##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
 (Mark One)
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 For the quarterly period ended February 28, 2007.
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 For the transition period fromto.
 Commission file number 0-22848
 U.S. Wireless Data, Inc.
  Delaware
    
    84-1178691(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)2728 Orchard Parkway, San Jose, California
    
    95134-2012(Address of principal executive offices)
    
    (Zip Code)
 (408) 625-2700
  o þ
 o þ
 o þ




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##### Table of Contents



RECENT MERGER WITH STARVOX COMMUNICATIONS, INC.
     CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS




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##### 



US WIRELESS DATA, INC.
FINANCIAL STATEMENTS
 INDEX
 PART I  FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    
    2Condensed Consolidated Balance Sheets as of August 31, 2006 and February 28, 2007
    
    
    3Unaudited Condensed Consolidated Statements of Operations for the three and six months ended February 28, 2006 and 2007
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended February 28, 2006 and 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    24Item 4.
    
    Controls and Procedures
    
    
    24PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    25Item 1A.
    
    Risk Factors
    
    
    25Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    40Item 3.
    
    Defaults Upon Senior Securities
    
    
    40Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    40Item 5.
    
    Other Information
    
    
    40Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    40SIGNATURES
    
    
    41EXHIBIT INDEX
    
    
42EXHIBIT 10.25EXHIBIT 31.1EXHIBIT 32.1
  1




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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
   2




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StarVox Communications, Inc.
 
 Condensed Consolidated Balance Sheets
 (in thousands)
 August 31,
    
    
    February 28,2006
    
    
    2007(Unaudited)AssetsCurrent assets:Cash
    
    $
    1,386
    
    
    $
    2,185Accounts receivable, net of allowance of $664 and $446, respectively
    
    
    7,018
    
    
    
    4,906Prepaid expenses and other current assets
    
    
    882
    
    
    
    910Total current assets
    
    
    9,286
    
    
    
    8,001Property and equipment, net of accumulated depreciation
    
    
    4,308
    
    
    
    6,470Intangible assets
    
    
    6,271
    
    
    
    5,241Goodwill
    
    
    7,426
    
    
    
    7,400Restricted cash and other assets
    
    
    1,391
    
    
    
    1,400Total assets
    
    $
    28,684
    
    
    $
    28,512Liabilities, Convertible Preferred Stock and Stockholders DeficitCurrent liabilities:Line of credit
    
    $
    1,125
    
    
    $
    Accounts payable
    
    
    5,639
    
    
    
    6,581Accrued liabilities and other
    
    
    3,476
    
    
    
    4,886Notes payable
    
    
    3,500
    
    
    
    3,500Convertible notes payable
    
    
    17,126
    
    
    
    23,857Deferred revenue
    
    
    1,627
    
    
    
    1,635Related party payables
    
    
    250
    
    
    
    198Total current liabilities
    
    
    32,743
    
    
    
    40,657Capital lease obligations
    
    
    
    
    
    
    1,389Other long term liabilities
    
    
    42
    
    
    
    Total liabilities
    
    
    32,785
    
    
    
    42,046Commitments and contingencies (see Note 12)Preferred stock
    
    
    8,875
    
    
    
    8,875Stockholders deficit:Common stock
    
    
    4
    
    
    
    4Deferred stock compensation
    
    
    (7
    )
    
    
    Additional paid-in capital
    
    
    2,619
    
    
    
    4,153Accumulated deficit
    
    
    (15,545
    )
    
    
    (26,519
    )Treasury stock
    
    
    (47
    )
    
    
    (47
    )Total stockholders deficit
    
    
    (12,976
    )
    
    
    (22,409
    )Total convertible preferred stock and stockholders deficit
    
    
    (4,101
    )
    
    
    (13,534
    )Total liabilities, convertible preferred stock and stockholders deficit
    
    $
    28,684
    
    
    $
    28,512
 The accompanying notes are an integral part of these condensed consolidated financial statements
 3




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StarVox Communications, Inc.
 
