Unified Signal, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.1 - Unified Signal, Inc.	ex32-1.htm
EX-31.1 - Unified Signal, Inc.	ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2014

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

DataJack, Inc.

(Exact name of small business issuer as specified in its charter)

Nevada	000-31757	90-0781437
(State of Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

5400 Carillon Point, Building 5000, 4th Floor, Kirkland, Washington		98033
(Address of Principal Executive Office)		(Zip Code)

(972) 361-1980

(Issuer’s telephone number, including area code)

Indicate whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12-b2 of the Exchange Act. (Check One):

Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ]	Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares outstanding of each of the issuer's classes of common equity as of November 19, 2014 is 64,509,328.

DataJack, Inc.

Table of Contents

	Page

Part I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL INFORMATION	3

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK	26

ITEM 4. CONTROLS AND PROCEDURES	27

Part II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS	28

ITEM 1A. RISK FACTORS	28

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	28

ITEM 3. DEFAULTS UPON SENIOR SECURITIES	28

ITEM 4. MINE SAFETY DISCLOSURES	29

ITEM 5. OTHER INFORMATION	29

ITEM 6. EXHIBITS	29

SIGNATURES	30

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL INFORMATION

INDEX TO FINANCIAL STATEMENTS

	Page

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013	4

Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013	5

Unaudited Condensed Consolidated Statement of Shareholders' Equity for the nine months ended September 30, 2014	6

Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013	7

Notes to the Unaudited Condensed Consolidated Financial Statements	8

DATAJACK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2014			2013
	(unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	179,724		$	161,498
Accounts receivable		375,700			95,234
Prepaid expenses and other current assets		20,000			-

Total current assets		575,424			256,732

Property and equipment, net		373,390			-

Restricted cash		150,000			-
Customer lists, net		177,778			-
Goodwill		1,737,570			-
Total other assets		2,065,348			-

Total assets	$	3,014,162		$	256,732

LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
Accounts payable	$	577,756		$	91,635
Accrued expenses		5,101			-
Advances from related parties		200,000			-
Notes payable, current portion		467,787			205,698
Legal Settlement Reserves		59,000			-
Derivative liability		314,848			-
Total current liabilities		1,624,492			297,333

Shareholders' equity (deficit):
Preferred stock - $0.001 par value; 50,000,000 shares authorized; no shares issued and outstanding		-			-
Common stock - $0.001 par value; 100,000,000 shares authorized; 64,509,328 and 30,600,000 shares
issued and 62,149,228 and 30,595,000 shares outstanding as of September 30, 2014 and December 31, 2013, respectively		64,509			30,600
Additional paid in capital		7,918,049			-
Common stock subscription		100,000			-
Treasury stock, 5,000 shares		(26,000	)		-
Accumulated deficit		(6,666,888	)		(71,201	)
Total shareholders' equity (deficit)		1,389,670			(40,601	)

Total liabilities and shareholders' equity (deficit)	$	3,014,162		$	256,732

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

DATAJACK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2014			2013		2014			2013

Revenues	$	644,660		$	160,163	$	2,865,506		$	256,969

Cost of sales		86,260			55,277		1,816,449			130,873

Gross profit		558,400			104,886		1,049,057			126,096

Operating expenses:
General and administrative expenses		746,466			48,606		1,322,448			118,643
Impairment of goodwill		356,075			-		6,120,915			-
Depreciation and amortization		41,806			-		66,519			-
Total operating expenses		1,144,347			48,606		7,509,882			118,643

(Loss) income from operations		(585,947	)		56,280		(6,460,825	)		7,453

Other income (expense):
Interest expense		(82,375	)		-		(133,206	)		-
Gain on change in derivative liability		87,817			-		88,307			-
Gain on sale of domain rights		60,564			-		60,564			-
Gain on settlement of debt		53,489			-		53,499			-
Total other income, net		119,495			-		69,164			-

(Loss) Income before income taxes		(466,452	)		56,280		(6,391,661	)		7,453

Income taxes		-			-		-			-

Net (loss) income	$	(466,452	)	$	56,280	$	(6,391,661	)	$	7,453

(Loss) income per common share, basic	$	(0.01	)	$	0.00	$	(0.15	)	$	0.00

(Loss) income per common share, diluted	$	(0.01	)	$	0.00	$	(0.15	)	$	0.00

Weighted average number of shares outstanding-basic		62,020,358			30,600,000		43,622,618			30,600,000

Weighted average number of shares outstanding-diluted		62,020,358			30,600,000		43,622,618			30,600,000

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

DATAJACK, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014

(unaudited)


					Additional		Common
	Common stock				Paid in		Stock			Treasury			Accumulated
	Shares		Amount		Capital		Subscriptions			Stock			Deficit			Total

Balance, December 31, 2013		30,600,000	$	30,600	$	-	$	-		$	-		$	(71,201	)	$	(40,601	)
Common stock issued to acquire DataJack, Inc.		24,491,728		24,492		6,343,358		31,500			(26,000	)		-			6,373,350
Common stock issued for services		2,525,000		2,525		455,965		-			-			-			458,490
Common stock issued for related party settlements		3,650,000		3,650		400,458		(31,500	)		-			-			372,608
Common stock issued for settlement of debt		842,600		842		172,568		-			-			-			173,410
Common stock issued for interest		300,000		300		50,700		-			-			-			51,000
Common stock issued for debt conversion		2,100,000		2,100		495,000		-			-			-			497,100
Proceeds from common stock subscriptions		-		-		-		100,000			-			-			100,000
Distributions		-		-		-		-			-			(204,026	)		(204,026	)
Net loss		-		-		-		-			-			(6,391,661	)		(6,391,661	)
Balance, September 30, 2014		64,509,328	$	64,509	$	7,918,049	$	100,000		$	(26,000	)	$	(6,666,888	)	$	1,389,670

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

DATAJACK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(unaudited)

