ITEM 1. BUSINESS
OVERVIEW
Unified Signal, Inc., (formerly DataJack, Inc. and formerly Quamtel, Inc.) (“DataJack,” “we,” “us,” “our” or the “Company”), incorporated in 1999 under the laws of Nevada, is a communications company offering, through its subsidiaries, a comprehensive range of mobile broadband products and services that are designed to meet the needs of individual consumers, businesses, government subscribers and resellers. Our operations are organized to meet the needs of our targeted subscriber groups through focused communications solutions that incorporate the capabilities of our mobile broadband services. Our common stock trades on the OTC Bulletin Board (OTCBB) under the symbol “UNSI.”
On June 4, 2014, we completed an acquisition (the "Merger") of TelBill Holdings, LLC. (“TelBill”) pursuant to the terms of the Membership Interest Purchase Agreement (the “Merger Agreement”) with TelBill and Unified Signal Inc. dated as of June 4, 2014. For accounting purposes, TelBill was identified as the acquiring entity and Unified Signal, Inc. as the acquired entity. The merger was accounted for using the purchase method of accounting for financial reporting purposes.
Unified Signal’s aim is allow its customers to cost efficiently enable its clients (MVNOs, MVNEs, wireless carriers, CLECS, Cable companies, LD companies, and spectrum holders) the ability to resell and launch a variety of telecom services to their customers. Unified Signal also aggregates US and international wireless carriers, US and International ILD termination, and other service offerings to provide its clients a telecom buying consortium. Unified Signal clients have ONE SOURCE and one API suite for access to all Unified Signal technology offerings.
Unified Signal is a consortium of over 50 key industry technology innovators that have come together to create a complete telecom resale solution. The Unified Signal partner consortium has succeeded in becoming leaders in their respective market segments. Each consortium partner brings a key technology and infrastructure to Unified Signal. The founders of Unified Signal have used feedback from over 100 MVNOs and 5 MVNEs to refine its product offerings and create a platform that provides core Billing and CRM (customer relations management) functionality that rivals any in the industry.
Unified Signal’s turnkey SaaS (software as a service) system allows its clients to provision services with all its technology partners including carrier audit and carrier CDR remediation for Pre and Post-Paid Cellular, VOIP, Internet, Long Distance, and now even mobile commerce. The system is completely rules based, which allows for much greater speed of integration and customization than other competitors. Unified Signal can enable its clients to access any of its carriers in only 4-6 weeks so it can sell privately branded telecommunications services to its customers. The Unified Signal’s billing and operating (BSS/OSS) infrastructure has activated over 2 million customers and has been used in the industry for over 15 years
Products and Services
Unified Signal, Inc. (together with its consolidated subsidiaries, TelBill Holdings, LLC. (“TelBill” and WQN, Inc. (“WQN”) or the “Company”) is an MVNO enabler and mobile payment solutions provider in the wireless and banking industries.
Unified Signal (www.unifiedsignal.com) is a SaaS (software as a service) based billing and back office solution which enables companies in virtually any industry sector to resell cellular service as well as other telecom services using their existing brand. Unified Signal’s turnkey telecom billing solution allows its clients to sell, provision, fulfill, and care for multiple telecom services, including pre and post-paid cellular, local, long distance, Internet, and now even mobile commerce. Unified Signal’s technology infrastructure allows its clients to implement faster, have much more control of the system, and is far more cost efficient than other competing billing and back office systems. Unified Signal has successfully integrated with all major U.S. carriers, which has never been completed by any other U.S. billing company. Unified Signal also enables its clients to private label their own “PayPal” type services including a full mobile wallet linked to a prepaid debit card.
In 2nd quarter of 2014, Unified Signal completed its 4th carrier integration. The company also launched the first of its kind cross carrier family, friend, business share plans.
In June 2014, we completed an acquisition (the "Merger") of TelBill Holdings, LLC., which allowed the two companies to combine and merge technologies. Unified Signal was an industry enabler for data only mobile virtual network operators, commonly known as MVNOs. There was strong synergy between TelBill Holdings, LLC and Unified Signal as historically Unified Signal has not offered data only enablement services; however, the telecom industry as a whole is becoming very data centric.
Unified Signal’s strengths, were immediately enhanced by the acquisition of the DataJack software back office infrastructure and much of the team it had assembled. The synergies between the two companies would benefit from the merger of the two technologies and the integration of both teams. Unified Signal brought the billing system, supplier eco system, as well as 19 live revenue producing clients. It also brought a significant sales pipeline of fortune 500 companies that also need combined voice and data only services.
From June to December 2014, there was substantial clean-up work we had to complete. The legacy acquired company was losing over $100,000 per month. Our first objective post acquisition, was to restructure the public company and turn the division into a profitable entity. We officially changed the name of the public company to Unified Signal (ticker symbol: UNSI). The company, from an operations standpoint, is currently cash flow positive. In addition, the company has paid down most of it's outstanding debt, and expects to be debt free by end of Q3, 2015.. The combined companies then went about integrating the acquired company’s code, into the Unified Signal code base, and re-launched the system into Unified Signal’s hosting facility as well as sold the acquired subscriber base to provide additional working capital to make the changes necessary to reorganize the company.
The combined entity then went about straightening out the financial health of the books and the outstanding debt held on the books. The company converted approximately 85% of the acquired company’s $3.8 million in debt into equity and created payment plan(s) with many of the remaining debt holders.
The company has since been paying down on the remaining unconverted debt and currently has less than $400,000 of debt remaining on the books. The company expects to pay off all of the debt by end of Q3 2015.
The company now has over 19 MVNO clients which we believe could substantially increase our customer base and revenue stream.
Mobile Virtual Network Enabler (enabling multiple services through its secure infrastructure)
Unified Signal is a SaaS (software as a service) based billing and back office solution which enables companies in virtually any industry sector to resell cellular service, as well as other telecom services, using their existing brand. Unified Signal’s turnkey telecom billing solution allows its clients to sell, provision, fulfill, and care for multiple telecom services, including pre and post-paid cellular, local, long distance, Internet, and now even mobile commerce.
Unified Signal’s technology infrastructure allows its clients to implement faster, have much more control of the system, and is far more cost efficient than other competing billing and back office systems. Unified Signal has successfully integrated with all major U.S. carriers, which has never been completed by any other U.S. billing company. Unified Signal also enables its clients to private label their own “PayPal” type services including a full mobile wallet linked to a prepaid debit card.
The Product and Services Line Up
Unified Signal’s main business is its rating and billing solution(s) which provides pre-paid & post-paid software solutions for all four major wireless carriers as well as full termination services for VOIP resellers. Unified Signal helps its clients build a profitable and executable telecom reseller strategy and ensures that its clients come to market quickly and efficiently. Unified Signal’s software suite allows its clients to perform all the necessary functions needed to become a successful reseller of communications and mobile commerce services.
The Unified Signal system provides its clients with all the tools necessary to manage and grow their business including: carrier activations, credit checks, phone procurement and fulfillment, rating and billing (both online or paper bills), customer service, strategic and tactical reporting, taxing, carrier wholesale bill QA, and a feedback / development loop that helps telecom resellers stay on the cutting edge of technology. In addition, Unified Signal's consulting side of the house helps create rate plans, branding and logos, marketing materials and helps to procure and provision inventory. Unified Signal also offers an internal highly trained customer service team to support its clients
Unified Signal has been able to successfully automate the client provisioning process and customer procurement process and can cost efficiently bring to market and support its clients. Unified Signal’s level of automation dramatically increases the profitability for its clients and more importantly dramatically increases customer satisfaction by virtually eliminating billing errors and other back office issues solution that would fill the gaping hole in the billing / CRM space for a cost effective, fully automated, customizable billing system to support the resale of all communications services from activation through customer service.
MVNOs alone now account for over 25% of wireless customers in the US including companies like Tracfone, Virgin Mobile, Boost, Qwest, Wal-Mart Mobile and a 100 plus others, which make up the 20 year old industry. Due to increased spectrum, decreasing wholesale rates and increased competition, the MVNO industry is expanding and Unified Signal is now positioned into becoming one of the leading technology enablers in the US with plans to expand that internationally. VNO (Virtual Network Operator) clients can achieve profits of $15-$20 per customer per month with an average customer life cycle of 18-24 months. This creates customer profitability ranging from $270-$480 per subscriber and ASP MVNEs can generate $2-$3 per customer per month netting $36 to $72 per subscriber
Mobile Commerce Product Suite
Additionally, Unified Signal plans to launch its Mobile Commerce Platform Services which will provide enablement software which allows its clients to offer highly secure mobile commerce and payment solutions to their end customers. The strategy is to create software to more efficiently link people across the US and around the world to have easy access, and transact, with their money, through their mobile phones.
MCN (Mobile Clearinghouse Network): The MCN software technology has been established to create interoperability between any and all mobile payment technologies, with the sole purpose of moving money easily and cost efficiently to anyone, anywhere in the world. The strategy of the MCN software is to allow its clients the ability to become a clearinghouse for international money movement, offering distinct competitive advantages vs. the existing dominant companies in this space.
Our customer care professionals continue to improve customer experience, providing quality service with the goal of resolving customer issues and retaining a loyal customer base. We proactively address customers' needs, and we offer live, in-house call center phone support, online chat support, and email support.
Competition
Unified Signal’s aim is to obtain better economies of scale, greater functionality, and increased profitability for our valued clients. Unified Signal has been able to successfully automate the client provisioning process and customer procurement process and can cost efficiently bring to market and support its clients. Unified Signal’s level of automation dramatically increases the profitability for its clients and more importantly dramatically increases customer satisfaction by virtually eliminating billing errors and other back office issues that have plagued the industry over the last 20 years.
Unified Signal's “TelBill” billing and back-office technology software was founded by former executives of some of the largest telecommunications carriers in the country as well as senior Fortune 100 executives. This dichotomy of talent has allowed the company to focus on a solution that would fill the gaping hole in the billing / CRM space for a cost effective, fully automated, customizable billing system to support the resale of all communications services from activation through customer service.
Existing billing platforms like Convergys, Sentori, and Amdocs were designed more for the major carriers and cost an incredible amount to implement and maintain, take a long time to implement and are not easily customizable to the specific and ever changing needs of the telecom reseller. This has created a significant barrier to entry for all small to moderate sized companies, agents, affinity groups, ethnic groups, etc. that all have access to a very loyal and profitable customer base and could greatly profit from selling communication services.
Due to the cost efficiencies created over many years of development, Unified Signal can implement a client for a fraction of the cost of the competition providing clients higher margins and allowing them to offer more competitive pricing and easily expand into additional services and still using one ubiquitous operating platform.
The Unified Signal system provides its clients with all the tools necessary to manage and grow their business including: carrier activations, credit checks, phone procurement and fulfillment, rating and billing (both online or paper bills), customer service, strategic and tactical reporting, taxing, carrier wholesale bill QA, and a feedback / development loop that helps telecom resellers stay on the cutting edge of technology.
Unified Signal has many unique competitive advantages in the marketplace, including the low cost of implementation, the speed of integration, and the higher margins offered due to the automation developed, and the level of support and expertise that clients receive when implementing the system. Unified Signal’s consulting division makes Unified Signal a one-stop shop for any client, rather than having to go to many different companies to efficiently implement and manage their business.
