SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
Quarterly Report under Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 1996
Transition Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the transition period from ______ to ______.
Commission File No.: 0-22848
U.S. Wireless Data, Inc.
(Exact name of registrant as specified in its charter)
Colorado 84-1178691
(State of incorporation) (IRS Employer Identification No.)
5700 Flatiron Parkway
Boulder, Colorado 80301
(Address of principal executive offices, including zip code)
(303) 440-5464
(Registrant s Telephone Number, including area code)
Check 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 ninety days.
Yes X No
As of March 31, 1996 there were outstanding 4,409,033 shares of the
Registrants Common Stock (no par value per share).
Transitional Small Business Disclosure Format
Yes No X
<PAGE>
U.S. WIRELESS DATA, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited)
Balance Sheet --
March 31, 1996 3
Statements of Operations --
Three Months and Nine Months
Ended March 31, 1996 and 1995 4
Statements of Cash Flows --
Nine Months Ended March 31, 1996
and 1995 5
Notes to Financial Statements 6-7
Item 2. Management s Discussion and Analysis 8-12
PART II OTHER INFORMATION
Item 1. Material Developments in Connection with
Legal Proceedings 13
Item 3. Defaults Upon Senior Securities 13
Item 6. Exhibits and Reports on Form 8-K 14
<PAGE>
U.S. WIRELESS DATA, INC.
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1996
ASSETS
<S> <C>
Current Assets:
Cash $ 42,674
Accounts receivable, net of allowance for
doubtful accounts of $15,760 41,500
Sales-type lease receivables 59,545
Inventory, net 2,739,012
Other current assets 2,327
Total current assets 2,885,058
Property and equipment, net 120,851
Other assets 22,755
Total assets $ 3,028,664
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current Liabilities:
Accounts payable $ 1,775,690
Accrued liabilities 201,970
Notes payable 420,266
Total current liabilities 2,397,926
Stockholders Equity:
Common stock, no par value, 12,000,000 4,326,265
shares authorized, 4,409,033
shares issued and outstanding
Additional paid-in capital 11,583,384
Accumulated deficit (15,278,911)
Total stockholder's equity 630,738
Total liabilities and stockholders equity $ 3,028,664
See Accompanying Notes
</TABLE>
<TABLE>
<CAPTION>
U.S. WIRELESS DATA, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<S> <C> <C> <C> <C>
Revenue 410,964 1,107,870 1,085,183 2,788,424
Cost of goods
sold 343,548 1,175,578 954,301 2,966,129
Gross margin 67,416 (67,708) 130,882 (177,705)
Operating Expenses
Selling, general
and administrative 266,509 1,446,270 984,715 4,307,276
Research and
development 112,288 358,617 362,943 950,240
378,797 1,804,887 1,347,658 5,257,516
(Loss) from
operations (311,381) (1,872,595) (1,216,776) (5,435,221)
Other income/
(expense) (10,348) (59,537) (28,635) (13,739)
Net (loss) (321,729) (1,932,132) (1,245,411) (5,448,960)
Net (loss) per
common share (.07) (.44) (.28) (1.31)
Weighted average
common shares
outstanding 4,401,664 4,390,910 4,394,469 4,153,629
See Accompanying Notes
</TABLE>
<TABLE>
<CAPTION>
U.S. WIRELESS DATA, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
3/31/96 3/31/95
<S> <C> <C>
Cash Flows from operating activities
Net loss $ (1,245,411) $ (5,448,960)
Depreciation and amortization 39,183 612,898
Stock issued for services 3,880 --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 309,798 (664,654)
Inventory 734,421 339,266
Other assets 24,281 (1,449,988)
Increase (decrease) in:
Accounts payable 50,178 1,262,543
Accrued liabilities (61,238) 121,037
Notes payable -- 472,800
Net cash used in
operating activities (144,908) (4,755,058)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and furniture 59,201 (31,045)
Payment for purchase of Direct
Data, Inc., net of cash acquired -- (1,979,789)
Net cash used in investing activities 59,201 (2,010,834)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of stock -- --
Proceeds from exercise of warrant -- 13,125
Net cash provided by
financing activities -- 13,125