 Unaudited Condensed Consolidated Statements of Operations
 (in thousands except per share data)
 Three Months Ended February 28,
    
    
    Six Months Ended February 28,2006
    
    
    2007
    
    
    2006
    
    
    2007Revenues
    
    $
    3,572
    
    
    $
    10,208
    
    
    $
    7,439
    
    
    $
    23,624Operating expenses:Cost of sales
    
    
    4,739
    
    
    
    7,192
    
    
    
    9,681
    
    
    
    15,906Operating expenses
    
    
    589
    
    
    
    6,659
    
    
    
    1,493
    
    
    
    12,997Depreciation and amortization
    
    
    85
    
    
    
    771
    
    
    
    179
    
    
    
    1,661Impairment charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26Total operating expenses
    
    
    5,413
    
    
    
    14,622
    
    
    
    11,353
    
    
    
    30,590Loss from operations
    
    
    (1,841
    )
    
    
    (4,414
    )
    
    
    (3,914
    )
    
    
    (6,966
    )Other
expense (income)Interest and warrant amortization expense
    
    
    39
    
    
    
    2,020
    
    
    
    143
    
    
    
    3,991Other
expense (income), net
    
    
    48
    
    
    
    (1
    )
    
    
    46
    
    
    
    (1
    )Total other expense
    
    
    87
    
    
    
    2,019
    
    
    
    189
    
    
    
    3,990Net loss before taxes
    
    
    (1,928
    )
    
    
    (6,433
    )
    
    
    (4,103
    )
    
    
    (10,956
    )Provision for taxes
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    18Net loss
    
    $
    (1,928
    )
    
    $
    (6,451
    )
    
    $
    (4,103
    )
    
    $
    (10,974
    )Basic and diluted net loss per common share
    
    $
    (0.48
    )
    
    $
    (1.89
    )
    
    $
    (1.03
    )
    
    $
    (3.26
    )Weighted average shares used is computing
basic and diluted net loss per share
    
    
    3,995,639
    
    
    
    3,417,922
    
    
    
    3,964,743
    
    
    
    3,368,609
 The accompanying notes are an integral part of these condensed consolidated financial statements
 4




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StarVox Communications, Inc.
 
 Unaudited Condensed Consolidated Statements of Cash Flows
 (in thousands)
 Six Months EndedFebruary 28,2006
    
    
    2007Cash flows from Operating Activities:Net loss
    
    $
    (4,103
    )
    
    $
    (10,974
    )Adjustments to reconcile net loss to net cash used in Operating Activities:Depreciation and amortization
    
    
    179
    
    
    
    1,661Impairment or writedown of assets
    
    
    
    
    
    
    26Non-cash stock based compensation expense
    
    
    
    
    
    
    135Non-cash interest expense
    
    
    
    
    
    
    3,800Changes in operating assets and liabilities:Accounts receivable
    
    
    (472
    )
    
    
    2,112Prepaid expenses and other current assets
    
    
    106
    
    
    
    (36
    )Accounts payable
    
    
    444
    
    
    
    942Accrued liabilities and other
    
    
    (141
    )
    
    
    (540
    )Deferred revenue
    
    
    
    
    
    
    8Net cash used in operating activities
    
    
    (3,987
    )
    
    
    (2,866
    )Cash flows from Investing Activities:Purchase of property and equipment
    
    
    (315
    )
    
    
    (466
    )Cash paid for acquisitions, net of cash acquired
    
    
    (40
    )
    
    
    Net cash used in investing activities
    
    
    (355
    )
    
    
    (466
    )Cash flows from Financing Activities:Borrowings (payments) on line of credit
    
    
    616
    
    
    
    (1,125
    )Payments under capital lease
    
    
    
    
    
    
    (186
    )Payments of other long term liabilities
    
    
    
    
    
    
    (42
    )Proceeds from issuance of unsecured demand promissory notes
    
    
    
    
    
    
    5,484Proceeds from issuance of preferred stock, net of issuance costs
    
    
    3,642
    
    
    
    Repurchase of common stock
    
    
    (38
    )
    
    
    Net cash provided by financing activities
    
    
    4,220
    
    
    
    4,131Net (decrease) increase in cash and cash equivalents
    
    
    (122
    )
    
    
    799Cash at beginning of period
    
    
    210
    
    
    
    1,386Cash at end of the period
    
    $
    88
    
    
    $
    2,185Supplemental cash flow disclosure:Cash paid during the periods for:Interest
    
    $
    63
    
    
    $
    129Income taxes
    
    $
    
    
    
    $
    18Noncash financing and investing activities:Property, plant and equipment obtained on capital lease
    
    $
    
    
    
    $
    2,326
 The accompanying notes are an integral part of these condensed consolidated financial statements
 5




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US WIRELESS DATA, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1. Basis of Presentation and Summary of Significant Accounting Policies
 Unaudited Interim Financial Statements
     Stock-based Compensation
 ,
  6




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Computation of net loss per share
   Three Months Ended
    
    
    Six Months EndedFebruary 28,
    
    
    February 28,2006
    
    
    2007
    
    
    2006
    
    
    2007(unaudited)
    
    
    (unaudited)Numerator:Net Loss attributable to common stockholders
    
    $
    (1,928
    )
    
    $
    (6,451
    )
    
