UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington
D.C., 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY REPORT UNDER SECTION
13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF
1934
|
|
|
|
For the quarterly period ended
June 30, 2009
|
|
|
o
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TRANSITION REPORT UNDER SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
|
|
For the transition
period
to
|
Commission
file number: 001-15835
US
Dataworks, Inc.
(Exact
name of registrant as specified in its charter)
Nevada
|
84-1290152
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. employer identification number)
|
One Sugar Creek Center Boulevard
Sugar Land, Texas
|
77478
|
(Address of principal executive offices)
|
(Zip Code)
|
Registrant’s
telephone number: (281) 504-8000
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 90 days. YES
x
NO
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).
Yes
¨
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
|
Large accelerated filer
|
¨
|
Accelerated filer
|
¨
|
|
Non-accelerated filer
|
¨
|
Smaller reporting company
|
x
|
|
(Do not check if smaller reporting company)
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES
¨
NO
x
Indicated
the number of shares outstanding of the issuer’s classes of common stock as of
August 4, 2009: 32,780,870
US
DATAWORKS, INC.
TABLE OF
CONTENTS
FORM
10-Q
QUARTERLY
PERIOD ENDED JUNE 30, 2009
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Page
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PART
I - FINANCIAL INFORMATION
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4
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Item
1.
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Financial
Statements
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4
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Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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16
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
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Item
4T.
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Controls
and Procedures
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20
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PART
II - OTHER INFORMATION .
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Item 1.
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Legal
Proceedings
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20
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Item
1A.
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Risk
Factors
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21
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Item
2.
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Unregistered
Sales of Equity Securitites and Use of Proceeds
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21
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Item
3.
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Defaults
Upon Senior Securities
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21
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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21
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Item
5.
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Other
Information
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21
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Item
6.
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Exhibits
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21
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NOTE
REGARDING FORWARD LOOKING STATEMENTS AND CERTAIN TERMS
When used
in this Report, the words “expects,” “anticipates,” “believes,” “plans,” “will”
and similar expressions are intended to identify forward-looking statements.
These are statements that relate to future periods and include, but are not
limited to, statements regarding our critical accounting policies, our operating
expenses, our strategic opportunities, adequacy of capital resources, our
potential professional services contracts and the related benefits, demand for
software and professional services, demand for our solutions, expectations
regarding net losses, expectations regarding cash flow and sources of revenue,
benefits of our relationship with an MSP, statements regarding our growth and
profitability, investments in marketing and promotion, fluctuations in our
operating results, our need for future financing, effects of accounting
standards on our financial statements, our investment in strategic partnerships,
development of our customer base and our infrastructure, our dependence on our
strategic partners, our dependence on personnel, our employee relations,
anticipated benefits of our restructuring, our disclosure controls and
procedures, our ability to respond to rapid technological change, expansion of
our technologies and products, benefits of our products, our competitive
position, statements regarding future acquisitions or investments, our legal
proceedings, and our dividend policy. Forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected. These risks and uncertainties include,
but are not limited to, those discussed herein, as well as risks related to our
ability to develop and timely introduce products that address market demand, the
impact of alternative technological advances and competitive products, market
fluctuations, our ability to obtain future financing, and the risks referred to
in “Item 1A. Risk Factors.” These forward-looking statements speak only as of
the date hereof. We expressly disclaim any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements contained
herein to reflect any change in our expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based.
All
references to “US Dataworks,” the “Company,” “we,” “us,” or “our” means US
Dataworks, Inc.
MICRworks™,
Clearingworks
â
,
Returnworks™, and Remitworks™ are trademarks of US Dataworks. Other trademarks
referenced herein are the property of their respective owners.
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
US
DATAWORKS, INC.
UNAUDITED
CONDENSED BALANCE SHEETS
ASSETS
|
|
June
30, 2009
(Unaudited)
|
|
|
March
31, 2009
(See
Note)
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
500,050
|
|
|
$
|
403,863
|
|
Accounts
receivable, trade
|
|
|
941,072
|
|
|
|
845,747
|
|
Prepaid
expenses and other current assets
|
|
|
298,673
|
|
|
|
186,578
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
1,739,795
|
|
|
|
1,436,188
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
262,138
|
|
|
|
305,783
|
|
Goodwill,
net
|
|
|
4,020,698
|
|
|
|
4,020,698
|
|
Other
assets
|
|
|
86,193
|
|
|
|
194,359
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
6,108,824
|
|
|
$
|
5,957,028
|
|
Note: The
balance sheet at March 31, 2009 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The
accompanying notes are an integral part of these unaudited condensed financial
statements.
US
DATAWORKS, INC.
UNAUDITED
CONDENSED BALANCE SHEETS
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
June
30, 2009
(Unaudited)
|
|
|
March
31, 2009
(See
note)
|
|
Current
liabilities:
|
|
|
|
|
|
|
Current
portion of long term debt
|
|
$
|
35,279
|
|
|
$
|
35,279
|
|
Deferred
revenue
|
|
|
457,368
|
|
|
|
223,688
|
|
Accounts
payable
|
|
|
195,927
|
|
|
|
247,132
|
|
Accrued
interest – related party
|
|
|
20,061
|
|
|
|
38,336
|
|
Accrued
expenses
|
|
|
224,188
|
|
|
|
199,940
|
|
Note
payable – related party
|
|
|
¾
|
|
|
|
4,203,500
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
932,823
|
|
|
|
4,947,875
|
|
|
|
|
|
|
|
|
|
|
Long
term note payable
|
|
|
8,820
|
|
|
|
17,639
|
|
Long
term note payable – related party
|
|
|
500,000
|
|
|
|
¾
|
|
Long
term note payable – related party, net unamortized discount of
$365,406
|
|
|
3,338,094
|
|
|
|
¾
|
|
|
|
|
|
|
|
|
|
|
Total
long term liabilities
|
|
|
3,846,914
|
|
|
|
17,639
|
|
Total
liabilities
|
|
|
4,779,737
|
|
|
|
4,965,514
|
|
|
|
|
|
|
|
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|
|
Commitments
and Contingencies
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
|
Convertible
Series B preferred stock, $0.0001 par value
700,000
shares authorized, 549,667 shares issued and outstanding $0.75 liquidation
preference, dividends of $345,124 and $334,481in arrears as of June 30,
2009 and March 31, 2009, respectively
|
|
|
55
|
|
|
|
55
|
|
Common
stock, $0.0001 par value
90,000,000
shares authorized and 32,780,870 and 32,730,870 shares issued and
outstanding as of June 30, 2009 and March 31, 2008,
respectively
|
|
|
3,278
|
|
|
|
3,273
|
|
Additional
paid-in-capital
|
|
|
65,425,216
|
|
|
|
65,063,737
|
|
Accumulated
deficit
|
|
|
(64,099,462
|
)
|
|
|
(64,075,551
|
)
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
|
|
1,329,087
|
|
|
|
991,514
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
6,108,824
|
|
|
$
|
5,957,028
|
|
Note: The
balance sheet at March 31, 2009 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The
accompanying notes are an integral part of these unaudited condensed financial
statements.