INCREASE (DECREASE) IN CASH (85,707) (6,752,767)
CASH, Beginning of period 128,381 6,915,074
CASH, End of period 42,674 162,307
</TABLE>
<TABLE>
<S> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Stock issued to
Direct Data, Inc. shareholders 1,793,750
Fair market value of
Direct Data, Inc. assets acquired 2,053,691
Direct Data, Inc. liabilities assumed 4,165,867
See Accompanying Notes
</TABLE>
U.S. WIRELESS DATA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1 -- ACCOUNTING PRINCIPLES
The balance sheet as of March 31, 1996, as well as the statements of
operations and
of cash flows for the three months ended March 31, 1996 and March 31, 1995,
and for
the nine months ended March 31, 1996 and March 31, 1995, have been prepared by
the
Company without an audit. In the opinion of management, all adjustments,
consisting
only of normal recurring adjustments necessary to present fairly the financial
position,
results of operations and cash flows at March 31, 1996 and for all periods
presented
have been made.
Certain information and footnote disclosures normally included in the
financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. It is suggested that these financial statements be read
in
conjunction with the financial statements and notes thereto included in the
Company s
Form 10-KSB for fiscal year end June 30, 1995. The results of operations for
interim
periods presented are not necessarily indicative of the operating results for
the full year.
Note 2 -- FINANCIAL CONDITION AND LIQUIDITY
The Company currently has significant concerns regarding its financial
condition and
liquidity. The Company has incurred an accumulated deficit of approximately
$15 million
since inception and has incurred additional losses subsequent to the year
ended June
30, 1995. In order to continue as a going concern, the Company needs to:
sustain or
increase revenue levels and product margins; continue to renegotiate
arrangements with
manufacturing suppliers; negotiate additional product development contracts;
successfully complete the development and ramp to production of new products;
generate positive cash flow from operations; and/or seek additional debt or
equity
financing.
Note 2 -- INVENTORIES
Inventories for the period presented are stated at the lower of cost or market
and consist
primarily of finished goods.
Note 3 -- UNCERTAINTY RELATED TO THE CARRYING VALUE OF INVENTORIES
Discussions with Solectron, the Company s manufacturer, during the third
quarter of
fiscal 1995 led to a conclusion that $1.4 million of raw materials inventory
held by
Solectron should be recorded as a liability on the Company s books. This
inventory and
the related liability has been reflected in the accompanying financial
statements since
March 31, 1995. However, subsequent to the end of March 31, 1996 fiscal
quarter, the
Company successfully negotiated an arrangement with Solectron whereby the
Company
was relieved of its obligations related to the raw materials inventory.
Because of lower
than anticipated sales levels, there is substantial uncertainty about the
Company s ability
to realize the recorded carrying value of finished goods inventory.
Note 4 -- REVENUE RECOGNITION
Direct sales are recognized upon shipment of products to customers. Sales to
reseller
organizations are recognized upon the Company s receipt of payment from the
reseller.
Note 5 -- NET LOSS PER SHARE
Net loss per common share is computed by dividing the net loss by the weighted
average number of common shares outstanding at the end of the period.
Exercisable
stock options and warrants are not included in the calculation since their
effect would be
anti-dilutive.
Note 6 -- DIRECT DATA, INC. ACQUISITION/DISSOLUTION
In September 1994, the Company completed the acquisition of Direct Data, Inc.
( Direct
Data ). The Company paid approximately $2 million in cash and issued 700,000
shares
(valued at $2.56 per share) of its common stock in exchange for all
outstanding shares
of Direct Data. The transaction was accounted for using the purchase method
of
accounting and the Company recorded goodwill of approximately $6 million.
