UNITED STATES

 

INDEX

 

UNIFIED SIGNAL, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

MARCH 31, 2016 AND DECEMBER 31, 2015

The accompanying notes are an integral part of these consolidated financial statements

UNIFIED SIGNAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

The accompanying notes are an integral part of these consolidated financial statements

UNIFIED SIGNAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

NOTE 1 – ORGANIZATION AND BUSINESS

Unified Signal, Inc. (together with its consolidated subsidiaries—TelBill Holdings, LLC, (“TelBill” 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 to Unified Signal, Inc. 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 UNSI.OB.

Mobile Commerce Product Suite

Additionally, Unified Signal plans to launch its Mobile Commerce Platform Services, which will provide enablement software, allowing 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.

The Unified Signal Mobile Wallet product enablement suite is comprised of 2 core feature sets that service the banked and unbanked market segment.

Mobile Wallet “mWallet” Program (Virtual Savings Account: This product set is a simple private label PayPal type of service where customers can load money via cash, credit card, US checking/savings account, and receive money from other mWallet users. Customers can move funds off their account to any US checking/savings account, to other mWallet users, make ILD calls, pay for their wireless services, or move money to their private label Debit MasterCard or companion card.

Debit MasterCard Program (Virtual Checking Account): Customers can choose to add on an optional prepaid Debit MasterCard which provides them access to domestic and International ATM networks as well as use anywhere MasterCard is accepted. Money can be FREELY moved from their mWallet account to their Debit MasterCard in real time and all by using a state of the art data app. Customers can order a companion debit MasterCard and mail that card to loved ones abroad. Once they have that companion card, money can be freely moved from the mWallet to the companion card in real time, and again, for FREE. Family members can use the card anywhere MasterCard is accepted and/or take our funds at virtually any ATM.

The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the Company has condensed or omitted certain information and footnote disclosures that are included in our annual financial statements. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year.

These unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments (which consist of normal, recurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented.

The accompanying financial statements present, on a consolidated basis, the accounts of Unified Signal, 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 unaudited condensed 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.

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 represents a $150,000 deposit as 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.  In addition, as of March  31, 2016, $66,630.93 of the Company’s cash accounts are restricted for payment of escrow obligations incurred in connection with deposits held by customers using the Company’s mobile wallet “mWallet” services.

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 March 31, 2016 and December 31, 2015 was $320,553 and $320,353 respectively.

The Company accounts for income taxes under the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. If it is more likely than not that some portion of a deferred tax asset will not be realized, a valuation allowance is recognized.

The Company accounts for uncertain tax positions in accordance with ASC 740-10. ASC 740-10-25 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. The Company does not believe it has any material unrecognized income tax positions.

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. Common stock equivalents, such as shares issuable on debt conversion, are excluded from the computation if their effect is anti-dilutive.  There were no common stock equivalents for the three months ended March 31, 2016.

 

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.

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:

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 three months ended March 31, 2016:

 

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 31% from December 31, 2015 to March 31, 2016. 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.  At March 31, 2016 the stock price was below the exercise price for all derivatives.

 

 

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 utilize the Company's billing system, and enabling systems for services related to cellular phone services; as well as newer products such as ILD, mobile wallet suite of services. 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. 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. As of March 31, 2016 and December 31, 2015, 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.

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.

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.

In 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 date. 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 write off the full value of the goodwill carrying amount.

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.

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.

Additionally, Unified Signal plans to launch its Mobile Commerce Platform Services, which will provide enablement software, allowing 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.

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.

At March 31, 2016, four clients represented receivables as follows—Chit Chat Mobile $53,436 (11%), and the company has reserved $4,391 as possible risk; Puppy Wireless, $86,237 (18%), and the company has reserved $22,347 as possible risk; Figgers Wireless $49,438 (10%), and the company has reserved $11,525 as possible risk  and ITalk/DJ Acquisition at $48,282 (10%), and the company has reserved $22,626 as possible risk..  

On February 25, 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment.

Under the current accounting model, an organization applies a classification test to determine the accounting for the lease arrangement:

1.	Some leases are classified as capital leases (for example, a lease of equipment for nearly all of its useful life) whereby the lessee would recognize lease assets and liabilities on the balance sheet.