Legislative and Regulatory
Unified Signal sells telecommunication services and as such some of these services falls under the guidelines and regulations of the Federal Communications Commission. Unified Signal operates various licenses and is up to date on all FCC requirements necessary to operate and sell such services. The company has hired a third party provider, to help manage the various licenses and regulatory requirement necessary and to ensure that all filings and paper work are handled in a timely manner.
Employee Relations
As of May 4, 2015, the Company uses a number of independent contractors in our operations.
Available Information
We file annual, quarterly, current and special reports and other information with the Securities and Exchange Commission (the “SEC”). You may read and obtain copy of any reports, statement or other information that we file with the SEC at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at (202) 551-8090 for further information on the public reference room. These SEC filings are also available to the public from commercial document retrieval services and at the Internet site maintained by the SEC at http://www.sec.gov.
Additionally, on our corporate website, www.Unifiedsignal.com, we make available, free of charge, our annual, quarterly and current reports (including all amendments to such reports), changes in the stock ownership of our directors and executive officers, our code of ethics, and other documents filed with, or furnished to, the SEC, as soon as reasonably practicable after such documents are filed with, or furnished to, the SEC. Additional information about us and our product offerings may be found on our legacy website www.DataJack.com.
ITEM 1A.
ITEM 1A. RISK FACTORS
Before you invest in the Company’s securities, you should be aware that there are various risks. You should consider carefully these risk factors, together with all of the other information included in this annual report before you decide to purchase the Company’s securities. If any of the following risks and uncertainties develop into actual events, the Company’s business, financial condition or results of operations could be materially adversely affected and you could lose your entire investment in the Company.
Risks Relating to Our Business
Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern, which may also hinder our ability to obtain future financing.
In their report dated May 4, 2015, our independent registered public accounting firm stated that our consolidated financial statements for the year ended December 31, 2014 were prepared assuming that we would continue as a going concern. However, they expressed substantial doubt about our ability to do so. The Company has a net loss of $8,715,026 for the year ended December 31, 2014. We also had a working capital deficit of $1,151,166 at December 31, 2014, and cash on hand of $108,803. We also expect to incur additional losses for at least the first quarter of 2015.
Our ability to continue as a going concern is subject to our ability to increase revenues and generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, generating sales, or obtaining financing from various financial institutions where possible. By adjusting our operations and development to the level of capitalization, we believe that we have sufficient capital resources to meet projected near-term cash flow requirements. However, if during that period or thereafter, we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition. There can be no assurances that our efforts will prove successful. The Company’s consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Insufficient systems capacity or systems failures could harm our business.
Our business depends on the performance and reliability of the computer and communications systems supporting it. Notwithstanding our current capacity, heavy use of our computer systems during peak customer service hours could cause our systems to operate slowly or even to fail for periods of time. If our systems cannot be expanded successfully to handle increased demand, or otherwise fail to perform, we could experience disruptions in service, slower response times, and delays in introducing new products and services.
Our systems and operations also are vulnerable to damage or interruption from human error, natural disasters, power loss, sabotage or terrorism, computer viruses, intentional acts of vandalism, and similar events. Any system failure that causes an interruption in service or decreases the responsiveness of our service could impair our reputation, damage our brand name and negatively impact our revenues. We also rely on a number of third parties for systems support. Any interruption in these third-party services or deterioration in the performance of these services could also be disruptive to our business and have a material adverse effect on our business, financial condition and operating results. We cannot predict the likelihood that services provided by third parties may be interrupted.
We have not voluntarily implemented various corporate governance measures, in the absence of which, stockholders may have more limited protections against interested director transactions, conflicts of interest and similar matters.
Recent Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or The Nasdaq Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges are those that address board of directors’ independence, audit committee oversight, and the adoption of a code of ethics. We have not adopted a Code of Business Conduct and Ethics nor have we yet adopted any other corporate governance measures and, since our securities are not listed on a national securities exchange, we are not required to do so. We have not adopted corporate governance measures such as an audit or other independent committees of our Board of Directors. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.
Our internal controls over financial reporting, and our disclosure controls and procedures, are not adequate, which could have a significant and adverse effect on our business and reputation.
Section 404 of Sarbanes-Oxley and the rules and regulations of the Securities and Exchange Commission (the “SEC”) associated with Sarbanes-Oxley, which we refer to as Section 404, require a reporting company to, among other things, annually review and disclose its internal controls over financial reporting, and evaluate and disclose changes in its internal controls over financial reporting quarterly. Under Section 404 a reporting company is required to document and evaluate such internal controls in order to allow its management to report on these controls. As reported in Item 9A. Controls and Procedures, we have concluded that our disclosure controls and procedures, and our financial reporting controls, are currently ineffective. If we are not able to implement the requirements of Section 404 with adequate compliance, we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result, there could be an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, we may be required to incur substantial costs in improving our internal control system and the hiring of additional personnel. Any such actions could adversely affect our results of operations, cash flows and financial condition.
Our inability to protect our intellectual property rights could adversely affect our business.
To protect our intellectual property rights, we rely on a combination of trademark laws, trade secret protection, confidentiality agreements and other contractual arrangements with our affiliates, customers, strategic investors and others. The protective steps we have taken may be inadequate to deter misappropriation of our proprietary information. We may be unable to detect the unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Failure to protect our intellectual property adequately could harm our brand and affect our ability to compete effectively. Further, defending our intellectual property rights could result in the expenditure of significant financial and managerial resources, which could adversely affect our business, financial condition and operating results.
Intellectual property and proprietary rights of others may prevent us from using the technology necessary to provide our services and may subject us to expensive intellectual property litigation.
If a court determines that the technology necessary for us to provide our services infringes a patent held by another person, and if that person is unwilling to grant us a license on acceptable terms, we may be ordered not to use the technology. We may also be ordered to pay significant monetary damages to the patent-holder. If we are ordered not to use the technology, we may be forced to cease offering services that depend on such use. In the event that a claim of infringement is brought against us based on the use or sale of our technology, or against any of our customers based on the use of our technology which we have agreed to indemnify our customers against, we may be subject to litigation to determine whether there is an infringement. Such litigation is expensive and distracting to our business and operations, regardless of the outcome of the suit.
We depend on key management personnel and the loss of their services could adversely affect our business.
We rely substantially on the efforts and abilities of our chief executive officer Stuart Ehrlich, and our non-executive staff and consultants. The loss of the services of any of our key personnel may have a material adverse effect on our business, operations, revenues or prospects. We also do not maintain key-man life insurance policies.
Also, we believe that our future success will depend in large part on our ability to attract and retain highly skilled, knowledgeable, sophisticated and qualified managerial, professional and technical personnel. We have experienced significant competition in attracting and retaining personnel who possess the skills that we are seeking. As a result of this significant competition, we may experience a shortage of qualified personnel.
We must be able to increase the volume of traffic on our network to become profitable.
Certain aspects of our business depend on the increased volume of traffic on our network. In order to realize our targets for sales and revenue growth, cash flow, operating efficiencies and other network benefits, we must continue to increase the volume of data transmissions on our communications network at acceptable prices. If we do not maintain or improve our current relationship with existing customers and develop new large-volume and enterprise customers, we may not be able to substantially increase traffic on our network. The failure to increase network traffic would adversely affect our ability to become profitable.
Our business depends on our ability to continue to develop effective business support systems, and the failure to do so would have a negative effect on our achievement of financial goals and objectives.
Developing effective business support systems is a complicated undertaking requiring significant resources and expertise and support from third-party vendors. Business support systems are needed to:
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implement customer orders for services;
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provision, install and deliver these services; and
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bill monthly for these services
Because our business provides for continued rapid growth in our number of customers and volume of services we offer, we need to continue to develop our business support systems on an accelerated schedule. Our failure to continue to develop effective business support systems and meet proposed service rollout dates would materially adversely affect our ability to implement our plans for growth and meet our financial goals and objectives.
Termination of relationships with key suppliers could cause delay and increased costs which may adversely affect our business.
Our business is dependent on third-party suppliers for computers, software, transmission electronics and related components that are integrated into our network. If any of these relationships is terminated or a supplier fails to provide reliable services or equipment and we are unable to reach suitable alternative arrangements quickly, we may experience significant additional costs. If that happens, our business may be materially adversely affected.
We may lose customers if we experience system failures that significantly disrupt the availability and quality of the services that we provide.
Our operations depend on our ability to avoid and mitigate interruptions in service. It is possible that we may experience a failure of the equipment or facility on our network could result in a significant interruption. Our network is subject to a number of events that could affect its ability to transfer information, including power outages, security breaches and computer viruses. Many of these events may be due to forces beyond our control, such as weather conditions, natural disasters and terrorist attacks. As a result, our network may experience information delays or require costly modifications that could interrupt service to our customers or significantly harm our business.
Interruptions in service undermine consumer confidence in our services and affect our ability to retain existing customers and attract new ones. Also, because many of our services are critical to our customers’ businesses, any interruption will result in loss to our customers. Although we disclaim liability for loss arising from interruptions in service beyond our control in our service agreements, a court may not enforce such limitations. As a result, we may be exposed to financial loss if a court orders us to pay monetary damages.
We have generated substantial losses, which we expect will continue.
The development of our communications business has required, and may continue to require, significant expenditures. These expenditures may result in substantial negative cash flow from operating activities and substantial net losses in the near future. We may continue to experience losses and may not be able to achieve or sustain operating profitability in the future. Continued operating losses may limit our ability to obtain the cash needed to expand our network, make interest and principal payments on our debt and fund our other business needs.
Risks Related to Our Industry
If we are unable to fund the expansion and adaptation of our network to stay competitive in the communications industry, our business would be adversely affected.
The communications industry is subject to rapid and significant changes in technology. In addition, the introduction of new services and technologies, as well as further development of existing services and technologies, may reduce the cost or increase the supply of those we provide. As a result, our most significant competitors in the future may be new entrants to the communications industry. These new entrants may not be burdened by an installed base of outdated equipment and may be better able to respond to the demands of our industry, such as:
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growing number of customers;
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development and launching of new services;
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increased demands by customers to transmit larger amounts of data
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changes in customers’ service requirements;
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technological advances by competitors; and
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governmental regulations.
In order to stay competitive in our industry we must expand and adapt our network according to these demands. This will require substantial additional financial, operational and managerial resources, which may not be available when needed. If we are unable to fund the expansion or adaptation of our network quickly and at a commercially reasonable cost, our business would be materially adversely affected.
Failure to complete development, testing and introduction of new services, could negatively affect our ability to compete in the industry.
We continuously develop, test and introduce new communications services that are delivered over our communications network. These new services are intended to allow us to address new segments of the communications marketplace and to compete for additional customers. In certain instances, the introduction of new services requires the successful development of new technology. To the extent that upgrades of existing technology are required for the introduction of new services, the success of these upgrades may depend on successful dealings with our vendors and on our vendors fulfilling their obligations in a timely manner. If we are not able to successfully complete the development and introduction of new services in a timely manner, our business could be materially adversely affected.
In addition, new service offerings may not be widely accepted by our customers. If our new service offerings are not widely accepted by our customers, we may discontinue those services and impair any assets or information technology used to develop or offer them.
The prices we charge for our communications services may decrease over time resulting in lost revenue.
Over the past few years the prices communications providers have been able to charge for certain services have decreased. This decrease results from downward market pressure and other factors, including:
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increased transmission capacity by communications companies on their existing and new networks;
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customer agreements containing volume-based pricing or other contractually agreed upon price decreases during the term of the agreement; and
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technological advances or otherwise.
