UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C., 20549
FORM 10-QSB
(Mark One)
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þ
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2007
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o
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period to
Commission file number: 001-15835
US Dataworks, Inc.
(Exact name of small business issuer as specified in its charter)
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Nevada
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84-1290152
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(State or other jurisdiction of
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(I.R.S. employer identification number)
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incorporation or organization)
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One Sugar Creek Center Boulevard
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Sugar Land, Texas
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77478
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(Address of principal executive offices)
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(Zip Code)
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Issuers 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
þ
NO
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). YES
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NO
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Number of shares of Common Stock outstanding as of November 5, 2007: 32,062,962
Transitional Small Business Disclosure Format (Check one): YES
o
NO
þ
US DATAWORKS, INC.
TABLE OF CONTENTS
FORM 10-QSB
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
US DATAWORKS, INC.
BALANCE SHEET
September 30, 2007
(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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118,047
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Accounts receivable, trade, net allowance for doubtful accounts of $250,000
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1,031,544
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Accounts receivable, factored, net of $169,237
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135,390
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Prepaid expenses and other current assets
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175,116
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Total current assets
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1,460,097
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Property and equipment, net
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566,849
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Goodwill, net
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14,133,629
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Other assets
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32,111
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Total assets
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$
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16,192,686
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The accompanying notes are an integral part of these financial statements.
1
US DATAWORKS, INC.
BALANCE SHEET
September 30, 2007
(Unaudited)
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Note Payable, current
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$
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35,279
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Note payable
related party
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500,000
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Convertible promissory note
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256,066
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Deferred revenue current
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358,384
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Accounts payable
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1,484,016
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Accrued expenses
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980,081
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Interest
payable related parties
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683
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Derivative
warrants
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16,873
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Total current liabilities
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3,631,382
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Note Payable, long term
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70,557
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Total liabilities payable
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3,701,939
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Commitments and Contingencies
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Stockholders Equity:
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Convertible
Series B preferred stock, $0.0001 par value
700,000 shares authorized, 109,333 shares issued and outstanding $3.75 liquidation
preference, dividends of $272,917 in arrears
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55
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Common
stock, $0.0001 par value
90,000,000 shares authorized and 38,162,962 shares issued and 32,062,962 outstanding
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3,816
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Additional paid-in capital
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64,618,244
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Accumulated deficit
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(52,131,368
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)
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Total stockholders equity
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12,490,747
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Total liabilities and stockholders equity
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$
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16,192,686
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2
US DATAWORKS, INC.
STATEMENTS OF OPERATIONS
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For the Three Months Ended
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For the Six Months Ended
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September 30,
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September 30,
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2007
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2006
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2007
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2006
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REVENUES
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Software licensing revenues
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$
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36,922
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$
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135,728
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$
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106,922
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$
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514,983
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Software transactional revenues
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389,880
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291,724
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779,389
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605,720
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Software maintenance revenues
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233,796
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102,783
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425,009
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206,549
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Professional service revenues
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705,486
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1,291,438
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1,283,836
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1,709,510
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Total revenues
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1,366,084
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1,821,673
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2,595,156
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3,036,762
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COST OF SALES
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509,123
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497,428
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895,082
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1,019,728
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Gross profit
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856,961
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1,324,245
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1,700,074
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2,017,034
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OPERATING EXPENSES
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General and administrative
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1,642,644
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1,768,850
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3,283,777
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3,531,798
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Depreciation and amortization
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45,763
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34,581
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84,813
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67,641
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Total operating expense
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1,688,407
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1,803,431
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3,368,590
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3,599,439
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(LOSS) FROM OPERATIONS
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(831,446
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(479,186
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(1,668,516
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(1,582,405
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OTHER INCOME (EXPENSE)
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Interest expense
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(6,402
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(78,606
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(12,803
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(170,778
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Interest
expense related party
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(10,938
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¾
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(21,875
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¾
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Financing Costs
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(25,976
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¾
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(25,976
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¾
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Gain/Loss on derivatives
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73,235
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257,383
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58,382
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(156,071
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Litigation settlement
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¾
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222,600
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¾
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222,600
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Loss on
disposal of assets
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(44,231
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(44,231
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Other income
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¾
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2,016
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¾
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10,491
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Total other income/(expense)
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(14,312
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403,393
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(46,503
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(93,758
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(LOSS) BEFORE PROVISION FOR INCOME TAXES
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(845,758
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(75,793
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(1,715,019
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(1,676,163
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PROVISION FOR INCOME TAXES
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¾
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¾
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¾
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¾
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NET INCOME (LOSS)
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$
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(845,758
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$
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(75,793
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$
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(1,715,019
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$
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(1,676,163
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)
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Basic and diluted loss per share
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$
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(0.03
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$
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(0.00
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$
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(0.05
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)
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$
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(0.06
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Basic
weighted average shares outstanding
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31,549,103
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30,560,591
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31,425,462
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30,415,806
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Diluted
weighted average shares outstanding
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31,549,103
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30,560,591
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31,425,462
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30,415,806
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The accompanying notes are an integral part of these financial statements.
3
US DATAWORKS, INC.
STATEMENTS OF CASH FLOW
For the Six Months Ended September 30,
(Unaudited)
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2007
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2006
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Cash flows from operating activities:-
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Net loss from operations
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$
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(1,715,021
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$
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(1,676,163
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)
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Adjustments to reconcile net loss to net cash used in operating activities:
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Depreciation and amortization of property and equipment
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84,813
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67,641
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Amortization of note discount on convertible promissory note
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¾
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132,819
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(Gain)/Loss on disposition of assets
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44,231
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(3,394
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Stock based compensation
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244,044
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390,572
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Gain / (Loss) on derivative
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(58,382
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)
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156,071
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Changes in operating assets and liabilities:
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Accounts receivable, trade
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1,148,485
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(608,831
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Accounts receivable, factored
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(135,391
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(244,280
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Costs & estimated earnings in excess of billings on uncompleted contracts
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¾
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238,000
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Prepaid expenses and other current assets
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(43,204
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)
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(31,044
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Other assets
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(1,778
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)
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12,890
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Deferred revenue
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(285,511
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)
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527,629
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Accounts payable
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563,906
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230,225
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Accrued expenses
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(20,945
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(246,004
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)
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Interest payable
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(17,046
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(40,544
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Net cash used in operating activities
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(191,799
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)
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(1,094,413
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)
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Cash flows from investing activities:
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Purchase of property and equipment
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(107,280
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)
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(57,246
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)
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Proceeds from sales of fixed assets
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10,850
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8,000
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Net cash used in investing activities
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(96,430
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)
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(49,246
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)
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The accompanying notes are an integral part of these financial statements.
