UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington
D.C., 20549
FORM
10-QSB
(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, 2008
|
o
|
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 small business issuer 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,
Fifth
Floor
Sugar
Land, Texas
|
|
77478
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
Issuer’s
telephone number: (281) 504-8000
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act 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
o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES
o
NO
x
Number
of
shares of Common Stock outstanding as of August 1, 2008: 32,368,217
Transitional
Small Business Disclosure Format (Check one): YES
o
NO
x
US
DATAWORKS, INC.
TABLE
OF CONTENTS
FORM
10-QSB
QUARTERLY
PERIOD ENDED JUNE 30, 2008
|
|
Page
|
|
|
PART
I - FINANCIAL INFORMATION
|
3
|
|
|
|
Item
1.
|
Financial
Statements
|
3
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis or Plan of Operation.
|
18
|
|
|
|
Item
3.
|
Controls
and Procedures
|
27
|
|
|
PART
II - OTHER INFORMATION
|
27
|
|
|
|
Item
1.
|
Legal
Proceedings
|
27
|
|
|
|
Item
5.
|
Other
Information
|
27
|
|
|
|
Item
6.
|
Exhibits
|
27
|
PART
I -
FINANCIAL
INFORMATION
Item
1.
Financial
Statements
US
DATAWORKS, INC.
BALANCE
SHEET
June
30
,
2008
(Unaudited)
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,067,318
|
|
Accounts
receivable, trade
|
|
|
1,088,678
|
|
Prepaid
expenses and other current assets
|
|
|
212,904
|
|
|
|
|
|
|
Total
current assets
|
|
|
2,368,900
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
430,635
|
|
Goodwill,
net
|
|
|
4,020,698
|
|
Other
assets
|
|
|
327,387
|
|
|
|
|
|
|
Total
assets
|
|
$
|
7,147,620
|
|
The
accompanying notes are an integral part of these unaudited condensed financial
statements.
US
DATAWORKS, INC.
BALANCE
SHEET
June
30, 2008
(Unaudited)
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Current
portion of long term debt
|
|
$
|
35,279
|
|
Derivative –
compound embedded
|
|
|
359,527
|
|
Derivative
- warrants
|
|
|
220,674
|
|
Deferred
revenue
|
|
|
470,848
|
|
Accounts
payable
|
|
|
383,630
|
|
Accrued
interest – related party
|
|
|
29,095
|
|
Accrued
expenses
|
|
|
235,812
|
|
Note
payable – related party
|
|
|
500,000
|
|
Convertible
promissory notes, net of unamortized discount of $
1,830,101
|
|
|
2,169,899
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
4,404,764
|
|
|
|
|
|
|
Long
term debt
|
|
|
44,098
|
|
|
|
|
|
|
Total
liabilities
|
|
|
4,448,862
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
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 $303,879 in arrears
|
|
|
55
|
|
Common
stock, $0.0001 par value
90,000,000
shares authorized and 32,262,962 shares issued and
outstanding
|
|
|
3,226
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
64,864,830
|
|
Unissued
common stock
|
|
|
31,367
|
|
Accumulated
deficit
|
|
|
(62,200,720
|
)
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
2,698,758
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
7,147,620
|
|
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,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Software
licensing revenues
|
|
$
|
30,000
|
|
$
|
70,000
|
|
Software
transactional revenues
|
|
|
537,749
|
|
|
389,508
|
|
Software
maintenance revenues
|
|
|
228,874
|
|
|
191,213
|
|
Professional
services revenues
|
|
|
1,272,426
|
|
|
578,350
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
2,069,049
|
|
|
1,229,071
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
537,494
|
|
|
385,959
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,531,555
|
|
|
843,112
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
1,376,356
|
|
|
1,641,134
|
|
Depreciation
and amortization
|
|
|
48,051
|
|
|
39,050
|
|
Total
operating expense
|
|
|
1,424,407
|
|
|
1,680,184
|
|
|
|
|
|
|
|
|
|
Income/(loss)
from operations
|
|
|
107,148
|
|
|
(837,072
|
)
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(303,716
|
)
|
|
(6,401
|
)
|
Interest
expense – related party
|
|
|
(10,907
|
)
|
|
(10,938
|
)
|
Other
income
|
|
|
56,914
|
|
|
—
|
|
Gain/(loss)
on change in value of derivative liabilities
|
|
|
41,080
|
|
|
(14,853
|
)
|
|
|
|
|
|
|
|
|
Total
other income/(expense), net
|
|
|
(216,629
|
)
|
|
(32,192
|
)
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(109,481
|
)
|
$
|
(869,264
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(0.00
|
)
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted-average shares outstanding
|
|
|
32,137,687
|
|
|
31,300,462
|
|
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,
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Cash
flows from operating activities:-
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(109,481
|
)
|
|
(869,265
|
)
|
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
48,051
|
|
|
39,050
|
|
Amortization
of note discount on convertible promissory notes
|
|
|
165,535
|
|
|
¾
|
|
Amortization
of deferred financing costs
|
|
|
29,737
|
|
|
¾
|
|
Stock
based compensation
|
|
|
117,239
|
|
|
70,738
|
|
(Gain)/loss
on change in value of derivative liabilities
|
|
|
(41,080
|
)
|
|
14,853
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(232,417
|
)
|
|
900,921
|
|
Prepaid
expenses and other current assets
|
|
|
(66,988
|
)
|
|
(90,980
|
)
|
Deferred
revenue
|
|
|
270,015
|
|
|
(111,214
|
)
|
Accounts
payable
|
|
|
111,953
|
|
|
133,515
|
|
Accrued
expenses
|
|
|
(119,819
|
)
|
|
(35,683
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
172,745
|
|
|
51,935
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
¾
|
|
|
(18,171
|
)
|
Net
cash used in investing activities
|
|
|
¾
|
|
|
(18,171
|
)
|
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,
|
|
2008
|
|
2007
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Payments
on note payable
|
|
|
(8,820
|
)
|
|
¾
|
|
Net
cash used by financing activities
|
|
|
(8,820
|
)
|
|
¾
|
|
Net
increase in cash and cash equivalents
|
|
|
163,925
|
|
|
33,764
|
|
Cash
and cash equivalents, beginning of period
|
|
|
903,393
|
|
|
140,276
|
|
Cash
and cash equivalents, end of period
|
|
|
1,067,318
|
|
|
174,040
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information
|
|
|
|
|
|
|
|
Interest
paid
|
|
|
96,725
|
|
|
12,618
|
|
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
|
General
US
Dataworks, Inc. (the “Company”), a Nevada corporation, 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 conjunction with the audited financial
statements and the notes thereto included in the Company’s 2008 Annual Report.