If we are unable to increase traffic volume through additional services and derive additional revenue as prices decrease, our operating results would decline. Declining operating results may lead to lost revenue.
Increased scrutiny of financial disclosure, particularly in the communications industry, may adversely affect our investor confidence and any restatement of earnings may increase litigation risk and limit our ability to access the capital markets.
Congress, the SEC, other regulatory authorities and the media pay very close attention to financial reporting practices. Particular attention has been focused on the communications industry and companies’ interpretations of generally accepted accounting principles. If we were required to restate our financial statements as a result of a determination that we had incorrectly applied generally accepted accounting principles, that restatement could adversely affect our ability to access the capital markets or the trading price of our securities. The recent scrutiny regarding financial reporting has also resulted in an increase in litigation in the communications industry. There can be no assurance that any such litigation against us would not materially adversely affect our business or the trading price of our securities.
Our ability to withstand competition in the communications industry may be impeded by participants with greater resources and a greater number of existing customers.
The communications industry is highly competitive. Many of our existing and potential competitors have resources that are significantly greater than ours with respect to finances, personnel, marketing and other business aspects. Many of these competitors have the added advantage of a larger existing customer base. In addition, significant new competition could arise as a result of:
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the consolidation in the industry led by AT&T and Verizon in the United States;
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allowing foreign carriers to compete in the U.S. market;
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further technological advances; and
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further deregulation and other regulatory initiatives.
If we are unable to compete successfully, our business could be significantly harmed.
Risks Related To Our Common Stock
Our common stock is subject to the “penny stock” rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.
The SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
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that a broker or dealer approve a person’s account for transactions in penny stocks; and
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the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
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obtain financial information and investment experience and objectives of the person; and
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make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:
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sets forth the basis on which the broker or dealer made the suitability determination; and
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that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Provisions of our articles of incorporation and bylaws may delay or prevent a take-over which may not be in the best interests of our stockholders.
Provisions of our articles of incorporation and bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt. In addition, certain provisions of the Nevada Revised Statutes also may be deemed to have certain anti-takeover effects which include that control of shares acquired in excess of certain specified thresholds will not possess any voting rights unless these voting rights are approved by a majority of a corporation’s disinterested stockholders.
Our common stock could be removed from quotation on the OTCBB if we fail to timely file our annual or quarterly reports. If our common stock were no longer eligible for quotation on the OTCBB, the liquidity of our stock may be further adversely impacted.
Under the rules of the SEC we are required to file our quarterly reports within 45 days from the end of the fiscal quarter and our annual report within 90 days from the end of our fiscal year. Under rules adopted by the Financial Industry Regulatory Authority (FINRA) in 2005 which is informally known as the “Three Strikes Rule”, a FINRA member is prohibited from quoting securities of an OTCBB issuer such as our company if the issuer either fails to timely file these reports or is otherwise delinquent in the filing requirements three times in the prior two year period or if the issuer’s common stock has been removed from quotation on the OTCBB twice in that two year period.
Volatility of our stock price could adversely affect stockholders.
The market price of our common stock could fluctuate significantly as a result of:
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quarterly variations in our operating results;
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interest rate changes;
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changes in the market’s expectations about our operating results;
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our operating results failing to meet the expectation of investors in a particular period;
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operating and stock price performance of other companies that investors deem comparable to us;
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news reports relating to trends in our markets;
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changes in laws and regulations affecting our business;
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material announcements by us or our competitors;
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sales of substantial amounts of common stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; and
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general economic and political conditions such as recessions and acts of war or terrorism.
Fluctuations in the price of our common stock could contribute to the loss of all or part of an investor’s investment in the company.
We may never issue dividends.
We currently do not plan to declare dividends on our common stock in the foreseeable future. Any payment of cash dividends will depend upon our financial condition, capital requirements, earnings and other factors deemed relevant by our Board of Directors. Agreements governing future indebtedness will likely contain similar restrictions on our ability to pay cash dividends. See “Dividend Policy” for more information. Consequently, an investor’s only opportunity to achieve a return on investment will be if the market price of our common stock appreciates and the shares are sold for a profit.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
ITEM 2. PROPERTIES
As of December 31, 2014, the Company does not have any outstanding operating leases.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently aware of and a party to the following legal proceedings or claims that we believe will not have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results:
The Company was a defendant in litigation titled St George Investments LLC v. Quamtel, Inc. and Transfer Online, Inc., Case No. 1:12-cv-09186, pending in the United States District Court for the Northern District of Illinois, Eastern Division (the "St George Litigation"). The St. George Litigation was commenced on November 15, 2012, and amended on January 29, 2013. Generally, the Amended Complaint alleges that Unified Signal, Inc. (formerly DataJack) failed to pay a purported debt to Plaintiff as and when due and that the Company and its transfer agent failed to honor a notice from the Plaintiff to exercise its claimed contractual right to convert $20,000 of the alleged debt to shares of stock in the Company. The Amended Complaint alleges that the Company is indebted to the Plaintiff in the amount of $391,704, plus penalties, interest, attorney’s fees and costs. The Amended Complaint also seeks injunctive relief and unspecified amounts of compensatory, consequential, indirect and punitive damages. The Company has disputed its alleged liability to the Plaintiff, and the Company has responded to the Amended Complaint. A settlement agreement was reached and was dated January 16, 2014, which includes dismissal of the lawsuit. An initial payment was due on January 16, 2014, with a final payment for the balance due on February 15, 2014.
An amended agreement was reached and dated February 14, 2014, which states the initial payment was made on or prior to January 16, 2014 and the balance is to be paid on February 18, 2014 and March 18, 2014.　The Company's acquired subsidiary had made the February 18, 2014 payment.　An extension was granted on March 17, 2014 for the final payment to be made on or before April 27, 2014.　An issuance of 60,000 shares was made on March 17, 2014 as an extension fee. The parties then revised its agreement and amended it so that the Company was granted additional time to make its payments. This Settlement Agreement, Waiver and Release of Claims was dated April 29, 2014, and the final payment was extended from April 27, 2014 to June 6, 2014. In consideration thereof, the Company issued 60,000 of its shares as an extension fee.
On June 10, 2014 the parties further extended the due date for the Final Payment from June 6, 2014 to July 21, 2014 and in consideration thereof, the Company issued 100,000 of its shares of common stock as an extension fee.
On July 21, 2014 the parties revised its agreement yet again and agreed to the following; a two part payment; the first part payable on July 31, 2014 and the second payable on September 4, 2014. The parties agreed to allow this extension by the Company issuing an additional 200,000 shares of common stock as an extension fee.
Finally on August 12, 2014, the parties entered into a final settlement agreement whereby Datajack will pay St George Investments a series of 14 payments, on the 15th and 30th of each month, for the next 7 months beginning in August 2014. Additionally, the Company has issued an additional 100,000 shares of common stock, as a final extension fee.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The Company’s common stock is quoted on the OTCBB under the symbol UNSI. The stock is very thinly traded and the market could be considered illiquid. The following quotations reflect the high and low bid prices for our common stock during each fiscal quarter within the last two fiscal years, without retail mark-up, mark-down or commission and may not represent actual transactions:
Holders
As of May 4, 2015, there were 65,895,143 shares of our common stock outstanding held by approximately 299 shareholders of record, not including 5,000 shares held in our treasury.
Dividends
No dividends have been paid the last two fiscal years. We have no current plans to pay any future cash dividends on the common stock. Instead, we intend to retain all earnings, other than those required to be paid to the holders of any preferred stock we may issue in the future, to support our operations and future growth. The payment of any future dividends on the common stock will be determined by the Board of Directors based upon our earnings, financial condition and cash requirements; possible restrictions in future financing agreements, if any; business conditions; and such other factors deemed relevant.
Securities Authorized for Issuance under Equity Compensation Plans
We do not have any equity compensation plans
Recent Sales of Unregistered Securities
On October 16, 2014, we received a common stock subscription of $7,500 for 42,590 shares of our common stock.
On November 15, 2014, we received a common stock subscriptions of $70,000 for 338,466 shares of our common stock.
On November 21, 2014, we received a common stock subscriptions of $42,500 for 194,675 shares of our common stock.
On December 22, 2014, we received a common stock subscriptions of $42,500 for 256,560 shares of our common stock.
On December 23, 2014, we received a common stock subscriptions of $10,000 for 86,906 shares of our common stock.
In January 2015, we received a common stock subscriptions in aggregate of $61,000 for 290,062 shares of our common stock.
All of the sales and issuances itemized above were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof as transactions not involving a public offering. These issuances did not involve any underwriters, underwriting discounts or commissions or any general solicitations and certificates evidencing these shares contain restrictive legends.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not required.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains various “forward looking statements” within the meaning of the federal securities laws, regarding future events or the future financial performance of the Company that involve risks and uncertainties. Certain statements included in this Form 10-K, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to “anticipates”, “believes”, “plans”, “expects”, “future” and similar statements or expressions, identify forward looking statements. Any forward-looking statements herein are subject to
certain risks and uncertainties in the Company’s business, including but not limited to, reliance on key customers and competition in its markets, market demand, product performance, technological developments, maintenance of relationships with key suppliers, difficulties of hiring or retaining key personnel and any changes in federal regulation or current accounting rules, all of which may be beyond the control of the Company. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth therein.
This MD&A should be read in conjunction with the financial statements included herein.
Overview
Unified Signal, Inc. (together with its consolidated subsidiaries, TelBill Holdings, LLC. (“TelBill” and WQN, Inc. (“WQN”) or the “Company”) is a MVNO solutions provider in the wireless industry with premier Voice, Data, SMS and Mobile Broadband services. In addition, through the acquisition the Company offers low cost, no contract, mobile broadband with various data plans primarily through two devices - the DataJack WiFi Mobile Hotspot that can connect up to 8 Wi-Fi enabled devices and the DataJack USB, a Plug and Play USB Device.
On June 4, 2014, we completed an acquisition (the "Merger") of TelBill Holdings, LLC. (“TelBill”) pursuant to the terms of the Membership Interest Purchase Agreement (the “Merger Agreement”) with TelBill and Unified Signal Inc. dated as of June 4, 2014. For accounting purposes, TelBill was identified as the acquiring entity and Unified Signal Inc. as the acquired entity. The merger was accounted for using the purchase method of accounting for financial reporting purposes. The purchase method requires the identification of the acquiring entity based on the criteria of Accounting Standards Codification (“ASC”) 805-10-55-12, “Accounting for Business Combinations”. Under purchase accounting, the assets and liabilities of an acquired company (Unified Signal, Inc.) as of the effective date of the acquisition were recorded at their respective fair values and added to those of the acquiring company. Accordingly, the condensed consolidated financial statements and related footnote disclosures presented for the period prior to the Merger are those of TelBill and its subsidiaries alone. The financial statements as of December 31, 2013 and for the year ended December 31, 2013 and through June 4, 2014 include the operations and cash flows of TelBill and its subsidiaries and the combined operations and cash flows of TelBill and Unified Signal subsequent to that date.
The accompanying financial statements give retroactive effect to the recapitalization as if it had occurred at the earliest reporting period. Certain other reclassifications have been made to prior periods’ consolidated financial statements to be consistent with the current period’s presentation.
Results of Operations for the Year Ended December 31, 2014 Compared to December 31, 2013
Revenues
Our revenues for the years ended December 31, 2014 and 2013 were $3,046,690 and $507,560, respectively; an increase of $2,539,130. In connection with the Merger as described above, we reported an additional revenue in the current period. We also continue to grow and expand our core business lines.