US
DATAWORKS, INC.
UNAUDITED
CONDENSED STATEMENTS OF OPERATIONS
For
the Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Software
transactional revenues, net discounts
|
|
$
|
521,243
|
|
|
$
|
537,749
|
|
Software
licensing
revenues
|
|
|
¾
|
|
|
|
30,000
|
|
Software
maintenance
revenues
|
|
|
212,371
|
|
|
|
228,874
|
|
Professional
services
revenues
|
|
|
1,274,847
|
|
|
|
1,272,426
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
2,008,461
|
|
|
|
2,069,049
|
|
|
|
|
|
|
|
|
|
|
Cost
of
sales
|
|
|
558,142
|
|
|
|
537,494
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,450,319
|
|
|
|
1,531,555
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
279,495
|
|
|
|
261,491
|
|
Sales
and marketing
|
|
|
81,970
|
|
|
|
129,235
|
|
General
and
administrative
|
|
|
803,643
|
|
|
|
985,630
|
|
Depreciation
and
amortization
|
|
|
43,645
|
|
|
|
48,051
|
|
Total
operating
expense
|
|
|
1,208,753
|
|
|
|
1,424,407
|
|
|
|
|
|
|
|
|
|
|
Income
from
operations
|
|
|
241,566
|
|
|
|
107,148
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(109,602
|
)
|
|
|
(303,716
|
)
|
Interest
expense – related
party
|
|
|
(155,875
|
)
|
|
|
(10,907
|
)
|
Other
income
|
|
|
¾
|
|
|
|
56,914
|
|
Gain
on change in value of derivative liabilities
|
|
|
¾
|
|
|
|
41,080
|
|
|
|
|
|
|
|
|
|
|
Total
other income/(expense),
net
|
|
|
(265,477
|
)
|
|
|
(216,629
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(23,911
|
)
|
|
$
|
(109,481
|
)
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per
share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted-average shares outstanding
|
|
|
32,780,321
|
|
|
|
32,137,687
|
|
The
accompanying notes are an integral part of these unaudited condensed financial
statements.
US
DATAWORKS, INC.
UNAUDITED
CONDENSED STATEMENTS OF CASH FLOW
For
the Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(23,911
|
)
|
|
$
|
(109,481
|
)
|
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization of property and equipment
|
|
|
43,645
|
|
|
|
48,051
|
|
Amortization
of note discount on convertible promissory
|
|
|
¾
|
|
|
|
165,535
|
|
Amortization
of note discount on note payable – related party
|
|
|
4,751
|
|
|
|
¾
|
|
Amortization
of deferred financing costs
|
|
|
108,165
|
|
|
|
29,737
|
|
Stock
based compensation
|
|
|
41,328
|
|
|
|
117,239
|
|
Gain
on derivatives
|
|
|
¾
|
|
|
|
(41,080
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(95,325
|
)
|
|
|
(232,417
|
)
|
Prepaid
expenses and other current assets
|
|
|
(112,095
|
)
|
|
|
(66,988
|
)
|
Deferred
revenue
|
|
|
233,680
|
|
|
|
270,015
|
|
Accounts
payable
|
|
|
(51,205
|
)
|
|
|
111,953
|
|
Accrued
expenses
|
|
|
(44,027
|
)
|
|
|
(119,819
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
105,006
|
|
|
|
172,745
|
|
The
accompanying notes are an integral part of these unaudited condensed financial
statements.
US
DATAWORKS, INC.
UNAUDITED
CONDENSED STATEMENTS OF CASH FLOW
For
the Three Months Ended June 30,
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
Payments
on note payable
|
|
|
(8,819
|
)
|
|
|
(8,820
|
)
|
Net
cash used by financing activities
|
|
|
(8,819
|
)
|
|
|
(8,820
|
)
|
Net
increase in cash and cash equivalents
|
|
|
96,187
|
|
|
|
163,925
|
|
Cash
and cash equivalents, beginning of period
|
|
|
403,863
|
|
|
|
903,393
|
|
Cash
and cash equivalents, end of period
|
|
$
|
500,050
|
|
|
$
|
1,067,318
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
|
152,320
|
|
|
|
96,725
|
|
|
|
|
|
|
|
|
|
|
Significant
non-cash financing activities:
|
|
|
|
|
|
|
|
|
Accrued
liability for note payable -related party, extension fee, included in debt
discount
|
|
|
(50,000
|
)
|
|
|
¾
|
|
Debt
discount on extension of note payable -related party, related to the
warrants issued
|
|
|
320,157
|
|
|
|
¾
|
|
The
accompanying notes are an integral part of these unaudited condensed financial
statements.
US
DATAWORKS, INC.
NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1.
|
Organization and
Business
|
US
Dataworks, Inc., a Nevada corporation (the “Company”), develops, markets, and
supports payment processing software for the financial services industry. Its
customer base includes many of the largest financial institutions as well as
credit card companies, government institutions, and high-volume merchants in the
United States. The Company was formerly known as Sonicport, Inc.
|
2.
|
Summary of Significant
Accounting Policies
|
Interim Financial
Statements
The
accompanying interim unaudited condensed financial statements included herein
have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. The financial
statements reflect all adjustments that are, in the opinion of management,
necessary to fairly present such information. All such adjustments
are of a normal recurring nature. Although the Company believes that
the disclosures are adequate to make the information presented not misleading,
certain information and footnote disclosures, including a description of
significant accounting policies normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America (“US GAAP”), have been condensed or omitted pursuant to
such rules and regulations.
These
financial statements should be read in connection with the audited financial
statements and the notes thereto included in the Company’s Annual Report on Form
10-K for the fiscal year ended March 31, 2009. The results of
operations for interim periods are not necessarily indicative of the results for
any subsequent quarter or the fiscal year ending March 31, 2010.
Revenue
Recognition
The
Company recognizes revenues associated with its software services in accordance
with the provisions of the American Institute of Certified Public Accountants’
Statement of Position 97-2, “Software Revenue Recognition” (“SOP 97-2”). The
Company licenses its software products under nonexclusive, nontransferable
license agreements. These arrangements do not require significant production,
modification, or customization. Therefore, revenue is recognized when such a
license agreement has been signed, delivery of the software product has
occurred, the related fee is fixed or determinable, and collectibility is
probable.
In
certain instances, the Company licenses its software on a transactional fee
basis in lieu of an up-front licensing fee. In these arrangements, the customer
is charged a fee based upon the number of items processed by the software and
the Company recognizes revenue as these transactions occur. The transaction fee
also includes the provision of standard maintenance and support services as well
as product upgrades should such upgrades become available.
If
professional services were provided in connection with the installation of the
software licensed, revenue is recognized when these services have been
provided.