The results of operations for interim periods are not necessarily indicative
of
the results for any subsequent quarter or the entire year ending March 31,
2009.
Revenue
Recognition
The
Company recognizes revenues associated with our 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 conjunction 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.
Goodwill
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 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 recorded an impairment of goodwill of
$10,112,931 for the year ended March 31, 2008 and did not have an impairment
of
goodwill to record for the year ended March 31, 2007.
Convertible
Debt Financing – Derivative Liabilities
The
Company reviews the terms of 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
The
Company’s financial statements as of and for the three months ended June 30,
2008 and 2007, reflect the impact of SFAS No. 123R. Stock-based compensation
expense recognized under SFAS No. 123R for the three months ended June 30,
2008
was $117,239, which consists of stock-based compensation expense related to
employee and director stock options and restricted stock issuances.
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.
For
purposes of proforma disclosure, the estimated fair value of the options is
included in expense over the option’s vesting period or expected life. The
Company’s proforma information for the three months ended June 30, 2008 and 2007
is as follows:
|
|
For the Three Months Ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Net
loss as reported
|
|
$
|
(109,481
|
)
|
$
|
(869,284
|
)
|
|
|
|
|
|
|
|
|
Add
stock-based employee compensation expense included in net loss as
reported, net of related tax effects
|
|
$
|
117,239
|
|
$
|
70,738
|
|
Deduct
stock-based employee compensation expense determined under the fair
value
based method for all awards, net of related tax effects
|
|
|
|
|
|
|
|
Net
income/(loss); pro forma
|
|
$
|
7,758
|
|
$
|
(798,526
|
)
|
Basic
and diluted income/(loss) per share, as reported
|
|
$
|
(0.00
|
)
|
$
|
(0.03
|
)
|
Basic
and diluted income/(loss) per share, pro forma
|
|
$
|
(0.00
|
)
|
$
|
(0.03
|
)
|
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, 2008 is based on
awards ultimately expected to vest, it has been reduced for estimated
forfeitures.
The
Company uses the 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 no options granted during
the period ended June 30, 2008. In determining the compensation cost of the
options granted during the three months ended June 30, 2007, 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,
|
|
|
|
2007
|
|
|
|
|
|
Risk-free
Interest Rate
|
|
|
4.67
|
%
|
Expected
Life of Options Granted
|
|
|
3 years
|
|
Expected
Volatility
|
|
|
74
|
%
|
Expected
Dividend Yield
|
|
|
0
|
|
Expected
forfeiture rate
|
|
|
30
|
%
|
As
of
June 30, 2008, there was approximately $34,206 of total unrecognized
compensation cost related to nonvested share-based compensation arrangements,
which is expected to be recognized over a period of 3 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,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Options
outstanding under the Company’s stock option plans
|
|
|
6,657,153
|
|
|
6,627,349
|
|
Options
granted outside the Company’s stock option plans
|
|
|
1,160,000
|
|
|
1,160,000
|
|
Warrants
issued in conjunction with private placements
|
|
|
8,839,364
|
|
|
5,438,683
|
|
Warrants
issued as a financing cost for notes payable
|
|
|
|
|
|
|
|
and
convertible notes payable
|
|
|
1,891,250
|
|
|
1,691,250
|
|
Warrants
issued for services rendered and litigation settlement
|
|
|
300,000
|
|
|
180,769
|
|
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 price of $3.75 per share.
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 51% and 20% of our net revenues for the three months
ended June 30, 2008. Four of our customers accounted for 25%, 24%, 13% and
12%
of our net revenues for the three months ended June 30, 2007.
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, 2008 consisted of the following:
Furniture
and fixtures
|
|
$
|
99,535
|
|
Office
and telephone equipment
|
|
|
182,275
|
|
Computer
equipment
|
|
|
720,005
|
|
Computer
software
|
|
|
1,271,098
|
|
Leasehold
improvements
|
|
|
64,732
|
|
|
|
|
2,337,645
|
|
Less
accumulated depreciation and amortization
|
|
|
(1,907,010
|
)
|
Total
|
|
$
|
430,635
|
|
Depreciation
and amortization expense for the three months ended June 30, 2008 and 2007
was
$48,051and $39,050, respectively.
4.
|
Convertible
Promissory Notes
|
Convertible
promissory notes at June 30, 2008 consisted of the following:
Senior
Secured Convertible Notes, interest at 6-month Libor plus 500 Basis
points, determined quarterly, (currently @ 6/30/08, 7.2616%), $4,000,000
principal due November 13, 2010, net of unamortized discount of
$1,830,101
|
|
$
|
2,169,899
|
|
Convertible
promissory note with interest at 10% per annum
This
note
is an amendment and restatement of a note in the same principal amount
originally dated September 15, 2004. The amended note was effective September
15, 2005 and extended the principal payment originally due September 15, 2005
for one year. In consideration of this amendment, the Company issued the holder
a common stock purchase warrant to purchase up to 650,000 shares of the
Company’s common stock at an exercise price of $0.59 per share. The warrant will
expire on September 15, 2008.
Convertible
promissory note issued June 16, 2005 with $70,000 Original Issue
Discount
On
June
16, 2005, the Company entered into a Securities Purchase Agreement with an
institutional investor (the “Debenture Agreement”) for the sale of a convertible
debenture with a principal amount of $770,000 and an original issue discount
of
$70,000 for gross proceeds of $700,000. This convertible note was paid in full
in March 2007 and as such was removed from the Company’s financial statements in
fiscal year 2008.
In
connection with the Debenture Agreement, the Company issued Long Term warrants
to the institutional investor. The Long Term Warrants allow the institutional
investor to purchase an aggregate of 471,154 shares of the Company’s common
stock with an exercise price of $0.572 per share exercisable at anytime through
June 16, 2008. In June 2008, the warrants associated with this note expired
without being exercised and the Company no longer has any liability associated
with this note at June 30, 2008.