Operating Expenses
Software licenses
Software license costs increased by $1,145,617 from $148,275 for the year ended December 31, 2013 to $1,293,892 for the current period. The increase is primarily due to our increase in revenue as compared to last year.
Hosting and other software costs
Hosting and other software costs were $203,898 for the year ended December 31, 2014 as compared to $124,940, an increase of $78,958 or 63%. The increase is primarily due to our increase in sales volume.
Carrier costs
Carrier costs were $45,561 to $487,696 for years ended December 31, 2013 and 2014, respectively. An increase of $442,135 or 970%. The increase in due to our expanded revenue for the current period.
Customer service
Customer service costs were $49,144 and $52,643 for the years ended December 31, 2013 and 2014, respectively.
General and administrative costs
General and administrative costs increased by $1,479,069 from $94,786 for the year ended December 31, 2013 to $1,573,855 for the current period. During the year ended December 31, 2014, we incurred approximately $500,000 in stock based compensation and other operating costs as we expand our business.
Impairment of goodwill
Impairment of Goodwill was $7,782,644 for the three year ended December 31, 2014. At June 30, 2014 and December 31, 2014, we performed evaluations of our goodwill and other acquired intangible assets for purposes of determining the implied fair value of the assets at each respective dates. The tests indicated that the recorded book value of its acquired goodwill from the acquisition of TelBill Holdings, LLC exceeded its fair value for the period ended December 31, 2014. As a result, upon completion of the assessment, we recorded an aggregate non-cash impairment charge of $7,782,644, net of tax, or $0.16 per share during the year ended December 31, 2014 to reduce the carrying value to $-0. Considerable management judgment is necessary to estimate the fair value. Accordingly, actual results could vary significantly from management’s estimates.
Depreciation and amortization
Depreciation and amortization was $-0- and $107,825 for the years ended December 31, 2013 and 2014, respectively. The increase of $107,825 was a result of assets acquired with our acquisition of Datajack, Inc. in June 2014.
Other Income and Expense
Total other expense was $259,263 for the year ended December 31, 2014, compared to other expense was $-0- for the year ended December 31, 2014. Our 2014 expense included a gain on the sale of domain rights $60,564, net gain on settlement of debt $15,759, loss on derivative liability $192,380, and interest expense $143,206.
Net Loss
The impairment of goodwill along with the increases in operating expenses resulted in a net loss of $(8,715,026) in 2014 as compared to a profit of $44,854 for the year ended December 31, 2013.
Liquidity and Capital Resources
Cash and cash equivalents were $108,803 and $161,498 at December 31, 2014 and 2013, respectively. Our net cash (used in) provided by operating activities for the years ended December 31, 2014 and 2013 were $(198,432) and $30,448, respectively, due primarily to our cash-based net loss during this period. Our primary source of funding, as needed, has been through promissory note issuances and sales of common stock for cash.
Our working capital deficit increased by $1,110,564 during the year ended December 31, 2014 from a working capital deficit of $40,601 at December 31, 2013 to a working capital deficit of $1,151,166 at December 31, 2014.
During the years ended December 31, 2014 and 2013, we raised $272,500 and $208,500, respectively, through the sale of debt and equity securities in private placements to accredited investors.
We believe that anticipated cash flows from operations will be insufficient to satisfy our ongoing capital requirements. Our ability to meet our obligations and continue to operate as a going concern is highly dependent on our ability to obtain new loans and/or successfully enter into settlement agreements with our vendors. We cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. We may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In any of these events, we may be unable to implement our current plans which circumstances would have a material adverse e?ect on our business, prospects, financial condition and results of operations.
Our accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. The Company has incurred operating losses and negative cash flows and has an accumulated deficit of $8,990,253 and $71,201 through December 31, 2014 and 2013, respectively, and has been dependent on issuances of debt and equity instruments to fund its operations. The Company intends to increase its future profitability and seek new sources or methods of financing or revenue to pursue its business strategy. However, there can be no certainty that the Company will be successful in this strategy. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Accordingly, the Company’s independent auditors have added an explanatory paragraph to their opinion on the Company’s consolidated financial statements for the years ended December 31, 2014 and 2013, based on substantial doubt about the Company’s ability to continue as a going concern.
These consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. Management is proposing to raise any necessary additional funds through loans and additional sales of its common stock. There is no assurance that the Company will be successful in raising additional capital in amounts or on terms acceptable to us, if at all.
Capital Expenditure Commitments
We did not have any substantial outstanding commitments to purchase capital equipment at December 31, 2014.
Capital Needs
We expect to adjust our operations and development to the level of capitalization, but we project that we may not have sufficient capital resources to meet projected cash flow requirements for the next three months. If during that period or thereafter, we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition.
Our future cash requirements include those associated with maintaining our status as a reporting entity. We believe that on an annual basis those costs would not exceed an average of $2,500 per month.
We presently do not have any available credit, bank financing or other external sources of liquidity. Due to our brief operating history and lack of substantial historical operating profits, our operations have not been a source of liquidity. We will need to obtain additional capital in order to fund our operations and become profitable. In order to obtain capital, we may need to sell additional shares of our common stock or borrow funds from private lenders. There can be no assurance that we will be successful in obtaining additional funding in amounts or on terms acceptable to us, if at all.
Critical Accounting Policies
The application of our accounting policies, which are important to our financial position and results of operations, requires significant judgments and estimates on the part of management. These estimates bear the risk of change due to the inherent uncertainty attached to the estimate and are likely to differ to some extent from actual results. A description of our critical accounting policies follows:
1.
In accordance with FASB ASC 350 (formerly Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” the Company tests its intangible asset (goodwill) for impairment at least annually by comparing the fair value of this asset to its carrying value. If in the future the carrying value of our goodwill exceeds its fair value, the Company will recognize an impairment charge in an amount equal to that excess. For purposes of these tests, the excess of the fair value of the Company over the amounts assigned to its identified assets and liabilities is the implied fair value of its goodwill. In 2014, the Company recognized related impairment charges of $7,782,644 in its consolidated statement of operations. No additional impairment charges were recognized in 2013.
2.
We follow the guidance in Staff Accounting Bulletin (SAB) No. 104, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. SAB 104 states that revenue is realized or realizable and earned when all of the following criteria are met: persuasive evidence of an arrangement exists, services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectability is reasonably assured.
Revenues are primarily derived from fees charged to terminate voice services over the Company’s network and from related monthly recurring charges. Variable revenue is earned based on the number of minutes during a call and is recognized upon completion of a call. Revenue from each customer is calculated from information received through the Company’s network switches. The Company tracks the information received from the switch and analyzes the call detail records and applies the respective revenue rate for each call. Fixed revenue is earned from monthly recurring services provided to customers that are fixed and recurring in nature, and are connected for a specified period of time. Revenues are recognized as the services are provided and continue until the expiration of the contract or until cancellation of the service by the customer. Cash fees received prior to call completion are recorded on the Company’s consolidated balance sheets as unearned revenue. As of December 31, 2014 and 2013, we did not have any recorded unearned revenue.
3.
The Company has identified embedded derivatives related to certain of its notes payable. These embedded derivatives include certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the above described Convertible Note Payable and to fair value as of each subsequent reporting date. In 2014, the Company recognized related derivative mark-to-market charge of $192,380 in its consolidated statement of operations.
4.
The amount of cash paid and the value of common stock issued that are related to contract renegotiations and debt issuances are capitalized, and classified as a noncurrent deferred cost on the Company’s consolidated balance sheet. These deferred costs are amortized to expense over the term of the underlying contracts or debt instruments.
5.
Compensation costs related to share-based payment transactions are recognized in the statement of operations. With limited exceptions, the amount of compensation cost will be measured based on the grant- date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. The Company’s common shares issued as additional compensation and for consulting services have been valued at the shares’ exchange-quoted market prices at their respective dates of issuance or commitment. Compensation costs are recognized over the period that an employee provides service in exchange for the award.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company’s consolidated financial statements are included following the signature page to this Form 10-K.
ITEM 9.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Management’s Annual Report on Internal Control over Financial Reporting
As required by Rule 13a-15(b) under the Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2014, our management conducted an evaluation with the participation of our President who also serves as our principal financial and accounting officer (the “Certifying Officer”) regarding the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our management, with the participation of the Certifying Officer, also conducted an evaluation of our internal control over financial reporting as of December 31, 2013.
A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects a company’s ability to initiate, authorize, record, process or report external financial data reliably in accordance with generally accepted accounting principles, such that there is more than a remote likelihood that a misstatement of our annual or interim financial statements that is more than inconsequential will not be prevented or detected. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected, as of December 31, 2014. Our Chief Executive Officer, who is our sole executive officer, is not a financial or accounting professional, and we do not have a chief financial officer or sufficient accounting staff. Until we are able to engage a qualified financial officer, and/or accounting staff, we may continue to experience material weaknesses in our disclosure controls that may continue to adversely affect our ability to timely file our quarterly and annual reports.
Our management concluded an evaluation of the effectiveness of internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our Certifying Officer concluded that our disclosure controls and procedures were ineffective as of December 31, 2014.
Our management, including the Certifying Officer, does not expect that our disclosure controls and procedures will prevent all errors and all improper conduct. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, a design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of improper conduct, if any, have been detected. These inherent limitations include the realities that judgments and decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more persons, or by management override of the control. Further, the design of any system of controls is also based in part upon 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. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations and a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:
·
Pertain to the maintenance of records that, in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
·
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and
·
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Below are the names and certain information regarding the Company’s executive officers and directors:
Directors are elected to serve until the next annual meeting of stockholders and until their successors are elected and qualified. Currently there are three seats on our Board of Directors. Officers are elected by the Board of Directors and serve until their successors are appointed by the Board of Directors. Diversity is not a formal consideration in determining Board of Directors member nominations.. The Board meets, by telephone as often as is necessary to pass important matters, or, to be updated on the status of the company and the current business opportunities and decisions facing the company. The CEO, usually likes to conduct these up-dates on a bi-monthly basis, unless there is a specific business decision that needs or requires Board oversight or guidance.
Biographical resumes of each officer, director and significant employee are set forth below.
Paris Holt Chairman & CEO. Mr. Holt has 23 years in the wireless telecom industry. He worked as a Director of Product Development at SouthWestern Bell Mobile; and headed up the MVNO department for Frontier Communications as well.
Mr. Holt was then recruited as VP of Sales & Marketing/GM for US Communications/Ameritel, where he built the nation’s second largest MVNO.
After leaving this position, Mr. Holt then founded, and built, telSPACE, which, in 10 years’ time, grew into one of the leading billing systems used by the MVNO industry
Mr. Holt then founded TelBill Holdings then later renamed Unified Signal in 2013.
Stuart Ehrlich is Executive Vice-President of Finance, and a director. Prior to his position with the Company, Mr. Ehrlich founded CandoCorp in 2005, a private consulting company focused on the telecommunications, finance, high technology and entertainment industries. Mr. Ehrlich previously sat on the Board of BioBalance, a small publicly traded BioTechnology company, in addition to consulting and working with both Fortune 100 and 500 companies.