2.	Other leases are classified as operating leases (for example, a lease of office space for 10 years) whereby the lessee would not recognize lease assets or liabilities on the balance sheet.

The existing operating lease model has been criticized for failing to meet the needs of users of financial statements because it does not always provide a faithful representation of leasing transactions.

The U.S. Securities and Exchange Commission (SEC) issued a report on off-balance sheet activities in 2005 that recommended that changes be made to the existing lease accounting requirements to ensure greater transparency in financial reporting.

The new standard will require organizations that lease assets— referred to as “lessees”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases.

Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months.

Consistent with current Generally Accepted Accounting Principles (GAAP), the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease.

However, unlike current GAAP—which requires only capital leases to be recognized on the balance sheet— the new ASU will require both types of leases to be recognized on the balance sheet.

The ASU also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements.

The accounting by organizations that own the assets leased by the lessee—also known as lessor accounting—will remain largely unchanged from current GAAP. However, the ASU contains some targeted improvements that are intended to align, where necessary, lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014.

The New Revenue Recognition Model
The core principle of the new model is that an entity would recognize revenue as it transfers goods or services to customers in an amount reflecting the consideration it expects to receive. To achieve that core principle, an entity would apply a five-step model.

Collectability will be an explicit threshold that must be assessed before applying the revenue recognition model to a contract. An entity must evaluate customer credit risk and conclude it is “probable” it will collect the amount of consideration due in exchange for the goods or services. The assessment is based on the customer’s ability and intent to pay as amounts become due. This is a significant shift from the previous exposure drafts.

Step 1: Identify the Contract with a Customer
The first step in applying the model is to identify the contract with a customer. A contract is defined as “an agreement between two or more parties that creates enforceable rights and obligations.” The ASU includes criteria for combining contracts into a single contract for accounting purposes. Accounting for a contract modification will depend on the type of modification and would be treated as either a separate contract or as an adjustment to the original contract, depending on circumstances.

Step 2: Identify the Performance Obligations in the Contract
Once an entity has identified a contract, it would identify performance obligations within that contract that require separate accounting. A performance obligation is defined as “a promise in a contract with a customer to transfer a good or service to a customer.” Management will need to use significant judgment to distinguish each performance obligation within a contract; identifying performance obligations and how they are satisfied will directly affect when revenue is recognized.

Step 3: Determine the Transaction Price
The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring goods or services. To determine the transaction price, an entity would consider the terms of the contract, its customary business practices and the effects of the time value of money, variable and noncash consideration as well as consideration payable to the customer. Variable consideration will be included in the transaction price to the extent it is probable that a significant revenue reversal will not occur. Consideration can vary because of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties, or other similar items.

Step 4: Allocate the Transaction Price to the Performance Obligations in the Contract
The transaction price would be allocated to all performance obligations that require separate accounting based on their relative standalone selling price. The best evidence of standalone selling price would be the observable price for which the entity sells the good or service separately. In the absence of separate observable sales, the standalone selling price would be estimated.

Step 5: Recognize Revenue When (or As) the Entity Satisfies a Performance Obligation
Revenue is recognized when (or as) control of a good or service is transferred to a customer. Satisfaction would occur when the customer has the ability to direct the use of, and receive the benefits from, the transferred good or service. Revenue can be recognized over time (typically for transferred services) or at a point in time (typically for transferred goods).

April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs” this Update as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative). The Board received feedback that having different balance sheet presentation requirements for debt issuance costs and debt discount and premium creates unnecessary complexity. Recognizing debt issuance costs as a deferred charge (that is, an asset) also is different from the guidance in International Financial Reporting Standards (IFRS), which requires that transaction costs be deducted from the carrying value of the financial liability and not recorded as separate assets. Additionally, the requirement to recognize debt issuance costs as deferred charges conflicts with the guidance in FASB Concepts Statement No. 6, Elements of Financial Statements, which states that debt issuance costs are similar to debt discounts and in effect reduce the proceeds of borrowing, thereby increasing the effective interest rate. Concepts Statement 6 further states that debt issuance costs cannot be an asset because they provide no future economic benefit. To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. The Company is currently evaluating the effects of adopting this ASU, if it is deemed to be applicable.

There are various other 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.