	For the Nine Months Ended September 30,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(6,391,661	)	$	7,453
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		66,519			-
Non-cash compensation		458,490			-
Non-cash interest		25,000
Amortization of deferred costs		74,074			-
Impairment of goodwill		6,120,915			-
Common stock issued for loan extension		101,000			-
Gain on settlement of debt		(53,499	)
Gain on sale of domain rights		(60,564	)
Change in fair value of derivative liability		(88,307	)		-
Changes in operating assets and liabilities:					-
Accounts receivable		(285,344	)		(17,955	)
Inventory		4,935			-
Prepaid expenses		15,572			-
Accounts payable		3,359			14,570
Legal Reserves		2,000			-
Net cash (used in) provided by operating activities		(7,511	)		4,068

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of domain rights		100,000			-
Cash acquired from acquisition of Datajack, Inc.		351			-
Net cash provided by investing activities		100,351			-

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable		64,536			135,000
Proceeds from common stock subscription		100,000			-
Advances from related party		61,898			-
Repayments of notes payable		(97,022	)
Distributions, pre-merger		(204,026	)		(99,601	)
Net cash (used in) provided by financing activities		(74,614	)		35,399

Net increase in cash and cash equivalents		18,226			39,467

Cash and cash equivalents at beginning of period		161,498			17,609
Cash and cash equivalents at end of period	$	179,724		$	57,076

Supplement cash flow information:
Cash paid for income taxes	$	-		$	-
Cash paid for interest	$	-		$	-

Noncash investing and financing activities:
Issuance of common stock for accounts payable, debt settlement and debt conversions	$	670,510		$	-
Issuance of common stock for settlement of obligation due related party	$	547,500		$	-
Issuance of common stock for reverse acquisition	$	6,267,850		$	-

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

DATAJACK, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

NOTE 1 – ORGANIZATION AND BUSINESS

DataJack Inc. (together with its consolidated subsidiaries, TelBill Holdings, LLC. (“TelBill” and WQN, Inc. (“WQN”) or the “Company”) is an MVNO enabler and mobile payment solutions provider in the wireless and banking industries. The Company is a SaaS (software as a service) based billing and back office platform which enables companies in virtually any industry sector to launch cellular, as well as other telecom services using their existing brand. The Company’s SaaS platform and infrastructure allows clients to implement faster, have more control over the system with feature rich tools, while being more cost efficient than other solution providers. The Company’s turnkey telecom billing platform allows its clients to sell, provision, fulfill, and care for multiple telecom services, including pre and post-paid cellular, local, long distance, Internet, and mobile banking. The platform also enables clients to private label mobile banking services including a full mobile wallet linked to a prepaid debit card.

Basis of Presentation (Reverse-Acquisition)

On June 4, 2014, TelBill Holdings, LLC completed an acquisition (the "Merger") of TelBill Holdings, Inc. (“TelBill”) (dba Unified Signal) pursuant to the terms of the Membership Interest Purchase Agreement (the “Merger Agreement”) with TelBill and DataJack, Inc. dated as of June 4, 2014. For accounting purposes, TelBill was identified as the acquiring entity and DataJack Inc. as the acquired entity. The merger was accounted for using the purchase method of accounting for financial reporting purposes. The purchase method requires the identification of the acquiring entity based on the criteria of Accounting Standards Codification (“ASC”) 805-10-55-12, “Accounting for Business Combinations”. Under the purchase method of accounting the purchase price is preliminarily allocated to the acquiree’s assets and liabilities at fair value and any excess purchase price is then attributed to identifiable intangible assets and goodwill. The preliminary purchase price allocation may be modified as more information is obtained for a period of no more than one year. Accordingly, the unaudited condensed consolidated financial statements and related footnote disclosures presented for the period prior to the Merger are those of TelBill and its subsidiaries alone. The financial statements as of December 31, 2013 and for the three months and nine months ended September 30, 2013 include the operations and cash flows of TelBill and its subsidiaries through June 4, 2014 and the combined operations and cash flows of TelBill and DataJack, Inc. subsequent to that date.

The accompanying financial statements give retroactive effect to the recapitalization as if it had occurred at the earliest reporting period. Certain other reclassifications have been made to prior periods’ consolidated financial statements to be consistent with the current period’s presentation.

The accompanying 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 DataJack Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

DATAJACK, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

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.

Cash and Cash Equivalents

For purposes of reporting cash flows, the Company considers all cash on hand, in banks, certificates of deposit and other highly liquid debt instruments with a maturity of three months or less at the date of purchase, to be cash and cash equivalents. Cash overdraft positions may occur from time to time due to the timing of making bank deposits and releasing checks, in accordance with the Company’s cash management policies. Cash overdraft positions are recorded as accounts payable in the balance sheet.

Restricted Cash

Restricted cash represents collateral on a standby letter of credit related to an agreement with one of the Company’s telecommunications service providers, effectively providing a guarantee of the Company’s payment of its account payable to this service provider.

Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts based on its assessment of the current status of the individual receivables and after using reasonable collection efforts. The allowance for doubtful accounts as of September 30, 2014 and December 31, 2013 was zero.

Inventories

Inventories consist of the Company’s proprietary USB devices which provide customers the ability to deliver nationwide mobile 3G and 4G data coverage. Inventories are stated at the lower of cost or market determined by the first in, first out (FIFO) method.

Prepaid Expenses and Deposits

At September 30, 2014, prepaid expenses and deposits consisted primarily of cash deposit payments made to several of the Company’s service providers.

DATAJACK, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

Income Taxes

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.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing the net income (loss) for the year by the weighted-average number of shares of common stock outstanding. The calculation of fully diluted earnings per share is computed using the weighted average number of common shares outstanding and common stock equivalents with the assumption that all common stock equivalents were converted at the beginning of the year. Options, warrants, convertible debt and unvested shares are considered to be common stock equivalents and are only included in the calculation of diluted earnings per common share when their effect is dilutive. 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 and nine months ended September 30, 2013.