4
US DATAWORKS, INC.
STATEMENTS OF CASH FLOW
For the Six Months Ended September 30,
(Unaudited)
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2007
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2006
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Cash flows from financing activities:
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Proceeds from related party note payable
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¾
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500,000
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Repayment of convertible promissory note
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¾
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(512,133
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)
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Proceeds from stock sale
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305,000
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¾
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Repayment of
note payable related party
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(39,000
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)
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¾
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Net cash provided/ (used in) by financing activities
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266,000
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(12,133
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)
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Net (decrease) in cash and cash equivalents
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(22,229
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)
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(1,155,792
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)
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Cash and cash equivalents, beginning of period
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|
140,276
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|
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1,290,438
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Cash and cash equivalents, end of period
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$
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118,047
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$
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134,646
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Supplemental disclosures of cash flow information
Interest paid
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$
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25,607
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$
|
78,504
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|
The accompanying notes are an integral part of these financial statements.
5
US DATAWORKS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1.
|
|
Organization and Business
|
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|
|
General
|
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|
|
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.
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|
2.
|
|
Summary of Significant Accounting Policies
|
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|
|
INTERIM FINANCIAL STATEMENTS
|
|
|
|
The 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 financial statements and the
notes thereto included in the Companys 2007 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, 2008.
|
|
|
|
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.
|
|
|
|
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.
|
6
|
|
The Company recognizes revenues associated with the resale of ATMs in accordance with the
provisions of the Statement of Financial Accounting Standards (SFAS) No. 48. The Companys
sale price is fixed and determinable at the date of sale and it has no obligation to directly
bring about the resale of the product. In addition, the buyers obligation to pay the Company
is not contingent upon release of the product and its sale price is not adjusted if the product
is lost or damaged. The buyer has economic substance apart from the Company and it can
reasonably estimate the amount of returns at the time of sale. Therefore revenue is recognized
at the time of sale.
|
|
|
|
Goodwill
|
|
|
|
Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 142 Goodwill and Other Intangible Assets, which establishes new accounting and
reporting requirements for goodwill and other intangible assets. Under SFAS No. 142, all
goodwill amortization ceased effective January 1, 2002.
|
|
|
|
The goodwill recorded on the Companys books is from the acquisition of US Dataworks, Inc. in
fiscal year 2001 which remains the Companys single reporting unit. SFAS No. 142 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, 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 did
not have an impairment of goodwill to record for the years ended March 31, 2007 or March 31,
2006.
|
|
|
|
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 holders 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 133, they are required by
SFAS 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, 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 Companys fiscal year 2007. The Companys
|
7
|
|
Financial Statements as of and for the three months ended September 30, 2007 reflect the impact
of SFAS 123R. In accordance with the modified prospective transition method, the Companys
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 123R for the
three months and six months ended September 30, 2007 was $173,306 and $244,044 respectively,
which consists of stock-based compensation expense related to employee and director stock
options and restricted stock issuances.
|
|
|
|
SFAS 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
companys Statement of Operations. Prior to the adoption of SFAS 123R, the Company accounted for
stock-based awards to employees and directors using the intrinsic value method in accordance
with APB 25 as allowed under Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, (SFAS 123). Under the intrinsic value method, no stock-based
compensation expense had been recognized in the Companys Statement of Operations prior to
January 1, 2006 because the exercise price of the Companys stock options granted to employees
and directors was equal to or greater than the fair market value of the underlying stock at the
date of grant.
|
|
|
|
For purposes of proforma disclosure, the estimated fair value of the options is included in
expense over the options vesting period or expected life. The Companys proforma information
for the three months and six months ended September 30, 2007 and 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Six Months
|
|
|
Ending Sept 30,
|
|
Ending Sept 30,
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Net income as reported
|
|
$
|
(845,758
|
)
|
|
$
|
(75,794
|
)
|
|
$
|
(1,715,019
|
)
|
|
$
|
(1,676,246
|
)
|
Add stock-based employee
compensation expense
included in net loss as
reported, net of related
tax effects
|
|
$
|
173,306
|
|
|
$
|
128,516
|
|
|
$
|
244,044
|
|
|
$
|
390,572
|
|
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
|
|
$
|
(672,452
|
)
|
|
$
|
52,722
|
|
|
$
|
(1,470,975
|
)
|
|
$
|
(1,285,674
|
)
|
Basic and diluted earnings
(loss) per share, as
reported
|
|
$
|
(0.03
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.06
|
)
|
Basic and diluted earnings
(loss) per share, pro forma
|
|
$
|
(0.02
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.04
|
)
|
|
|
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 and six months
ended September 30, 2007 is based on awards ultimately expected to vest, it has been reduced for
estimated forfeitures.