NOTE 4 – GOING CONCERN

 

The accompanying unaudited condensed 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 net income of $110,016, as of March 31, 2016 largely as a result of a one-time gain on the settlement of debt in the amount of $116,316; otherwise, the Company would have reported a net loss of $6,300 for such period. Additionally, the Company has reported an accumulated deficit of $10,402,482 and a working capital deficit of $289,578 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 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 unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

NOTE 5 – PROPERTY AND EQUIPMENT, NET

 

At March 31 2016 30, 2015 and December 31, 2015, respectively, property and equipment consisted of the following:

Depreciation expense for the three month periods ending March 31, 2016 and March 31, 2015, amounted to $24,640 and $24,640, respectively.

NOTE 6 – CUSTOMER LISTS

The company acquired a customer list for debt relief and stock 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 three months ended March 31, 2016, the Company amortized $16,667 and $50,000 of expense into current period operations. Amortization expense for the three and nine month periods ended September 30, 2014 amounted to $16,667 and $22,222, respectively. In a subsequent turn of events, Unified Signal, in Feb of 2016, purchased this customer list back from the company it had sold it to for one million shares of restricted stock of UNSI, plus the current outstanding bill then owed to the carrier, approximately $70,000.00.

NOTE 7 – NOTES PAYABLE

 

At March 31, 2016 and December 31, 2015, notes payable consisted of the following:

Convertible Note Payable -- Gettysburg Holding LLC

 

 

 

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 into 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.  

On February 11, 2015, the Company entered into a new legal settlement agreement in response to the litigation between the Company’s acquired subsidiary and JMJ Financial. 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, as per the stipulated settlement agreement made the first payment of $25,000 at the time of the signing of the stipulated settlement, and made one additional payment of $10,000 during the six month period ending June 30, 2014. There is a remaining balance of $43,174 owed to JMJ Financial as of March 31, 2016. The Company believes the stipulated settlement agreement has eliminated the debt-to-equity conversion rights available to JMJ Financial that were previously embedded in the JMJ Note; and thus the Company has reduced the derivative liability and increased additional paid-in capital by $16,794 as of March 31, 2016 to reflect this change.

 

On July 24, 2015, the Company and CGL agreed to settle the outstanding note payable of $98,696 under the following terms and conditions:

Unified Signal will issue 50,000 restricted common shares to CGL Interests, LLC, where the restriction shall be lifted after six (6) months and the shares shall become automatically vested (fully and completely). In addition:

1.	Unified Signal will pay to CGL Interests, LLC the January 2015 through June 2015 “Chit Chat revenue residuals” in the amount of $0.0375 per active customer per month, and,

2.	CGL Interests, LLC will convert all of its outstanding debt into one (1) million shares of Unified Signal restricted common stock at a price of $0.098696 per share.

The settlement terms also provide Unified Signal the option to re-purchase 800,000 of one (1) million shares from CGL beginning at the end of six (6) months from the date of the agreement, based upon certain pre-determined prices as agreed to by the parties.

 

There are two notes payable to LG Capital Funding. One note originated with Mr. Anthony Gallo and was assigned to LG Capital Funding. The original date was January 17, 2012, with a principal balance of $55,000 and interest at 8%.

On June 19, 2013, this note was assigned to LG Capital. The maturity date was March 19, 2014; the note had a conversion trigger which was set at the mean of the two lowest trading prices over the previous ten day trading period, and applying a 45% discount to that mean, to arrive at the conversion price. The note is unguaranteed.

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 was due and payable on March 19, 2014.  The note has a conversion feature that permits LG Capital Funding to convert the loan for common stock at a conversion price of 51% of the market price, which is calculated utilizing the two lowest trading prices.  LG Capital Funding converted a total of $17,654 of accrued interest and principal during the year ended December 31, 2013 for 109,649 shares of the Company’s common stock. The note is unguaranteed.

The combined outstanding principal and interest owing to LG Capital Funding on both notes as of March 31, 2016 is $70,732.92.

NOTE 9 – LEGAL SETTLEMENT OBLIGATIONS

 

The Company  has resolved one matter, with JMJ Financial, and through legal proceedings JMJ received a judgment in the amount of $43,174.