During the
fourth quarter of fiscal 1995, the Company determined that the goodwill
related to the
acquisition of Direct Data was fully impaired, and therefore, wrote-off the
entire balance
resulting in a charge included in the Statement of Operations for fiscal year
1995.
In September 1995, Direct Data received notice that its bank note creditor
would not
extend the loan payment terms and demanded payment on a $1.3 million bank
note.
An officer and director of Direct Data and former director of the Company (the
Officer )
had personally guaranteed the note. In early October 1995, the Officer repaid
the note
and, pursuant to the Officer s guaranty arrangement with the bank, became the
holder
of a security interest in all of Direct Data s assets. Subsequently, on
October 5, 1995,
the Officer and the Company consummated an agreement whereby in exchange for
the
Company s approval of the surrender of all of Direct Data s assets ($1,032,719
at June
30, 1995 and approximately $780,000 at October 5, 1995), the Officer released
the
Company from its $1.3 million obligation (to assume the Officer s obligation
under the
guaranty) and agreed that the Company would have the option to purchase
397,684
shares of the Company s common stock owned by the Officer, for a period of
three
years, at a price of $.25 per share. Additionally, the Officer granted the
Company the
right to vote these shares during the three year option period.
As of June 30, 1995 and October 5, 1995, Direct Data had $3,053,336 and
approximately $3,000,000 in liabilities, respectively. Direct Data notified
its creditors that
it would be unable to pay its remaining liabilities, and pursuant to the
Colorado Business
Corporation Act, Direct Data was dissolved effective October 19, 1995.
Because of the dissolution of Direct Data directly after the Company s
September 30,
1995 quarter end, the accompanying financial statements for the three and nine
month
periods ending March 31, 1996 exclude the results of operations of Direct
Data.
For the three and nine month periods ending March 31, 1995, the results of
operations
for Direct Data are included. For comparison purposes and differences
attributable to
Direct Data, see Management s Discussion and Analysis of Financial Condition
and
Results of Operations.
<TABLE>
<CAPTION>
Unaudited Pro Forma Statement of Operations (excluding the results of Direct
Data)
Three Months Three Months
Ended 3/31/95 Ended 3/31/95
<S> <C> <C>
Revenue 497,870 1,393,220
Loss from operations (930,085) (3,719,468)
Net loss (932,075) (3,633,828)
Net loss per share (.21) (.87)
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company was incorporated on July 30, 1991, and was in the development
stage
until the quarter ended September 30, 1994. Since inception, the Company has
raised
equity capital through the sale of its securities, completed development of
its initial
product, negotiated agreements with suppliers of components, developed a
marketing
strategy, and initiated sales of the POS-50 portable credit card and check
verification
terminal. During fiscal 1995, the Company continued to promote its product
through the
cellular reseller channel and, in the second half of fiscal 1995, enhanced its
marketing
strategy by focusing sales efforts on the Independent Sales Organization
(ISO)
channels. During fiscal 1996, the Company continues to generate the majority
of its
revenue through the ISO channel and, in addition, has completed development
and
introduced its new CDPD product line.
Since inception, the Company s financial resources have been used in
completing the
design, engineering and development of the POS-50 , performing field tests of
the
product, and initiating production and marketing plans and strategies. Prior
to the
December 1993 initial public offering ( IPO ), working capital was used to
develop a
marketable product. Since the IPO, funds have been used to develop sales and
marketing channels, to continue product enhancements and new product
development,
to build finished goods inventory to meet potential demand, to defend and
settle legal
matters, and to acquire, support and ultimately liquidate the operations of
Direct Data.
In 1993, the Company established a contractual relationship with Solectron
Corporation
in Milpitas, California for subcontract manufacturing of the POS-50 . The
Company
ordered and received approximately 2,900 POS-50 terminals through September
1995.