In
certain instances, the Company will recognize revenue on a percent of completion
basis for the portion of professional services related to customized
customer projects that have been completed but are not yet deliverable to
customer.
For
license agreements that include a separately identifiable fee for contracted
maintenance services, such maintenance revenues are recognized on a
straight-line basis over the life of the maintenance agreement noted in the
agreement, but following any installation period of the
software.
The
goodwill recorded on the Company’s books is from the acquisition of US
Dataworks, Inc. in fiscal year 2001, which remains the Company’s single
reporting unit. Statement of Financial Accounting Standards
(“SFAS”) No. 142 “Goodwill and Other Intangible Assets,” requires
goodwill for each reporting unit of an entity be tested for impairment by
comparing the fair value of each reporting unit with its carrying value. Fair
value is determined using a combination of the discounted cash flow, market
multiple and market capitalization valuation approaches. Significant estimates
used in the methodologies include estimates of future cash flows, future
short-term and long-term growth rates, weighted average cost of capital and
estimates of market multiples for each reportable unit. On an ongoing basis,
absent any impairment indicators, the Company performs impairment tests annually
during its fiscal fourth quarter.
SFAS No.
142 requires goodwill to be tested annually, typically performed during the
fourth quarter, and between annual tests if events occur or circumstances change
that would more likely than not reduce the fair value of the reportable unit
below its carrying amount. The Company did not record an impairment of goodwill
for the year ended March 31, 2009.
Convertible Debt Financing –
Derivative Liabilities
The
Company reviews the terms of its convertible debt and equity instruments issued
to determine whether there are embedded derivative instruments, including
embedded conversion options, that are required to be bifurcated and accounted
for separately as a derivative financial instrument. In circumstances
where the convertible instrument contains more than one embedded derivative
instrument, including the conversion option, that is required to be bifurcated,
the bifurcated derivative instruments are accounted for as a single, compound
derivative instrument. Also, in connection with the sale of
convertible debt and equity instruments, the Company may issue freestanding
options or warrants that may, depending on their terms, be accounted for as
derivative instrument liabilities, rather than as equity.
In
accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities,” as amended, the convertible debt holder’s conversion right
provision, interest rate adjustment provision, liquidated damages clause, cash
premium option, and the redemption option (collectively, the debt features)
contained in the terms governing the convertible notes are not clearly and
closely related to the characteristics of the notes. Accordingly, the
features qualify as embedded derivative instruments at issuance and, because
they do not qualify for any scope exception within SFAS No. 133, they are
required by SFAS No. 133 to be accounted for separately from the debt instrument
and recorded as derivative instrument liabilities.
Stock
Options
Effective
April 1, 2006, the Company adopted the SFAS No. 123 (revised 2004),
Share-Based Payment
(“SFAS
123R”), which require the measurement and recognition of compensation expense
for all share-based payment awards made to employees and directors, including
employee stock options, based on estimated fair values. The Company adopted SFAS
123R using the modified prospective transition method, which requires the
application of the accounting standard as of April 1, 2006, the first day of the
Company’s fiscal year 2007. The Company’s financial statements as of and for the
year ended March 31, 2007 reflect the impact of SFAS 123R. In accordance with
the modified prospective transition method, the Company’s financial statements
for prior periods have not been restated to reflect, and do not include, the
impact of SFAS 123R. Stock-based compensation expense recognized under SFAS No.
123R, which consists of stock-based compensation expense related to employee and
director stock options and restricted stock issuances, was $41,328 for the three
months ended June 30, 2009 and $117,239 for the three months ended June 30,
2008.
SFAS No.
123R 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 periods in the Company’s statement of operations.
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. Compensation expense recognized for all employee stock options
awards granted is recognized over their respective vesting periods unless the
vesting period is graded. As stock-based compensation expense recognized in the
statement of operations for the three months ended June 30, 2009 is based on
awards ultimately expected to vest, it has been reduced for estimated
forfeitures.
Upon
adoption of SFAS 123R the Company continued to use the Black-Scholes-Merton
(“Black Scholes”) option valuation model, which requires management to make
certain assumptions for estimating the fair value of employee stock options
granted at the date of the grant. There were 400,000 options granted during the
three months ended June 30, 2009. There were no options granted during
the three months ended June 30, 2008. In determining the compensation cost
of the options granted during the three months ended June 30, 2009, as specified
by SFAS No. 123R, the fair value of each option grant has been estimated on the
date of grant using the Black-Scholes pricing model and the weighted average
assumptions used in these calculations are summarized as follows:
|
|
For
the Three
Months
Ended
June
30,
|
|
|
For
the Three
Months
Ended
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Risk-free
Interest Rate
|
|
|
1.35
|
%
|
|
|
¾
|
|
Expected
Life of Options Granted
|
|
3
years
|
|
|
|
¾
|
|
Expected
Volatility
|
|
|
208
|
%
|
|
|
¾
|
|
Expected
Dividend Yield
|
|
|
0
|
|
|
|
¾
|
|
Expected
forfeiture rate
|
|
|
30
|
%
|
|
|
¾
|
|
As of
June 30, 2009, there was approximately $101,763 of total unrecognized
compensation cost related to non-vested share-based compensation arrangements,
which is expected to be recognized over a period of three years.
Loss per
Share
The
Company calculates loss per share in accordance with SFAS No. 128, “Earnings per
Share.” Basic loss per share is computed by dividing the net loss by the
weighted-average number of common shares outstanding. Diluted loss per share is
computed in a similar manner to basic loss per share except that the denominator
is increased to include the number of additional common shares that would have
been outstanding if the potential common stock equivalents had been issued and
if the additional common shares were dilutive.
The
following potential common stock equivalents have been excluded from the
computation of diluted net loss per share for the periods presented because the
effect would have been anti-dilutive (options and warrants typically convert on
a one-for-one basis, see conversion details of the preferred stock stated below
for the common stock shares issuable upon conversion):
|
|
For
the Three Months Ended
|
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Options
outstanding under the Company’s stock option plans
|
|
|
7,361,720
|
|
|
|
6,657,153
|
|
Options
granted outside the Company’s stock option plans
|
|
|
1,160,000
|
|
|
|
1,160,000
|
|
Warrants
issued in conjunction with private placements
|
|
|
7,539,364
|
|
|
|
8,839,364
|
|
Warrants
issued as a financing cost for notes payable and convertible notes
payable
|
|
|
2,054,141
|
|
|
|
1,891,250
|
|
Warrants
issued for services rendered and litigation settlement
|
|
|
200,000
|
|
|
|
300,000
|
|
Convertible
Series B preferred stock (a)
|
|
|
109,933
|
|
|
|
109,933
|
|
|
(a)
|
The
Series B preferred stock is convertible into shares of common stock at a
conversion ratio of five shares of Series B preferred stock for one share
of common stock.
|
Estimates
The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Concentrations of Credit
Risk
The
Company sells its products throughout the United States and extends credit to
its customers. It also performs ongoing credit evaluations of such customers.