Senior
Secured Convertible promissory notes due November 13, 2010
On
November 13, 2007, the Company secured certain financing from certain
institutional investors (collectively, the “Investors”) in the form of senior
secured convertible notes (the “Notes”) for an aggregate of $4,000,000. The
interest payable on the Notes is equal to the 6-month LIBOR rate plus five
hundred basis points (or 9.7375% at the time of subscription) and is
recalculated as of the first day of each calendar quarter. The Notes may be
converted at any time into shares of the Company’s common stock (“Common Stock”)
at the conversion price of $0.43 per share, which is equal to 110% of the dollar
volume-weighted average price for the Common Stock on November 12, 2007, subject
to anti-dilution provisions; provided, however, the Investor may not
beneficially own more than 4.99% (the “Maximum Percentage”) of outstanding
shares of Common Stock following such conversion. At any time, the Investor
may
decrease or increase this Maximum Percentage to any percentage not to exceed
9.99%. In the event of a Fundamental Transaction (as described in the Notes)
where greater than 50% of the Company’s assets or equity is transferred, the
Investors may redeem the note for either 125% of its principal balance or the
value of the Common Stock as converted (such Common Stock as converted under
the
Notes, “Conversion Shares”).
In
addition, on each of the 9 month and 18 month anniversary of the closing, the
Investors may request that the Company redeem a portion of the Notes. The Notes
have a maturity date of November 13, 2010. The Notes are secured by the Security
Agreement, dated November 13, 2007, by and between the Company and the Investors
(the “Security Agreement”), pursuant to which the Company granted the Investors
a security interest in all its personal property, whether now owned or hereafter
acquired, including but not limited to, all accounts, copyrights, trademarks,
licenses, equipment and all proceeds as from such collateral.
The
Investors also entered into a Put Agreement (the “Put Agreement”) with the
Company’s Chief Executive Officer, and a member of the Company’s Board of
Directors (collectively, the “Put Grantors”). Pursuant to the Put Agreement,
following August 13, 2008, under certain circumstances the Investors may require
one or more of the Put Grantors to purchase all or a portion of the Note,
including any accrued interest or late charges.
In
consideration for entering into the Put Agreement, the Company is paying the
Put
Grantors a fee (the “Put Grantor Fee”) equal to: (i) an initial installment of
two percent (2%) of the outstanding Note principal for initial six months of
the
Note’s term; (ii) then, an additional fee equal to two percent (2%) of the
outstanding Note principal for the following twelve months; and, (iii) a final
installment equal to two percent (2%) of the outstanding Note principal for
the
remaining 18 months of the Note’s term. The Put Grantor Fee will be shared
equally by the Put Grantors and will accrue immediately upon the start of each
of the time periods described by subsection (i), (ii) and (iii), above. The
Put
Grantor Fee is not payable until after the complete satisfaction of the
Note.
In
connection with the issuance of the Notes, the Company has also issued to the
Investors warrants (the “Warrants”) to purchase an aggregate of 4,651,162 shares
of Common Stock (such Common Stock exercisable from the Warrants, “Warrant
Shares”) at the exercise price of $0.43 per share, which is equal to 110% of the
dollar volume-weighted average price for the Common Stock on November 12, 2007,
subject to anti-dilution provisions; provided, however, the Investor may not
beneficially own more than the Maximum Percentage following such exercise.
The
Warrant may be exercised at any time until 11:59 p.m., New York time on November
13, 2012.
The
Company is obligated to reserve for issuance upon conversion of the Notes and
exercise of the Warrants shares of Common Stock equal to at least 130% of the
Conversion Shares and Warrant Shares. The Company filed a registration statement
in December 2007 to register the Conversion Shares and Warrant Shares. As of
June 30, 2008, this registration statement has not been declared
effective.
In
accordance with SFAS No. 133 “Accounting for Derivative Instruments and Hedging
Activities,” the debt features contained in the terms governing the notes are
not clearly and closely related to the characteristics of the notes.
Accordingly, the debt features qualify as embedded derivative instruments at
issuance and, because they did not qualify for any scope exception within SFAS
133, they were required to be accounted for separately from the debt instrument
and recorded as derivative financial instruments.
At
the
date of issuance, the embedded debt feature had an estimated initial fair value
of $960,714, which was recorded as a discount to the convertible notes and
derivative liability on our balance sheet. In subsequent periods, if the price
of the security changes, the embedded derivative financial instrument related
to
the debt features will be adjusted to the fair value with the corresponding
charge or credit to other income/(expense). The estimated fair value of the
debt
features was determined using the probability weighted averaged discounted
cash
flows / Lattice Model with a closing price of $0.43, a conversion price as
defined in the respective note agreement and a period of three years. Concerning
the debt features, the model uses several assumptions including: projected
stock
price volatility, annual stock price growth rate, interest rate projections,
no
registration default, alternative financing availability, default status, holder
redeeming under default, ownership limitation, warrant exercise reset, fixed
conversion reset and trading volume to determine the estimated fair value of
the
derivative liability. The derivative liability at June 30, 2008, increased
to a
fair value of $359,527, due in part to a decrease in the market value of the
company’s common stock, which resulted in an other income item of
$5,778.
The
warrants included with this note for purchase of the Company’s common stock had
an initial value of $1,279,549. This amount has been classified as a derivative
financial instrument and recorded as discount to the convertible notes and
derivative liability on our balance sheet in accordance with SFAS No. 133.
The
estimated fair value of the warrants at the date of issuance was determined
using the Black-Scholes option-pricing model with a closing price of $0.43,
the
respective exercise price of the warrants, a 5 year term, and an 80% volatility
factor relative to the date of issuance. The model uses several assumptions
including: historical stock price volatility, approximate risk-free interest
rate (3.84%), remaining term to maturity, and the closing price of the company’s
common stock to determine the estimated fair value of the derivative liability.
In accordance with the provisions of SFAS No. 133, the Company is required
to
adjust the carrying value of the instrument to its fair value at each balance
sheet date and recognize any change since the prior balance sheet date as a
component of other income/ (expense) on its statement of operations. The warrant
derivative liability at June 30, 2008, decreased to a fair value of $220,674,
due in part to a decrease in the market value of the company’s common stock,
which resulted in an other income item of $46,856.
The
recorded value of the warrants can fluctuate significantly based on fluctuations
in the market value of the underlying securities of the issuer of the warrants,
as well as in the volatility of the stock price during the term used for
observation and the term remaining for the warrants.
In June
2008, the Company received letters from each of the Investors purporting to
be Event of Default Redemption Notices (the “Notices”) pursuant to the Notes.
According to the Notices, the purported Event of Default was the failure of
the
registration statement filed by the Company in December 2007 to register
the Conversion Shares and the Warrant Shares to be declared effective by May
12,
2008.
The Company
subsequently informed the Investors that, for reasons described to the
Investors, the Notices were defective and requested that each immediately
withdraw their respective Notice.