Peter Sperling became a Board member in December 2012. Mr. Sperling has an Associate’s Degree in Network Administration, and is a Microsoft Certified Professional Director of Information Technologist. His past employment services include Director of Information Technology Services for a Boca Raton based Real Estate company. He is employed at DataJack, Inc. as a key part of the management team in charge of fulfillment services, procurement and Business Development.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers and holders of more than 10% of our common stock to file with the SEC reports of their ownership and changes in ownership of our securities. Officers, directors and greater than 10% shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. To our knowledge, based solely on a review of the copies of such reports and written representations that no other reports were required, we believe that all filing requirements applicable to our officers, directors and greater than 10% shareholders were satisfied during the years ended December 31, 2014 and 2013.
Board Committees
The Company does not maintain a separately-designated, standing audit committee, compensation committee, or nominating committee, and the Board of Directors performs these functions. Due to the Company’s relatively small size, the Board of Directors has determined that it is not necessary to have a separately-designated, standing nominating committee or procedures for submitting shareholder nominations. The Board of Directors has not established separately-designated, standing audit committee or compensation committee for similar reasons. Eventually, the Board of Directors will review the advisability of establishing audit, compensation and nominating committees composed primarily of independent directors to perform the functions normally performed by such groups.
Code of Ethics
Due to its relatively small size, the Company has not yet adopted a comprehensive written code of ethics that applies to the principal executive officer, principal financial officer, and principal accounting officer or controller, or person performing similar functions. It is generally the Company’s policy that its operations are to be conducted in compliance with applicable laws and regulations and with high ethical standards. This policy applies to all employees and others working on behalf of Unified Signal, Inc. wherever located.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation paid to the Company’s Chief Executive Officer and the other executive officers at the end of the last completed fiscal year. We refer to all of these officers collectively as our “named executive officers.”
Summary Compensation Table
Outstanding Equity Awards at Fiscal Year-End Table.
None.
Employment Agreements with Executive Officers
All of the Company’s employees are employed at-will.
Consulting Agreements
Director Compensation
Our directors are elected by the vote of a majority in interest of the holders of our voting stock and each holds office until the expiration of the term for which he or she was elected and until a successor has been elected and qualified.
A majority of the authorized number of directors constitutes a quorum of the Board of Directors for the transaction of business. The directors must be present at the meeting to constitute a quorum. However, any action required or permitted to be taken by the Board of Directors may be taken without a meeting if all members of the Board of Directors individually or collectively consent in writing to the action.
Our directors do not receive compensation for their services for the years ended December 31,2014 or 2013.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Beneficial Ownership
The following table sets forth information as of May 4, 2015, except as otherwise noted, with respect to the beneficial ownership of our common stock and is based on 65,895,143 shares of common stock issued and outstanding as of May 4, 2015:
·
Each person known by us to own beneficially more than five percent of our outstanding common stock;
·
Each of our directors;
·
Our Chief Executive Officer and each person who serves as an executive officer of the Company; and
·
All our executive officers and directors as a group.
The number of shares beneficially owned by each shareholder is determined under rules promulgated by the SEC. The information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and any shares as to which the individual has the right to acquire beneficial ownership within 60 days, except as otherwise noted, through the exercise or conversion of any stock option, warrant, preferred stock or other right. The inclusion in the following table of those shares, however, does not constitute an admission that the named shareholder is a direct or indirect beneficial owner of those shares. Unless otherwise indicated, to our knowledge based upon information produced by the persons and entities named in the table, each person or entity named in the table has sole voting power and investment power, or shares voting and/or investment power with his or her spouse, with respect to all shares of capital stock listed as owned by that person or entity.
The address for each of our officers and directors is c/o Unified Signal, Inc., 5400 Carillon Point, Building 5000, 4th floor, Kirkland, Washington 98033.
Equity Compensation Plans
The Company does not have any equity compensation plans.
Director Independence
Our Board of Directors has considered the independence of its directors in reference to the definition of “independent director” established by the NASDAQ Marketplace Rule 5605(a)(2). In doing so, the Board has reviewed all commercial and other relationships of each director in making its determination as to the independence of its directors. After such review, the Board has determined that Marc Moore qualifies as independent under the requirements of the NASDAQ listing standards.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
On July 31, 2013, the Company engaged Liggett, Vogt & Webb P.A.
The following table shows the fees that we were billed by LVW for audit and other services provided by our independent auditors during the years ended December 31, 2014 and 2013:
(1)
Audit fees - These are fees billed for professional services performed by LVW for the audit of our annual financial statements and review of financial statements included in our Form 10-Q filings, and services that are normally provided in connection with statutory regulatory filings or engagements.
(2)
Audit-related fees - These are fees billed for assurance and related services performed by LVW, as applicable that are reasonably related to the performance of the audit or review of our financial statements. These include attestations that are not required by statute, and consulting on financial accounting/reporting standards.
(3)
Tax fees - These are fees billed for professional services performed by LVW, as applicable, with respect to tax compliance, tax advice and tax planning. These include preparation of original and amended tax returns for the Company and its consolidated subsidiaries, refund claims, payment planning, tax audit assistance, and tax work stemming from “audit-related” items.
(4)
All other fees - Services that do not meet the above three category descriptions are not permissible work performed for us by LVW, as applicable.
All services to be performed for the Company by independent public accountants, including those fees outlined above for 2014 and 2013, must be pre-approved by the Board of Directors, which has chosen not to adopt any pre-approval policies for enumerated services and situations, but instead has retained the sole authority for such approvals.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following documents are filed as a part of this report or are incorporated by reference to previous filings, if so indicated:
* filed herewith
(1)
Filed with the SEC on October 12, 2000, as an exhibit, numbered as indicated above, to the Registrant’s registration statement (SEC File No. 000-31757) on Form 10-SB, which exhibit is incorporated herein by reference.
(2)
Filed with the SEC on January 11, 2008, as an exhibit, numbered as indicated above, to the Registrant’s current report (SEC File No. 000-31757) on Form 8-K, which exhibit is incorporated herein by reference.
(3)
Filed with the SEC on August 3, 2009, as an exhibit, numbered as indicated above, to the Registrant’s current report (SEC File No. 000-31757) on Form 8-K, which exhibit is incorporated herein by reference.
(4)
Filed with the SEC on November 9, 2009, as an exhibit, numbered as indicated above, to the Registrant’s registration statement (SEC File No. 000-31757) on Form S-8, which exhibit is incorporated herein by reference.
(5)
Filed with the SEC on November 16, 2009, as an exhibit, numbered as indicated above, to the Registrant’s quarterly report (SEC File No. 000-31757) on Form 10-Q, which exhibit is incorporated herein by reference.
(6)
Filed with the SEC on December 14, 2009, as an exhibit, numbered as indicated above, to the Registrant’s current report (SEC File No. 000-31757) on Form 8-K, which exhibit is incorporated herein by reference.
(7)
Filed with the SEC August 17, 2009, as an exhibit, numbered as indicated above, to the Registrant’s definitive proxy statement (SEC File No. 000-31757) on Form 14C, which exhibit is incorporated herein by reference.
(8)
Filed with the SEC on January 27, 2010, as an exhibit, numbered as indicated above, to the Registrant’s current report (SEC File No. 000-31757) on Form 8-K, which exhibit is incorporated herein by reference.
(9)
Filed with the SEC on August 13, 2010, as an exhibit, numbered as indicated above, to the Registrant’s current report (SEC File No. 000-31757) on Form 8-K, which exhibit is incorporated herein by reference.
(10)
Filed with the SEC on March 31, 2010, as an exhibit, numbered as indicated above, to the Registrant’s annual report (SEC File No. 000-31757) on Form 10-K, which exhibit is incorporated herein by reference.
(11)
Filed with the SEC on November 17, 2011, as an exhibit, numbered as indicated above, to the Registrant’s quarterly report (SEC File No. 000-31757) on Form 10-Q, which exhibit is incorporated herein by reference.
(12)
Filed with the SEC on August 24, 2011, as an exhibit, numbered as indicated above, to the Registrant’s current report (SEC File No. 000-31757) on Form 8-K, which exhibit is incorporated herein by reference.
(13)
Filed with the SEC on November 21, 2012, as an exhibit, numbered as indicated above, to the Registrant’s quarterly report (SEC File No. 000-31757) on Form 10-Q, which exhibit is incorporated herein by reference.
(14)
Filed with the SEC on April 16, 2013, as an exhibit, numbered as indicated above, to the Registrant’s annual report (SEC File No. 000-31757) on Form 10-K, which exhibit is incorporated herein by reference.
(15)
Filed with the SEC on January 7, 2014, as an exhibit as indicated above to the Registrants’ current report (SEC File No. 000-31757 on Form 8-K, which exhibit is incorporated herein by reference
(16)
Filed with the SEC on February 20, 2014, as an exhibit as indicated above to the Registrants’ current report (SEC File No. 000-31757 on Form 8-K, which exhibit is incorporated herein by reference
(17)
Filed with the SEC on June 10, 2014, as an exhibit as indicated above to the Registrants’ current report (SEC File No. 000-31757 on Form 8-K, which exhibit is incorporated herein by reference
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
UNIFIED SIGNAL, INC.
Date: May 6, 2015
By:
/s/ Paris Holt
Paris Holt
Chief Executive Officer, President,
Principal Executive Officer and
Principal Financial and Accounting Officer
In accordance with the Exchange Act, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
DATE
/s/ Stuart Ehrlich
Director
May 6, 2015
Stuart Ehrlich
/s/ Peter Sperling
Director; Secretary
May 6, 2015
Peter Sperling
CONSOLIDATED FINANCIAL STATEMENTS
UNIFIED SIGNAL, INC.
(Formerly known as DataJack, Inc.)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Unified Signal, Inc.
We have audited the accompanying balance sheets of Unified Signal, Inc. (formerly known as DataJack, Inc. and the “Company”) as of December 31, 2014 and 2013, and the related statements of operations, statement of stockholders' deficit, and cash flows for each of the years ended December 31, 2014 and 2013. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on the financial statements based upon our audits
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Unified Signal, Inc. at December 31, 2014 and 2013 and the results of its operations and its cash flows for each of the years ended December 31, 2014 and 2013 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4 to the financial statements, the Company has a working capital deficit of $1.2 million as of December 31, 2014, and will require additional cash to fund the deficit, which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 4. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Liggett, Vogt & Webb, P.A.
May 4, 2015
New York, New York
UNIFIED SIGNAL, INC.
(Formerly Datajack, Inc.)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2014 AND 2013
The accompanying notes are an integral part of these consolidated financial statements
UNIFIED SIGNAL, INC.
(Formerly Datajack, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these consolidated financial statements
UNIFIED SIGNAL, INC.
(Formerly Datajack, Inc.)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
TWO YEARS ENDED DECEMBER 31, 2014
The accompanying notes are an integral part of these consolidated financial statements
UNIFIED SIGNAL, INC.
(Formerly Datajack, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOW
The accompanying notes are an integral part of these consolidated financial statements
UNIFIED SIGNAL, INC.
(Formerly DataJack, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
NOTE 1 - ORGANIZATION AND BUSINESS
Unified Signal, Inc.( formerly Datajack, Inc.) (together with its consolidated subsidiaries, TelBill Holdings, LLC. (“TelBill” and WQN, Inc. (“WQN”) or the “Company”) is an MVNO enabler and mobile payment solutions provider in the wireless and banking industries. The Company is a SaaS (software as a service) based billing and back office platform which enables companies in virtually any industry sector to launch cellular, as well as other telecom services using their existing brand. The Company’s SaaS platform and infrastructure allows clients to implement faster, have more control over the system with feature rich tools, while being more cost efficient than other solution providers. The Company’s turnkey telecom billing platform allows its clients to sell, provision, fulfill, and care for multiple telecom services, including pre and post-paid cellular, local, long distance, Internet, and mobile banking. The platform also enables clients to private label mobile banking services including a full mobile wallet linked to a prepaid debit card.