Fair Value of Financial Instruments

The carrying amount of cash, accounts receivable, accounts payable and notes payable, as applicable, approximates fair value due to the short term nature of these items and/or the current interest rates payable in relation to current market conditions.

Fair Value Measurements

ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

DATAJACK, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

Level 3—Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of September 30, 2014 and December 31, 2013:

	Level 1		Level 2		Level 3		Total

Derivative liability	$	-	$	-	$	-	$	-
As of December 31, 2013	$	-	$	-	$	-	$	-

Derivative liability	$	-	$	-	$	314,848	$	314,848
As of September 30, 2014	$	-	$	-	$	314,848	$	314,848

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (derivative liability) for the June 4, 2014 (date of merger) through September 30, 2014.

	Derivative
	Liability

Balance, December 31, 2013	$	-
Fair value of acquired derivative at date of merger		403,155
Mark-to-market at September 30, 2014		(88,307	)

Balance, September 30, 2014	$	314,848

Level 3 Liabilities were comprised of our bifurcated convertible debt features on our convertible notes.

Revenue Recognition

The Company follows the guidance in Staff Accounting Bulletin (SAB) No. 104, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. SAB 104 states that revenue is realized or realizable and earned when all of the following criteria are met: persuasive evidence of an arrangement exists, services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectability is reasonably assured.

Revenues are primarily derived from fees charged to terminate voice services over the Company’s network and from related monthly recurring charges. Variable revenue is earned based on the number of minutes during a call and is recognized upon completion of a call. Revenue from each customer is calculated from information received through the Company’s network switches. The Company tracks the information received from the switch and analyzes the call detail records and applies the respective revenue rate for each call. Fixed revenue is earned from monthly recurring services provided to customers that are fixed and recurring in nature, and are connected for a specified period of time. Revenues are recognized as the services are provided and continue until the expiration of the contract or until cancellation of the service by the customer. Cash fees received prior to call completion are recorded on the Company’s consolidated balance sheets as unearned revenue. As of September 30, 2014 and December 31, 2013, the Company did not have any recorded unearned revenue.

DATAJACK, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

Economic Dependency

The Company utilizes a limited number of suppliers. The Company is vulnerable to the risk of renewing favorable supplier contracts and timeliness of the supplier in processing the Company’s orders for customers, and is at risk related to regulation and regulatory developments that govern the rates to be charged to the Company and, in some instances, whether certain facilities are required to be made available to the Company.

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.

Long-Lived Assets

Property, equipment and definite lived intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell, and depreciation ceases.

Intangible Assets and Goodwill

As a result of the acquisition of TelBill Holdings, LLC on June 4, 2014, the Company acquired intangible assets in the aggregate amount of $8,058,485.

The Company allocated $200,000 in identifiable intangible assets for customer relationships. The remaining $7,858,485 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.

DATAJACK, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

The impairment charge is reflected as part of the loss from operations in the accompanying financial statements. Considerable management judgment is necessary to estimate the fair value. Accordingly, actual results could vary significantly from management’s estimates.

Deferred Costs

The amount of cash paid and the value of common stock issued that are related to contract renegotiations and debt issuances are capitalized, and classified as a noncurrent deferred cost on the Company’s consolidated balance sheet. These deferred costs are amortized to expense over the term of the underlying contracts or debt instruments.

Segment Information

Accounting Standards Codification subtopic Segment Reporting 280-10 (“ASC 280-10”) establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The information disclosed herein materially represents all of the financial information related to the Company’s only principal operating segment.

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 remeasured each reporting period. The Company’s common shares issued as additional compensation and for consulting services have been valued at the shares’ exchange-quoted market prices at their respective dates of issuance or commitment. Compensation cost will be recognized over the period that an employee provides service in exchange for the award.

Embedded Derivatives

The Company has identified embedded derivatives related to certain of its notes payable. These embedded derivatives include certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the above described Convertible Note Payable and to fair value as of each subsequent reporting date.

Recent Accounting Pronouncements

In August 2014, the FASB issued a new accounting standard which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company expects to adopt this new standard for the fiscal year ending December 31, 2014 and the Company will continue to assess the impact on its consolidated financial statements.

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.

DATAJACK, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

NOTE 3 –BUSINESS COMBINATION

On June 4, 2014, DataJack, Inc completed an acquisition (the "Merger") of TelBill Holdings, LLC. (“TelBill”) pursuant to the terms of the Membership Interest Purchase Agreement (the “Merger Agreement”) with TelBill Holdings, LLC (dba Unified Signal) dated as of June 4, 2014.

The Company acquired TelBill in exchange for the following: (i) 30,600,000 shares of Registrant's common stock, par value $0.001("Common Stock") to Mr. Holt, (ii) the reservation of an additional 5,400,000 shares of the Company’s Common Stock to be allocated as options to the employees of the Company and (iii) a one-time "true-up" to Mr. Holt for the period of eighteen months after the Closing Date in the event the Registrant raises additional capital such that Seller shall own not less than 51% of the Registrant on a fully-diluted basis (collectively, the "Purchase Price").

The merger was accounted for using the purchase method of accounting for financial reporting purposes. The acquisition method requires the identification of the acquiring entity based on the criteria of ASC 805-10-55-12, “Accounting for Business Combinations”. Based on an analysis of the relative voting rights in the combined entity after the business combination and the composition of the board of directors and the relative size (measured in assets, revenues, or earnings), the Merger was accounted for as a reverse acquisition. For accounting purposes, TelBill Holdings, LLC. was identified as the acquiring entity and DataJack Inc. as the acquired entity. Under the purchase method of accounting the purchase price is preliminarily allocated to the acquiree’s assets and liabilities at fair value and any excess purchase price is then attributed to identifiable intangible assets and goodwill. The preliminary purchase price allocation may be modified as more information is obtained for a period of no more than one year. Accordingly, the financial statements and related footnote disclosures presented for the period prior to the Merger are those of TelBill Holdings, LLC. and its subsidiaries alone. The financial statements as of December 31, 2013 and for the three and nine months ended September 30, 2013 include the operations and cash flows of TelBill Holdings, LLC. through June 3, 2014 and the combined operations and cash flows of TelBill Holdings, LLC. and DataJack, Inc. and its subsidiaries after that date.