The Company built a large inventory of finished goods to facilitate promptly
filling orders
from customers. Because of higher-than-desirable inventory levels and poor
sales
results, the Company stopped production by Solectron in April 1994.
Discussions with
Solectron during the Company s third fiscal quarter of 1995 led to a
conclusion that $1.4
million of raw materials inventory held by Solectron should be recorded as a
liability on
the Company s financial statements. The Company has continued to negotiate
with
Solectron and, subsequent to the end of the third fiscal quarter of 1996, the
Company
successfully negotiated an arrangement with Solectron whereby the Company was
relieved of its obligations related to the raw materials inventory as well as
all other
financial obligations. Because of lower than anticipated sales levels, there
is substantial
uncertainty about the Company s ability to realize the recorded carrying value
of finished
goods inventory.
During fiscal 1995, the Company acquired all of the outstanding shares of
Direct Data,
a distributor of POS-related products. Subsequent to the end of fiscal 1995,
all Direct
Data assets were surrendered to Direct Data s secured creditor in lieu of the
creditor s
foreclosure on a past due $1.3 million obligation. As a result, Direct Data
had no assets,
ceased operations and was dissolved effective October 19, 1995. See
Financial
Condition, Capital Resources and Liquidity .
The following table reflects the comparative Statement of Operations for the
three
months ended March 31, 1996 and March 31, 1995, where the three months ended
March 31, 1995 have been adjusted to exclude the results of operations for
Direct Data,
Inc. which was dissolved in October, 1995.
<TABLE>
<CAPTION>
PRO FORMA STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended 3/31/95
Consolidated Pro Forma
Three Months Statement of Less: Direct Statement of
Ended 3/31/96 Operations Data, Inc. Adjustments Operations
<S> <C> <C> <C> <C> <C>
Revenue 410,964 1,107,870 610,000 -- 497,870
Cost of
goods sold 343,548 1,175,578 612,279 -- 563,299
Gross margin 67,416 (67,708) (2,279) -- (65,429)
Operating Expenses
Selling, general
and administrative 266,509 1,446,270 541,552 214,194 690,524
Research and
development 112,288 358,617 184,485 -- 174,132
378,797 1,804,887 726,037 214,194 864,656
(Loss) from
operations (311,381) (1,872,595) (728,316) (214,194) (930,085)
Other income/
(expense) (10,348) (59,537) (57,547) -- (1,990)
Net (loss) (321,729) (1,932,132) (785,863) (214,194) (932,075)
Net (loss) per
common share (.07) (.44) (.21)
Weighted average
common shares
outstanding 4,401,664 4,390,910 4,390,910
(1) Amortization of goodwill
</TABLE>
Net Sales
Net sales of $410,964 for the third fiscal quarter of 1996 decreased from
$497,870 for
the third fiscal quarter of 1995. This decrease is attributable to reduced
revenue from
its POS-50 product, offset partially by revenue of $108,000 for CDPD products
and
contract development work. During the last half of fiscal 1995 (and
continuing to
present), in an effort to convert existing finished goods inventory to cash,
the Company
has periodically reduced the selling price of its POS-50 product.
Gross Margin
Gross margins in the third fiscal quarter of 1996 were $67,416 compared to
$(65,429)
for the same period in fiscal 1995. The increase was due primarily to: a) a
reduction
in staffing levels of the manufacturing support organization, and; b)
initial sales of
CDPD products and contract development work, both of which have more favorable
margins than the POS-50 product.
Operating Expenses
Selling, general and administrative expenses decreased from $690,524 in the
third fiscal
quarter of 1995 to $266,509 in the third fiscal quarter of 1996. This
decrease was due
to: a) a reduction in staffing levels and other cost reductions which have
been
implemented from time to time since the last half of fiscal 1995, and; b) a
reduction in
legal expenses of approximately $140,000.
Research and development expenses decreased from $174,132 in the third fiscal
quarter
of 1995 to $112,288 in the third fiscal quarter of 1996. This decrease was
due to
reductions in staffing levels as required to meet existing business
conditions.