|
8
|
|
Upon adoption of SFAS 123R, the Company continued to use 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. In determining the compensation cost of
the options granted during the three and six months ended September 30, 2007, as specified by
SFAS 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 Ending
|
|
For the Six Months Ending
|
|
|
September 30,
|
|
September 30,
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
Risk-free Interest Rate
|
|
|
4.30
|
%
|
|
|
4.93
|
%
|
|
|
4.56
|
%
|
|
|
4.95
|
%
|
Expected Life of Options Granted
|
|
3 years
|
|
3 years
|
|
3 years
|
|
3 years
|
Expected Volatility
|
|
|
67
|
%
|
|
|
84
|
%
|
|
|
72
|
%
|
|
|
86
|
%
|
Expected Dividend Yield
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Expected Forfeiture Rate
|
|
|
30
|
%
|
|
|
30
|
%
|
|
|
30
|
%
|
|
|
30
|
%
|
|
|
As of September 30, 2007, there was approximately $191,214 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 Six Months Ended
|
|
|
September 30,
|
|
|
2007
|
|
2006
|
Options outstanding under the Companys stock option plans
|
|
|
7,407,349
|
|
|
|
6,444,349
|
|
Options granted outside the Companys stock option plans
|
|
|
1,160,000
|
|
|
|
1,160,000
|
|
Warrants issued in conjunction with private placements
|
|
|
5,438,683
|
|
|
|
5,839,933
|
|
Warrants issued as a financing cost for notes payable and convertible notes payable
|
|
|
1,757,916
|
|
|
|
2,083,783
|
|
Warrants issued for services rendered and litigation settlement
|
|
|
180,769
|
|
|
|
360,769
|
|
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.
9
|
|
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 extends credit to its customers and performs ongoing credit evaluations of such
customers. The Company does not obtain collateral from its customers 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.
|
|
|
|
Three of the Companys customers accounted for 27%, 27% and 11%, respectively, of the Companys
net revenues for the three months ended September 30, 2007. Four customers accounted for 26%,
26%, 11% and 10%, respectively, of net revenue for the six months ended September 30, 2007.
Three customers accounted for 42%, 17% and 11% of net revenues for the three months ended
September 30, 2006. Two customers accounted for 34% and 20%, respectively, of net revenue for
the six months ended September 30, 2006.
|
|
|
|
At September 30, 2007, amounts due from significant customers accounted for 74% of accounts
receivable.
|
|
3.
|
|
Property and Equipment
|
|
|
|
Property and equipment as of September 30, 2007 consisted of the following:
|
|
|
|
|
|
Furniture and fixtures
|
|
$
|
99,535
|
|
Office and telephone equipment
|
|
|
182,275
|
|
Computer equipment
|
|
|
711,725
|
|
Computer software
|
|
|
1,271,098
|
|
Leasehold improvements
|
|
|
64,733
|
|
|
|
|
|
|
|
|
2,329,366
|
|
Less accumulated depreciation and amortization
|
|
|
(1,762,517
|
)
|
|
|
|
|
Total
|
|
$
|
566,849
|
|
|
|
|
|
|
|
Depreciation and amortization expense for the three and six months ended September 30, 2007 and
2006 was $45,763, $84,813, $34,581 and $67,641, respectively.
|
|
4.
|
|
Notes Payable Related Parties
|
On September 26, 2006, the Company entered into a note payable with its Chief Executive Officer for
$500,000. 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 September 30, 2007
the outstanding balance on this note payable is $500,000. 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.
In August
2007 the Company entered into a note payable with an equipment vendor
to purchase new telephone equipment for $105,835. The note bears a
10.68% per annum interest rate, is secured by the equipment and is
due in 36 equal monthly installments.
10
5.
|
|
Convertible Promissory Notes
|
|
|
|
Convertible promissory notes at September 30, 2007 consisted of the following:
|
|
|
|
|
|
Convertible promissory note, interest at 10% per
annum, unsecured, $256,066 due December 15, 2007
|
|
$
|
256,066
|
|
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
(256,066
|
)
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
-0-
|
|
|
|
|
|
|
|
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 original note was issued effective September 15, 2004 in
connection with the November 2004 settlement of a lawsuit brought by an investor in December
2003. The amended note is convertible at anytime, at the holders election, into shares of the
Companys common stock at a per share conversion price of $1.10, subject to standard
antidilution provisions.
|
|
|
|
The amended note became effective September 15, 2005 and extended a principal payment of
$256,067, 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 Companys common stock at an exercise price of $0.59 per share. The warrant will expire
on September 15, 2008.
|
|
|
|
The changes to this debt caused the accounting treatment to be an extinguishment of the old debt
and issuance of new debt instead of being treated as modification of debt. Therefore, the
excess of the fair value of the note and warrants over the carrying amount of the debt is
$206,000 and has been recorded as a loss on extinguishment for the year ended March 31, 2006.
|
|
|
|
In connection with the November 2004 settlement, the Company also issued a warrant to purchase
160,000 shares of the Companys common stock at a purchase price of $0.75 per share, which
expired on November 10, 2006.
|
|
|
|
Using the Black-Scholes pricing model the Company has determined the value of the warrants
issued in connection with the settlement to be $126,000. This amount, together with the value of
the convertible promissory note, the value of the plaintiffs legal expense reimbursement and
the Companys legal costs incurred in connection with the settlement totaled $924,200 and has
been recorded as Investor litigation settlement expense for the year ended March 31, 2005.
|
|
|
|
On September 14, 2007, the Company reached an agreement with the note holder to extend the terms
of the note for an additional 90 days in exchange for warrants to purchase up to 200,000 shares
of the Companys common stock dependent upon when the note is paid. On September 14, 2007, the
Company issued the holder a warrant to purchase 66,666 shares of the Companys common stock,
with another warrant to purchase 66,666 shares of the Companys common stock to be issued if the
note is not paid by October 15, 2007 and the final warrant to purchase 66,667 shares of the
Companys common stock to be issued if the note is not paid by November 15, 2007.
|
|
|
|
Using the Black-Scholes pricing model the Company has determined the value of the warrants
issued on September 14, 2007 in connection with the note extension to be $13,141.
|
|
|
|
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
|
11
|
|
original issue discount of $70,000 for gross proceeds of $700,000.