The Company does not obtain collateral to secure its accounts receivable. The
Company evaluates its accounts receivable on a regular basis for collectibility
and provides for an allowance for potential credit losses as deemed
necessary.
Two of
our customers accounted for 58% and 13% of our net revenues for the three months
ended June 30, 2009. Two of our customers accounted for 51% and 20% of our net
revenues for the three months ended June 30, 2008.
At June
30, 2009, amounts due from significant customers accounted for 77% of accounts
receivable. At June 30, 2008, amounts due from significant customers accounted
for 68% of accounts receivable
3.
|
Property and
Equipment
|
Property
and equipment as of June 30, 2009 consisted of the following:
Furniture
and fixtures
|
|
$
|
99,535
|
|
Office
and telephone equipment
|
|
|
182,275
|
|
Computer
equipment
|
|
|
734,545
|
|
Computer
software
|
|
|
1,271,098
|
|
Leasehold
improvements
|
|
|
64,732
|
|
|
|
|
2,352,185
|
|
Less
accumulated depreciation and amortization
|
|
|
(2,090,047
|
)
|
Total
|
|
$
|
262,138
|
|
Depreciation
and amortization expense for the three months ended June 30, 2009 and 2008 was
$43,645 and $48,051, respectively.
4.
|
Notes Payable
–
Related
Parties
|
On
November 13, 2007, the Company completed its financing with certain
institutional investors that included the issuance of $4,000,000 in aggregate
principal amount of senior secured convertible notes due November 13, 2010 (the
“Prior Notes”). Interest on the Prior Notes accrued at a per annum rate
equal to the 6-month LIBOR rate plus five hundred basis points. The Prior Notes
were convertible at any time into shares of the Company’s common stock at the
conversion price of $0.43 per share. The financing also included the
issuance of warrants to purchase a total of 4,651,162 shares of the Company’s
common stock at an exercise price of $0.43 per share (the “Warrants”). The
Warrants are exercisable until November 13, 2012 and include anti-dilution
provisions that will adjust the number of shares of common stock underlying the
Warrants as well as the exercise price of the Warrants in certain instances
involving the Company’s issuance of common stock below the exercise price of
$0.43 per share. From the date of issuance through the date that the Prior
Notes were paid in full, the conversion feature of the Prior Notes and the
Warrants were accounted for as an embedded derivative in accordance with SFAS
133. The Prior Notes were redeemed in full and retired on August 13, 2008
using the proceeds from the Company’s issuance of the Refinance Notes (discussed
below).
In
connection with the redemption of the Prior Notes, the Company entered into a
Note Purchase Agreement and issued an aggregate of $3,703,500 Senior Secured
Notes due August 13, 2009 (“RefinanceNotes”). The Refinance Notes were purchased
by the Company’s Chief Executive Officer and a member of its Board of Directors
(“Holders”). As originally issued, the Refinance Notes bore interest at a rate
of 12% per annum with interest payments due in arrears monthly.
Pursuant
to the Refinance Notes as originally issued, if the Company fails to pay any
amount of principal, interest, or other amounts when and as due, then the
Refinance Notes will bear an interest rate of 18% until such time as the Company
cures this default. In addition, if the Company is subject to certain events of
bankruptcy or insolvency, the Refinance Notes provide that the Holders may
redeem all or a portion of the Refinance Notes.
The
Refinance Notes are secured by a Security Agreement, dated August 13, 2008, by
and between the Company and the Holders, pursuant to which the Company granted
the Holders a security interest in all its personal property, whether now owned
or hereafter acquired, including but not limited to, all accounts receivable,
accounts, copyrights, trademarks, licenses, equipment and all proceeds as from
such collateral.
On
February 19, 2009, US Dataworks, Inc. (the "Company") entered into Note
Modification Agreements with the holders of the Refinance Notes due August 13,
2009. Effective as of February 19, 2009, the Note Modification Agreements
amended the Refinance Notes as follows: (1) the maturity date of the Refinance
Notes was extended from August 13, 2009 to December 31, 2009; (2) the annual
interest rate on the Refinance Notes increased from 12% to 13%; and (3) the
interest rate escalation clause related to an event of default was deleted. The
Note Modification Agreements also added a mandatory principal payment provision
that required the Company to reduce the principal balance of the Refinance Notes
by 3% of the original principal amount of the Refinance Notes after the end of
each calendar quarter starting with March 31, 2009 as long as such payment would
not reduce the Company's cash balance below $500,000 as of the last day of such
quarter. If making such principal payment would reduce the Company's cash
balance below $500,000 as of such date, the amount of the principal payment will
be reduced to the amount, if any, by which the Company's cash balance as of such
date exceeds $500,000. The amount to be paid is to be determined each quarter
and is not cumulative from quarter to quarter. These principal payments are to
be made within 10 business days after the end of each quarter. An amendment fee
of 1% of the outstanding principal balances of the Refinance Notes was paid to
the holders thereof.
On May
20, 2009, the Company again entered into Note Modification Agreements with the
holders of the Refinance Notes that amended the Refinance Notes as follows: (1)
the Other Note (defined below) was included in the definition of “Permitted
Indebtedness” and (2) the Company was allowed to make voluntary interest
payments on the Other Note notwithstanding the fact that the Refinance Notes are
otherwise senior to the Other Note.
On June
26, 2009, the Company again entered into Note Modification Agreements with the
holders of the Refinance Notes that amended the Refinance Notes as follows: (1)
the maturity date of the Refinance Notes was extended from December 31, 2009 to
July 1, 2010; and (2) the mandatory principal payment provision was revised to
provide that to the extent the Company’s cash balance at the end of each
calendar quarter exceeds $611,105, one-fourth of such excess amount must be used
by the Company to pay down the principal balance of the Refinance Notes and the
Company has the discretion to use an additional one-fourth of such excess amount
to further pay down the principal balance of the Refinance Notes. Other than
this additional principal payment requirement, the principal payment provisions
remained unchanged. In consideration of these amendments, the
Company (i) paid to the holders of the Refinance Notes a fee of
$50,000 in cash on July 1, 2009 and (ii) issued to the holders of the Refinance
Notes warrants to purchase 1,854,141 shares of the Company’s common stock at an
exercise price of $0.43 per share, with these warrants being subject to the
additional terms specified in the Note Modification Agreements. The warrants
were assigned an initial fair value of $320,157 using a lattice model with the
following primary assumptions: 209% annual volatility, risk free rate of 2.58%,
initial target exercise price at 200% of exercise price, and exercise behavior
limited based on trading volume projections. In accordance with EITF 96-19
“
Debtor
’s Accounting for a
Modification or Exchange of Debt Instruments
”
. The
consideration paid to the holders has been accounted for as an additional debt
discount amortized over the remaining term of the Refinance Notes. The Company
recognized $4,751 in amortized expense in the period ending June 30,
2009 associated with the debt discount.