    $
    (4,103
    )
    
    $
    (10,974
    )Denominator:Weighted average number of common shares
outstanding used in computing basic and
diluted net loss per common share
    
    
    3,995,639
    
    
    
    3,417,922
    
    
    
    3,964,743
    
    
    
    3,368,609Basic and diluted net loss per common share
    
    $
    (0.48
    )
    
    $
    (1.89
    )
    
    $
    (1.03
    )
    
    $
    (3.26
    )
  Three
Months Ended February 28,
    

Six
Months Ended February 28,2006
    
    2007
    
    2006
    
    2007(Unaudited)
    
    (Unaudited)Convertible preferred stock
    
    
    20,735,688
    
    
    
    20,735,688
    
    
    
    20,735,688
    
    
    
    20,735,688Convertible notes payable converting to
Preferred Series A stock
    
    
    
    
    
    
    9,375,652
    
    
    
    
    
    
    
    9,375,652Warrants to purchase common stock
    
    
    4,750,000
    
    
    
    78,805,995
    
    
    
    4,750,000
    
    
    
    78,805,995Employee stock options
    
    
    
    
    
    
    55,627,500
    
    
    
    
    
    
    
    55,627,500Warrants to purchase preferred stock
    
    
    150,000
    
    
    
    450,000
    
    
    
    150,000
    
    
    
    450,000Warrants for common stock attached
to unsecured demand promissory notes
    
    
    
    
    
    
    181,387,689
    
    
    
    
    
    
    
    181,387,68925,635,688
    
    
    
    346,382,524
    
    
    
    25,635,688
    
    
    
    346,382,524
 Recently Issued Accounting Standards
  .
 7




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2. Going Concern
  3. Stockholders Equity and Stock Based Compensation
 Authorized Shares and Re-Pricing of Outstanding Warrants
   Warrants and Stock Grants
    8




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Treasury Stock
  Stock Based Compensation
     9




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Three months
    
    
    Six monthsEnded
    
    
    EndedFebruary 28, 2007
    
    
    February 28, 2007Cost of sales
    
    $
    
    
    
    $
    Operating expenses
    
    
    133
    
    
    
    135Stock-based compensation expense before income taxes
    
    
    133
    
    
    
    135Income tax benefit
    
    
    
    
    
    
    Stock-based compensation expense after income taxes
    
    $
    133
    
    
    $
    135
 10




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Stock Option Plans
  Weighted
    
    
    
    
    
    
    AverageOptions
    
    
    Number of
    
    
    Average
    
    
    Aggregate
    
    
    RemainingAvailable
    
    
    Options
    
    
    Exercise
    
    
    Intrinsic
    
    
    Contractualfor Grant
    
    
    Outstanding
    
    
    Price
    
    
    Value
    
    
    LifeBalance at August 31, 2006
    
    
    Options approved by shareholders
    
    
    64,500,000
    
    
    
    Options granted
    
    
    (55,227,500
    )
    
    
    55,227,500
    
    
    $
    0.03
    
    
    $
    Options cancelled or expired
    
    
    
    
    
    
    
    
    
    
    Options exercised
    
    
    
    
    
    
    
    
    
    
    Balance at February 28, 2007
    
    
    9,272,500
    
    
    
    55,227,500
    
    
    $
    0.03
    
    
    $
    
    
    
    
    9.06Vested or expected to vest at February
28, 2007
    
    
    
    
    
    
    45,203,128
    
    
    $
    0.03
    
    
    $
    Exerciseable at February 28, 2007
    
    
    
    
    
    
    3,359,202
    
    
    $
    0.03
    
    
    $
    
    
    
    
    8.94
   Three and SixMonths EndedFebruary 28, 2007Expected volatility
    
    
    42.00
    %Dividend yield
    
    
    0.00
    %Risk free interest rate
    
    
    4.68
    %Expected term in years
    
    
    4.0
 Expected Volatility
 Dividend Yield
 Risk-Free Interest Rate:
 Expected Term:
 11




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Restricted Stock
   Unsecured Demand Promissory Notes with attached Warrants
  Shares Reserved for Future Issuance
  February 28,2007Common stock warrantsWarrants issued in April 2005 in connection with financing
    