In accordance with the Merger, each TelBill Holdings, LLC member received, in exchange for each membership interest of TelBill Holdings, LLC. common stock held or deemed to be held by such member immediately prior to the closing of the merger on June 4, 2014, one membership interest of TelBill Holdings, LLC, resulting in TelBill Holdings, LLC. members owning approximately 55.5% of the shares of the combined company. A total of 24,491,728 shares of common stock were issued in connection with this exchange.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. The total acquisition price of $6,367,849 has been allocated as follows:

DATAJACK, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

Cash	$	351
Accounts receivable		1,204
Prepaid expenses and other current assets		40,508
Restricted cash		150,000
Property and equipment		415,674
Deferred costs, related party		74,074
Customer list		200,000
Goodwill		7,858,485
Other intangible assets		35,366
Treasury stock		26,000
Accounts payable		(512,763	)
Advances from related parties		(517,115	)
Notes payable		(535,481	)
Legal reserves		(433,799	)
Derivative liability		(403,155	)
Common stock subscription		(31,500	)

Total purchase price	$	6,367,849

Goodwill and customer lists represent the excess of the purchase price over the fair value of the net tangible assets acquired. For income tax reporting purposes, the goodwill and other intangibles assets identified above are non-deductible.

At June 30, 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 June 30, 2014. The test 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 June 30, 2014. As a result, upon completion of the assessment, management recorded a non-cash impairment charge of $6,120,915, net of tax, or $0.14 per share during the nine months ended September 30, 2014 to reduce the carrying value to $1,737,570. The impairment charge is reflected as part of the loss from operations in the accompanying financial statements. Considerable management judgment is necessary to estimate the fair value. Accordingly, actual results could vary significantly from management’s estimates.

The Company has presented its preliminary estimates of the fair values of the assets acquired and liabilities assumed in the Merger as of September 30, 2014. The Company is in the process of finalizing its review and evaluation of the appraisal and related valuation assumptions supporting its fair value estimates for all of the assets acquired and liabilities assumed in the Merger and, therefore, the estimates used herein are subject to change. This may result in adjustments to the values presented above for assets and liabilities and a corresponding adjustment to goodwill in addition to the impairment charge. As such, the Company has not completed the assignment of goodwill to reporting units or its determination of the amount of goodwill that is expected to be deductible for tax purposes at this time.

NOTE 4 – GOING CONCERN

The accompanying 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 a recurring net loss of $466,452 and $6,391,661 for the three and nine months ended September 30, 2014, respectively. As of September 30, 2014, the Company has reported an accumulated deficit of $6,666,888 and a working capital deficit of $1,049,068, and has been dependent on issuances of debt and equity instruments to fund its operations.

DATAJACK, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

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 September 30, 2014 and December 31, 2013, respectively, property and equipment consisted of the following:

	September 30,			December 31,
	2014			2013

Computers and equipment	$	115,674		$	-
Software		300,000
Total		415,674			-
Less accumulated depreciation		(42,284	)		-

Total	$	373,390		$	-

Depreciation expense for the three and nine months ended September 30, 2014 amounted to $24,639 and $42,284, respectively, and $-0- for the three and nine months ended September 30, 2013

NOTE 6 – CUSTOMER LISTS

In connection with the merger with TelBill Holdings, LLC. the Company acquired a customer listing with an allocated fair value at the date of the merger of $200,000. The customer list is amortized ratably over its estimated useful life of 3 years. During the three and nine months ended September 30, 2014, the Company amortized $16,666 and $22,222 to current period operations, respectively.

NOTE 7 – OTHER INTANGIBLES

In connection with the merger on June 4, 2014, the Company acquired domain rights with an allocated fair value of $35,366. In August 2014, the Company the domain rights and cancelled outstanding accounts receivable of $6,083 for net proceeds of $100,000. The Company recognized a gain on sale of domain rights of $60,564 during the three and nine months ended September 30, 2014.

Amortization expense for the three and nine months ended September 30, 2014 amounted to $500 and $2,013, respectively; and $-0- for the three and nine months ended September 30, 2013

NOTE 8 – RELATED PARTY TRANSACTIONS

In June 2014, the Company issued an aggregate of 3,650,000 shares of its common stock in settlement of $372,608 related party obligations.

As of September 30, 2014 and December 31, 2013, related party advances were $200,000 and $-0-, respectively.

DATAJACK, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

NOTE 9 – NOTES PAYABLE

At September 30, 2014 and December 31, 2013, notes payable consisted of the following:

	September 30,			December 31,
	2014			2013

Promissory notes payable - shareholders	$	65,000		$	-
Note payable-Gerry Sperling		36,500
Convertible note payable-JMJ Financial		78,174
Convertible note payable-St George		110,000
CGL Interests Note		118,696			155,698
Note payable-Jensen		37,500			50,000
Note payable – LG Capital		21,917			-
Total notes payable		467,787			205,698
Less current portion of notes payable		(467,787	)		(205,698	)

Noncurrent portion of notes payable	$	-		$

Promissory Notes Payable - Shareholders

As of September 30, 2014, the Company had short-term unsecured promissory notes from various shareholders totaling $65,000. These unsecured advances do not accrue interest.

Note Payable – Sperling

On September 4, 2014, the Company entered into a short-term no interest unsecured promissory note to Jerry Sperling for the amount of $36,500. The promissory note is payable on demand.