On
September 26, 2006, the Company entered into a note payable with its Chief
Executive Officer for $500,000 (“Other Note”). The note bears an 8.75% per annum
interest rate, is unsecured and was due September 25, 2007. On September 25,
2007, the Company entered into a new note payable agreement that supersedes and
supplants the September 2006 note. As of June 30, 2009 the outstanding balance
on this note payable was $500,000. As originally issued, the principal, together
with any unpaid accrued interest on the new note payable, shall be due and
payable in full on demand on the earlier of: (i) the full and complete
satisfaction of certain senior secured convertible notes (the “November Notes”)
issued by the Company to certain investors on November 13, 2007 and (ii)
ninety-one (91) days following the expiration of the term of the November Notes
(such date described in (i) and (ii) hereinafter the “Demand Date”), unless such
date is extended by the mutual agreement of the parties.
On May
20, 2009, the Company entered into a Note Modification Agreement with the holder
of the Other Note. Effective as of May 20, 2009, the Note Modification Agreement
amended the Note as follows: (1) it was clarified that the Note was a demand
note for which full payment can be required at any time on or after the maturity
date; (2) the maturity date of the Note was extended to December 31, 2009; and
(3) the Company was allowed to make voluntary prepayments under the Note without
penalty.
On June
26, 2009, the Company again entered into a Note Modification Agreement with the
holder of the Other Note that extended the maturity date of the Other Note from
December 31, 2009 to July 1, 2010. In consideration of this amendment, the
Company paid to the holder of the Other Note a fee of $6,667 in cash on July 1,
2009.
Preferred
Stock
The
Company has 10,000,000 authorized shares of $0.0001 par value preferred stock.
The preferred stock may be issued in series, from time to time, with such
designations, rights, preferences, and limitations as the Board of Directors may
determine by resolution.
Convertible Series B
Preferred Stock
The
Company has 700,000 shares authorized and 549,667 shares issued and outstanding
of $0.0001 par value convertible Series B preferred stock. The Series B
preferred stock has a liquidation preference of $0.75 per preferred share (3.75
per common share) and carries a 10% cumulative preferred dividend payable each
March 1 and September 1. The Series B preferred stock is convertible into shares
of common stock at a conversion ratio of five shares of Series B preferred stock
for one share of common stock (109,933). The Company has the right to redeem the
Series B preferred stock at any time after issuance at a redemption price of
$0.83 per preferred share ($4.15 per common share), plus any accrued but unpaid
dividends.
At June
30, 2009 and 2008, there were accumulated, undeclared dividends in arrears of
$345,124 and $303,879 respectively.
Stock
Options
In August
1999, the Company implemented its 1999 Stock Option Plan (the “1999 Plan”). In
August 2000, the Company’s Board of Directors approved the 2000 Stock Option
Plan (the “2000 Plan”), which amended and restated the 1999 Plan. Under the 2000
Plan, the maximum aggregate number of shares which may be granted is
9,000,000. The exercise price for incentive stock options must not be less than
the fair market value on the date of grant of the option. The options vest in
varying increments over varying periods and typically expire 10 years from the
date of grant. In the case of incentive stock options granted to any 10% owners
of the Company, the exercise price must not be less than 100% of the fair market
value on the date of grant. Such incentive stock options vest in varying
increments and expire five years from the date of vesting.
During
the three months ended June 30, 2009 the Company granted 400,000 stock
options.
The
following table summarizes certain information relative to stock
options:
|
|
2000 Stock Option Plan
|
|
|
Outside of Plan
|
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Shares
|
|
|
Weighted-Average
Exercise
Price
|
|
Outstanding,
March 31, 2009
|
|
|
6,964,220
|
|
|
$
|
0.68
|
|
|
|
1,160,000
|
|
|
$
|
1.02
|
|
Granted
|
|
|
400,000
|
|
|
$
|
0.20
|
|
|
|
¾
|
|
|
|
¾
|
|
Exercised
|
|
|
¾
|
|
|
|
¾
|
|
|
|
¾
|
|
|
|
¾
|
|
Forfeited/canceled
|
|
|
2,500
|
|
|
$
|
0.80
|
|
|
|
¾
|
|
|
|
¾
|
|
Outstanding,
June 30, 2009
|
|
|
7,361,720
|
|
|
$
|
0.66
|
|
|
|
1,160,000
|
|
|
$
|
1.02
|
|
Exercisable,
June 30, 2009
|
|
|
6,343,559
|
|
|
$
|
0.72
|
|
|
|
1,160,000
|
|
|
$
|
1.02
|
|
The
weighted-average remaining life and the weighted-average exercise price of all
of the options outstanding at June 30, 2009 were 6.27 years and $0.71,
respectively. The exercise prices for the options outstanding at June 30, 2009
ranged from $0.15 to $6.25 per share, and information relating to these options
is as follows:
Range
of
Exercise
Prices
|
|
Stock
Options
Outstanding
|
|
|
Stock
Options
Exercisable
|
|
Weighted-Average
Remaining
Contractual
Life
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Exercise
Price
of
Options
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.15
– 0.80
|
|
|
6,076,384
|
|
|
|
5,058,223
|
|
6.79
years
|
|
$
|
0.51
|
|
|
$
|
0.55
|
|
$0.81
– 1.35
|
|
|
1,734,836
|
|
|
|
1,734,836
|
|
5.13
years
|
|
$
|
0.93
|
|
|
$
|
0.93
|
|
$1.36
– 6.25
|
|
|
710,500
|
|
|
|
710,500
|
|
4.64
years
|
|
$
|
1.88
|
|
|
$
|
1.88
|
|
|
|
|
8,521,720
|
|
|
|
7,503,559
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock
During
the three months ended June 30, 2009, the Company granted 50,000 shares of
restricted common stock at $0.21 per share based on the closing price of the
common stock on the grant date, to the President and Chief Operating Officer
pursuant to his employment agreement
The
Company expensed $2,625 related to these grants during the three months ended
June 30, 2009. The shares are granted under the 2000 Plan.
During
the three months ended June 30, 2009, the Company granted 40,714 shares of
common stock to its outside directors pursuant to the Company’s Outside Director
Compensation Plan effective as of April 1, 2009.
6.
|
Fair
Value Measurements
|
The
Company adopted Statement of Financial Accounting Standards No. 157 “Fair
Value Measurements” (“SFAS 157”) on April 1, 2008. SFAS 157, among
other things, defines fair value, establishes a consistent framework for
measuring fair value and expands disclosure for each major asset and liability
category measured at fair value on either a recurring or nonrecurring
basis. FAS 157 clarifies that fair value is an exit price,
representing the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants. As such, fair value is a market-based measurement that
should be determined based on assumptions that market participants would use in
pricing an asset or liability. As a basis for considering such
assumptions, FAS 157 establishes a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value as follows:
Level
1.
|
Observable
inputs such as quoted prices in active markets for identical assets or
liabilities;
|
|
|
Level
2.
|
Inputs,
other than quoted prices included within Level 1, that are observable
either directly or indirectly; and
|
|
|
Level
3.
|
Unobservable
inputs in which there is little or no market data, which require the
reporting entity to develop its own
assumptions.
|
As of
June 30, 2009, the Company had no assets or liabilities that were marked to fair
value under SFAS 157.