On November 27, 2014, the Company changed its name from DataJack, Inc. In addition, effective November 27, 2014 and in conjunction with the name change, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from DJAK.OB to UNSL.OB.
Basis of Presentation (Reverse-Acquisition)
On June 4, 2014, TelBill Holdings, LLC completed an acquisition (the "Merger") of TelBill Holdings, Inc. (“TelBill”) (dba Unified Signal) pursuant to the terms of the Membership Interest Purchase Agreement (the “Merger Agreement”) with TelBill and Unified Signal, Inc. (formerly DataJack, Inc.) dated as of June 4, 2014. For accounting purposes, TelBill was identified as the acquiring entity and Unified Signal (formerly DataJack Inc.) as the acquired entity. The merger was accounted for using the purchase method of accounting for financial reporting purposes. The purchase method requires the identification of the acquiring entity based on the criteria of Accounting Standards Codification (“ASC”) 805-10-55-12, “Accounting for Business Combinations”. Under the purchase method of accounting the purchase price is preliminarily allocated to the acquiree’s assets and liabilities at fair value and any excess purchase price is then attributed to identifiable intangible assets and goodwill. The preliminary purchase price allocation may be modified as more information is obtained for a period of no more than one year. Accordingly, the consolidated financial statements and related footnote disclosures presented for the period prior to the Merger are those of TelBill and its subsidiaries alone. The financial statements as of December 31, 2014, for the year ended December 31, 2013 and through June 4, 2014 include the operations and cash flows of TelBill and its subsidiaries and the combined operations and cash flows of TelBill and Unified Signal (formerly DataJack, Inc.) subsequent to that date.
The accompanying financial statements give retroactive effect to the recapitalization as if it had occurred at the earliest reporting period. Certain other reclassifications have been made to prior periods’ consolidated financial statements to be consistent with the current period’s presentation.
The accompanying financial statements present on a consolidated basis the accounts of Unified Signal, Inc. (formerly DataJack Inc.) and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities; disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Significant estimates include the fair value of goodwill, customer lists, equity based compensation, derivative liabilities and revenue recognition.
UNIFIED SIGNAL, INC.
(Formerly DataJack, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers all cash on hand, in banks, certificates of deposit and other highly liquid debt instruments with a maturity of three months or less at the date of purchase, to be cash and cash equivalents. Cash overdraft positions may occur from time to time due to the timing of making bank deposits and releasing checks, in accordance with the Company’s cash management policies. Cash overdraft positions are recorded as accounts payable in the balance sheet.
Restricted Cash
Restricted cash represents collateral on a standby letter of credit related to an agreement with one of the Company’s telecommunications service providers, effectively providing a guarantee of the Company’s payment of its account payable to this service provider.
Accounts Receivable
Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts based on its assessment of the current status of the individual receivables and after using reasonable collection efforts. The allowance for doubtful accounts as of December 31, 2014 and 2013 was $42,000 and $0, respectively.
Income taxes
Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carryforwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The Company records an estimated valuation allowance on its deferred income tax assets if it is not more likely than not that these deferred income tax assets will be realized.
The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As of December 31, 2014 and 2013, the Company has not recorded any unrecognized tax benefits.
The Company's 2011 to 2014 tax returns are subject to examinations by the IRS and state taxing agency.
Stock-based compensation
All stock-based payments to employees and to nonemployee directors for their services as directors, including grants of restricted stock and stock options, are measured at fair value on the grant date and recognized in the consolidated statements of operations as compensation or other expense over the relevant service period. Stock-based payments to nonemployees are recognized as an expense over the period of performance. Such payments are measured at fair value at the earlier of the date a performance commitment is reached or the date performance is completed. In addition, for awards that vest immediately and are non-forfeitable, the measurement date is the date the award is issued.
Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable, accounts payable and notes payable, as applicable, approximates fair value due to the short term nature of these items and/or the current interest rates payable in relation to current market conditions.
UNIFIED SIGNAL, INC.
(Formerly DataJack, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing the net income (loss) for the year by the weighted-average number of shares of common stock outstanding. The calculation of fully diluted earnings per share is computed using the weighted average number of common shares outstanding and common stock equivalents with the assumption that all common stock equivalents were converted at the beginning of the year. Options, warrants, convertible debt and unvested shares are considered to be common stock equivalents and are only included in the calculation of diluted earnings per common share when their effect is dilutive.
As of December 31, 2014, there were notes convertible into an aggregate of 2,233,702 shares of the Company’s common stock. In computing diluted net loss per share for the year ended December 31, 2014, no effect has been given to such shares issuable upon note conversions as their effect would be anti-dilutive. There were no common stock equivalents for the year ended December 31, 2013.
Fair Value Measurements
ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:
Level 1-Quoted prices in active markets for identical assets or liabilities.
Level 2-Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3-Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of December 31, 2014 and 2013:
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (derivative liability) for the June 4, 2014 (date of merger) through December 31, 2014.
UNIFIED SIGNAL, INC.
(Formerly DataJack, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
Level 3 Liabilities were comprised of our bifurcated convertible debt features on our convertible notes.
Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period. The Company’s stock price decreased by 56% from June 4, 2014 (date of merger) to December 31, 2014. As the stock price decreases for each of the related derivative instruments, the value to the holder of the instrument generally decreases, therefore decreasing the liability on the Company’s balance sheet. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments.
Revenue Recognition
The Company follows the guidance in Staff Accounting Bulletin (SAB) No. 104, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. SAB 104 states that revenue is realized or realizable and earned when all of the following criteria are met: persuasive evidence of an arrangement exists, services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectability is reasonably assured.
Revenues are primarily derived from fees charged to terminate voice services over the Company’s network and from related monthly recurring charges. Variable revenue is earned based on the number of minutes during a call and is recognized upon completion of a call. Revenue from each customer is calculated from information received through the Company’s network switches. The Company tracks the information received from the switch and analyzes the call detail records and applies the respective revenue rate for each call. Fixed revenue is earned from monthly recurring services provided to customers that are fixed and recurring in nature, and are connected for a specified period of time. Revenues are recognized as the services are provided and continue until the expiration of the contract or until cancellation of the service by the customer. Cash fees received prior to call completion are recorded on the Company’s consolidated balance sheets as unearned revenue. As of December 31, 2014 and 2013, the Company did not have any recorded unearned revenue.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight line method. The useful lives of assets range from three to five years. The company reviews the recoverability of its property and equipment when events or changes in circumstances occur that indicate that the carrying value of the asset group may not be recoverable.
Costs for the internal development of computer software related to the Company’s proprietary systems are expensed as development stage costs until technological feasibility has been established. Thereafter, all additional software development costs are capitalized and amortized on a straight-line basis over their estimated useful lives.
UNIFIED SIGNAL, INC.
(Formerly DataJack, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
Economic Dependency
The Company utilizes a limited number of suppliers. The Company is vulnerable to the risk of renewing favorable supplier contracts and timeliness of the supplier in processing the Company’s orders for customers, and is at risk related to regulation and regulatory developments that govern the rates to be charged to the Company and, in some instances, whether certain facilities are required to be made available to the Company.
Long-Lived Assets
Property, equipment and definite lived intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell, and depreciation ceases.
Intangible Assets and Goodwill
As a result of the acquisition of TelBill Holdings, LLC on June 4, 2014, the Company acquired intangible assets in the aggregate amount of $7,982,644.
The Company allocated $200,000 in identifiable intangible assets for customer relationships. The remaining $7,782,644 was allocated to goodwill.
The Company amortized its identifiable intangible assets using the straight-line method over their estimated period of benefit. The estimated useful lives of the customer relationships was determined to be three years. The Company periodically evaluates the recoverability of intangible assets and takes into account events or circumstances that warrant revised estimates of useful lives or indicate that impairment exists.
The Company accounts for and reports acquired goodwill and other intangible assets under Accounting Standards Codification subtopic 350-10, Intangibles, Goodwill and Other (“ASC 350-10”). In accordance with ASC 350-10, the Company tests its intangible assets for impairment on an annual basis and when there is reason to suspect that their values have been diminished or impaired. Any write-downs will be included in results from operations.
At June 30, 2014 and December 31, 2014, the Company management performed an evaluation of its goodwill and other acquired intangible assets for purposes of determining the implied fair value of the assets at each respective dates. The tests indicated that the recorded book value of its acquired goodwill from the acquisition of TelBill Holdings, LLC exceeded its fair value for the period ended December 31, 2014. As a result, upon completion of the assessment, management recorded an aggregate non-cash impairment charge of $7,782,644, net of tax, or $0.16 per share during the year ended December 31, 2014 to reduce the carrying value to $-0-.
The impairment charge is reflected as part of the loss from operations in the accompanying financial statements. Considerable management judgment is necessary to estimate the fair value. Accordingly, actual results could vary significantly from management’s estimates.
Deferred Costs
The amount of cash paid and the value of common stock issued that are related to contract renegotiations and debt issuances are capitalized, and classified as a noncurrent deferred cost on the Company’s consolidated balance sheet. These deferred costs are amortized to expense over the term of the underlying contracts or debt instruments. As of December 31, 2014, the remaining unamortized deferred costs were $-0-.
UNIFIED SIGNAL, INC.
(Formerly DataJack, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
Segment Information
Accounting Standards Codification subtopic Segment Reporting 280-10 (“ASC 280-10”) establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The information disclosed herein materially represents all of the financial information related to the Company’s only principal operating segment.
Convertible Instruments
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional, as that term is described under applicable GAAP. The Company has identified embedded derivatives related to certain of its notes payable. These embedded derivatives include certain conversion features and reset provisions.
When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.
Recent Accounting Pronouncements
The FASB has issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company has not yet determined the effect of the adoption of this standard and it is expected to have a material impact on the Company’s consolidated financial statements.
UNIFIED SIGNAL, INC.
(Formerly DataJack, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
The FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supercedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company has not yet determined the effect of the adoption of this standard and it is expected to have an immaterial impact on the Company’s consolidated financial statements.
In August, 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties About an Entities Ability to Continue as a Going Concern. The standard is intended to define management’s responsibility to decide whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. The standard requires management to decide whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The standard provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations in the footnotes. The standard becomes effective in the annual period ending after December 15, 2016, with early application permitted. The adoption of this pronouncement is not expected to have a material impact on the consolidated financial statements. Management’s evaluations regarding the events and conditions that raise substantial doubt regarding the Company’s ability to continue as a going concern have been disclosed in Note 4.
There are other various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.
Subsequent Events
The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements, except as disclosed.
NOTE 3 -BUSINESS COMBINATION
On June 4, 2014, Unified Signal, Inc. (formerly DataJack, Inc.) completed an acquisition (the "Merger") of TelBill Holdings, LLC. (“TelBill”) pursuant to the terms of the Membership Interest Purchase Agreement (the “Merger Agreement”) with TelBill Holdings, LLC (dba Unified Signal) dated as of June 4, 2014.
The Company acquired TelBill in exchange for the following: (i) 30,600,000 shares of Registrant's common stock, par value $0.001("Common Stock") to Mr. Holt, (ii) the reservation of an additional 5,400,000 shares of the Company’s Common Stock to be allocated as warrants to the employees of the Company and (iii) a one-time "true-up" to Mr. Holt for the period of eighteen months after the Closing Date in the event the Registrant raises additional capital such that Seller shall own not less than 51% of the Registrant on a fully-diluted basis (collectively, the "Purchase Price").