Other Income/(Expense)
Other income/(expense) decreased from $(1,990) in the third fiscal quarter of
1995 to $(10,348) in the third fiscal quarter of 1996. This decrease was due
to: a) interest expense on a note payable to a supplier, and; b) reduction
of interest income because of lower cash balances.
Financial Condition, Capital Resources and Liquidity
The Company continues to have significant concerns regarding its financial
condition and
liquidity. During the first quarter of fiscal 1995, the Company completed its
acquisition
of Direct Data. Pursuant to the acquisition agreement, the Company acquired
all of the
outstanding shares of common stock of Direct Data in exchange for 700,000
shares of
the Company s Common Stock plus approximately $2 million in cash. In
addition, the
Company agreed to assume Richard P. Draper s ( Draper ) personal guaranty of
the
$1.3 million bank debt of Direct Data; however, the Company had never been in
a
position of fulfill this obligation to Draper. At the time of the Company s
acquisition of
Direct Data, Draper held approximately 65% of the outstanding shares of Direct
Data and
was an officer and director of Direct Data. Draper remained an officer and
director of
Direct Data after the acquisition, and also became a director of the Company
until his
resignation in April 1995.
The Company also provided loans totaling $1.9 million to Direct Data, of which
$500,000 was loaned prior to the closing of the acquisition. Since its
inception, Direct Data had been in a loss position and had been issuing and
selling equity to meet its working capital needs. The Company s loans were
required to continue to meet Direct Data s working capital requirements from
September 1994 through February 1995, at which time
the Company stopped providing additional loans. At the time of the
acquisition, the
Company had expected that both its and Direct Data s sales performance would
generate sufficient cash to support both entities working capital needs.
However, it
became apparent in the second fiscal quarter of 1995 that neither the Company
s nor
Direct Data s performance would generate the necessary capital to fund
on-going
operations, and beginning in January 1995, the Company began reducing its
expenses
through a series of layoffs and operational cost reductions.
In November 1994, the Company had been approached by a large European company
to acquire Direct Data. Due to growing concerns regarding both its and Direct
Data s
performance and liquidity, the Company believed that the potential disposition
of Direct
Data could provide it with a method to obtain debt relief for Direct Data and
a needed
cash infusion into the Company, as the holder of both an intercompany loan and
as the
sole shareholder of Direct Data. The terms of the proposed asset sale would
have
provided for a cash payment of $1.5 million to Direct Data as payment for
assets, an
earn-out opportunity by the Company of up to $1 million based upon the
subsequent
performance of the Direct Data business (as part of the acquiring entity), and
the
assumption of substantially all of Direct Data s secured and unsecured debt
(other than
the loan owed to the Company). Since substantially all other of Direct Data s
debt was
being assumed in the transaction, most of the $1.5 million cash payment would
have
been paid to the Company in re-payment of its loan and/or as a distribution to
the
Company as the sole shareholder of Direct Data.
The Company continued to make loans to Direct Data until mid-February 1995
(ultimately resulting in a total of $1.9 million in loans) to fund operations
in order to
maintain Direct Data as a viable acquisition candidate until the sale could be
closed.
Additionally, in anticipation of the sale, Direct Data s bank (M&I Bank)
agreed to extend
its secured $1.3 million loan from March 15, 1995 to June 15, 1995.
In May 1995, the Company was notified by the acquiring party that the planned
acquisition of Direct Data would not be consummated. As a result, neither the
Company
nor Direct Data had the resources necessary to finance their business
operations and
obligations, and the Company began exploring all options available to it and
Direct Data.
The Company issued a press release disclosing the failed transaction and the
resulting
financial concerns for both the Company and Direct Data.