    
    4,500,000Warrants issued in May-June 2006 in connection with financing
    
    
    6,772,489Warrants issued in January 2006 for financial services
    
    
    250,000Warrants attached to Unsecured Demand Promissory Notes
    
    
    181,387,689Warrants to Trinad for management consulting services
    
    
    2,500,000Warrants issued to holders of $14M of the Convertible Promissory Notes
    
    
    64,783,506Common stock employee options
    
    
    64,500,000Out-of-Plan common stock option
    
    
    400,000Convertible preferred stock  Series A
    
    
    18,835,688Convertible preferred stock  Series A-1
    
    
    1,900,000Convertible notes converting to preferred series A stock at merger
    
    
    9,375,652Series A convertible preferred stock warrants
    
    
    450,000355,655,024
 12




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##### Table of Contents



4. Business Combinations
 US Wireless Data, Inc.
    (in thousands)Balance at August 31, 2005
    
    $
    Goodwill acquired  ZFone
    
    
    26Goodwill acquired  CTI
    
    
    7,400Balance at August 31, 2006
    
    
    7,426Impairment charge  ZFone
    
    
    (26
    )Balance at February 28, 2007 (unaudited)
    
    $
    7,400
 5. Property and Equipment
  August 31,
    
    
    February 28,2006
    
    
    2006(unaudited)Land
    
    $
    30
    
    
    $
    30Building
    
    
    522
    
    
    
    521Network equipment
    
    
    4,057
    
    
    
    6,695Computers and software
    
    
    249
    
    
    
    228Construction in progress
    
    
    
    
    
    
    176Furniture and fixtures
    
    
    62
    
    
    
    624,920
    
    
    
    7,712Less accumulated depreciation and amortization
    
    
    (612
    )
    
    
    (1,242
    )Property and equipment, net
    
    $
    4,308
    
    
    $
    6,470
 13




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##### Table of Contents



6. Goodwill and Intangible Assets
  August 31,
    
    
    February 28,2006
    
    
    2007(unaudited)Amortizable intangible assets:Acquired customer contracts
    
    $
    5,900
    
    
    $
    5,900Acquired trademarks / trade names
    
    
    800
    
    
    
    8006,700
    
    
    
    6,700Less: Accumulated amortization
    
    
    (429
    )
    
    
    (1,459
    )Intangible assets, net
    
    $
    6,271
    
    
    $
    5,241Non-amortized intangible assets:Goodwill
    
    $
    7,427
    
    
    $
    7,400
 Software Licenses
   Acquired
    
    
    AcquiredCustomer
    
    
    Trademarks /Relationships
    
    
    Trade Names
    
    
    TotalSix months ending February 28, 2007
 
    $
    630
    
    
    $
    233
    
    
    $
    863Year ending August 31,2008
    
    
    1,260
    
    
    
    
    
    
    
    1,2602009
    
    
    1,260
    
    
    
    
    
    
    
    1,2602010
    
    
    1,177
    
    
    
    
    
    
    
    1,1772011
    
    
    681
    
    
    
    
    
    
    
    681$
    5,008
    
    
    $
    233
    
    
    $
    5,241
 7. Line of Credit
   14




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8. Notes Payable
  Year ended August 31,2006 and six months ended February 28, 2007
 Total(in thousands)Senior secured promissory note maturing August 2006.
Interest at 10% per annum until maturity, then 15% per annum
    
    $
    300Senior secured promissory note maturing September 2006
Interest at 10% per annum until maturity, then 15% per annum
    
    
    3,200$
    3,500
   9. Convertible Notes Payable and Unsecured Demand Promissory Notes with Attached Warrants
  August 31,
    
    
    February 28,2006
    
    
    2007(unaudited)Secured convertible promissory notes, due upon demand;
interest at 5% per annum until maturity, then 15% per annum
    
    $
    1,220
    
    
    $
    1,220Secured convertible promissory notes maturing August and September 2006;
interest at 5% per annum until maturity, then 15% per annum
    
    
    3,100
    
    
    
    3,100Senior secured convertible promissory notes maturing November and
December 2006; Interest at 12% per annum until maturity,
then 15% per annum
    
    
    14,000
    
    
    
    14,00018,320
    
    
    
    18,320Less: Unamortized issuance costs
    
    
    (1,194
    )
    
    
    $
    17,126
    
    
    $
    18,320Unsecured demand promissory notes with attached warrants maturing in
2016-2017; Interest at 5% per annum
    
    
    
    
    
    
    5,537$
    17,126
    
    
    $
    23,857
   15




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##### Table of Contents



Unsecured Demand Promissory Notes with attached Warrants
  10. Income Taxes
   11. Related Party Payables and Transactions
  12. Commitments and Contingencies
  Year ending
    
    Total capital
    
    
    Total operatingAugust 31
    
    lease payments
    
    
    lease payments2007
    
    $
    436
    
    
    $
    1642008
    
    
    872
    
    
    
    2842009
    
    
    872
    
    
    
    2132010
    
    
    218
    
    
    
    1642011
    
    
    
    
    