The debenture is convertible at anytime at
the discretion of the holder at a price per share of $0.572 into 1,346,154 shares of the
Companys common stock. The convertible debenture is to be repaid in 15 monthly installments of
$51,333.33 beginning April 15, 2006. The Company may also elect, upon proper notice, to pay any
monthly installment in shares of the Companys common stock based on a conversion price equal
to the lesser of (i) the then applicable conversion price, or (ii) 90% of the volume weighted
average price of the Companys common stock for the 10 trading days immediately preceding the
payment; provided, that, such conversion price must be at least equal to the conversion floor of
$0.23, or such monthly installment must be paid in cash. This convertible debenture was amended
on March 9, 2006, pursuant to which the Company must, within 25 calendar days prior to each
monthly payment, deliver 89,744 shares of its common stock to the holders, which represents the
monthly installment amount divided by the then conversion price with the first monthly payment
becoming due on April 17, 2006. In connection with the Debenture Agreement, the Company issued
two groups of warrants, Short Term Warrants and Long Term Warrants to the institutional
investor. The Short Term Warrants allow the institutional investor to purchase an aggregate of
407,926 shares of the Companys common stock with an exercise price of $0.572 per share
exercisable for a period of 180 days at any time after the later of (i) the effective date of
the registration statement (as described below) or (ii) December 16, 2005. The Long Term
Warrants allow the institutional investor to purchase an aggregate of 471,154 shares of the
Companys common stock with an exercise price of $0.572 per share exercisable at anytime from
December 16, 2005 through December 16, 2008; provided, however, the institutional investor will
not be permitted to exercise a warrant to the extent that the number of shares of the Companys
common stock beneficially owned by such institutional investor taken together with the number of
shares to be issued upon exercise of the warrant equals or exceeds 4.999% of the Companys then
issued and outstanding shares of common stock. The warrants also contain trading market
restrictions that preclude the Company from issuing shares of common stock upon exercise thereof
if such issuance, when aggregated with other issuances of the Companys common stock pursuant to
the warrants, would exceed 19.999% of the Companys then issued and outstanding shares of common
stock, unless the Company has previously obtained the required shareholder approval. Pursuant
to a Registration Rights Agreement dated June 16, 2005 between the Company and the institutional
investor, The Company agreed to file a registration statement for the resale of the shares of
the Companys common stock that may be issued to the institutional investor upon the conversion
of the convertible debenture and the exercise of the Short Term Warrants and the Long Term
Warrants. The registration statement covering these securities was effective on September 1,
2005.
|
|
|
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
$449,089, 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 expected cash flows /
Lattice Model with a closing price of $0.65, a conversion price as defined in the respective
note agreement and a period of two years. Concerning the debt features, the model uses several
assumptions including: historical stock price volatility, approximate risk-free interest rate
(3.5%), remaining term to maturity, and the closing price of the companys common stock to
determine the estimated fair value of the derivative liability. This convertible note was paid
in full in March 2007 and as such has been removed from the Companys financial statements for
fiscal year 2008.
|
|
|
|
The warrants included with this note for purchase of the Companys common stock had an initial
value of $271,940. This amount has been classified as a derivative financial instrument and
recorded as a liability on our consolidated balance sheet in accordance with SFAS 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 $1.14, the respective exercise price
of the warrants, a 2 year term, and a 90% volatility factor relative to the date of issuance.
The model uses several assumptions including: historical stock price volatility, approximate
risk-free
|
12
|
|
interest rate (3.50%), remaining term to maturity, and the closing price of the
companys common stock to
determine the estimated fair value of the derivative liability. In accordance with the
provisions of SFAS 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 September 30, 2007, decreased to a fair value of $16,873, due
in part to a decrease in the market value of the companys common stock, which resulted in an
other income item of $73,235.
|
|
|
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.
|
|
6.
|
|
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 Companys
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 is 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. For the three and six months period ended September 30, 2007, the financial
institution has not requested repurchase of an account receivable. For the three months ending
September 30, 2007, the Company has sold $59,105 in receivables under the agreement, which
yielded a loss on the sale of these receivables of $739. For the six months ending September 30,
2007, the Company has sold $297,105 in receivables under the agreement, which yielded a loss on
the sale of these receivables of $9,674. The Agreement was terminated by the Company on August
2, 2007.
|
|
|
|
On August 10, 2007, the Company entered into a Loan and Security Agreement (the Loan
Agreement) with Silicon Valley Bank (SVB), pursuant to which SVB will advance funds to the
Company for certain of its accounts receivables up to $2 million. Under the terms of the Loan
Agreement, the Company will receive an advance of up to 80% of the subject account receivable
(the Advance) and pay a finance charge to SVB equal to prime plus 1.5% to 3.0%, based on the
Companys assets to liabilities ratio, while the Advance is outstanding. The Company is
obligated to repay the Advance upon receipt of payment for the subject account receivable. For
the three and six months ending September 30, 2007, the Company has sold $237,244 in receivables
under the agreement, which yielded a loss on the sale of these receivables of $34,465. The
Agreement will continue in effect until August 9, 2008.
|
|
7.
|
|
Commitments and Contingencies
|
|
|
|
Employment Agreements
|
|
|
|
On April 3, 2006, the Company entered into an employment agreement with each of its President,
Payment Products Division and Vice Chairman, Sr. Vice President and Chief Technology Officer,
and Vice President of Business Development and General Counsel, for a term of three years with
automatic renewal for successive one-year terms unless either party gives timely notice of
non-renewal.
|
|
|
|
Annual base salary for the President, Payment Products Division and Vice Chairman of the Company
is $190,000 and pursuant to the terms of the agreement he is entitled to receive an option to
purchase 550,000 shares of the Companys common stock. This option vests over a 3 year period
with 150,000 shares vesting on April 3, 2006 and 200,000 shares vesting on each of April 3,
2007 and 2008. In addition the President, Payment Products Division and Vice Chairman is
entitled to receive a bonus of $48,125 for year end 2006.