Convertible Note Payable – St George Investments

On March 30, 2012, the Company’s acquired subsidiary entered into a convertible promissory note with St George Investments (the “St George Note”) for a principal balance of $465,000. The note was originally a short-term note payable to Warren Gilbert, one of the primary shareholders of the Company. On March 30, 2012, Warren Gilbert sold the note to St. George Investments for an amount which was not disclosed to the Company’s acquired subsidiary. The St George Investments note conversion notice contains a Beneficial Conversion Feature (BCF). The Company’s acquired subsidiary accordingly recorded a BCF of $298,077, as a credit to additional paid in capital with offsetting amounts of $187,500 to other expense and $110,577 to debt discount, a contra liability account, which was written off by September 30, 2012, the maturity date of the St George Note. The Company’s acquired subsidiary also recognized an additional original-issue debt discount of $135,127, which was charged to other expense by September 30, 2012.

The St George Note bears interest at the rate of 8% per annum, compound daily. All interest and principal was due on September 30, 2012. The St George Note was convertible into common stock, at St George Investments’ option, at a fixed conversion price of $0.375 per share from March 30, 2012 until September 1, 2012, and commencing September 2, 2012 the conversion price is 65% of the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. Upon the occurrence of an event of default, (i) the outstanding balance shall increase to 112.5% of the outstanding balance immediately prior to the occurrence of such event of default; provided, however, that such increase may not be applied more than twice, and (ii) this St George Note shall accrue interest until the outstanding balance is repaid in full at the rate of 1% per month (or 12% per annum), compounding daily, whether before or after judgment.

DATAJACK, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

St George Investments shall have the option, in its sole discretion, to return all or any part of the conversion shares or cancelled shares to the Company’s acquired subsidiary by providing one or more written notices thereof to the Company but not exceed 47,692 shares. The St George Investments converted a total of $426,206 of accrued interest, penalty and principal amount during the year ended December 31, 2012 and returned $58,486 or 47,692 shares of conversion made in September 2012. See Note 13 for related litigation.

The Company has identified embedded derivatives related to the St George Note. These embedded derivatives include certain conversion features and reset provisions. See Note 11. The outstanding principal at September 30, 2014 is $110,000.

Convertible Note Payable – JMJ Financial

On August 22, 2012, the Company’s acquired subsidiary entered into a convertible promissory note with JMJ Financial (the “JMJ Note”) for an aggregate principal balance of $220,000. The principal sum of the notes consisted of $200,000 of consideration paid, plus a $20,000 original issue discount (OID) or 10% OID. The note has a provision which allows the Company’s acquired subsidiary to draw down the available principal over time. The JMJ Note bears a one-time interest charge of 10% of the principal amount. The maturity date is one year from the Effective Date of each payment received by the Company’s acquired subsidiary and is the date upon which the principal sum of this JMJ Note, as well as any unpaid interest and other fees, shall be due and payable. The JMJ Note is convertible into common stock, at JMJ Financial’s option at any time after the Effective Date, at the conversion price of lesser of $0.07 per share or 70% of the lowest trade price in the 25 trading days prior to the conversion. In the event of any default, the outstanding principal amount of this JMJ Note, plus accrued but unpaid interest, liquidated damages, fees and other amounts owing in respect thereof through the date of acceleration, shall become, at JMJ Financial’s election, immediately due and payable in cash at the Mandatory Default Amount. On December 11, 2013, the Company entered an amended Debt Settlement agreement with JMJ for settlement of the outstanding $88,174 balance on the promissory note. The Company has signed various amendments to the Debt Settlement agreement extending the final payment date to March 14,2014. The Company’s acquired subsidiary is in default of the Debt Settlement agreement, as the full payment has not been made as of the date of this filing. The Company has identified embedded derivatives related to the JMJ Note. These embedded derivatives include certain conversion features and reset provisions. See Note 11.

CGL Interest Note

On September 9, 2013, the Company entered into a loan agreement for up to $200,000, at the holder’s option. CGL agreed to loan up to $200,000 to assist in covering costs for various parties to implement their mobile virtual network operators (“MVNO”) in exchange for a new MVNO for CGL at no cost. Payments are at 15% of the Company’s MVNO royalty fee for each subscriber with no cap or time limitation.

If CGL advances funds to the Company on a particular MVNO, the Company must pay back these funds at 100% monthly royalty fee until tranche is repaid. If a particular advance is note repaid within 12 months, the Company must pay back over 12 months from general profits.

The Company’s Chief Executive Officer, Paris Holt, has provided a personal guarantee.

Note payable-Jenson

On March 19, 2013, the Company issued a promissory note for $50,000, initially due April 1, 2014 with interest at 7% per annum.

DATAJACK, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

Note Payable – LG Capital

On June 19, 2013, the Company’s acquired subsidiary (See Note 3) entered into a $32,000, 8% note payable with LG Capital Funding. The principal and interest of the note is due and payable on March 19, 2014. The note has a conversion feature which commences 180 days prior to the maturity date. LG Capital Funding can convert the loan for common stock at a conversion price of 51% of the market price which is calculated utilizing the two lowest trading places. LG Capital converted a total of $12,090 of accrued interest and principal amounts during the year ended December 31, 2013 for 109,649 shares. The outstanding principal balance as of September 30, 2014 is $21,917.

NOTE 10 – LEGAL SETTLEMENT OBLIGATIONS

The Company has entered into settlement agreements with note holders, former employees and vendors. As of September 30, 2014, the legal settlement obligation was $59,000. These settlement agreements have yet to be fully consummated and are recorded at full value until the transaction is completed.

NOTE 11 – DERIVATIVE LIABILITIES

The Company’s St George Note, LG Capital and JMJ Financial Note (the “JMJ Note”) can be converted into the Company’s common shares, at the holders’ option, at the conversion rates of: (a) 65% of the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion for the St George Note; (b) at the lesser of $0.07 per share or 70% of the lowest trade price in the 25 trading days prior to the conversion for the JMJ Note and (c) at a conversion price of 51% of the market price which is calculated utilizing the two lowest trading places for the LG Capital note .