Because
of our ability to increase revenue while at the same time reducing general and
administrative expenses, we experienced positive cash flow from operations in
fiscal 2009 and in the quarter ended June 30, 2009. However, due to our history
of experiencing negative cash flow from operations and the debt financing that
we put in place to cover this historical negative cash flow, we find ourselves
in the position of having approximately $4.2 million of debt coming due on July
1, 2010, that we may not be able to repay from our operating cash flow. While we
currently expect to be able to refinance this debt or reach an agreement to
extend the maturity date of this debt, there can be no assurances that this will
in fact occur. Failure to refinance or extend the maturity date of this debt
will have a material adverse effect on our financial condition and our ability
to continue as a going concern (see “Item 1A. Risk Factors”).
In
addition, while we expect to be able to fund our operations from cash flow, if
that is not the case, our long term viability will again depend on our ability
to obtain adequate sources of debt or equity funding to fund the continuation of
our business operations and to ultimately achieve adequate profitability and
cash flows to sustain our operations. We will need to increase revenues from
software licenses, transaction-based software license contracts and professional
services agreements to become profitable
.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations.
The
following discussion and analysis of our financial condition and results of
operations should be read with the unaudited condensed financial statements and
related notes included elsewhere in this Quarterly Report on Form 10-Q and the
audited financial statements and notes thereto included in the Company’s Annual
Report on Form 10-K for the fiscal year ended March 31, 2009.
Critical
Accounting Policies
The
following discussion and analysis of our unaudited condensed financial condition
and results of operations is based upon our financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate these estimates, including
those related to revenue recognition and concentration of credit risk. We base
our estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
We
believe that of the significant accounting policies used in the preparation of
our unaudited condensed financial statements (see Note 2 to the Financial
Statements included in the Company’s Annual Report), the following are critical
accounting policies, which may involve a higher degree of judgment, complexity
and estimates.
Revenue
Recognition
We
recognize revenues associated with our software products in accordance with the
provisions of the American Institute of Certified Public Accountants’ Statement
of Position 97-2, “Software Revenue Recognition.” We license our software
products under non-exclusive, non-transferable license agreements. Because these
arrangements do not require significant production, modification or
customization, revenue is recognized when the license agreement has been signed,
the software product has been delivered, the related fee is fixed or
determinable and collection of such fee is probable.
In
certain instances, we license our software on a transactional fee basis in lieu
of an up-front licensing fee. In these arrangements, the customer is charged a
fee based upon the number of items processed by the software and we recognize
revenue as these transactions occur. The transaction fee also includes the
provision of standard maintenance and support services, as well as product
upgrades should such upgrades become available.
If
professional services are provided in connection with the installation of the
software licensed, revenue is recognized when those services have been
provided.
In
certain instances, the Company will recognize revenue on a percent of completion
basis for the portion of professional services related to customized customer
projects that have been completed but are not yet deliverable to such
customer.
For
license agreements that include a separately identifiable fee for contracted
maintenance services, such revenues are recognized on a straight-line basis over
the life of the maintenance agreement noted in the license agreement, but
following any installation period of the software.
Goodwill
The
goodwill recorded on our books is from the acquisition of US Dataworks, Inc. in
fiscal year 2001, which remains our single reporting unit. Statement of
Financial Accounting Standards (SFAS) No. 142 “Goodwill and Other
Intangible Assets,” requires goodwill for each reporting unit of an entity to be
tested for impairment by comparing the fair value of each reporting unit with
its carrying value. Fair value is determined using a combination of the
discounted cash flow, market multiple and market capitalization valuation
approaches. Significant estimates used in the methodologies include estimates of
future cash flows, future short-term and long-term growth rates, weighted
average cost of capital and estimates of market multiples for each reportable
unit. On an ongoing basis, absent any impairment indicators, we perform
impairment tests annually during the fourth quarter.
SFAS No.
142 requires goodwill to be tested annually, typically performed during the
fourth quarter, and between annual tests if events occur or circumstances change
that would more likely than not reduce the fair value of the reportable unit
below its carrying amount. The Company did not record an impairment of goodwill
for the year ended March 31, 2009.
Estimates
The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Concentrations
of Credit Risk
We extend
credit to our customers and perform ongoing credit evaluations of our customers.
We do not obtain collateral from our customers to secure our accounts
receivables. We evaluate our accounts receivable on a regular basis for
collectibility and provide for an allowance for potential credit losses as
deemed necessary.
Two of
our customers accounted for 58% and 13% of our net revenues for the three months
ended June 30, 2009. Two of our customers accounted for 51% and 20% of our net
revenues for the three months ended June 30, 2008.
At June
30, 2009, amounts due from significant customers accounted for 77% of accounts
receivable. At June 30, 2008, amounts due from significant customers accounted
for 68% of accounts receivable.
Results
of Operations
The
results of operations reflected in this discussion include our operations for
the three month periods ended June 30, 2009 and 2008.
We
generate revenues from (a) licensing software with fees due at the initial term
of the license, (b) licensing and supporting software with fees due on a
transactional basis, (c) providing maintenance, enhancement and support for
previously licensed products, and (d) providing professional
services.
Revenues
|
For
the Three Months
|
|
|
|
|
Ended
|
|
|
|
|
June 30,
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Software
transactional revenues, net
|
|
$
|
521,243
|
|
|
$
|
537,749
|
|
|
|
−3.1
|
%
|
Software
licensing revenues
|
|
|
¾
|
|
|
|
30,000
|
|
|
|
-100.0
|
%
|
Software
maintenance revenues
|
|
|
212,371
|
|
|
|
228,874
|
|
|
|
-7.2
|
%
|
Professional
service revenues
|
|
|
1,274,847
|
|
|
|
1,272,426
|
|
|
|
0.2
|
%
|
Total
revenues
|
|
$
|
2,008,461
|
|
|
$
|
2,069,049
|
|
|
|
-2.9
|
%
|
Revenues
decreased by 2.9% for the three months ended June 30, 2009 compared to the three
months ended June 30, 2008. We had no licensing revenue for the quarter ended
June 30, 2009, and maintenance revenues declined 7.2% due to the non renewal of
certain maintenance agreements. We believe that we will continue to
see maintenance and licensing revenues decline slowly as we continue our
transition to a more transactional based revenue model. We expect our
transactional revenue to grow as more of our current customers, along with new
customers, begin to run more of their processing through our software
products.