NOTE 10 – DERIVATIVE LIABILITIES

 

As described in Note 8, the Company’s notes payable to LG Capital include embedded options that permit them to convert into the Company’s common shares, at the holders’ option, at the conversion rates of: (a) 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 (b) at a conversion price of 51% of the market price which is calculated utilizing the two lowest trading places for the LG Capital note. These equity features and reset provisions represent embedded derivatives that require the Company to record the fair value of the derivatives as of the inception date of these convertible notes, and to periodically re-measure and adjust the fair value of the derivatives as of each subsequent reporting date.

In June 2015 the Company negotiated a settlement with JMJ that fixed the amount of the note payable and eliminated the derivative features, and the effect of the change in the fair value of the derivative liability was recognized in the Company’s results of operations during the period.

 

NOTE 11 – COMMITMENTS AND CONTINGENCIES

 

In the ordinary course of business and in connection with the settlement of various operating and financing obligations, 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 has the following two matters which can be ascribed to this heading.

The Company had a litigation with JMJ Financial, where JMJ was awarded a judgment in the amount of $43,174. The Company also has 2 notes totaling $70,732.92 with LG Capital which is outstanding and in which the parties are trying to resolve the matter amicably.

 

As of March 31, 2016, the Company has an outstanding standby letter of credit in the amount of $150,000 for the benefit of one of the Company’s vendors, Spring Spectrum, L.P. This letter of credit is secured by a certificate of deposit, which at March 31, 2016 is classified as restricted cash, a non-current asset.

 

 

 

On July 5, 2015, Unified Signal acquired certain assets (but not the Excluded Assets) of InterMar, LLC (“InterMar”) including its 50,000 retail Points of Distribution and all related intellectual property, software, intangibles, contracts, rights, interests, and claims. Terms of the asset purchase include both a fixed amount to be paid in the form of common stock warrants and the assumption of specified contract obligations, and a variable component based on new customer activation. The acquisition, and related consultant agreements, requires the Company to issue up to 2,000,000 warrants to InterMar at a strike price of $0.25 per share, according to the following vesting schedule:

1.	10% (or 200,000 warrants) upon activation of one (1) customer through the acquired distribution channel.

2.	10% (or 200,000 warrants) upon activation of an additional 100,000 customers, and the remaining warrants in similar 10% blocks of 200,000 warrants for each additional block of 100,000 new customers activated; until all 2,000,000 warrants have been issued.

3.

The Company, in March 2016, issued 100,000 5 year warrants, each, to Bakunoff & Mcfarlin as part of the compensation package already in place. The warrants had a strike price of 25 cents.

The Company has determined that the first block of 200,000 warrants from the fixed component of the purchase price should be used to establish the fair value of the acquired assets and assumed obligations and the remaining block of 1.8 million warrants and the variable component of the purchase price is determined to be, in substance, compensation for the future services of InterMar’s executives who will be working for the Company under separate consulting agreements.

The fair values of the assets acquired and the liabilities assumed at the date of acquisition has been allocated to other intangible assets. The fair value of the assets acquired was determined assuming the initial block of 200,000 warrants were issued on the purchase date. There is no intrinsic value associated with the warrants on the issue date and the estimated fair value was $36,700. The remaining 1,800,000 warrants are tied to InterMar’s, and consultant agreements, future performance commitment, thus the value of the performance warrants will be reflected in future periods. No warrants have yet been issued to InterMar under the terms of this asset acquisition agreement. The fair values of the warrants were determined using Black Sholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 356%, (3) weighted average risk-free interest rate of 0.27%, (4) expected life of 5 years, and (5) estimated fair value of the Company’s common stock of $0.20 per share.

For the variable portion of the asset purchase agreement, the Company will pay InterMar $0.20 per active customer on a monthly basis. With respect to the variable monthly payments owing to InterMar, the Company also issued InterMar an alternative payment option wherein InterMar may receive warrants as payment in lieu of cash or other forms of consideration; for up to 50% of the monthly payment amount. These warrants, if issued at the option of InterMar, will be issued with a minimum strike price of $0.25. This payment alternative in limited to 3.5% of the total outstanding shares of the Company.

The Company pursued the asset purchase because InterMar is a strategic sales, marketing, and distribution company with an executive management team that focused on consumer, ethnic, and unbanked markets since 1999. InterMar services over 50,000 retail points of distribution east of the Mississippi.  100,000, 5 year, .25 cent warrants have been issued to the 2 managing partners affiliated with InterMar relating to this transaction. This is noted above..

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Management’s Discussion and Analysis 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-Q, 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 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.