5.
|
Accounts
Receivable Facility
|
On
September 27, 2006, the Company entered into a Purchase and Sale Agreement
with
Catalyst Finance, L.P. (“Catalyst”) for sale of certain of its accounts
receivables. The Company’s borrowing costs under this Agreement range from 1.25%
to 20% of the gross amount of the receivables sold to Catalyst based on the
timing of collection. The maximum funds available under the agreement are all
available accounts receivables as agreed to by Catalyst and the Company. The
agreement allows for Catalyst to request repurchase of an account receivable
under certain conditions.
The
Agreement was terminated by the Company on August 2, 2007.
For the
three months ending June 30, 2007, the Company sold $238,000 in receivables
under the agreement, which yielded a loss on the sale of these receivables
of
$8,935.
6.
|
Commitments
and Contingencies
|
Employment
Agreements
On
May 1
and May 15, 2008, the Company accepted the resignation of Messrs. John Figone
and Terry Stepanik, respectively, and as part of the Company’s restructuring, on
June 12, 2008, it entered into a new Employment Agreement (the ‘Agreement”) with
Mr. Mario Villarreal in connection with his promotion to President and Chief
Operating Officer. Under the Agreement Mr. Villarreal will receive an annual
base salary of $185,000 for a term of one year. If Mr. Villarreal is terminated,
other than for cause, death or disability, or resigns within 60 days following
a
material reduction in duties or a material reduction in compensation within
six
months following a change of control, Mr. Villarreal is entitled to receive
a
lump sum payment equal to one-half (0.5) times his annual base salary and any
unpaid base salary and bonus, subject to compliance with certain ongoing
obligations and the delivery of a release to us.
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 authorized shares of $0.0001 par value convertible Series
B
preferred stock. The Series B has a liquidation preference of $3.75 per share
and carries a 10% cumulative dividend payable each March 1 and September 1.
The
Series B is convertible upon issuance into common stock at $3.75 per share.
The
Company has the right to redeem the Series B at any time after issuance at
a
redemption price of $4.15 per share, plus any accrued but unpaid
dividends.
At
June
30, 2008, there were accumulated, undeclared dividends in arrears of $303,879
or
$2.76 per share.
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 amends and restates the 1999 Plan. Under the 2000
Plan, the maximum aggregate number of shares which may be granted is 6,000,000.
The exercise price 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 expire 10 years from the date of vesting. 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, 2008 the Company did not grant any 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, 2008
|
|
|
7,521,349
|
|
$
|
0.70
|
|
|
1,160,000
|
|
$
|
1.02
|
|
Granted
|
|
|
¾
|
|
|
¾
|
|
|
¾
|
|
|
¾
|
|
Exercised
|
|
|
¾
|
|
|
¾
|
|
|
¾
|
|
|
¾
|
|
Forfeited/canceled
|
|
|
864,196
|
|
$
|
0.47
|
|
|
¾
|
|
|
¾
|
|
Outstanding,
June 30, 2008
|
|
|
6,657,153
|
|
$
|
0.73
|
|
|
1,160,000
|
|
$
|
1.02
|
|
Exercisable,
June 30, 2008
|
|
|
5,769,325
|
|
$
|
0.71
|
|
|
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, 2008 were 6.9 years and $0.77,
respectively. The exercise prices for the options outstanding at June 30, 2008
ranged from $0.15 to $6.25, 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
|
|
|
5,306,317
|
|
|
4,418,489
|
|
|
7.34
years
|
|
$
|
0.55
|
|
$
|
0.49
|
|
$0.81 – 1.35
|
|
|
1,771,836
|
|
|
1,771,836
|
|
|
6.10
years
|
|
$
|
0.93
|
|
$
|
0.93
|
|
$1.36 – 6.25
|
|
|
739,000
|
|
|
739,000
|
|
|
5.60
years
|
|
$
|
1.96
|
|
$
|
1.96
|
|
|
|
|
7,817,153
|
|
|
6,929,325
|
|
|
|
|
|
|
|
|
|
|
8.
|
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. SFAS 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, SFAS 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, 2008, the Company’s assets and liabilities that are measured at fair
value on a recurring basis include the following:
|
|
|
|
Fair
Value Measurements Using
|
|
|
|
Total
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liability
|
|
$
|
359,527
|
|
|
—
|
|
$
|
359,527
|
|
|
—
|
|
Warrant
liability
|
|
$
|
220,674
|
|
|
—
|
|
$
|
220,674
|
|
|
—
|
|
The
Company has incurred significant losses and negative cash flows from operations
for the last two fiscal years. We have obtained our required cash resources
through the sale of debt and equity securities. We may not operate profitably
in
the future and may be required to continue the sale of debt and equity
securities to finance our operations.
We
have
specific plans to address our financial situation as follows:
|
·
|
We
believe that the demand for our software and professional services
will
continue to expand as the United States market adopts the new payment
processing opportunities available under changing regulations such
as the
Check Clearing Act for the 21
st
Century, and NACHA’s back office conversion, which allows the conversion
of paper checks in the back offices of retail merchants and government.
Increased demand for our solutions, including our recently introduced
Clearingworks product, has led to increased cash flows from up-front
license fees, transaction-based contract fees and increases in
professional services revenues.
|
|
·
|
We
have entered into a strategic alliance with one of the largest merchant
service providers (MSP), that will allow this MSP to sell Clearingworks
as
part of its ARC and back office conversion services.
|
|
·
|
We
have undertaken a staff restructuring in an effort to reduce our
salary
and benefit expense in the coming year.
|
|
·
|
We
have renewed our professional service contract with a major credit
card
company and with an arm of the federal government for an additional
year.
|
|
·
|
We
have entered into an agreement with a major business process outsourcer
(BPO), which will enable us to significantly increase our transactional
revenues in the coming fiscal year as more billers outsource their
work to
BPO’s
|
There
can
be no assurance that our planned activities will be successful or that we will
ultimately attain profitability. Our long term viability depends 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.
On
July
23, 2008, the Company received notice from the staff of the American Stock
Exchange (“AMEX”) indicating that it was not in compliance
with certain continued listing standards of the AMEX Company Guide in
that its stockholders’ equity is less than $4,000,000 and it had
losses from continuing operations and net losses in three of its four most
recent fiscal years (Section 1003(a)(ii)) and because its stockholders’
equity is less than $6,000,000 and it had losses from continuing operations
and net losses in its five most recent fiscal years (Section 1003(a)(iii)).