Cost
of Sales
Costs of
sales include the cost of the Thomson Financial EPICWare™ software and other
third party software resold in connection with our software, as well as
personnel costs associated with our software maintenance, support, training and
installation services. Cost of sales increased by $20,648, or 3.8%, to $558,142
for the three months ended June 30, 2009 from $537,494 for the three months
ended June 30, 2008. This increase was principally due to an increase of $43,000
in the cost of third party software purchased for resale offset by a $23,000
decrease in the labor cost associated with our professional services and
maintenance personnel as compared to the same period in the prior fiscal
year.
Operating
Expenses
Total
operating expenses decreased by $215,654, or 15.1%, to $1,208,753 for the three
months ended June 30, 2009 from $1,424,407 for the three months ended June 30,
2008.
General
and administrative expenses decreased $181,987 and was attributable to a
$127,175 decrease in general and administrative personnel expenses associated
with the ongoing benefits of the restructuring in staffing undertaken
in the last year, $95,627 decrease in accounting and legal fees, a $10,963
decrease in insurance expense offset by an increase of $31,390 in the
use of outside consultants and services expenses in the first quarter of 2009,
as compared to the same period in the prior fiscal year.
The
slight increase in research and development expenses of $18,000 is primarily
related to increased personnel expenses of the R & D staff, while the
decrease in sales and marketing of $47,265 is related to a decrease in personnel
expenses associated with the restructuring in staff undertaken in the last
year.
In our
effort to promote our brand name, increase our client base and expand our
relationship with existing clients, we expect our operating expenses in both
research and development and sales and marketing to increase.
Other
Expenses
Other
expenses, including interest expense and financing costs, increased $48,848, or
22.5%, to $265,477 for the three months ended June 30, 2009 from $216,629 for
the three months ended June 30, 2008. The increase was primarily due to an
increase in interest expense – related parties of $144,970, associated with two
of the Company’s directors refinancing of the outstanding debt, the absence of
$56,914 of other income, and absence of $41,080 of derivative gain from the
prior year period, offset by a reduction of interest expense paid to holders of
the promissory note of November 13, 2007 which was paid off in the prior
year.
Net
Loss
Net loss
decreased by $85,570, or 78.2%, to a net loss of $23,911 for the three months
ended June 30, 2009 from a net loss of $109,481 for the three months ended June
30, 2008. For details related to this loss see the preceding discussions related
to revenues, to cost of sales, operating expenses and other income sections
above.
Liquidity
and Capital Resources
Because
of our ability to increase revenue while at the same time reducing general and
administrative expenses, we experienced positive operating cash flow from
operations in fiscal 2009 and in the first quarter of fiscal 2010 and expect to
continue to achieve enough positive operating cash flow from operations in the
future to operate and grow our business. However, due to our history of
experiencing negative cash flow from operations and the debt financing that we
put in place to cover this historical negative cash flow, we find ourselves in
the position of having approximately $4.2 million of debt coming due on July 1,
2010 that we may not be able to repay from our operating cash flow. While we
currently expect to be able to refinance this debt or reach an agreement to
extend the maturity date of this debt, there can be no assurances that this will
in fact occur. Failure to refinance or extend the maturity date of this debt
will have a material adverse effect on our financial condition and our ability
to continue as a going concern (see “Item 1A. Risk Factors”).
In
addition, while we expect to be able to fund our operations from cash flow, if
that is not the case, our long term viability will again depend on our ability
to obtain adequate sources of debt or equity funding to fund the continuation of
our business operations and to ultimately achieve adequate profitability and
cash flows to sustain our operations. We will need to increase revenues from
software licenses, transaction-based software license contracts and professional
services agreements to become profitable.
Cash and
cash equivalents increased by $96,187 to $500,050 at June 30, 2009 from $403,863
at March 31, 2009. Cash provided by operating activities was $105,006
in the three months ended June 30, 2009 compared to $172,745 in the same period
in the prior fiscal year.
No cash
was used for investing activities in the three months ended June 30, 2009 nor in
the three month period ended June 30, 2008.
Financing
activities used cash of $8,819 in the three months ended June 30, 2009 and
financing activities used cash of $8,820 in the three months ended June 30,
2008.
As a
result of our increased level of transactional revenues achieved in fiscal 2009,
and the expected increase in revenues to be received from recently received
contracts, we believe we currently have adequate capital resources to fund our
anticipated cash needs through March 31, 2010. However, an adverse
business or legal development could require us to raise additional financing
sooner than anticipated. We recognize that we may be required to raise such
additional capital, at times and in amounts, which are uncertain, especially
under the current capital market conditions. If we are unable to acquire
additional capital or are required to raise it on terms that are less
satisfactory than we desire, it may have a material adverse effect on our
financial condition. In the event we raise additional equity, these financings
may result in dilution to existing shareholders.
Item 4(T).
Controls and
Procedures
(a)
Evaluation of
disclosure controls and procedures
. We maintain “disclosure controls and
procedures,” as such term is defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, or the Exchange Act, that are designed to ensure that
information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized, and reported within
the time periods specified in Securities and Exchange Commission rules and
forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
or persons performing similar functions, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating our
disclosure controls and procedures, management recognized that disclosure
controls and procedures, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the disclosure
controls and procedures are met. Our disclosure controls and procedures have
been designed to meet reasonable assurance standards. Additionally, in designing
disclosure controls and procedures, our management necessarily was required to
apply its judgment in evaluating the cost-benefit relationship of possible
disclosure controls and procedures. The design of any disclosure controls and
procedures also is based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions.
Based
on their evaluation as of the end of the period covered by this Quarterly Report
on Form 10-Q, our Chief Executive Officer and Chief Financial Officer, or
persons performing similar functions, have concluded that, as of that date, our
disclosure controls and procedures were effective at the reasonable assurance
level.
(b)
Changes in
internal control over financial reporting
. There was no change in our
internal control over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act) identified in connection with management’s evaluation
during our last fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
PART II -
OTHER INFORMATION
Item 1.
Legal Proceedings
From time
to time, we may become involved in various legal and other proceedings that are
incidental to the conduct of our business. We are currently not involved in any
such legal proceedings.
Item
1A. Risk Factors
There
have been no material changes in our risk factors disclosed in our Annual Report
on Form 10-K for the fiscal year ended March 31, 2009 dated as of, and
filed with the SEC on, June 29, 2009. For a discussion of these
risk factors, see “
Item 1A. Risk Factors
”
in our Annual Report on Form 10-K for the year ended March 31,
2009.
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
The
exhibits listed below are required by Item 601 of Regulation S-K.
Exhibit
Number
|
|
Description of Document
|
|
|
|
10.1
†
|
|
Outside
Director Compensation Plan dated April 20, 2009 but effective as of April
1, 2009 (incorporated by reference to Item 1.01 of the Registrant’s
Current Report on Form 8-K filed with the SEC on April 23,
2009).
|
|
|
|
10.2
|
|
Note
Modification Agreement by and between US Dataworks, Inc. and Charles E.