UNIFIED SIGNAL, INC.
(Formerly DataJack, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
The merger was accounted for using the purchase method of accounting for financial reporting purposes. The acquisition method requires the identification of the acquiring entity based on the criteria of ASC 805-10-55-12, “Accounting for Business Combinations”. Based on an analysis of the relative voting rights in the combined entity after the business combination and the composition of the board of directors and the relative size (measured in assets, revenues, or earnings), the Merger was accounted for as a reverse acquisition. For accounting purposes, TelBill Holdings, LLC. was identified as the acquiring entity and Unified Signal, Inc. (formerly DataJack Inc.) as the acquired entity. Under the purchase method of accounting the purchase price is preliminarily allocated to the acquiree’s assets and liabilities at fair value and any excess purchase price is then attributed to identifiable intangible assets and goodwill. The preliminary purchase price allocation may be modified as more information is obtained for a period of no more than one year. Accordingly, the financial statements and related footnote disclosures presented for the period prior to the Merger are those of TelBill Holdings, LLC. and its subsidiaries alone. The financial statements as of December 31, 2014, for the year ended December 31, 2013 and through the period ended June 4, 2014 include the operations and cash flows of TelBill Holdings, LLC. and the combined operations and cash flows of TelBill Holdings, LLC. and Unified Signal, Inc. (DataJack, Inc.) and its subsidiaries after that date.
In accordance with the Merger, each TelBill Holdings, LLC member received, in exchange for each membership interest of TelBill Holdings, LLC. common stock held or deemed to be held by such member immediately prior to the closing of the merger on June 4, 2014, one membership interest of TelBill Holdings, LLC, resulting in TelBill Holdings, LLC. members owning approximately 55.5% of the shares of the combined company. A total of 24,491,728 shares of common stock were issued in connection with this exchange.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. The total acquisition price of $6,217,849 has been allocated as follows:
Goodwill and customer lists represent the excess of the purchase price over the fair value of the net tangible assets acquired. For income tax reporting purposes, the goodwill and other intangibles assets identified above are non-deductible.
Pro forma results
The following tables set forth the unaudited pro forma results of the Company as if the acquisition of Datajack, Inc. had taken place on the first day of the periods presented. These combined results are not necessarily indicative of the results that may have been achieved had the companies always been combined.
UNIFIED SIGNAL, INC.
(Formerly DataJack, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
At June 30, 2014 and December 31, 2014, the Company management performed an evaluation of its goodwill and other acquired intangible assets for purposes of determining the implied fair value of the assets at each respective dates. The tests indicated that the recorded book value of its acquired goodwill from the acquisition of TelBill Holdings, LLC exceeded its fair value for the period ended December 31, 2014. As a result, upon completion of the assessment, management recorded an aggregate non-cash impairment charge of $7,782,644, net of tax, or $0.16 per share during the year ended December 31, 2014 to reduce the carrying value to $-0-. The impairment charge is reflected as part of the loss from operations in the accompanying financial statements. Considerable management judgment is necessary to estimate the fair value. Accordingly, actual results could vary significantly from management’s estimates.
The Company has presented its preliminary estimates of the fair values of the assets acquired and liabilities assumed in the Merger as of December 31, 2014. The Company is in the process of finalizing its review and evaluation of the appraisal and related valuation assumptions supporting its fair value estimates for all of the assets acquired and liabilities assumed in the Merger and, therefore, the estimates used herein are subject to change. This may result in adjustments to the values presented above for assets and liabilities and a corresponding adjustment to goodwill in addition to the impairment charge. As such, the Company has not completed the assignment of goodwill to reporting units or its determination of the amount of goodwill that is expected to be deductible for tax purposes at this time.
NOTE 4 - GOING CONCERN
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has reported a net loss of $8,715,026 for year ended December 31, 2014. As of December 31, 2014, the Company has a working capital deficit of $1,151,166, and has been dependent on issuances of debt and equity instruments to fund its deficit.
The Company intends to increase its future profitability and seek new sources or methods of revenue to pursue its business strategy. If the Company’s financial resources from operations are insufficient, the Company will require additional financing in order to execute its operating plan and continue as a going concern. The Company cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In any of these events, the Company may be unable to implement its current plans for expansion, repay its debt obligations as they become due, or respond to competitive pressures, any of which circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations.
The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
NOTE 5 - PROPERTY AND EQUIPMENT, NET
At December 31, 2014 and 2013, respectively, property and equipment consisted of the following:
Depreciation expense for the years ended December 31, 2014 and 2013 amounted to $66,924 and $-0-, respectively.
UNIFIED SIGNAL, INC.
(Formerly DataJack, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
NOTE 6 - CUSTOMER LISTS
In connection with the merger with TelBill Holdings, LLC. the Company acquired a customer listing with an allocated fair value at the date of the merger of $200,000. The customer list is amortized ratably over its estimated useful life of 3 years. During the year ended December 31, 2014, the Company amortized $38,889 to current period operations.
NOTE 7 - OTHER INTANGIBLES
In connection with the merger on June 4, 2014, the Company acquired domain rights with an allocated fair value of $35,366. In August 2014, the Company sold the domain rights and cancelled outstanding accounts receivable of $6,083 for net proceeds of $100,000. The Company recognized a gain on sale of domain rights of $60,564 during the year ended December 31, 2014.
Amortization expense for the year ended December 31, 2014 and 2013 amounted to $2,013 and $-0-, respectively
NOTE 8 - RELATED PARTY TRANSACTIONS
In June 2014, the Company issued an aggregate of 3,650,000 shares of its common stock in settlement of $372,608 related party obligations.
As of December 31, 2014 and 2013, related party advances were $200,000 and $-0-, respectively.
NOTE 9 - NOTES PAYABLE
At December 31, 2014 and 2013, notes payable consisted of the following:
Promissory Notes Payable - Shareholders
As of December 31, 2014, the Company had short-term unsecured promissory notes from various shareholders totaling $65,000. These unsecured advances do not accrue interest.
UNIFIED SIGNAL, INC.
(Formerly DataJack, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
Note Payable - Sperling
On September 4, 2014, the Company entered into a short-term no interest unsecured promissory note to Jerry Sperling for the amount of $36,500. The promissory note is payable on demand. On December 1, 2014, the Company issued 500,000 shares of common stock in settlement of the promissory note. In connection with the issuance, the Company recorded a loss on settlement of debt of $48,500.
Convertible Note Payable - St George Investments
On March 30, 2012, the Company’s acquired subsidiary entered into a convertible promissory note with St George Investments (the “St George Note”) for a principal balance of $465,000. The note was originally a short-term note payable to Warren Gilbert, one of the primary shareholders of the Company. On March 30, 2012, Warren Gilbert sold the note to St. George Investments for an amount which was not disclosed to the Company’s acquired subsidiary. The St George Investments note conversion notice contains a Beneficial Conversion Feature (BCF). The Company’s acquired subsidiary accordingly recorded a BCF of $298,077, as a credit to additional paid in capital with offsetting amounts of $187,500 to other expense and $110,577 to debt discount, a contra liability account, which was written off by September 30, 2012, the maturity date of the St George Note. The Company’s acquired subsidiary also recognized an additional original-issue debt discount of $135,127, which was charged to other expense by September 30, 2012.
The St George Note bears interest at the rate of 8% per annum, compound daily. All interest and principal was due on September 30, 2012. The St George Note was convertible into common stock, at St George Investments’ option, at a fixed conversion price of $0.375 per share from March 30, 2012 until September 1, 2012, and commencing September 2, 2012 the conversion price is 65% of the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. Upon the occurrence of an event of default, (i) the outstanding balance shall increase to 112.5% of the outstanding balance immediately prior to the occurrence of such event of default; provided, however, that such increase may not be applied more than twice, and (ii) this St George Note shall accrue interest until the outstanding balance is repaid in full at the rate of 1% per month (or 12% per annum), compounding daily, whether before or after judgment.
St George Investments shall have the option, in its sole discretion, to return all or any part of the conversion shares or cancelled shares to the Company’s acquired subsidiary by providing one or more written notices thereof to the Company but not exceed 47,692 shares. The St George Investments converted a total of $426,206 of accrued interest, penalty and principal amount during the year ended December 31, 2012 and returned $58,486 or 47,692 shares of conversion made in September 2012. See Note 13 for related litigation.
Per the terms of the litigation discussed in Note 13, final settlement was reached whereby the Company will pay St. George Investments a series of 14 payments, on the 15th and 30th of each month for the next 7 months beginning in August 2014.
The Company has identified embedded derivatives related to the St George Note. These embedded derivatives include certain conversion features and reset provisions. See Note 11. The outstanding principal at December 31, 2014 is $50,000.
Convertible Note Payable - JMJ Financial
On August 22, 2012, the Company’s acquired subsidiary entered into a convertible promissory note with JMJ Financial (the “JMJ Note”) for an aggregate principal balance of $220,000. The principal sum of the notes consisted of $200,000 of consideration paid, plus a $20,000 original issue discount (OID) or 10% OID. The note has a provision which allows the Company’s acquired subsidiary to draw down the available principal over time. The JMJ Note bears a one-time interest charge of 10% of the principal amount. The maturity date is one year from the Effective Date of each payment received by the Company’s acquired subsidiary and is the date upon which the principal sum of this JMJ Note, as well as any unpaid interest and other fees, shall be due and payable. The JMJ Note is convertible into common stock, at JMJ Financial’s option at any time after the Effective Date, at the conversion price of lesser of $0.07 per share or 70% of the lowest trade price in the 25 trading days prior to the conversion. In the event of any default, the outstanding principal amount of this JMJ Note, plus accrued but unpaid interest, liquidated damages, fees and other amounts owing in respect thereof through the date of acceleration, shall become, at JMJ Financial’s election, immediately due and payable in cash at the Mandatory Default Amount. On December 11, 2013, the Company entered an amended Debt Settlement agreement with JMJ for settlement of the outstanding $88,174 balance on the promissory note. The Company has signed various amendments to the Debt Settlement agreement extending the final payment date to March 14, 2014.
UNIFIED SIGNAL, INC.
(Formerly DataJack, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
On February 11, 2015, the Company entered into a new settlement agreement in court in response to the litigation between the Company’s acquired subsidiary and JMJ Note. Per the terms of the settlement agreement the Company is required to make a payment of $25,000 prior to February 28, 2015 followed by five (5) monthly payments of $10,000 due on the last day of each month thereafter and a final payment of $3,174 due on the last day of the sixth month.
The Company has identified embedded derivatives related to the JMJ Note. These embedded derivatives include certain conversion features and reset provisions. See Note 11.
CGL Interest Note
On September 9, 2013, the Company entered into a loan agreement for up to $200,000, at the holder’s option. CGL agreed to loan up to $200,000 to assist in covering costs for various parties to implement their mobile virtual network operators (“MVNO”) in exchange for a new MVNO for CGL at no cost. Payments are at 15% of the Company’s MVNO royalty fee for each subscriber with no cap or time limitation.
If CGL advances funds to the Company on a particular MVNO, the Company must pay back these funds at 100% monthly royalty fee until tranche is repaid. If a particular advance is note repaid within 12 months, the Company must pay back over 12 months from general profits.
The Company’s Chief Executive Officer, Paris Holt, has provided a personal guarantee.