In
addition, AMEX advised the Company that, in accordance with Section
1003(f)(v) of the AMEX Company Guide, it must effect a reverse stock split
to address its low stock price. Failure to effect a reverse split within a
reasonable amount of time could result in suspension or delisting of its
common stock. The Company intends to submit to AMEX a plan advising
AMEX of action it has taken, or will take, to bring it in compliance
with Sections 1003(a)(ii) and 1003(a)(iii) of the AMEX Company Guide within
a
maximum of 18 months from July 23, 2008. If it does not submit a plan by
August 22, 2008, or submits a plan that is not accepted, it may be subject
to delisting procedures. Additionally, if a plan is accepted but it
is not in compliance with any continued listing standards by January 22,
2010, it could be subject to delisting procedures. In the event
that its common stock is delisted from AMEX its market value and liquidity
could be materially adversely affected.
On
July 15, 2008, the Company gave notice to the
Investors of their respective rights of optional redemption of the Notes on
August 13, 2008. In respect thereto, the Company received optional
redemption notices from each of the Investors. On August 13, 2008, the Company
repaid principal of $4,000,000 and $38,807.50 of interest accrued on
the principal from and including July 1, 2008 through August 12, 2008. There
is
a dispute with the Investors regarding whether a redemption
premium, penalty interest and other amounts are owed to the
Investors. The Company cannot assure you regarding the outcome of this
dispute or that additional amounts will not be payable under the
Notes.
In
connection with the redemption of the Notes, the Company entered into
a Note Purchase Agreement and issued an aggregate of $3,703,500 Senior Secured
Notes due August 13, 2009 (“Refinance Notes”). The Refinance Notes were
purchased by the Company’s Chief Executive Officer and a member of its Board of
Directors (“Holders”). The Refinance Notes bear interest at a rate of 12% per
annum with interest payments due in arrears monthly.
Pursuant
to the Refinance Notes, 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, copyrights,
trademarks, licenses, equipment and all proceeds as from such
collateral.
Item
2.
Management’s
Discussion and Analysis or Plan of Operation.
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-QSB.
When
used
in this Quarterly Report on Form 10-QSB, 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 ability to increase our 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, our ability to defend against the assertions
and
demands made by the Investors (as defined below), our intent to submit a plan
to
AMEX, the timing of such submission and the potential outcomes regarding
continued listing on AMEX, our dependence on our strategic partners, our
dependence on personnel, our disclosure controls and procedures, our ability
to
respond to rapid technological change, statements regarding future acquisitions
or investments, our ability to expand the range of our technologies and products
and our legal proceedings. 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 below, 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, our ability to timely
submit our plan to AMEX, whether our plan will be approved, our ability to
continue to comply with other continued listing standards of AMEX and our
ability to effect a reverse stock split, and the risks set forth below under
“Factors That May Affect Our Results.” 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,” “we,” “us,” or “our” means US Dataworks, Inc.
MICRworkstm,
Clearingworks®, Returnworkstm, Remitworkstm, and Clearinghouse Least Cost
Routing/Best Fit Clearing
sm
,
are
trademarks of US Dataworks. Other trademarks referenced herein are the property
of their respective owners.
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. 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), 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. These
arrangements do not require significant production, modification or
customization, therefore revenue is recognized when the 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, 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 conjunction 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 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. We recorded an impairment of goodwill of $10,112,931
for the year ended March 31, 2008 and did not have an impairment of goodwill
to
record for the year ended March 31, 2007.
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 51% and 20% of our net revenues for the three months
ended June 30, 2008. Four of our customers accounted for 25%, 24%, 13% and
12%,
respectively, of our net revenues ended June 30, 2007.
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, 2008 and 2007.
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,
|
|
|
|
|
|
2008
|
|
2007
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
licensing revenues
|
|
$
|
30,000
|
|
$
|
70,000
|
|
|
−57.1
|
%
|
Software
transactional revenues
|
|
|
537,749
|
|
|
389,508
|
|
|
38.1
|
%
|
Software
maintenance revenues
|
|
|
228,874
|
|
|
191,213
|
|
|
19.7
|
%
|
Professional
service revenues
|
|
|
1,272,426
|
|
|
578,350
|
|
|
120.0
|
%
|
Total
revenues
|
|
$
|
2,069,049
|
|
$
|
1,229,071
|
|
|
68.3
|
%
|
Revenues
increased by 68.3% for the three months ended June 30, 2008 compared to the
three months ended June 30, 2007. Transactional, maintenance and professional
services revenues increased by 38.1%, 19.7% and 120.0%, respectively, offset
by
a decrease in license revenues by 57.1%.
The
increase in transactional revenues was primarily due to an increase in
utilization of our software solutions by current customers, along with new
customers utilizing our software solutions. Maintenance revenues increased
in
large part due to the annual maintenance fees generated under our license
agreement with American Express Company. The increase in professional service
revenues was due primarily to our professional services contract with American
Express.
Cost
of Sales
Costs
of
sales principally include the cost of Thomson Financial EPICWare™ software and
other third party software resold in conjunction with our software, as well
as
personnel costs associated with our software maintenance, support, training
and
installation services. Cost of sales increased by $151,535, or 39.3%, to
$537,494 for the three months ended June 30, 2008 from $385,959 for the three
months ended June 30, 2007, principally due to an increase of personnel costs
associated with the increase in professional service revenues as compared to
the
same period in the prior fiscal year.
Operating
Expenses
Total
operating expenses decreased by $255,777, or 15.2%, to $1,424,407 for the three
months ended June 30, 2008 from $1,680,184 for the three months ended June
30,
2007. The decrease in operating expenses was attributable to a $182,964 decrease
in personnel expenses associated with our recent restructuring in staffing,
$146,876 decrease in the use of outside consultants and services, and a $65,958
decrease in other various expenses, including director fees, licenses, telephone
expense and advertising expense in the first quarter of 2008, as compared to
the
same period in the prior fiscal year. These decreases were partially offset
by
an increase of $88,338 in legal expenses, a $46,501 increase in stock based
compensation, and a $9,335 increase in travel related expenses. In our effort
to
promote our brand name, increase our client base and expand our relationship
with existing clients, we expect our operating expenses to increase. We also
expect our legal expenses to increase as result of our dispute with certain
of
our Investors (as defined below) and in connection with our efforts to maintain
compliance with the listing requirements of the American Stock
Exchange.