    
    552,398
    
    
    $
    880Less future interest expense
    
    
    (257
    )$
    2,141
 16




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Letters of Credit
  13. Subsequent Events
    17




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Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The discussion below summarizes the factors affecting the operating results and financial
condition of StarVox Communications, Inc. The following information should be read in conjunction
with the historic condensed consolidated financial information and the notes thereto included in
Item 1 of this Quarterly Report on Form 10-QSB and our audited annual financial statements and
Managements Discussion and Analysis of Financial Condition and Results of Operations contained in
our Current Report on Form 8-K as filed March 26, 2007 with the Securities and Exchange Commission.
 The
statements contained in this Quarterly Report on Form 10-QSB, that are not purely
historical, are forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995, and include statements regarding our expectations, beliefs, hopes, intentions
or strategies regarding the future. When used in this Report, the words expects, anticipates,
intends, estimates, plans, believes, and similar expressions are intended to identify
forward-looking statements. These are statements that relate to future periods and are subject to
risks and uncertainties. All forward-looking statements in this Quarterly Report on Form 10-QSB are
based upon information available to us as of the date hereof, and we assume no obligation to update
any such forward-looking statements. Actual results could differ materially from our current
expectations. Factors that could cause or contribute to such differences include, but are not
limited to: variations in demand for our products; the level and timing of sales; the extent of
product and price competition;
introductions or enhancements of products or delays in introductions or enhancements of
products; hiring and retention of personnel; changes in the mix of products sold; general domestic
economic and regulatory conditions; and other factors and risks discussed in Risk Factors and
elsewhere in this Quarterly Report on Form 10-QSB, our Current Report on Form 8-K and our other USWD filings with
the Securities and Exchange Commission.
 Overview
     Critical Accounting Policies
  18




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Revenue Recognition.
 Stock-Based Compensation ,
  Valuation of Goodwill
 Recently Issued Accounting Standards
  .
  19




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Results of Operations
  StarVox Communications, Inc.
Condensed Consolidated Statement of Operations  (in thousands)
 Three Months Ended
    
    
    Six Months EndedFebruary 28,
    
    
    February 28,2006
    
    
    2007
    
    
    2006
    
    
    2007(unaudited)
    
    
    (unaudited)Revenues
    
    $
    3,572
    
    
    $
    10,208
    
    
    $
    7,439
    
    
    $
    23,624Operating expenses:Cost of sales
    
    
    4,739
    
    
    
    7,192
    
    
    
    9,681
    
    
    
    15,906Operating expenses
    
    
    589
    
    
    
    6,659
    
    
    
    1,493
    
    
    
    12,997Depreciation and amortization
    
    
    85
    
    
    
    771
    
    
    
    179
    
    
    
    1,661Impairment charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26Total operating expenses
    
    
    5,413
    
    
    
    14,622
    
    
    
    11,353
    
    
    
    30,590Loss from operations
    
    
    (1,841
    )
    
    
    (4,414
    )
    
    
    (3,914
    )
    
    
    (6,966
    )Other expenseInterest and warrant amortization expense
    
    
    39
    
    
    
    2,020
    
    
    
    143
    
    
    
    3,991Other expense
    
    
    48
    
    
    
    (1
    )
    
    
    46
    
    
    
    (1
    )Total other expense
    
    
    87
    
    
    
    2,019
    
    
    
    189
    
    
    
    3,990Net loss before taxes
    
    
    (1,928
    )
    
    
    (6,433
    )
    
    
    (4,103
    )
    
    
    (10,956
    )Provision for taxes
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    18Net loss
    
    $
    (1,928
    )
    
    $
    (6,451
    )
    
    $
    (4,103
    )
    
    $
    (10,974
    )
 StarVox Communications, Inc.
Selected Balance Sheet Data  (in thousands)
 August 31,
    
    February 28,2006
    
    2007(unaudited)Cash and cash equivalents
    
    $
    1,386
    
    
    $
    2,185Accounts receivable, net of provision
    
    
    7,018
    
    
    
    4,906Total assets
    
    
    28,684
    
    
    
    28,512Current liabilities
    
    
    32,743
    
    
    
    40,657Total liabilities
    
    
    32,785
    
    
    
    42,046Total stockholders deficit
    
    $
    (12,976
    )
    
    $
    (22,409
    )
 20




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Revenues
 Three Months Ended
    
    
    Six Months EndedFebruary 28,
    
    
    February 28,2006
    
    
    2007
    
    
    % Change
    
    
    2006
    
    
    2007
    
    
    % Change$
    3,572
    
    
    $
    10,208
    
    
    
    186
    %
    
    $
    7,439
    
    
    $
    23,624
    
    
    