Note payable-Jenson
On March 19, 2013, the Company issued a promissory note for $50,000, initially due April 1, 2014 with interest at 7% per annum. The remaining unpaid balance at December 31, 2014 was $37,500.
Note Payable - LG Capital
On June 19, 2013, the Company’s acquired subsidiary (See Note 3) entered into a $32,000, 8% note payable with LG Capital Funding. The principal and interest of the note is due and payable on March 19, 2014. The note has a conversion feature which commences 180 days prior to the maturity date. LG Capital Funding can convert the loan for common stock at a conversion price of 51% of the market price which is calculated utilizing the two lowest trading places. LG Capital converted a total of $12,090 of accrued interest and principal amounts during the year ended December 31, 2013 for 109,649 shares. The outstanding principal balance as of December 31, 2014 is $21,917.
NOTE 10 - LEGAL SETTLEMENT OBLIGATIONS
The Company has entered into settlement agreements with note holders, former employees and vendors. As of December 31, 2014, the legal settlement obligation was $31,500. These settlement agreements have yet to be fully consummated and are recorded at full value until the transaction is completed.
UNIFIED SIGNAL, INC.
(Formerly DataJack, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
NOTE 11 - DERIVATIVE LIABILITIES
The Company’s St George Note, LG Capital and JMJ Financial Note (the “JMJ Note”) can be converted into the Company’s common shares, at the holders’ option, at the conversion rates of: (a) 65% of the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion for the St George Note; (b) at the lesser of $0.07 per share or 70% of the lowest trade price in the 25 trading days prior to the conversion for the JMJ Note and (c) at a conversion price of 51% of the market price which is calculated utilizing the two lowest trading places for the LG Capital note .
The Company has identified the embedded derivatives related to these convertible notes. These embedded derivatives included certain conversion features and reset provisions, requiring the Company to record the fair value of the derivatives as of the inception date of these convertible notes, and to fair value as of each subsequent reporting date.
At the date of Merger (See Note 3), the Company determined the aggregate fair value of $403,155 of embedded derivatives. The fair values of the embedded derivatives were determined using the Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 351.12%, (3) weighted average risk-free interest rate of 0.10%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.26 per share.
At December 31, 2014, the Company marked to market the fair values of these debt derivatives and determined a fair value of $461,785. The Company recorded a loss from change in fair value of debt derivatives of $1,537 for the year ended December 31, 2014. The fair values of the embedded derivatives were determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 396.18%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 1 year, and (5) estimated fair value of the Company’s common stock of $0.15 per share.
NOTE 12 - STOCKHOLDERS’ EQUITY
Common stock
In June 2014, the Company issued an aggregate of 200,000 shares of its common stock for services rendered valued at $82,740.
In June 2014, the Company issued an aggregate of 3,650,000 shares of its common stock, $31,500 of which was previously subscribed, in settlement of related party obligations of $434,108.
In June 2014, the Company issued 100,000 shares of its common stock as note extension fee of $50,000.
In June 2014, the Company issued an aggregate of 2,100,000 shares of its common stock for $497,1000 in note conversions.
In July 2014, the Company issued 137,500 shares of its common stock in settlement of debt of $55,776.
In July 2014, the Company issued 200,000 shares of its common stock as payment of interest and note extension of $32,000.
In August 2014, the Company issued 100,000 shares of its common stock as payment of interest and note extension of $19,000.
In August 2014, the Company issued 125,000 shares of its common stock for services rendered valued at $23,750.
In August 2014, the Company issued 450,000 shares of its common stock in settlement of debt of $45,000.
In September 2014, the Company issued 2,200,000 shares of its common stock for services rendered valued at $352,000.
In September 2014, the Company issued an aggregate of 155,100 shares of its common stock in settlement of debt of $22,635.
UNIFIED SIGNAL, INC.
(Formerly DataJack, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
In December 2014, the Company issued 500,000 shares valued at $85,000, of its common stock in settlement of debt of $36,500. In connection with the issuance, the Company incurred a loss on $48,500.
In December 2014, the Company issued 250,000 shares of its common stock for consulting services valued at $35,000.
In December 2014, the Company issued 107,600 shares valued at $16,140, of its common stock in settlement of accounts payable of $26,900. In connection with the issuance, the Company incurred a gain of $10,760.
As of December 31, 2014 the Company has $272,500 in common stock subscriptions in connection with 1,333,153 shares to be issued.
Warrants
The following table summarizes information with respect to outstanding warrants to purchase common stock of the Company, all of which were exercisable, at December 31, 2014:
The following table summarizes the warrant activity for the two years ended December 31, 2014:
In Connection with the Business Combination (Note 3), the Company issued 5,400,000 warrants to purchase the Company’s common stock at an exercise price of $0.75 per share for five years.
UNIFIED SIGNAL, INC.
(Formerly DataJack, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
In June 2014, the Company’s accounting predecessor issued an aggregate of warrants to purchase 3,100,000 of the Company’s common stock for five years, exercisable at $0.75 in connection with settlement of debt.
In June 2014, the Company issued warrants to purchase 75,000 of the Company’s common stock for five years, exercisable at $0.50 in connection with settlement of debt. The Company valued the warrants using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 1.62% , a dividend yield of 0%, and volatility of 374.90%.
Distributions
There are $204,026 in pre-merger distributions made to the prior member of TelBill Holdings, LLC.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Leases
As of December 31, 2014, the Company does not have any outstanding operating leases.
Letter of Credit
As of December 31, 2014, the Company has an outstanding standby letter of credit, expiring on April 14, 2015, in the amount of $150,000 for the benefit of the one of the Company’s vendors, Sprint Spectrum, L.P. This letter of credit is secured by a certificate of deposit, which at December 31, 2014 is classified as restricted cash, a non-current asset.
Sale of ITG, Inc.
The Company’s acquired subsidiary disposed of its ITG, Inc. (formerly WQN, Inc) subsidiary effective November 21, 2013. In accordance with the Stock Purchase Agreement related to the sale of ITG, Inc. the purchaser assumed certain liabilities totaling $275,548 as of the date of the transaction. The purchaser has not indemnified the Company against any future claims by third party creditors or others. Management does not consider it likely that these claims will materialize and accordingly no provision has been made for these contingent liabilities.
Litigation
The Company was a defendant in litigation titled St George Investments LLC v. Quamtel, Inc. and Transfer Online, Inc., Case No. 1:12-cv-09186, pending in the United States District Court for the Northern District of Illinois, Eastern Division (the "St George Litigation"). The St. George Litigation was commenced on November 15, 2012, and amended on January 29, 2013. Generally, the Amended Complaint alleges that Unified Signal, Inc. (formerly DataJack) failed to pay a purported debt to Plaintiff as and when due and that the Company and its transfer agent failed to honor a notice from the Plaintiff to exercise its claimed contractual right to convert $20,000 of the alleged debt to shares of stock in the Company. The Amended Complaint alleges that the Company is indebted to the Plaintiff in the amount of $391,704, plus penalties, interest, attorney’s fees and costs. The Amended Complaint also seeks injunctive relief and unspecified amounts of compensatory, consequential, indirect and punitive damages. The Company has disputed its alleged liability to the Plaintiff, and the Company has responded to the Amended Complaint. A settlement agreement has been reached and is dated January 16, 2014, which includes dismissal of the lawsuit. An initial payment is due on January 16, 2014, with a final payment for the balance due on February 15, 2014.
An amended agreement was reached and dated February 14, 2014, which states the initial payment was made on or prior to January 16, 2014 and the balance is to be paid on February 18, 2014 and March 18, 2014.　The Company acquired subsidiary has made the February 18, 2014 payment.　An extension was granted on March 17, 2014 for the final payment to be made on or before April 27, 2014.　An issuance of 60,000 shares was made on March 17, 2014 as an extension fee. The parties then revised its agreement and amended it so that the Company was granted additional time to make its payments. This Settlement Agreement, Waiver and Release of Claims was dated April 29, 2014, and the final payment was extended from April 27, 2014 to June 6, 2014. In consideration thereof, the Company issued 60,000 of its shares as an extension fee.
UNIFIED SIGNAL, INC.
(Formerly DataJack, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
On June 10, 2014 the parties further extended the due date for the Final Payment from June 6, 2014 to July 21, 2014 and in consideration thereof, the Company issued 100,000 of its shares of common stock as an extension fee.
On July 21, 2014 the parties revised its agreement yet again and agreed to the following; a two part payment; the first part payable on July 31, 2014 and the second payable on September 4, 2014. The parties agreed to allow this extension by the Company issuing an additional 200,000 shares of common stock as an extension fee.
Finally on August 12, 2014, the parties entered into a final settlement agreement whereby the Company will pay St George Investments a series of 14 payments, on the 15th and 30th of each month, for the next 7 months beginning in August 2014. Additionally, the Company has issued an additional 100,000 shares of common stock, as a final extension fee.
In the ordinary course of business, the Company is involved in numerous lawsuits. The costs that may result from these lawsuits are only accrued for when it is more likely than not that a liability, resulting from past events, will be incurred and the amount of that liability can be quantified or estimated within a reasonable range. As of the date of this filing, the Company is not currently involved in or aware of any pending or threatened litigation.
Major Concentrations
The Company’s largest customer, OTEAA, LLC. , accounted for approximately 51% of total sales in the year ended December 31, 2014. The agreement was for the launch of MVNO services for the client.
Uncertain Tax Positons
The Company uses a number of independent contractors in our operations in which it does not pay or withhold any federal, state or provincial employment tax. There are a number of different tests used in determining whether an individual is an employee or an independent contractor and such tests generally take into account multiple factors. There can be no assurance that legislative, judicial or regulatory (including tax) authorities will not introduce proposals or assert interpretations of existing rules and regulations that would change, or at least challenge, the classification of our independent contractors. As of December 31, 2014 and 2013, the Company has reviewed the various independent contractor relationships and has determined to not accrue any additional liabilities related to the above contingency.
NOTE 14 - INCOME TAXES
The components of the Company's income tax expense (benefit) are as follows:
Significant components of deferred tax assets and liabilities are as follows:
The actual tax benefit differs from the expected tax benefit for the years ended December 31, 2014 and 2013 (computed by applying the U.S. Federal Corporate tax rate of 34% to income before taxes) are as follows:
For the year ended December 31, 2013, TelBill Holdings, LLC was a limited liability company. As a result, the Company's income for federal and state income tax purposes was reportable on the tax returns of the individual partners. Accordingly, no recognition has been made for federal or state income taxes in the accompanying financial statements.
Prior to the merger, Datajack, Inc. had operating losses carryforwards which will be subject limitations under Internal Revenue Code Section 382 due to the change of control during the year ended December 31, 2014. In addition, Datajack, Inc. had not filed corporate tax returns for year ended December 31, 2010 and years subsequent.
The above deferred tax asset and valuation allowance represents the net operating losses incurred subsequent to the change in control in June 2014.
NOTE 15 - SUBSEQUENT EVENTS
In January 2015, we received a common stock subscriptions in aggregate of $61,000 for 290,062 shares of our common stock.
Additionally there were 280,000 shares issued converting approximately $61,000.00 of debt into restricted stock
Additionally 1,123,215 shares of restricted stock were issued to 17 individuals and the company received a total of $190,000.00 for these issuances. These shares represent monies, which the company received in Q4 2014, and accounted for as common stock subscribed.
The company has completely settled its debt with St George as of Q1 2015, and there is no pending litigation regarding this matter.