The Company has identified the embedded derivatives related to these convertible notes. These embedded derivatives included certain conversion features and reset provisions, requiring the Company to record the fair value of the derivatives as of the inception date of these convertible notes, and to fair value as of each subsequent reporting date.

At the date of Merger (See Note 3), the Company determined the aggregate fair value of $403,155 of embedded derivatives. The fair values of the embedded derivatives were determined using the Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 351.12%, (3) weighted average risk-free interest rate of 0.10%, (4) expected life of 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.26 per share.

At September 30, 2014, the Company marked to market the fair values of these debt derivatives and determined a fair value of $314,848. The Company recorded a gain from change in fair value of debt derivatives of $87,817 and $88,307 for the three and six months ended September 30, 2014. The fair values of the embedded derivatives were determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 369.20%, (3) weighted average risk-free interest rate of 0.13%, (4) expected life of 1 year, and (5) estimated fair value of the Company’s common stock of $0.07 per share.

NOTE 12 – STOCKHOLDERS’ EQUITY

In June 2014, the Company issued an aggregate of 200,000 shares of its common stock for services rendered.

In June 2014, the Company issued an aggregate of 3,650,000 shares of its common stock, $31,500 of which was previously subscribed, in settlement of related party obligations

In June 2014, the Company issued 100,000 shares of its common stock as note extension fee.

DATAJACK, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

In June 2014, the Company issued an aggregate of 2,100,000 shares of its common stock in note conversions.

In July 2014, the Company issued 137,500 shares of its common stock in settlement of debt.

In July 2014, the Company issued 200,000 shares of its common stock as payment of interest and note extension.

In August 2014, the Company issued 100,000 shares of its common stock as payment of interest and note extension.

In August 2014, the Company issued 125,000 shares of its common stock for services rendered.

In August 2014, the Company issued 450,000 shares of its common stock in settlement of debt.

In September 2014, the Company issued 2,200,000 shares of its common stock for services rendered.

In September 2014, the Company issued an aggregate of 155,100 in settlement of debt.

As of September 30, 2014 the Company has $100,000 in common stock subscriptions in connection with 500,000 shares to be issued.

NOTE 13 – COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the Company is involved in numerous lawsuits. The costs that may result from these lawsuits are only accrued for when it is more likely than not that a liability, resulting from past events, will be incurred and the amount of that liability can be quantified or estimated within a reasonable range. As of the date of this filing, the Company is not currently involved in or aware of any pending or threatened litigation.

Leases

The Company is obligated under two non-cancelable operating leases for its primary office facilities, located in Dallas, TX and Fort Lauderdale, FL. These leases expire on February 28, 2015 and March 31, 2016, respectively. The company is in the process of winding down its usage of these locations and currently does not have employees in the Dallas location, and is in the process of obtaining a release from the landlord attesting to the termination of this lease. The company is similarly in the process of obtaining a release on the Florida lease as well. Both of these releases should be obtained within the next 30 days. The Company is not currently carrying property, auto or workers compensation insurance, as required by the terms of the lease agreement.

Letter of Credit

As of September 30, 2013, the Company has an outstanding standby letter of credit in the amount of $150,000 for the benefit of the one of the Company’s vendors, Sprint Spectrum, L.P. This letter of credit is secured by a certificate of deposit, which at September 30, 2014 is classified as restricted cash, a non-current asset.

Sale of ITG, Inc.

The Company’s acquired subsidiary disposed of its ITG, Inc. (formerly WQN, Inc) subsidiary effective November 21, 2013. In accordance with the Stock Purchase Agreement related to the sale of ITG, Inc. the purchaser assumed certain liabilities totaling $275,548 as of the date of the transaction. The purchaser has not indemnified the Company against any future claims by third party creditors or others. Management does not consider it likely that these claims will materialize and accordingly no provision has been made for these contingent liabilities.

DATAJACK, INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

Litigation

An amended agreement was reached and dated February 14, 2014, which states the initial payment was made on or prior to January 16, 2014 and the balance is to be paid on February 18, 2014 and March 18, 2014.　The Company acquired subsidiary has made the February 18, 2014 payment.　An extension was granted on March 17, 2014 for the final payment to be made on or before April 27, 2014.　An issuance of 60,000 shares was made on March 17, 2014 as an extension fee. The parties then revised its agreement and amended it so that DataJack was granted additional time to make its payments. This Settlement Agreement, Waiver and Release of Claims was dated April 29, 2014, and the final payment was extended from April 27, 2014 to June 6, 2014. In consideration thereof, DataJack issued 60,000 of its shares as an extension fee.

On June 10, 2014 the parties further extended the due date for the Final Payment from June 6, 2014 to July 21, 2014 and in consideration thereof, DataJack issued 100,000 of its shares of common stock as an extension fee.

On July 21, 2014 the parties revised its agreement yet again and agreed to the following; a two part payment; the first part payable on July 31, 2014 and the second payable on September 4, 2014. The parties agreed to allow this extension by DataJack issuing an additional 200,000 shares of common stock as an extension fee;

Finally on August 12, 2014, the parties entered into a final settlement agreement whereby Datajack will pay St George Investments a series of 14 payments, on the 15th and 30th of each month, for the next 7 months beginning in August 2014. Additionally, DataJack has issued an additional 100,000 shares of common stock, as a final extension fee.

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,” “DataJack,” “we,” “our,” and “us” refers to DataJack, 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

DataJack, Inc. (together with its consolidated subsidiaries, TelBill Holdings, LLC. (“TelBill” and WQN, Inc. (“WQN”) or the “Company”) is a MVNO solutions provider in the wireless industry with premier Voice, Data, SMS and Mobile Broadband services. In addition, through the acquisition the Company offers low cost, no contract, mobile broadband with various data plans primarily through two devices - the DataJack WiFi Mobile Hotspot that can connect up to 8 Wi-Fi enabled devices and the DataJack USB, a Plug and Play USB Device.