Other
Expenses
Other
expenses, including interest expense and financing costs, increased $184,437,
or
572.9%, to $216,629 for the three months ended June 30, 2008 from $32,192 for
the three months ended June 30, 2007. The increase was primarily due to the
quarterly analysis related to the embedded derivatives associated with the
convertible promissory note of November 13, 2007. Interest expense increased
$273,716, which was partially offset by a gain of $41,080 on the derivatives
associated with the November 13, 2007 convertible note and $56,914 in other
income
Net
Loss
Net
loss
decreased by $759,783, or 87.4%, to a net loss of $109,481 for the three months
ended June 30, 2008 from $869,264 for the three months ended June 30, 2007.
For
details related to the decrease in our net loss see the preceding discussions
related to revenues, to cost of sales, operating expenses and other income
sections above.
Liquidity
and Capital Resources
We
have
incurred significant losses and negative cash flows from operations for the
last
two fiscal years. We have obtained our required cash resources through the
sale
of debt and equity securities. We may not operate profitably in the future
and
may be required to continue the sale of debt and equity securities to finance
our operations.
We
have
specific plans to address our financial situation as follows:
|
·
|
We
believe that the demand for our software and professional services
will
continue to expand as the United States market adopts the new payment
processing opportunities available under changing regulations such
as the
Check Clearing Act for the 21
st
Century, and NACHA’s back office conversion, which allows the conversion
of paper checks in the back offices of retail merchants and government.
Increased demand for our solutions, including our recently introduced
Clearingworks product, has led to increased cash flows from up-front
license fees, transaction-based contract fees and increases in
professional services revenues. We expect demand for its product
and
services to continue to increase in the coming
year.
|
|
·
|
We
have entered into a strategic alliance with one of the largest merchant
service providers (MSP), which will allow this MSP to sell Clearingworks
as part of its ARC and back office conversion services. Though no
exact
dollar amounts have been forecast at the time, we expect that this
alliance will positively affect our
profitability.
|
|
·
|
We
have undertaken a staff restructuring that we expect will significantly
reduce our salary and benefit expense in the coming year while still
maintaining our customer service
levels.
|
|
·
|
We
have renewed our professional service contract with a major credit
card
company and with an arm of the federal government for an additional
year
that, in aggregate, could provide up to $3,000,000 in revenue in
the
coming fiscal year.
|
|
·
|
We
have entered into an agreement with a major business process outsourcer
(BPO), which will enable us to significantly increase our transactional
revenues in the coming fiscal year as more billers outsource their
work to
BPO’s.
|
There
can
be no assurance that our planned activities will be successful or that we will
ultimately attain profitability. Our long term viability depends 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 $163,925 to $1,067,318 at June 30, 2008 from
$903,393 at March 31, 2008. Cash provided by operating activities was $172,745
in the three months ended June 30, 2008 compared to $51,935 in the same period
in the prior fiscal year.
No
cash
was used for investing activities in the three months ended June 30, 2008 as
compared to cash used of $18,172 in the three months ended June 30, 2007.
Financing
activities used cash of $8,820 in the three month period ended June 30, 2008
and
financing activities provided no cash in the three months ended June 30,
2007.
As
a
result of our increased level of transactional revenues achieved in fiscal
2008,
and the expected increase in revenues from recently received and contemplated
contracts, we believe we currently have adequate capital resources to fund
our
anticipated cash needs through March 31, 2009. 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.
Recent
Developments
In June
2008, we received letters from each of the holders of the Notes
(collectively referred to as the Investors) purporting to be Event of Default
Redemption Notices (Notices) pursuant to the Senior Secured Convertible Note
due
November 13, 2010 (Notes). According to the Notices, the purported Event of
Default was the failure of the registration statement filed
by us in December 2007 to register the Conversion Shares and the Warrant Shares
to be declared effective by May 12, 2008.
We
subsequently informed the Investors that, for the reasons described to the
Investors, the Notices were defective and requested that each immediately
withdraw their respective Notices.
On
July
15, 2008, we gave notice to the Investors of their respective rights of optional
redemption of the Notes on August 13, 2008. In respect thereto, we received
optional redemption notices from each of the Investors.
On
August 13, 2008, we repaid principal of $4,000,000
and $38,807.50 of interest accrued on the principal from and including July
1,
2008 through August 12, 2008. There is a dispute with the Investors regarding
whether a redemption premium, penalty interest and other amounts are owed to
the
investors.
The
issues of whether or not an Event of Default has occurred and whether or not
the
Investors are entitled to the additional amounts in respect to the Notes are
in
dispute, and the dispute with the Investors is subject to change. Further,
we
cannot provide assurances that additional amounts will not be payable under
the
Notes. We believe we have meritorious defenses against the assertions and
demands made by the Investors. Regardless of the outcome, this dispute may
be
time-consuming and expensive and could divert management’s attention from our
business.
Factors
That May Affect Our Results
We
have a general history of losses and may not operate profitably in
the
future.
We
have
incurred losses for the last three fiscal years. Our net losses and negative
cash flow may continue for the foreseeable future. As of June 30, 2008, our
accumulated deficit was $62,200,720. We believe that our planned growth and
profitability will depend in large part on our ability to promote our brand
name
and gain clients and expand our relationships with clients for whom we would
provide licensing agreements and system integration. Accordingly, we intend
to
invest heavily in marketing, strategic partnerships, development of our client
base and development of our marketing technology and operating infrastructure.
If we are not successful in promoting our brand name and expanding our client
base, it will have a material adverse effect on our financial condition and
our
ability to continue to operate our business.
Our
ability to continue as a going concern may be contingent upon our ability to
secure capital from prospective investors or lenders.
The
accompanying consolidated financial statements have been prepared assuming
we
will continue on a going concern basis, which contemplates the realization
of
assets and the satisfaction of liabilities in the normal course of business.
We
believe we currently have adequate cash to fund anticipated cash needs through
March 31, 2009. However, we may need to raise additional capital in the future.
Any equity financing may be dilutive to shareholders, and debt financing, if
available, will increase expenses and may involve restrictive covenants. We
may
be required to raise additional capital, at times and in amounts that are
uncertain, especially under the current capital market conditions. These factors
raise substantial doubt about our ability to continue as a going concern. Under
these circumstances, if we are unable to obtain additional capital or are
required to raise it on undesirable terms, it may have a material adverse effect
on our financial condition, which could require us to:
|
·
|
curtail
our operations significantly;
|
|
·
|
sell
significant assets;
|
|
·
|
seek
arrangements with strategic partners or other parties that may require
us
to relinquish significant rights to products, technologies or markets;
or
|
|
·
|
explore
other strategic alternatives including a merger or sale of US
Dataworks.
|
Our
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets or liabilities that might
be necessary should we be unable to continue as a going concern.