    218
    %
  Cost of Sales
 Three Months Ended
    
    
    
    
    
    
    Six Months EndedFebruary 28,
    
    
    
    
    
    
    February 28,2006
    
    2007
    
    
    % Change
    
    
    2006
    
    
    2007
    
    
    % Change$                 4,739
    
    $
    7,192
    
    
    
    52
    %
    
    $
    9,681
    
    
    $
    15,906
    
    
    
    64
    %
  fixed costs
 variable costs
  Operating Expenses
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Six Months EndedFebruary 28,
    
    
    
    
    
    
    February 28,2006
    
    2007
    
    
    % Change
    
    
    2006
    
    
    2007
    
    
    % Change$                589
    
    $
    6,659
    
    
    
    1031
    %
    
    $
    1,493
    
    
    $
    12,997
    
    
    
    771
    %
      21




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##### Table of Contents



Depreciation and Amortization Expenses
 Three Months Ended
    
    
    
    
    
    
    Six Months EndedFebruary 28,
    
    
    
    
    
    
    February 28,2006
    
    2007
    
    
    % Change
    
    
    2006
    
    
    2007
    
    
    % Change$                    85
    
    $
    771
    
    
    
    807
    %
    
    $
    179
    
    
    $
    1,661
    
    
    
    828
    %
   Interest Expense and Other Expense, net
 Three Months Ended
    
    
    
    
    
    
    
    
    
    Six Months EndedFebruary 28,

    
    
    
    
    
    
    
    
    
    February 28,2006
    
    2007
    
    
    % Change
    
    
    2006
    
    
    2007
    
    
    % Change$                 87
    
    $
    2,019
    
    
    
    2221
    %
    
    $
    189
    
    
    $
    3,990
    
    
    
    2011
    %
  Liquidity and Capital Resources
     22




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23




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##### Table of Contents



Contractual Obligations
  Year ending
    
    Capital
    
    
    Operating
    
    
    Senior secured
    
    
    Total expectedAugust 31
    
    lease payments
    
    
    lease payments
    
    
    convertible notes *
    
    
    cash payments2007
    
    $
    436
    
    
    $
    164
    
    
    $
    
    
    
    $
    6922008
    
    
    872
    
    
    
    284
    
    
    
    16,602
    
    
    
    17,7582009
    
    
    872
    
    
    
    213
    
    
    
    
    
    
    
    1,0852010
    
    
    218
    
    
    
    164
    
    
    
    
    
    
    
    3822011
    
    
    
    
    
    
    55
    
    
    
    
    
    
    
    55$
    2,398
    
    
    $
    880
    
    
    $
    16,602
    
    
    $
    19,972
 
 *
    
    Includes principle and accrued interest through September 2007. 
 Item 3. Qualitative and Quantitative Disclosures About Market Risks
 Foreign Currency Exchange Risk.
 Interest Rate Sensitivity.
 
 Item 4. Controls and Procedures
     24




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
 RISK FACTORS
 You should carefully consider each of the risks described below, other information
contained in the Current Report on Form 8-K filed with the SEC on March 26, 2007, and our
consolidated financial statements and the related notes contained herein. The risks and
uncertainties identified in this section and in the risks described in such Current Report on Form
8-K, and information included in the section entitled Managements Discussion and Analysis of
Financial Condition and Results of Operations, could materially adversely affect our business,
prospects, financial condition, operating results or cash flow. Additional risks and uncertainties
not currently known to us or that we currently deem immaterial may also adversely affect our
business. If any of these risks materialize, the trading price of our common stock could decline.
 Risks Related to our Business and Industry
 We have substantial short-term debt with no means of repayment, and may be forced to reduce or
terminate our current operations if we are unable to secure additional financing. As a result, our
independent auditors have included a going concern qualification in their audit report included in
our financial statements for our fiscal year ended August 31, 2006.
   StarVox has a limited history of operations and has experienced a history of losses and negative
cash flows from operations to date and we anticipate such losses and negative cash flows will
continue.
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Our quarterly and annual revenues and operating results are not indicative of future
performance, are difficult to forecast and have been and are likely to continue to fluctuate.
  We do not have a chief financial officer, a controller or a complete finance staff to adequately
support our financial reporting requirements as a public company. If we are not able to
successfully recruit and fill these positions, our ability to manage our business and meet our
public company reporting requirements will be at substantial risk.
  We will need to raise additional capital, which may not be available on favorable terms, if at all.
  Covenants in our existing credit facility and outstanding notes restrict our capacity to borrow and
invest, which could impair our ability to expand or finance our operations. Our existing senior
secured credit facility imposes operating and financial restrictions that limit our discretion on
certain business matters, which could make it more difficult for us to expand, finance our
operations and engage in other business activities that may be in our interest. In addition we have
additional outstanding notes in the aggregate principal amount of $14.0 million that are due on
September 15, 2007. The notes currently accrue interest at 15% per annum. The restrictions under
these notes may have the following effects:
 