On June 4, 2014, we completed an acquisition (the "Merger") of TelBill Holdings, LLC. (“TelBill”) pursuant to the terms of the Membership Interest Purchase Agreement (the “Merger Agreement”) with TelBill and DataJack Inc. dated as of June 4, 2014. For accounting purposes, TelBill was identified as the acquiring entity and DataJack Inc. as the acquired entity. The merger was accounted for using the purchase method of accounting for financial reporting purposes. The purchase method requires the identification of the acquiring entity based on the criteria of Accounting Standards Codification (“ASC”) 805-10-55-12, “Accounting for Business Combinations”. Under purchase accounting, the assets and liabilities of an acquired company (DataJack, Inc.) as of the effective date of the acquisition were recorded at their respective fair values and added to those of the acquiring company. Accordingly, the condensed consolidated financial statements and related footnote disclosures presented for the period prior to the Merger are those of TelBill and its subsidiaries alone. The financial statements as of December 31, 2013 and for the three months and nine months ended September 30, 2013 include the operations and cash flows of TelBill and its subsidiaries through June 4, 2014 and the combined operations and cash flows of TelBill and DataJack, Inc. subsequent to that date.

Results of Operations for the Three Months ended September 30, 2014 Compared to the Same Period in 2013

Revenues

Our revenues for the three months ended September 30, 2014 and 2013 were $644,660 and $160,163, respectively. In connection with the Merger as described above, we reported an additional revenue in the current period. We also continue to grow and expand our core business lines.

Cost of Sales and Gross Profit

Cost of sales totaled $86,260 and $55,277 for the three months ended September 30, 2014 and 2013, respectively. This resulted in gross profit of $558,400 (87%) and $104,886 (65%) for the respective 2014 and 2013 periods. The increase in cost of sales and the increase gross margin in 2014 were a result of the expansion or our core business lines.

Operating Expenses

Operating expenses were $1,144,347 and $48,606 for the three months ended September 30, 2014 and 2013, respectively.

General and administrative (“G&A”) expenses were $746,466 and $48,606 for the three months ended September 30, 2014 and 2013, respectively. The increase primarily from added support and costs associated with the growth of our core business.

Impairment of Goodwill were $356,075 and $-0- for the three months ended September 30, 2014. On June 30, 2014, we performed an evaluation of its goodwill and other acquired intangible assets for purposes of determining the implied fair value of the assets at June 30, 2014. The test indicated that the recorded book value of its acquired goodwill from the acquisition of TelBill exceeded its fair value for the period ended June 30, 2014. Additional costs identified in third quarter resulted in an additional $356,075 impairment As a result, management recorded an additional non-cash impairment charge of $356,075, net of tax, or $0.0 per share during the three months ended September 30, 2014 to reduce the carrying value to $1,737,570. Considerable management judgment is necessary to estimate the fair value. Accordingly, actual results could vary significantly from management’s estimates.

Other Income and Expense

Other income and expenses increased to a net other income of $119,495 for the three months ended September 30, 2014 compared to $-0- for the three months ended September 30, 2013. The increase in income is primarily attributable gain on settlement on debt, gain on sale of domain rights and change in fair value of derivative liabilities, net with interest expenses incurred on debt assumed with the most recent merger.

Net Loss

An impairment of goodwill and increases in operating expenses from our completed merger attributed to our net loss of $466,452 for the three months ended September 30, 2014, compared to a net income of $56,280 for the same period in 2013.

Results of Operations for the Nine Months ended September 30, 2014 Compared to the Same Period in 2013

Revenues

Our revenues for the nine months ended September 30, 2014 and 2013 were $2,865,506 and $256,969, respectively. In connection with the Merger as described above, we reported an additional revenues in the current period as compared to 2013. We also continue to grow and expand our core business lines.

Cost of Sales and Gross Profit

Cost of sales totaled $1,816,449 and $130,873 for the nine months ended September 30, 2014 and 2013, respectively. This resulted in gross profit of $1,049,057 (37%) and $126,096 (49%) for the respective 2014 and 2013 periods. The increase in cost of sales and the increase gross profit in 2014 were a result of the expansion or our core business lines.

Operating Expenses

Operating expenses were $7,509,882 and $118,643 for the nine months ended September 30, 2014 and 2013, respectively.

General and administrative (“G&A”) expenses were $1,322,448 and $118,643 for the nine months ended September 30, 2014 and 2013, respectively. The increase primarily from added support and costs associated with the growth of our core business.

Impairment of Goodwill were $6,120,915 (as updated in third quarter) and $-0- for the nine months ended September 30, 2014. On June 30, 2014, we performed an evaluation of its goodwill and other acquired intangible assets for purposes of determining the implied fair value of the assets at June 30, 2014. The test indicated that the recorded book value of its acquired goodwill from the acquisition of TelBill exceeded its fair value for the period ended June 30, 2014. As a result, upon completion of the assessment, management recorded a non-cash impairment charge of $6,120,915 net of tax, or $0.14 per share during the nine months ended September 30, 2014 to reduce the carrying value to $1,737,570. Considerable management judgment is necessary to estimate the fair value. Accordingly, actual results could vary significantly from management’s estimates.

Other Income and Expense

Other income and expenses increased to a net other income of $69,164 for the nine months ended September 30, 2014 compared to $-0- for the nine months ended September 30, 2013. The increase in income is primarily attributable gain on settlement of debt, gain on sale of domain rights and change in fair value of derivative liabilities, net with interest expenses incurred on debt assumed with the most recent merger.