|
|
|
|
Annual base salary for the Senior Vice President and Chief Technology Officer of the Company is
$185,000 and pursuant to the terms of the agreement he is entitled to receive 200,000 shares of
restricted common stock.
|
13
|
|
The restricted shares vest over a 3 year period with 25,000 shares
vesting on April 3, 2006 and 87,500 shares
vesting on each of April 3, 2007 and 2008. The Senior Vice President and Chief Technology
Officer is also eligible to receive a quarterly bonus of equal to 3.5% of the increase in the
Companys revenue from fiscal year quarter to fiscal year quarter and to receive a bonus of
$78,750 for fiscal year 2006.
|
|
|
|
Annual base salary for the Vice President of Business Development and General Counsel of the
Company is $175,000, and pursuant to the terms of the agreement he is entitled to receive an
option to purchase 700,000 shares of the Companys common stock. This option vests over a 3
year period with 300,000 shares vesting on April 3, 2006 and 200,000 shares vesting on each of
April 3, 2007 and, 2008. The Vice President of Business Development and General Counsel is also
eligible to receive a quarterly bonus based upon the Companys future acquisitions or mergers.
|
|
|
|
On May 23, 2006, the Company entered into an employment agreement with its Chairman of the Board
and Chief Executive Officer. The agreement has a 2 year term with automatic renewal for
successive one year terms unless either party gives timely notice of non-renewal. His annual
base salary is $220,000 and he is entitled to receive 100,000 shares of restricted common stock
that vest immediately and is entitled to receive an option to purchase 600,000 shares of the
Companys common stock. This option vests as to 300,000 shares on each of May 22, 2007 and
2008.
|
|
8.
|
|
Stockholders Equity
|
|
|
|
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.
|
|
|
|
In August and October 2000, the Company issued 101,867 and 26,733 units respectively, in a
private placement for gross proceeds of $382,000 and $100,250, respectively. Each unit consisted
of one share of the Companys voting convertible Series B preferred stock (the Series B) and a
warrant, exercisable through October 2003, to purchase one share of the Companys common 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 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. The Series B is convertible upon issuance into shares of the Companys common stock
at $3.75 per share. The warrant entitles the holder to purchase one share of the Companys
common stock at $6.25 per share, which represents 115% of the market value of the Companys
common stock at the closing date.
|
|
|
|
In May 2001, an investor in the Series B rescinded its acquisition and returned to the Company
2,667 shares of Series B and warrants for the purchase of 533 shares of common stock in exchange
for the return of its investment of $10,000.
|
|
|
|
In August 2004, an investor in the Series B elected to convert his 16,000 shares and accordingly
was issued 3,200 shares of the Companys common stock.
|
|
|
|
At September 30, 2007, there were accumulated, undeclared dividends in arrears of $272,916 or
$2.48 per share.
|
|
|
|
Common Stock and Warrants
|
|
|
|
During the three and six months ended September 30, 2007, the Company completed the following:
|
14
|
|
On August 31, 2007, the Company entered into a stock purchase agreement ( the Purchase
Agreement), with certain employees and directors of the company, pursuant to which the Company
agreed to issue to those certain
employees and directors an aggregate of 762,500 shares of the Companys common stock, $0.0001
par value (the Common Stock), for an aggregate purchase price of $305,000.
|
|
|
On September 14, 2007 the Company reached agreement with a current note holder to extend the
terms of the convertible promissory note dated September 15, 2005 for an additional 90 days in
exchange for the granting of up to 200,000 warrants dependent upon when the note is paid.
66,666 warrants were issued on the agreement date with another 66,666 to be issued if the note
is not paid by October 15, 2007 and the final 66,667 warrants issued if the note is note paid
by November 15, 2007.
|
|
|
|
During the three and six months ended September 30, 2006, the Company completed the following:
|
|
|
|
Non-Cash Financing
|
|
|
|
In the quarter ended June 30, 2006, the Company issued 303,116 shares of common stock with a
value of $154,000 to pay down debt associated with the convertible promissory note issued June
16, 2005.
|
|
|
|
In the quarter ended September 30, 2006, the Company issued 287,173 shares of common stock with
a value of $154,000 to pay down debt associated with the convertible promissory note issued June
16, 2005.
|
|
|
|
In the six months ended September 30, 2006, the Company issued
590,289 shares of common stock with a value of $308,000 to pay down
debt associated with the convertible promissory note issued June 16,
2005.
|
|
|
|
In August 2007 the Company entered into a note payable with
an equipment vendor to purchase new telephone equipment for $105,835.
|
|
|
|
Stock Options
|
|
|
|
In August 1999, the Company implemented its 1999 Stock Option Plan (the 1999 Plan). In August
2000, the Companys Board of Directors approved the 2000 Stock Option Plan (the 2000 Plan),
which amends and restates the 1999 Plan. In September 2006, shareholders approved an amendment
to the Companys amended and restated 2000 Stock Option Plan to increase the maximum aggregate
number of shares available for issuance thereunder from 6,000,000 to 7,500,000. 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 six months ended September 30, 2007 the Company granted 907,000 stock options to
certain employees that may be exercised at prices ranging between $0.48 and $0.61. During the
six months ended September 30, 2006, the Company granted 3,098,500 stock options to certain
employees that may be exercised at prices ranging from $0.46 to $0.82.