    
    limit our ability to obtain additional financing in the future;
    
    limit our ability to refinance all or a portion of our indebtedness on or before maturity;
    
    limit our ability to fund planned capital expenditures;
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##### Table of Contents




    
    require us to use a significant portion of our cash flow from operations to pay our debt
obligations rather than for other purposes, such as funding working capital or capital
expenditures;
    
    limit our ability to pursue our acquisition strategy;
    
    make us more vulnerable to a downturn in our business or in the economy in general; and
    
    limit our ability to pay dividends.
  A number of material weaknesses in our internal control over financial reporting have been
identified and our remediation plan to address these material weaknesses will take time to
implement. Until these deficiencies have been corrected, our ability to report timely and accurate
financial information could be adversely affected.
   
    
    The inability to address complex transactions and/or accounting and financial reporting issues.
    
    The failure to implement effective controls over the accounting month end close process for
identifying, accumulating and reviewing all required closing adjustments.
    
    The lack of an adequate process for the preparation and internal review of our financial
statements and footnotes to ensure proper classification of reported amounts and completeness
of required disclosures.
    
    The lack of up-to-date systems to process data in a timely manner to produce financial
information required to create financial statements
   Our current accounting system is not sufficient to report on a public company of this size and may
impair our ability to provide accurate and timely financial reports.
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StarVox has made and will seek to continue to make acquisitions of complementary technologies or
businesses in the future, which may disrupt our business and be dilutive to our existing
stockholders.
  
    
    Diversion of management time and focus from operating our business to acquisition integration challenges.
    
    Time and expense in obtaining FCC regulatory approval, in addition to state regulatory approvals, for
each of our acquisitions.
    
    Difficulties in integrating the back office systems, such as billing, of our acquired companies. These
challenges have been addressed at significant financial cost, have diverted management attention away
from other important business activities, and have substantially delayed the implementation of other
elements of our business strategy.
    
    Difficulties in transitioning key customer relationships.
    
    Challenges associated with integrating employees from acquired companies into our organization.
    
    Integrating each acquired companys accounting, management information, human resource and other
administrative systems to permit effective management.
    
    Implementing or remediating controls, procedures and policies at acquired companies that prior to the
acquisition lacked these controls, procedures and policies.
    
    Ancillary expenses or liabilities arising from acquisitions, such as the legal and accounting fees,
severance payments and costs of obtaining required third party consents.
    
    Write-offs or impairment charges resulting from acquisitions.
    
    Unanticipated or unknown liabilities relating to acquired business.
    
    Deficiencies in pre-acquisition evaluation and diligence of acquisition candidates.
   28




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If we fail to successfully execute our acquisition strategy, our growth prospects and operating
results will be materially and adversely affected.
     The growth of our business through acquisitions has strained and will continue to strain our
administrative, operational and financial resources.
  We currently do not have a complete management team and the loss of key members of our management
team could adversely affect our business.
  Our recent growth has placed a strain on our management and operational resources, and if we do not
effectively manage our growth and integrate newly hired personnel, we may be unable to meet
customer requirements and properly execute our business strategy.
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We depend on highly qualified technical and managerial personnel, and we may be unable to attract,
assimilate or retain highly qualified technical and managerial personnel in the future.
    Our senior managements limited experience managing a publicly traded company may divert
managements attention from operations and harm our business.
  Intense competition for communications services and products could reduce our market share and harm
our financial performance.
    30




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Our potential business customers may not adopt our services and products unless VoIP telephony
becomes widely accepted as an effective and dependable means of communication.
  
    
    Both our new E-911 and emergency calling services and products are
different, in some cases, from the 911 service associated with
traditional wireline and wireless telephone providers and, in certain
cases, with other VoIP providers.
    
    Our VoIP customers may experience lower call quality than they are
used to from traditional wireline telephone companies, including
static, echoes and delays in transmissions.
    