When used in this quarterly report, the terms the “Company,” “Unified Signal,” “we,” “our,” and “us” refers to Unified Signal, Inc., a Nevada corporation. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the unaudited condensed consolidated financial statements included herein.

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 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.”

 

Unified Signal is primarily a wireless communications service provider that obtains bulk access to wireless network infrastructure owned by the major wireless carries or other host network operators, and then resells that access to wholesale distributors (Mobile Virtual Network Operators of “MVNO’s” and Mobile Virtual Network Enablers or “MVNE’s”). The Company also owns its own proprietary software that provides the backroom customer service and billing support systems to its MVNO and MVNE clients as a component of its services.

Unified Signal’s aim is to allow its customers to cost efficiently enable their 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 complete, end-to-end telecom buying solution.  Unified Signal clients have ONE SOURCE and one API suite for access to all Unified Signal technology and telecom offerings.

Unified Signal has combined 50 key industry technology innovators to create a complete telecom resale solution.  These Unified Signal technologists are all successful industry leaders in their respective market segments.  Each technologist brings a key expertise that has enhanced the technology and infrastructure of 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 providers 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 the Company’s carriers in only 4-6 weeks so the Company’s clients can sell privately branded telecommunications services to their own 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. 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. mobile wireless billing, other companies may also accomplish this as well. 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 the 2^nd quarter of 2014, Unified Signal completed its 4th carrier integration.  The company also launched the first of its kind cross carrier family, friend, and 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 MVNO’s. 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 personnel. The synergies are enhanced by combining 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.

 

The company now has over 25 MVNO clients which we believe could substantially increase our customer base and revenue stream. As the company continues to add recurring revenue clients, this naturally will have a positive impact on the company’s revenue as well as being a natural feeder for the new services the company will be introducing which are directly related to its core competencies, which will also have a positive impact on the company’s revenue.

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 in several different facets across the telecom and mobile wallet services.  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 approximately 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.

MyTime Wireless Launch – A Company Owned MVNO

The strategy behind the InterMar asset acquisition is to create a new MVNO brand of cellular service which would be owned and operated by Unified Signal and distributed into the InterMar distribution channel. As an MVNE, Unified Signal only accrues revenue of $1.50 to $2.25 per customer per month and only nets $0.50 per customer per month in profit. But Unified Signal’s new MVNO, which it calls MyTime Wireless (www.mytimewireless.com) will achieve an estimated $40-$45 revenue per customer per month on average, and is targeting an increase in net profit per customer to an estimated $5 per customer per month.

MyTime Wireless’ target market is the ethnic communities in the larger metropolitan cities on the east coast. The product bundles $5 of international long distance calling into each rate plan every month, as well as a FREE prepaid debit card. International long distance calling rates have been priced slightly above cost, which translates into retail rates that are far below anything customers have ever seen in the prepaid calling card marketplace. These low calling rates allow people living in the US the ability to call family and friends or anyone in other countries at a fraction of the cost they are paying today. The MyTime Wireless product set also allows its customers to move money to friends, family, or even business associates in foreign locations for free, as compared to a typical 10% to 15% transaction fee.

Mobile Commerce Product Suite

Additionally, Unified Signal plans to launch its Mobile Commerce Platform Services which will provide enablement software, allowing 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.

The Unified Signal Mobile Wallet product enablement suite is comprised of 2 core feature sets that service the banked and unbanked market segment.

Mobile Wallet “mWallet” Program (Virtual Savings Account: This product set is a simple private label PayPal type of service where customers can load money via cash, credit card, US checking/savings account, and receive money from other mWallet users. Customers can move funds off their account to any US checking/savings account, to other mWallet users, make ILD calls, pay for their wireless services, or move money to their private label Debit MasterCard or companion card. (The mobile wallet banking deposit’s as of March 31, 2016 were $66,630.

Debit MasterCard Program (Virtual Checking Account): Customers can choose to add on an optional prepaid Debit MasterCard which provides them access to domestic and International ATM networks as well as sue anywhere MasterCard is accepted. Money can be FREELY moved from their mWallet account to their Debit MasterCard in real time and all by using a state of the art data app. Customers can order a companion debit MasterCard and mail that card to loved ones abroad. Once they have that companion card, money can be freely moved from the mWallet to the companion card in real time, and again, for FREE. Family members can use the card anywhere MasterCard is accepted and/or take our funds at virtually any ATM.