|
|
|
|
The following table summarizes certain information relative to stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000 Stock Option Plan
|
|
Outside of Plan
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Weighted-Average
|
|
|
Shares
|
|
Exercise Price
|
|
Shares
|
|
Exercise Price
|
|
Outstanding, March 31, 2007
|
|
|
6,565,349
|
|
|
$
|
0.74
|
|
|
|
1,160,000
|
|
|
$
|
1.02
|
|
Granted
|
|
|
907,000
|
|
|
$
|
0.50
|
|
|
|
¾
|
|
|
|
¾
|
|
Exercised
|
|
|
¾
|
|
|
|
¾
|
|
|
|
¾
|
|
|
|
¾
|
|
Forfeited/canceled
|
|
|
65,000
|
|
|
$
|
0.90
|
|
|
|
¾
|
|
|
|
¾
|
|
Outstanding, September 30, 2007
|
|
|
7,407,349
|
|
|
$
|
0.71
|
|
|
|
1,160,000
|
|
|
$
|
1.02
|
|
Exercisable, September 30, 2007
|
|
|
5,801,352
|
|
|
$
|
0.69
|
|
|
|
1,160,000
|
|
|
$
|
1.02
|
|
15
|
|
The weighted-average remaining life and the weighted-average exercise price of all of the
options outstanding at September 30, 2007 were 7.69 years and $0.75 respectively. The exercise
prices for the options outstanding at September 30, 2007 ranged from $0.43 to $6.25, and
information relating to these options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Weighted-
|
|
|
Weighted-Average
|
|
Exercise
|
|
Stock Options
|
|
|
Stock Options
|
|
|
Remaining Contractual
|
|
|
Average
|
|
|
Exercise Price of
|
|
Prices
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Life
|
|
|
Exercise Price
|
|
|
Options Exercisable
|
|
$0.43 0.80
|
|
|
6,035,513
|
|
|
|
4,429,516
|
|
|
8.11 years
|
|
$
|
0.55
|
|
|
$
|
0.47
|
|
$0.81 1.35
|
|
|
1,787,836
|
|
|
|
1,787,836
|
|
|
6.85 years
|
|
$
|
0.93
|
|
|
$
|
0.93
|
|
$1.36 6.25
|
|
|
744,000
|
|
|
|
744,000
|
|
|
6.35 years
|
|
$
|
1.96
|
|
|
$
|
1.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,567,349
|
|
|
|
6,961,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
During the three and six months ended September 30, 2006, the Company completed the following:
The Company granted 200,000 shares of restricted common stock to the Senior Vice President and
Chief Technology Officer and 100,000 shares of restricted common stock to the Chairman of the Board
and Chief Executive Officer associated with employment agreements reached with each. The shares
are granted under the 1999 Plan, as amended and restated by the 2000 Plan.
On
November 13, 2007, the Company secured certain bridge financing from certain institutional
investors (collectively, the Investors) in the form of
senior secured convertible notes (the Notes) for an
aggregate of $4.0
million. The interest payable on the Notes is equal to the 6-month LIBOR rate plus
five hundred basis points (or 9.81% at the time of subscription) and
is re-calculated as of the first day of each calendar quarter. The
Notes may be converted at any time into shares of the Companys 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 Companys
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 Charles E. Ramey,
the Companys Chief Executive Officer, and John L. Nicholson, M.D., a member of the Companys Board
of Directors (collectively, the Guarantors). Pursuant to the Put Agreement, following August 13,
2008, under certain circumstances the Investors may require one or more of the Guarantors to
purchase all or a portion of the Note, including any accrued interest or late charges.
In consideration for
this guarantee, the Company is paying the Guarantors a fee (the Guarantors Fee) equal to: (i)
an initial installment of two percent (2%) of the outstanding Note principal for initial six
months of the Notes 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 Notes term. The Guarantor Fee will be shared equally by the Guarantors and will accrue
immediately upon the start of each of the time periods described by subsection (i), (ii)
and (iii), above. The Guarantors Fee would not be 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 Conversion Shares and Warrant Shares will be included in
a registration statement to be filed with the SEC within thirty (30)
days following the closing of the financing.
Item 2. Managements 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 consolidated 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, promotion, strategic partnerships and infrastructure,
fluctuations in our operating results, our need for future financing, our dependence on a small
number of customers, 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 execute on our strategic
opportunities, 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.
16
Critical Accounting Policies
The following discussion and analysis of our 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
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 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.
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.
We recognize revenues associated with the resale of ATMs in accordance with the provisions of
the Statement of Financial Accounting Standards (SFAS) No. 48. Our sale price is fixed and
determinable at the date of sale and we have no obligation to directly bring about the resale of
the product. In addition, the buyers obligation to pay us is not contingent upon release of the
product and our sale price is not adjusted if the product is lost or damaged. The buyer has
economic substance apart from us and we can reasonably estimate the amount of returns at the time
of sale. Therefore revenue is recognized at the time of sale.
Goodwill
Effective January 1, 2002, we adopted SFAS No. 142 Goodwill and Other Intangible Assets,
which establishes new accounting and reporting requirements for goodwill and other intangible
assets. Under SFAS No. 142, all goodwill amortization ceased effective January 1, 2002.
The goodwill recorded on our books is from the acquisition of US Dataworks, Inc. in fiscal
year 2001, which remains our single reporting unit. SFAS No. 142 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
17
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 did not have an
impairment of goodwill to record for the years ended March 31, 2007 or March 31, 2006.
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 receivable. We evaluate our
accounts receivable on a regular basis for collectibility and provide for an allowance for
potential credit losses as deemed necessary.
Three of our customers accounted for 27%, 27% and 11%, respectively, of our net revenues for
the three months ended September 30, 2007. Four customers accounted for 26%, 26%, 11% and 10%,
respectively, of net revenue for the six months ended September 30, 2007. Three customers
accounted for 42%, 17% and 11% of net revenues for the three months ended September 30, 2006. Two
customers accounted for 34% and 20%, respectively, of net revenue for the six months ended
September 30, 2006.
At September 30, 2007, amounts due from significant customers accounted for 74% of accounts
receivable
Recent Developments
Results of Operations
The results of operations reflected in this discussion include our operations for the three
and six month periods ended September 30, 2007 and 2006.