Since May 1995, the Company has continued to reduce its expenses through cost
controls and workforce reduction. It also has been successful in securing
additional
orders from its largest customer, Cardservice International ( CSI ). As a
result, the
Company has been able to maintain its cash position, although by the end of
the third
quarter it was still unable to make significant reductions in its obligations
to its two
largest creditors. However, subsequent to the end of March 31, 1996 fiscal
quarter, the
Company successfully negotiated an arrangement whereby the Company was
relieved
of all financial obligations to its largest creditor, Solectron. In order to
renegotiate its
arrangement with Solectron, the Company entered into an agreement with CSI,
its
largest customer, and Uniform Industrial Corporation ( UIC ), pursuant to
which CSI and
UIC paid Solectron $325,000 in exchange for all raw materials inventory and
the
complete release of all of the Company s obligations to Solectron. In
consideration of
CSI and UIC s agreement to assume the Solectron obligations, the Company will
pay
royalties to CSI and UIC on future sales of its products made with the
purchased
inventory. UIC took title and possession of all raw materials inventory
needed to build
future product and will be manufacturing product for the Company from that raw
material
inventory. The Company took title and possession on all excess parts and will
be
attempting to sell this inventory for cash. Additionally, in order to induce
CSI to assume
its portion of the Solectron obligation, the Company will issue common stock
to CSI at
150% of fair market value on the day the agreement was entered into, and CSI
and the
Company currently are negotiating the terms of a registration rights agreement
relating
to such shares. Caesar Berger, a director of the Company, is an executive
officer of
CSI.
The Company has continued its development efforts on the new CDPD-based credit
card
terminal and has secured and delivered initial orders for these products. In
addition, the
Company has successfully completed and continues to engage in discussions with
terminal providers and transaction processors regarding potential engineering
development contracts, which if entered into would provide additional working
capital to
the Company. While the Company believes that its relationship with CSI
continues to
be strong, the Company is highly dependent upon its sales to CSI, and the loss
of, or
a significant decrease in those sales would have a material adverse effect on
the
Company s cash position and its ability to sustain operations.
In June 1995, Direct Data obtained an additional extension of its M&I Bank
loan to
September 1995. Also in June 1995, Direct Data executed a three-year
exclusive
distribution agreement with De La Rue Fortronic ( DLRF ), a manufacturer of
POS
terminals, to market and sell DLRF terminals in the U.S. In addition to its
ability to earn
gross margins on its distribution of DLRF products, Direct Data also agreed to
undertake,
for cash payments, certain software development and market development
projects for
DLRF. The DLRF agreement permitted Direct Data to, in effect, receive
advances on
future gross margins up to a maximum advance of $250,000. The funding
received from
DLRF allowed Direct Data to meet payroll and certain other operational
expenses but not
its creditors obligations, which included approximately $1.3 million in
secured M&I Bank
debt, approximately $1.1 million in unsecured trade debt, and $1.9 million in
intercompany loans from the Company. From January 1995 until September 1995,
Direct Data s workforce decreased by approximately 40%, to approximately 23
employees. Direct Data also continued to negotiate payment terms with its
trade
creditors.
Despite the cost reduction measures described above, Direct Data remained in a
negative cash flow situation. The Company and Direct Data investigated
various options
for short and long term funding, including increasing Direct Data s advance
from DLRF
to above the $250,000 maximum. Other than the DLRF margin advances and
payments
for software development, neither of which was sufficient to fund Direct Data
s working
capital needs, no short or long term funding opportunities had been obtained
as of
September 1995.
In early September 1995, M&I Bank gave notice to Direct Data that it would no
longer
extend the loan and demanded payment in full on the September 15, 1995 due
date.
Since Draper, an officer and director of Direct Data, had personally
guaranteed the $1.3
million bank loan, he began negotiating with M&I Bank to prevent the
foreclosure of his
guaranty. He ultimately paid the outstanding $1.3 million to M&I Bank in
early October
1995, and pursuant to his guaranty arrangement with M&I Bank, became the
holder of
a security interest in all of Direct Data s assets.