    Our VoIP customers may experience higher dropped-call rates than they
are used to from traditional wireline telephone companies.
    Failure to complete development, testing and introduction of new services and products, including
VoIP services and products, could affect our ability to compete in the industry.
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##### Table of Contents



We may not be able to maintain adequate customer care during periods of growth or in connection
with our integration of new acquisitions, which could adversely affect our ability to grow and
negatively impact our financial results.
  We may not be able to keep pace with rapid technological changes in the communications industry.
  Our customer churn rate may increase.
  Required FCC regulatory approval, in addition to state regulatory approvals, of our future
acquisitions may delay the completion of our acquisitions or cause us to abandon pending
acquisitions if we fail to secure FCC approval. Either of these potential outcomes may cause us to
incur significant additional transaction expenses or cause us to reassess our long term business
strategy.
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##### Table of Contents



The FCC is reexamining its policies towards VoIP and telecommunications in general. Changes in
regulation could subject us to additional fees or increase the competition we face.
   Both the FCC and Congress are examining the adoption of policies and laws regarding net neutrality
that favor content providers, which, if adopted, could limit our ability to effectively manage our
network.
  Our emergency and new E-911 calling services and products are different from those offered by
traditional wireline telephone companies and may expose us to significant liability.
  33




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##### Table of Contents



Because our business is highly dependent on regulations that continue to change, our business is
subject to a variety of risks.
   Changes in existing financial accounting standards or practices or taxation rules or practices may
adversely affect our results of operations.
  34




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##### Table of Contents



We must pay federal, state and local taxes and other surcharges on our service, the applicability
and levels of which are uncertain.
     We are in the process of enhancing our current network equipment and software from Veraz Networks
with network equipment and software from Cisco Systems. Our success depends upon the quality,
availability, and price of Ciscos network equipment and software.
   We depend on third party vendors for information systems. If these vendors discontinue support for
the systems we use or fail to maintain quality in future software releases, we could sustain a
negative impact on the quality of our services and products to customers, the development of new
services, products and features, and the quality of information needed to manage our business.
  35




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Our computer systems and operations may be vulnerable to security breaches.
  A system failure caused by earthquakes, hurricanes or other natural disasters could delay or
interrupt service to our customers, which could reduce demand for our services and products.
   Business disruptions, including disruptions caused by security breaches, terrorism, or other
disasters, could harm our operating results.
  Our intellectual property protection may be inadequate to protect our proprietary rights.
   36




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We may be subject to intellectual property infringement claims, product and service liability
claims and other litigation that may be costly to resolve and, if resolved adversely, may harm our
operating results or financial condition.
   We are engaged in disputes with some of our telecommunications carriers over billing practices.
These disputes, if not resolved favorably, may result in litigation and may have the potential to
affect our operating results.
  If we are not able to obtain necessary licenses of third-party technology at acceptable prices, or
at all, some of our products may become obsolete
  We will incur increased costs as a publicly traded operating company that will place a strain on
our resources and divert our managements attention from other business concerns.
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The trading of our common stock is limited, sporadic and volatile, which may prevent a stockholder
from selling its stock at the time or price they desire.
   
    
    announcements by us or our competitors of acquisitions, new products, significant
contracts, commercial relationships or capital commitments;
    
    sales of common stock or other securities by us or by our stockholders in the future;
    
    any major change in our board or management;
    
    our ability to develop and market new and enhanced products on a timely basis;
    
    quarterly variations in our operating results or those of our competitors;
    
    changes in governmental regulations or in the status of our regulatory approvals;
    
    changes in financial estimates by securities analysts;
    
    speculation in the press or investment community;
    
    securities, intellectual property and other litigation;
    
    announcement of a stock split, reverse stock split, stock dividend or similar event;
    
    economic conditions for the telecommunications, networking and related industries; and
    
    political instability, natural disasters, war and/or events of terrorism.
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Future sales of our common stock in the public market, or the perception that such sales could
occur, could lower our stock price and impair our ability to raise funds in new stock offerings.
  Penny stock rules may restrict the market for our common stock.
  Because we do not currently intend to pay dividends on our common stock, stockholders will benefit
from an investment in our common stock only if it appreciates in value.
  Some of our stockholders will continue to exert significant influence over us and their interests
may conflict with the interests of our other stockholders.
  There is an increased potential for short sales of our common stock which could materially affect
the market price of the stock.
  Stockholder approval is required to amend our certificate of incorporation to increase our
authorized stock in connection with the merger.
  39




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits and Reports on Form 8-K.
  10.25
    
    Sale of Building31.1
    
    Certification pursuant to Section 302 of Sarbanes Oxley Act of 200232.1
    
    Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002
  40




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SIGNATURES
  US Wireless Data, INC.RegistrantDate: April 20, 2007
    
    By:
    
    /s/ Thomas RowleyThomas RowleyChief Executive Officer,
 41




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##### Table of Contents



Exhibit
Index
 10.25
    
    Sale of Building31.1
    
    Certification pursuant to Section 302 of Sarbanes Oxley Act of 200232.1
    
    Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002
 42