Ramey dated May 20, 2009 (Refinance Note) (incorporated by reference to
Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the
SEC on May 27, 2009).
|
|
|
|
10.3
|
|
Note
Modification Agreement by and between US Dataworks, Inc. and John L.
Nicholson, M.D. dated May 20, 2009 (Refinance Note) (incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed with the SEC on May 27, 2009).
|
|
|
|
10.4
|
|
Note
Modification Agreement by and between US Dataworks, Inc. and Charles E.
Ramey dated May 20, 2009 (Other Note) (incorporated by reference to
Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the
SEC on May 27, 2009).
|
|
|
|
10.5
|
|
Note
Modification Agreement by and between US Dataworks, Inc. and Charles E.
Ramey dated June 26, 2009 (Refinance Note) (incorporated by reference to
Exhibit 10.22 to the Registrant’s Annual Report on Form 10-K for the year
ended March 31, 2009 filed with the SEC on June 26,
2009).
|
|
|
|
10.6
|
|
Note
Modification Agreement by and between US Dataworks, Inc. and John L.
Nicholson, M.D. dated June 26, 2009 (Refinance Note) (incorporated by
reference to Exhibit 10.23 to the Registrant’s Annual Report on Form 10-K
for the year ended March 31, 2009 filed with the SEC on June 26,
2009).
|
|
|
|
10.7
|
|
Note
Modification Agreement by and between US Dataworks, Inc. and Charles E.
Ramey dated June 26, 2009 (Other Note) (incorporated by reference to
Exhibit 10.24 to the Registrant’s Annual Report on Form 10-K for the year
ended March 31, 2009 filed with the SEC on June 26,
2009).
|
Exhibit
Number
|
|
Description of Document
|
|
|
|
10.
8
|
|
US
Dataworks, Inc. Common Stock Purchase Warrant issued on July 29, 2009 but
effective as of June 26, 2009 by and between U.S. Dataworks, Inc. and
Charles E. Ramey (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed with the SEC on August 4,
2009).
|
|
|
|
10.
9
|
|
US
Dataworks, Inc. Common Stock Purchase Warrant issued on July 29, 2009 but
effective as of June 26, 2009 by and between U.S. Dataworks, Inc. and John
L. Nicholson (incorporated by reference to Exhibit 10.2 to the
Registrant’s Current Report on Form 8-K filed with the SEC on August 4,
2009).
|
|
|
|
10.
10†
|
|
Engagement
Agreement dated as of August 7, 2009 by and among US Dataworks, Inc.,
Albeck Financial Services, Inc. and Randall J. Frapart (incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed with the SEC on August 13, 2009).
|
|
|
|
31.1
|
|
Section
302 Certification of Chief Executive Officer.
|
|
|
|
31.2
|
|
Section
302 Certification of Chief Financial Officer or person performing similar
functions.
|
|
|
|
32.1
|
|
Section
906 Certification of Chief Executive Officer.
|
|
|
|
32.2
|
|
Section
906 Certification of Chief Financial Officer or person performing similar
functions.
|
____________
† Indicates
management contract or compensatory plan or agreement.
SIGNATURE
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: August
14, 2009
US
DATAWORKS, INC.
|
|
By
|
/ s/ Charles E. Ramey
|
Charles
E. Ramey
|
Chief
Executive Officer
|
(Duly
Authorized Officer)
|
|
|
By:
|
/s/ Randall J. Frapart
|
Randall
J. Frapart
|
Chief
Financial Officer
|
(Principal
Financial
Officer)
|
EXHIBIT
INDEX
Exhibit
Number
|
|
Description of Document
|
|
|
|
10.1
†
|
|
Outside
Director Compensation Plan dated April 20, 2009 but effective as of April
1, 2009 (incorporated by reference to Item 1.01 of the Registrant’s
Current Report on Form 8-K filed with the SEC on April 23,
2009).
|
|
|
|
10.2
|
|
Note
Modification Agreement by and between US Dataworks, Inc. and Charles E.
Ramey dated May 20, 2009 (Refinance Note) (incorporated by reference to
Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the
SEC on May 27, 2009).
|
|
|
|
10.3
|
|
Note
Modification Agreement by and between US Dataworks, Inc. and John L.
Nicholson, M.D. dated May 20, 2009 (Refinance Note) (incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed with the SEC on May 27, 2009).
|
|
|
|
10.4
|
|
Note
Modification Agreement by and between US Dataworks, Inc. and Charles E.
Ramey dated May 20, 2009 (Other Note) (incorporated by reference to
Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the
SEC on May 27, 2009).
|
|
|
|
10.5
|
|
Note
Modification Agreement by and between US Dataworks, Inc. and Charles E.
Ramey dated June 26, 2009 (Refinance Note) (incorporated by reference to
Exhibit 10.22 to the Registrant’s Annual Report on Form 10-K for the year
ended March 31, 2009 filed with the SEC on June 26,
2009).
|
10.6
|
|
Note
Modification Agreement by and between US Dataworks, Inc. and John L.
Nicholson, M.D. dated June 26, 2009 (Refinance Note) (incorporated by
reference to Exhibit 10.23 to the Registrant’s Annual Report on Form 10-K
for the year ended March 31, 2009 filed with the SEC on June 26,
2009).
|
|
|
|
10.7
|
|
Note
Modification Agreement by and between US Dataworks, Inc. and Charles E.
Ramey dated June 26, 2009 (Other Note) (incorporated by reference to
Exhibit 10.24 to the Registrant’s Annual Report on Form 10-K for the year
ended March 31, 2009 filed with the SEC on June 26,
2009).
|
|
|
|
10.
8
|
|
US
Dataworks, Inc. Common Stock Purchase Warrant issued on July 29, 2009 but
effective as of June 26, 2009 by and between U.S. Dataworks, Inc. and
Charles E. Ramey (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed with the SEC on August 4,
2009).
|
|
|
|
10.
9
|
|
US
Dataworks, Inc. Common Stock Purchase Warrant issued on July 29, 2009 but
effective as of June 26, 2009 by and between U.S. Dataworks, Inc. and John
L. Nicholson (incorporated by reference to Exhibit 10.2 to the
Registrant’s Current Report on Form 8-K filed with the SEC on August 4,
2009).
|
|
|
|
10.
10†
|
|
Engagement
Agreement dated as of August 7, 2009 by and among US Dataworks, Inc.,
Albeck Financial Services, Inc. and Randall J. Frapart (incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed with the SEC on August 13, 2009).
|
|
|
|
31.1
|
|
Section
302 Certification of Chief Executive Officer.
|
|
|
|
31.2
|
|
Section
302 Certification of Chief Financial Officer or person performing similar
functions.
|
|
|
|
32.1
|
|
Section
906 Certification of Chief Executive Officer.
|
|
|
|
32.2
|
|
Section
906 Certification of Chief Financial Officer or person performing similar
functions.
|
____________
† Indicates
management contract or compensatory plan or agreement.