> 221,848
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,237
<INCOME-PRETAX> (68,870)
<INCOME-TAX> 0
<INCOME-CONTINUING> (68,870)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (68,870)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