Our
operating results are subject to fluctuations caused by many factors
that
could
cause us to fail to achieve our revenue or profitability
expectations,
which
in turn could cause our stock price to decline.
Our
operating results can vary significantly depending upon a number of factors,
many of which are outside our control. Factors that may affect our quarterly
operating results include:
|
·
|
market
acceptance of and changes in demand for our products and
services;
|
|
·
|
gain
or loss of clients or strategic relationships;
|
|
·
|
announcement
or introduction of new software, services and products by us or by
our
competitors;
|
|
·
|
our
ability to build brand recognition;
|
|
·
|
timing
of sales to customers;
|
|
·
|
our
ability to upgrade and develop systems and infrastructure to accommodate
growth;
|
|
·
|
our
ability to attract and integrate new personnel in a timely and effective
manner;
|
|
·
|
our
ability to introduce and market products and services in accordance
with
market demand;
|
|
·
|
changes
in governmental regulation;
|
|
·
|
reduction
in or delay of capital spending by our clients due to the effects
of
terrorism, war and political instability;
and
|
|
·
|
general
economic conditions, including economic conditions specific to the
financial services industry.
|
In
addition, each quarter we derive a significant portion of our revenue from
agreements signed at the end of the quarter. Our operating results could suffer
if the timing of these agreements is delayed. Depending on the type of
agreements we enter into, we may not be able to recognize revenue under these
agreements in the quarter in which they are signed. Some of all of these factors
could negatively affect demand for our products and services, and our future
operating results.
Most
of
our operating expenses are relatively fixed in the short-term. We may be unable
to adjust spending rapidly to compensate for any unexpected sales shortfall,
which could harm our quarterly operating results. Because
of the
emerging nature of the markets in which we compete, we do not have the ability
to predict future operating results with any certainty. Because of the above
factors, you should not rely on period-to-period comparisons of results of
operation as an indication of future performances.
We
may not be able to maintain our relationships with strategic partners, which
may
cause our cash flow to decline.
We
may
not be able to maintain our relationships with strategic partners, such as
Computer Sciences Corporation. These strategic relationships are a core
component of our sales and distribution strategy. The loss of a strategic
partner could harm our financial results.
Because
a small number of customers have historically accounted for and, may
in
future
periods account for, substantial portions of our revenue, our
revenue
could
decline because of delays of customer orders or the failure to
retain
customers.
We
have a
small number of customers that account for a significant portion of our revenue.
Our revenue could decline because of a delay in signing agreements with a single
customer or the failure to retain an existing customer. We may not obtain
additional customers. The failure to obtain additional customers or the failure
to retain existing customers will harm our operating results.
If
general economic and business conditions do not improve, we may
experience
decreased
revenue or lower growth rates.
The
revenue growth and profitability of our business depends on the overall demand
for computer software and services in the product segments in which we compete.
Because our sales are primarily to major banking and government customers,
our
business also depends on general economic and business conditions. A softening
of demand caused by a weakening of the economy may result in decreased revenue
or lower growth rates. As a result, we may not be able to effectively promote
future license revenue growth in our application business.
We
may not be able to attract, retain or integrate key personnel, which
may
prevent
us from successfully operating our business.
We
may
not be able to retain our key personnel or attract other qualified personnel
in
the future. Our success will depend upon the continued service of key management
personnel. The loss of services of any of the key members of our management
team
or our failure to attract and retain other key personnel could disrupt
operations and have a negative effect on employee productivity and morale and
harm our financial results.
We
operate in markets that are intensely and increasingly competitive, and
if
we
are unable to compete successfully, our revenue could decline and we may
be
unable
to gain market share.
The
market for financial services software is highly competitive. Our future success
will depend on our ability to adapt to rapidly changing technologies, evolving
industry standards, product offerings and evolving demands of the
marketplace.
Some
of
our competitors have:
|
·
|
longer
operating histories;
|
|
·
|
larger
installed customer bases;
|
|
·
|
greater
name recognition and longer relationships with clients; and
|
|
·
|
significantly
greater financial, technical, marketing and public relations resources
than US Dataworks.
|
Our
competitors may also be better positioned to address technological and market
developments or may react more favorably to technological changes. We compete
on
the basis of a number of factors, including:
|
·
|
the
breadth and quality of services;
|
|
·
|
creative
design and systems engineering expertise;
|
|
·
|
technological
innovation; and
|
|
·
|
understanding
clients’ strategies and needs.
|
Competitors
may develop or offer strategic services that provide significant technological,
creative, performance, price or other advantages over the services we offer.
If
we fail to gain market share or lose existing market share, our financial
condition, operating results and business could be adversely affected and the
value of the investment in us could be reduced significantly. We may not have
the financial resources, technical expertise or marketing, distribution or
support capabilities to compete successfully.
We
may be responsible for maintaining the confidentiality of our
client’s
sensitive
information, and any unauthorized use or disclosure could result
in
substantial
damages and harm our reputation.
The
services we provide for our clients may grant us access to confidential or
proprietary client information. Any unauthorized disclosure or use could result
in a claim against us for substantial damages and could harm our reputation.
Our
contractual provisions attempting to limit these damages may not be enforceable
in all instances or may otherwise fail to adequately protect us from liability
for damages.
If
we do not adequately protect our intellectual property, our business
may
suffer,
we may lose revenue or we may be required to spend significant time
and
resources
to defend our intellectual property rights.
We
rely
on a combination of patent, trademark, trade secrets, confidentiality procedures
and contractual procedures to protect our intellectual property rights. If
we
are unable to adequately protect our intellectual property, our business may
suffer from the piracy of our technology and the associated loss in revenue.
Any
patents that we may hold may not sufficiently protect our intellectual property
and may be challenged by third parties. Our efforts to protect our intellectual
property rights, may not prevent the misappropriation of our intellectual
property. These infringement claims or any future claims could cause us to
spend
significant time and money to defend our intellectual property rights, redesign
our products or develop or license a substitute technology. We may be
unsuccessful in acquiring or developing substitute technology and any required
license may be unavailable on commercially reasonable terms, if at all. In
the
event of litigation to determine the validity of any third party claims or
claims by us against such third party, such litigation, whether or not
determined in our favor, could result in significant expense and divert the
efforts of our technical and management personnel, regardless of the outcome
of
such litigation. Furthermore, other parties may also independently develop
similar or competing products that do not infringe upon our intellectual
property rights.