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.

Results of Operations for the Three Months ended March 31, 2016 as compared to the Three months ended March 31, 2015

Revenues

Our revenues for the three months ended March 31, 2016 and 2015 were $487,636 and $453,182 respectively. Our revenues increased slightly year over year because we continue to focus on expanding our core business lines.

Operating Expenses

Operating expenses were $493,339 and $605,382 for the three months ended March 31, 2016 and 2015, respectively.  The reduction is primarily related to the company’s continued focus to streamline and upgrade its core back end efficiencies.

Software costs were $11,374 and $16,469 for the three months ended March 31, 2016 and 2015, respectively.  The Company’s business model is now primarily to provide software as a service (“SaaS”) with limited emphasis on selling hardware components.

Hosting and software were $22,977 and $33,362 for the three months ended March 31, 2016 and 2015 respectively.  The differences in costs relate to our changing product mix as noted above and our focus on becoming primarily a SaaS based company.

Carrier costs were $190,952 and $188,203 for the three months ended March 31, 2016 and 2015, respectively, due to higher usage relative to and reflecting the overall increase in sales of the Company’s mobile phone networks that are resold to its customers. The increase in this variable cost is attributable to the Company’s revenue stream and due to its focus on its core SaaS business model

Customer service costs were $14,765 and $16,513 for the three months ended March 31, 2016 and 2015 respectively, primarily due to satisfaction issues in the current period, new customers, and higher sales volume period-over-period.

General and administrative (“G&A”) expenses were $228,633 and $309,529 for the three months ended March 31, 2016 and 2015, respectively.  The decrease is primarily from the Company’s reorganization that lowered redundant or non-essential costs that are not associated or necessary with the Company’s change in focus from selling phone equipment to becoming a SaaS focused enterprise.

Depreciation and amortization were $24,639 for the three months ended March 31, 2016 as they were for 2015. No change as compared to $24,639 for the same period last year.  The associated assets depreciating/amortizing were acquired with our reverse merger in June 2014.

The provision for bad debts amounted to $320,553 for the three months ending March 31, 2016 as compared to $128,124 for the same period in 2015.  As the Company increased its customer base and waded into slightly new, but related, areas of business, the Company has been a little aggressive in trying to attract customers and this has seen a rise in the latency of payments and an increase in AR. The Company has no formal policy for estimating the provision for bad debts but generally considers amount owing past 90 days as uncollectible.

The Company has set aside legal reserves for the three months ending March 31, 2016 of $115,000, as compared to $25,000 for the same period of 2015. This increase is due to specifically due to one matter, which the Company is quite confident of resolving amicably. It already is in settlement discussions as discussed below.

Other Income and Expense

Other income and expenses were comprised of gain on change in derivative liabilities of $116,316 due to lowering of the stock price.

 

Net Income

Our net income of $110,016 for the three months ended March 31, 2016, compared to a net loss of $126,439 for the same period in 2015. The Company reported net income for the three months ended March 31, 2016 largely as a result of a one-time gain on the settlement of debt in the amount of $116,316; otherwise, the Company would have reported a net loss of $6,300 for such period.  The Company has not recorded any income tax benefit associated with the accumulated net operating losses.

Liquidity and Capital Resources

Unrestricted cash and cash equivalents were $782,744 at March 31, 2016. Our net cash used in operating activities for the three months ended March 31, 2016 was $202,390 due primarily to our net loss during this period, offset by non-cash adjustments and growth in accounts receivable.  Our primary sources of funding for the three months ended March 31, 2016 have been proceeds of $482,600 from issuance of common stock.

At March 31, 2016, restricted cash consisted of a $150,000 security deposit in the form of an irrevocable letter of credit held in escrow related to our performance under a service contract with one of our telecommunication service providers. In addition, restricted cash includes approximately $66,630.93 of customer deposits; which represents escrow obligations under the Company’s mobile wallet product.

The Company had net working capital deficit of $289,578 as of March 31, 2016.  This deficit was due to notes payable and accounts payable that relate to current operations and to legacy DataJack operations.  The increase in the allowance for uncollectible accounts receivable also negatively impacts the Company’s working capital.   The Company intends to continue to focus on increasing market share and cash flow from operations by focusing its sales activities on specific market segments, including targets provided by the recent InterMar asset purchase.