Net Loss

An impairment of goodwill and increases in operating expenses from our completed merger attributed to our net loss of $6,391,661 for the nine months ended September 30, 2014, compared to a net income of $7,453 for the same period in 2013.

Non-GAAP Financial Measures

We use Adjusted EBITDA to measure our overall results because we believe it better reflects our net results by excluding the impact of non-cash transactions. We use Adjusted EBITDA as an alternative to net income (loss), determined in accordance with GAAP, as an indicator of operating performance. The following is a reconciliation of net income (loss) to Adjusted EBITDA for the periods presented:

	For the Three Months Ended					For the Nine Months Ended
	September 30,					September 30,
	2014			2013		2014			2013

Net (loss) income	$	(466,452	)	$	56,280	$	(6,391,661	)	$	7,453
Plus:
Interest		82,375			-		133,206			-
Income taxes		-			-		-			-
Depreciation and amortization		41,806			-		66,519			-
EBITDA		(342,271	)		56,280		(6,191,936	)		7,453
Plus:
Impairment of goodwill		356,075			-		6,120,915			-
Amortization of deferred financing costs		-			-		74,074			-
Non-cash compensation and interest		400,750			-		483,490			-
Gain on sale of domain rights		(60,564	)				(60,564	)
Gain on change in fair value of derivative liability		(87,817	)		-		(88,307	)		-
Adjusted EBITDA	$	266,173		$	56,280	$	337,672		$	7,453

Liquidity and Capital Resources

Cash and cash equivalents were $179,724 at September 30, 2014. Our net cash used in operating activities for the nine months ended September 30, 2014 was $7,511 due primarily to our net loss during this period, offset by non-cash adjustments.

Our primary sources of funding for the nine months ended September 30, 2014 have been proceeds in the amount of $61,898 from donated capital, proceeds from borrowing of $64,536 and $100,000 from common stock subscription, net of distributions of $204,026 and note repayments of $97,022.

At September 30, 2014, 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.

The Company had net working capital deficit of $1,049,068 as of September 30, 2014. This deficit was due to legacy DataJack operations. Since the acquisition, the company has already generated positive cash flow from operations. 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. Because of the legacy DataJack liabilities assumed from the DataJack acquisition, we believe that our anticipated cash flows from operations will be insufficient to satisfy our ongoing capital requirements.

We are currently seeking additional capital to grow our business and settle the past obligations assumed from the DataJack 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. We intend to generate future profitability and seek new sources or methods of financing or revenue to pursue our business strategies and pay off all legacy DataJack debt holders. However, there can be no certainty that we will be successful in this strategy.

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 September 30, 2014.

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 Asher Notes and to fair value as of each subsequent reporting date.

Revenue Recognition

Stock-Based Compensation

Intangible Assets and Goodwill

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of 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 and Chief Financial (and principal accounting) 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 September 30, 2014. 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 Chief Financial Officer 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 September 30, 2014 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 and Chief Financial Officer concluded that, as of September 30, 2014, 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 and Chief Financial 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, 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 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 was a defendant in litigation titled St George Investments LLC v. Quamtel, Inc. and Transfer Online, Inc., Case No. 1:12-cv-09186, pending in the United States District Court for the Northern District of Illinois, Eastern Division (the "St George Litigation"). The St. George Litigation was commenced on November 15, 2012, and amended on January 29, 2013. Generally, the Amended Complaint alleges that DataJack failed to pay a purported debt to Plaintiff as and when due and that DataJack and its transfer agent failed to honor a notice from the Plaintiff to exercise its claimed contractual right to convert $20,000 of the alleged debt to shares of stock in DataJack. The Amended Complaint alleges that DataJack is indebted to the Plaintiff in the amount of $391,704, plus penalties, interest, attorney’s fees and costs. The Amended Complaint also seeks injunctive relief and unspecified amounts of compensatory, consequential, indirect and punitive damages. DataJack has disputed its alleged liability to the Plaintiff, and the Company has responded to the Amended Complaint. A settlement agreement has been reached and is dated January 16, 2014, which includes dismissal of the lawsuit. An initial payment is due on January 16, 2014, with a final payment for the balance due on February 15, 2014. An amended agreement was reached and dated February 14, 2014, which states the initial payment was made on or prior to January 16, 2014 and the balance is to be paid on February 18, 2014 and March 18, 2014.　The Company acquired subsidiary has made the February 18, 2014 payment.　An extension was granted on March 17, 2014 for the final payment to be made on or before April 27, 2014.　An issuance of 60,000 shares was made on March 17, 2014 as an extension fee. The parties then revised its agreement and amended it so that DataJack was granted additional time to make its payments. This Settlement Agreement, Waiver and Release of Claims was dated April 29, 2014, and the final payment was extended from April 27, 2014 to June 6, 2014. In consideration thereof, DataJack issued 60,000 of its shares as an extension fee.

Finally on August 12, 2014, the parties entered into a final settlement agreement whereby DataJack will pay St George Investments a series of 14 payments, on the 15th and 30th of each month, for the next 7 months beginning in August 2014. Additionally, DataJack has issued an additional 100,000 shares of common stock, as a final extension fee.

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of or a party to any legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

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

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

Exhibit No.		Description

31.1/31.2		Certification of Principal Executive Officer and Principal Financial Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002*
32.1/32.2		Certification of Chief Executive Officer and Interim Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002**
101 INS		XBRL Instance Document ***
101 SCH		XBRL Schema Document ***
101 CAL		XBRL Calculation Linkbase Document ***
101 LAB		XBRL Labels Linkbase Document ***
101 PRE		XBRL Presentation Linkbase Document ***
101 DEF		XBRL Definition Linkbase Document ***

*	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 ny 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.

	DATAJACK, INC.


Dated: November 19, 2014	By:	/s/ Paris Holt
		Paris Holt
		President and Chief Executive Officer,
		Principal Financial Officer

Attached files

Unified Signal, Inc. Reports

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