We
may be unable to consummate future potential acquisitions or investments or
successfully integrate acquired businesses or investments or foreign operations
with our business, which may disrupt our business, divert management’s attention
and slow our ability to expand the range of our technologies and
products.
We
intend
to continue to expand the range of our technologies and products, and we may
acquire or make investments in additional complementary businesses, technologies
or products, if appropriate opportunities arise. We may be unable to identify
suitable acquisition or investment candidates at reasonable prices or on
reasonable terms, or consummate future acquisitions or investments, each of
which could slow our growth strategy. We have no prior history or experience
in
investing in or acquiring and integrating complementary businesses and therefore
may have difficulties completing such transactions or realizing the benefits
of
such transactions, or they may have a negative effect on our business. Such
investments or acquisitions could require us to devote a substantial amount
of
time and resources and could place a significant strain on our management and
personnel. To finance any acquisitions, we may choose to issue shares of our
common stock, which would dilute your interest in us. Any future acquisitions
by
us also could result in significant write-offs or the incurrence of debt and
contingent liabilities, any of which could harm our operating results.
Our
Senior Secured Convertible Notes contains operating and financial covenants
that
may restrict our business and financing activities.
We
issued
$4,000,000 in senior secured convertible notes on November 13, 2007. The notes
are secured by a pledge of all of our assets, including our intellectual
property, and contains a variety of operational covenants, including limitations
on our ability to incur liens or additional debt, make dispositions, pay
dividends, redeem our stock, make certain investments and engage in certain
merger, consolidation or asset sale transactions, among other restrictions.
Any
future debt financing we enter into may involve similar or more onerous
covenants that restrict our operations. Our borrowings under the notes or any
future debt financing we do will need to be repaid, which creates additional
financial risk for our company, particularly if our business, or prevailing
financial market conditions, are not conducive to paying-off or refinancing
our
outstanding debt obligations. Furthermore, any breach of the covenants in the
notes could cause a default under the notes. If there were an event of default
under the notes that is not waived, the noteholders could cause all amounts
outstanding with respect to the notes to be due and payable immediately. Neither
our assets and cash flow nor those of our put grantors may be sufficient to
fully repay borrowings under the notes if accelerated upon an event of default.
If, as or when required, we are unable to repay, refinance or restructure the
notes, and if our put grantors are unable to repay the notes, the noteholders
could institute foreclosure proceedings against the assets securing borrowings
under the notes. On August 13, 2008, we repaid principal of $4,000,000 and
accrued interest of $38,807.50. There is a dispute with the noteholders
regarding whether a redemption premium, penalty interest or other amounts are
owed to the noteholders. We cannot assure you regarding the outcome of the
dispute or that additional amounts will not be payable under these notes, as
noted above.
We
have received notice from AMEX notifying us of our failure to
satisfy several continued listing rules or standards, which could result us
being subject to delisting procedures
Our
common stock is listed on AMEX under the symbol “UDW.” All companies listed on
AMEX are required to comply with certain continued listing standards, including
maintaining stockholders’ equity at required levels, share price requirements
and other rules and regulations of AMEX. On July 23, 2008, we received notice
from the staff of AMEX indicating that we were not in compliance with certain
continued listing standards of the AMEX Company Guide in that our stockholders’
equity is less than $4,000,000 and we had losses from continuing operations
and
net losses in three of our four most recent fiscal years (Section 1003(a)(ii))
and because our stockholders’ equity is less than $6,000,000 and we had losses
from continuing operations and net losses in our five most recent fiscal years
(Section 1003(a)(iii)). In addition, AMEX advised us that, in accordance with
Section 1003(f)(v) of the AMEX Company Guide, we must effect a reverse stock
split to address its low stock price. Failure to effect a reverse split within
a
reasonable amount of time could result in suspension or delisting of our common
stock. We intend to submit to AMEX a plan advising AMEX of action we have taken,
or will take, to bring us in compliance with Sections 1003(a)(ii) and
1003(a)(iii) of the AMEX Company Guide within a maximum of 18 months from July
23, 2008. If we do not submit a plan by August 22, 2008, or submit a plan that
is not accepted, we may be subject to delisting procedures. Additionally, if
a
plan is accepted but we are not in compliance with any continued listing
standards by January 22, 2010, we could be subject to delisting procedures.
In
the event that our common stock is delisted from AMEX, its market value and
liquidity could be materially adversely affected.
Item
3A(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-QSB, 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 are involved in various legal and other proceedings that are
incidental to the conduct of our business. We believe that none of these
proceedings, if adversely determined, would have a material effect on our
financial condition, results of operations or cash flows.
Item 5.
Other Information
On
August 13, 2008, we redeemed $4,000,000 aggregate principal and an aggregate
of
$38,807.50 in interest on the Senior Secured Convertible Notes due 2010 (Notes).
In connection with the redemption, we entered into a Note Purchase Agreement
and
issued an aggregate of $3,703,500 Senior Secured Notes due August 13, 2009
(Refinance Notes). The Refinance Notes were purchased by our Chief Executive
Officer and a member of our Board of Directors (Holders). The Refinance Notes
bear interest at a rate of 12% per annum with interest payments due in arrears
monthly.
Pursuant
to the Refinance Notes, if we fail 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 we cure this default. In addition, if we are
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 us and the Holders, pursuant to which we granted the Holders
a
security interest in all our personal property, whether now owned or hereafter
acquired, including but not limited to, all accounts, copyrights, trademarks,
licenses, equipment and all proceeds as from such collateral.
Item
6.
Exhibits
The
exhibits listed below are required by Item 601 of Regulation S-B.
Exhibit
Number
|
|
Description
of Document
|
|
|
|
10.1
|
|
Employment
Agreement dated June 12, 2008 by and between the Registrant and Mario
Villarreal (incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K filed with the SEC on June 18,
2008).
|
|
|
|
31.1
|
|
Section
302 Certification of Chief Executive Officer.
|
Exhibit
Number
|
|
Description
of Document
|
|
|
|
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.
|
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, 2008
|
US
DATAWORKS, INC.
|
|
|
|
By
/s/
John T.
McLaughlin
|
|
John
T. McLaughlin
|
|
Chief
Accounting Officer
|
|
(Principal
Financial and Accounting Officer
|
|
and
Duly Authorized Officer)
|
EXHIBIT
INDEX
Exhibit
Number
|
|
Description
of Document
|
|
|
|
10.1
|
|
Employment
Agreement dated June 12, 2008 by and between the Registrant and Mario
Villarreal (incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K filed with the SEC on June 18,
2008).
|
|
|
|
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.
|