  We are currently seeking additional capital to grow our business and settle all the past obligations assumed from the acquisition.  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 effect on our business, prospects, financial condition and results of operations.

Our accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate our continuation as a going concern. However given our history of losses from operations and our negative working capital position there is no guarantee the Company will be able to continue its operations without significant improvements.  The Company’s business plans include generating future profitability through the addition of direct new subscribers and mobile phone network resellers.  In addition we continue to evaluate our options in the pursuit of new sources or methods of financing or revenue to pursue our business strategies.  

Our unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. We expect to raise any necessary additional funds through loans and additional sales of our common stock or debt instruments. There can be no assurance that we 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 March 31, 2016.

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:

 

Derivative financial instruments

 

Accounting Standards Codification subtopic 815-40, Derivatives and Hedging, Contracts in Entity’s own Equity (“ASC 815-40”) became effective for the Company on October 1, 2009. The Company has identified the embedded derivatives related to the issued Notes.  These embedded derivatives included in our debt contain certain conversion features and reset provision.  The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of certain notes and to fair value as of each subsequent reporting date.  

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.

The Company’s revenue is primarily derived from telecom fees charged to customers based on the duration of each wireless phone call conducted over the Company’s leased networks, and from fees related to customer service, account maintenance, and account set up charges.

MVNO’s alone now account for over 25% of wireless customers in the US including companies like Tracfone, Virgin Mobile, Boost, Qwest, Wal-Mart Mobile and 100 plus other, all of 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 MVNE’s can generate $2-$3 per customer per month netting $36-$72 per subscriber.

Estimate of Credit Risk for Uncollectible Accounts Receivable

The Company extends credit to its customers in the normal course of business through trade accounts receivable that are uncollateralized.  When extending credit, the Company considers how long the customer has been in business and other factors as it evaluates the customer’s ability to repay.  When accounts receivable become past due the Company evaluates the customer’s past payment history, sales volume and current ability to pay and the likelihood of collection when establishing a reserve for uncollectible accounts receivable.

Stock-Based Compensation

 

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 re-measured 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 cost will be recognized over the period that an employee provides service in exchange for the award.

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Financial Statement Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

The Company’s management, under the supervision and with the participation of the Company's Chief Executive Officer, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of March 31, 2016. Based upon that evaluation, and the identification of the material weakness in the Company’s internal control over financial reporting as described below under “Management’s Report on Internal Control over Financial Reporting,” the Chief Executive Officer and concluded that the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report.

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting of the Company.  Management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our internal control over financial reporting as of March 31, 2016 based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Chief Executive Officer principal concluded that, as of March 31, 2016, our internal control over financial reporting is not effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles because of the Company’s limited resources, lack of qualified accounting personnel and limited number of employees. To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of legal and accounting professionals.  As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.

Limitations on Effectiveness of Controls and Procedures

 

Our management, including our Chief Executive Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of the control system are met. Further, the 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 fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in 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 people, or by management override of the control. The design of any system of controls also is based, in part, upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. 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 in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Changes in Internal Control over Financial Reporting

There were no significant changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company currently has one legal matter in hand. LG Capital has sued the Company is the Eastern District of NY (LG Capital Funding, LLC V. Unified Signal f/k/a DataJack Inc. 16-cv- 1969), for its outstanding Notes that it purchased and also lent to the Company. The matter has currently been tabled, as the two parties are in the process of settlement talks. Unified Signal made a $20,000.00 payment to LG Capital in November of 2015 in which LG Capital tabled the matter from moving forward in the courts and giving Unified Signal an extension of time to resolve the matter. The two Parties are continuing its settlement talks between principles of the Companies as of December 28, 2016.

ITEM 1A. RISK FACTORS

Not required under Regulation S-K for “smaller reporting companies.”

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company, in March 2016, issued 100,000 5 year warrants, each, to Bakunoff & Mcfarlin as part of the compensation package already in place. The warrants had a strike price of 25. Otherwise, none, except as previously disclosed on Current Report on Form 8-K’s filed with the Securities and Exchange Commission during the three months ended March 31, 2016.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

 

Not applicable.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

 

*	Filed herewith.

 

**

This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.

***	To be filed by amendment.

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

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