Revenues
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30
|
|
|
Six Months Ended September 30
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
Software licensing revenues
|
|
$
|
37
|
|
|
$
|
136
|
|
|
|
-73
|
%
|
|
$
|
107
|
|
|
$
|
515
|
|
|
|
-79
|
%
|
Software transactional revenues
|
|
|
390
|
|
|
|
292
|
|
|
|
34
|
%
|
|
|
779
|
|
|
|
606
|
|
|
|
29
|
%
|
Software maintenance revenues
|
|
|
234
|
|
|
|
103
|
|
|
|
127
|
%
|
|
|
425
|
|
|
|
207
|
|
|
|
106
|
%
|
Professional service revenues
|
|
|
705
|
|
|
|
1,291
|
|
|
|
-45
|
%
|
|
|
1,284
|
|
|
|
1,709
|
|
|
|
-25
|
%
|
|
|
|
Total revenues
|
|
$
|
1,366
|
|
|
$
|
1,822
|
|
|
|
-25
|
%
|
|
$
|
2,595
|
|
|
$
|
3,037
|
|
|
|
-14
|
%
|
|
|
|
18
The decrease in
licensing revenues for the three and six months ended September 30,
2007, compared to the same periods last year, was primarily due to the significant license revenue
recorded in the first quarter of fiscal 2007 associated with the signing of the integrated license,
maintenance and services agreement with a significant customer and a reduction in third party
software resale as compared to the prior year period.
The increase in transactional revenues for the three and six months ended September 30, 2007,
compared to the same periods last year, was principally as a result of an increase in the number of
customers subject to transactional pricing.
The increase in maintenance revenues for the three and six months ended September 30, 2007,
compared to the same periods last year, was primarily attributable to the integrated license,
maintenance and services agreement we entered into with a significant customer in the first fiscal
quarter of 2007. This agreement contains an annual maintenance fee component that will generate
additional annual maintenance revenues of approximately $400,000 in the current fiscal year 2008.
This annual maintenance agreement started in May 2007 and to date has accounted for approximately
$200,000 of the maintenance revenues in the current six month period. However, we do not
anticipate significant on going growth in annual maintenance fees.
The decrease in professional service revenues for the three and six months ended September 30,
2007, compared to the same periods last year, were principally the result of reduced services
required as we began to complete our services in connection with our $1.5 million professional
services agreement with American Express, which we signed in September 2006, and with the
completion of our agreement with Online Resources Corporation, which we signed in June 2006.
Cost of Sales
Costs of sales principally include the costs of our personnel who perform the services
associated with our software maintenance, support, training and installation activities as well as
the cost of the Accuity EPICWare software frequently resold in conjunction with licenses of our
software. Cost of sales increased by $11,695, or 2%, from $497,428 for the three months ended
September 30, 2006 to $509,123 for the three months ended September 30, 2007, which was primarily
the result of a reduction of labor costs partially offset by increases in the cost of third party
software resale and cost for equipment resales as compared to the prior period. Cost of sales
decreased by $124,645 or 12% from $1,019,728 for the six months ended September 30, 2006 to
$895,082 for the six months ended September 30, 2007. The decrease for the six month period was
primarily due to the reduction in third party software resales as compared to the prior period,
partially offset by a slight increase in labor costs as we transitioned from service activities to
maintenance activities as we neared the completion of certain professional service contracts.
Operating Expenses
Total
operating expenses decreased by $115,024, or 6%, from $1,803,431 for the three months
ended September 30, 2006 to $1,688,407 for the three months ended September 30, 2007. This decrease
is principally attributable to a decrease in legal expenses of $136,000, a decrease in outsides
services and recruitment fees of $144,000, and a decrease in travel expenses of $37,000, partially
offset by an increase in stock-based compensation expense of $45,000, an increase in advertising
expense of $12,000, and a $188,000 increase in compensation expense.
Total
operating expenses decreased by $230,849, or 6%, from $3,599,439 for the six months
ended September 30, 2006 to $3,368,590 for the six months ended September 30, 2007. This decrease
is principally attributable to a decrease in legal expenses of $185,000, a decrease in outsides
services and recruitment fees of $188,000, a decrease in travel expenses of $107,000, a reduction
in bonus expense of $107,000 and a reduction in stock based compensation expense of $146,000 as
compared to the same time period in the prior year. These reductions were partially offset by an
increase in compensation expense of $447,000, an increase in advertising expense of $28,000, and a $27,000 increase in rent expense. Our headcount at September
30, 2007 was 46 compared to 37 at September 30, 2006.
19
Other Income (Expenses)
Other
income (expenses), including interest expense and financing costs,
decreased $389,081,
or 96%, to $(14,312) in other expense for the three months ended
September 30, 2007 from $(403,393) in
other expenses for the three months ended September 30, 2006. The decrease in other income for the
three months ended September 30, 2007 was due to a decrease in interest expense of $72,000, offset
by increases in related party interest expense of $11,000, financing costs associated with our
Silicon Valley Bank loan agreement of $26,000, an increase in the quarterly analysis related to
the embedded derivatives associated with the promissory note of June 16, 2005 of $184,000, an
increase in interest income $2,000, an increase of $222,000 in
contingent liability expense and a loss of $44,000 resulting from a
loss on the disposition of assets, as
compared to the prior year period..
Other
income (expenses), including interest expense and financing costs,
decreased $47,255, or
50%, to $(46,503) in other expenses for the six months ended September 30, 2007 from $(93,758) in
other income for the six months ended September 30, 2006. The decrease in other income for the six
months ended September 30, 2007 was due to a decrease in interest expense of $158,600, an decrease
in the quarterly analysis related to the embedded derivatives associated with the promissory note
of June 16, 2005 of $214,000, offset in part by increases in related party interest expense of
$22,000, financing costs associated with our Silicon Valley Bank loan agreement of $26,000, an
increase in interest income $11,000 an increase of $222,600 in
contingent liability expense, and a loss of $44,000 resulting from a
loss on the disposition of assets,
as compared to the prior year period.
Net Income (Loss)
Net income (loss) decreased by $(769,965), or 1016%, to a net loss of ($845,758) for three
month ended September 30, 2007 from a net income (loss) of $(75,793) for the three month ended
September 30, 2006. For details related to this loss see the
preceding discussions related to cost of sales, operating expenses and other income sections above.
Net income (loss) decreased by ($38,856), or 2%, to a net loss of ($1,715,019) for the six
months ended September 30, 2007 from a net income (loss) of $(1,676,163) for the six months ended
September 30, 2006. For details related to this loss see the
preceding discussions related 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:
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We plan to increase the number of month-to-month professional services contract with
our existing customers, which is anticipated to generate revenue sufficient to reduce
the negative cash flows from our operations.
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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 NACHAs back office conversion, which allows the conversion
of paper checks in the back offices of retail merchants and the government. We believe
that increased demand for our solutions, including our recently introduced Clearingworks
product, will lead to increased cash flows from license fees, transaction based contract
fees and increases in professional services revenues
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We have entered into a strategic alliance with one of the largest merchant service
providers, or MSP, which will allow this MSP to sell Clearingworks as part of its ARC
and back office conversion services. We expect this alliance to positively affect our
profitability.
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20
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 decreased by $22,229 to $118,047 at September 30, 2007 from $140,276
at March 31, 2007. Cash used for operating activities was $146,785 in the six months ended
September 30, 2007 compared to $1,094,413 in the same period in the prior year.
Cash used for investing activities of $141,445 and $49,246 in the six months ended September
30, 2007 and September 30, 2006, respectively, was due to equipment purchases.
Cash provided by financial activities for the six months ended September 30, 2007 was $266,000
compared to cash used in financing activities of $12,133 for the six months ended September 30,
2006. Financing activities in the current six month period included: proceeds of $305,000 from
common stock sales, and the payment of $39,000 on a related party note payable.
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,
2008. 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.
Factors That May Affect Our Results
We have a general history of losses and may not operate profitably in the future.
We have a history of losses and our net losses and negative cash flow may continue for the
foreseeable future. As of September 30, 2007, our accumulated deficit was ($52,131,368). We believe
that our planned growth and profitability will depend in large part on our ability to promote our
brand name, gain clients and expand our relationships with clients for whom we could provide
licensing agreements and system integration. Accordingly, we intend to invest heavily in marketing,
strategic partnership, 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, 2008. 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:
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curtail our operations significantly;
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21
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sell significant assets;
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seek arrangements with strategic partners or other parties that may require us to
relinquish significant rights to products, technologies or markets; or
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explore other strategic alternatives including a merger or sale of US Dataworks.
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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 factors, many of which
are outside our control. Factors that may affect our quarterly operating results include:
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market acceptance of and changes in demand for our products and services;
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gain or loss of clients or strategic relationships;
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announcement or introduction of new software, services and products by us or by our
competitors;
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our ability to build brand recognition;
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timing of sales to customers;
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price competition;
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our ability to upgrade and develop systems and infrastructure to accommodate growth;
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our ability to attract and integrate new personnel in a timely and effective manner;
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our ability to introduce and market products and services in accordance with market
demand;
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changes in governmental regulation;
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reduction in or delay of capital spending by our clients due to the effects of
terrorism, war and political instability; and
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general economic conditions, including economic conditions specific to the financial
services industry.
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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.
22
We may not be able to maintain our relationships with strategic partners, such as BancTec and
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. In addition, 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 a market that is 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 relatively new and 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:
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longer operating histories;
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larger installed customer bases;
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greater name recognition and longer relationships with clients; and
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significantly greater financial, technical, marketing and public relations resources
than US Dataworks.
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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:
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the breadth and quality of services;
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creative design and systems engineering expertise;
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23
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pricing;
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technological innovation; and
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understanding clients strategies and needs.
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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 clients 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 managements 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.
24
Item 3. 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 managements evaluation during our last fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
25
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 4. Submission of Matters to a Vote of Security Holders
We held our annual meeting of stockholders (Annual Meeting) on September 6, 2007 at our
principle executive offices at One Sugar Creek Center Boulevard, Sugar Land, TX 77478. The purpose
of the Annual Meeting was to (i) elect two Class II Director
s
to hold office until the 2010 annual
meeting of stockholders and (ii) ratify the appointment of Ham, Langston & Brezina, LLP as the
Companys independent auditors for the fiscal year ending March 31, 2008.
The following table provides the number of votes cast related to each proposal:
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For
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Withheld
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Abstain
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Hayden D. Watson
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19,918,784
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1,723,071
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0
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Thomas L. West, Jr.
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19,918,284
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1,723,571
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0
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For
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Against
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Abstain
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Ratification of Ham, Langston & Brezina
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20,025,128
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263,587
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1,353,140
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The following directors terms of office as a director continued after the Annual Meeting: J.
Patrick Millinor, Jr., Charles E. Ramey, Joe Abrell, John L. Nicholson, M.D.. and Terry
Stepanik.
Item 6. Exhibits
The exhibits listed below are required by Item 601 of Regulation S-B.
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Exhibit
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Number
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Description of Document
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31.1
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Section 302 Certification of Chief Executive Officer.
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31.2
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Section 302 Certification of Chief Accounting Officer.
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32.1
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Section 906 Certification of Chief Executive Officer.
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32.2
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Section 906 Certification of Chief Accounting Officer.
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26
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: November 14, 2007
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US DATAWORKS, INC.
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By
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/ s/ John T. McLaughlin
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John T. McLaughlin
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Chief Accounting Officer
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(Principal Financial and Accounting Officer
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and Duly Authorized Officer)
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27
EXHIBIT INDEX
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Exhibit
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Number
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Description of Document
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31.1
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Section 302 Certification of Chief Executive Officer.
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31.2
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Section 302 Certification of Chief Accounting Officer.
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32.1
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Section 906 Certification of Chief Executive Officer.
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32.2
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Section 906 Certification of Chief Accounting Officer.
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28
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