Rather than foreclose on the assets, Draper contacted Direct Data and the
Company,
as the sole shareholder of Direct Data, to negotiate an arrangement whereby he
would
be transferred all of the assets in which he had a foreclosable security
interest. To
prevent the negative effects of a foreclosure proceeding, (including the
likelihood of
substantial legal fees and associated expenses), Direct Data agreed to
surrender the
assets to Draper. Separately, the Company, as Direct Data s shareholder, also
approved the surrender of assets in order to avoid the foreclosure proceedings
and the
above-discussed negative effects. In consideration for that approval, Draper
released
the Company from its $1.3 million obligation to remove him from his personal
guaranty
on the bank loan (which the Company had never fulfilled), and agreed that the
Company
would have the option to purchase the 397,684 shares of the Company s Common
Stock
(the Shares ) beneficially owned by Draper, for a period of three years, at a
price of
$.25 per share (the fair market value on the Company s Common Stock at the
time the
transaction was negotiated). Additionally, Draper granted the Company the
right to vote
the Shares (which constitute approximately 9% of the Company s outstanding
Common
Stock) during the three-year option period. In addition to being an officer
and director
of Direct Data until October 6, 1995, Draper was also a director of the
Company until
April 1995.
The transfer of assets to Draper was consummated on October 5, 1995.
Immediately
prior to the transfer, from September 29, 1995 to October 3, 1995, all
remaining Direct
Data employees were terminated. As a result of the asset transfer and Draper
s earlier re-payment of the M&I Bank debt, Direct Data had no assets, no
secured debt, approximately $1.5 million in unsecured trade debt (not
including the $1.9 million intercompany loan from the Company) and ceased
operations. Direct Data notified its creditors that it would be unable to pay
its remaining debts, and pursuant to the Colorado Business Corporation Act,
Direct Data was dissolved effective October 19,1995.
As a result of this development involving Direct Data and in order to continue
as a going
concern, the Company will need to sustain or increase its revenue levels and
product
margins, continue to renegotiate arrangements with its manufacturing
suppliers,
negotiate additional product development contracts, successfully complete the
development and delivery of new products, generate positive cash flow from
operations
and/or seek additional debt or equity financing.
Part II
The information required for Part II, Items 2, 4 and 5 are not applicable.
ITEM 1 -- MATERIAL DEVELOPMENTS IN CONNECTION WITH LEGAL
PROCEEDINGS
In early September 1994, two shareholders filed a Colorado state court class
action
lawsuit in Denver District Court against the Company, three of its directors,
and others
(Jacques A. Machol III, et al, v. U.S. Wireless Data, Inc., et al.). The
lawsuit alleges
various fraudulent acts, omissions and misrepresentations by the defendants in
connection with the initial public offering of and subsequent trading in the
Company s
stock.
A second shareholder class action complaint against the Company, three of its
directors,
and others was filed by one shareholder in late September 1994 in U.S.
District Court,
Denver, Colorado (Jeffry Appel on behalf of himself and all others similarly
situated, v.
Maurice Caldwell Jr., Rod L. Stambaugh, Leonard Trout, Donald L. Walford,
Frank
LaHue, U.S. Wireless Data, Inc., among others). The complaint also arises out
of the
Company s public offering and makes allegations similar to those made in the
first
complaint. The Denver District Court lawsuit has been stayed by court order
so as to
avoid duplication with the U.S. District Court lawsuit.
In February 1995, another class action complaint was filed in U.S. District
Court, Denver,
Colorado by the same plaintiff who had previously filed the Colorado State
class action
in early September 1994 (Jacques A. Machol III and Prism Partners I on behalf
of
themselves and all others similarly situated, v. U.S. Wireless Data, Inc.,
Maurice R.
Caldwell Jr., Rod L. Stambaugh, Leonard Trout, Donald L. Walford, Frank LaHue,
among
others). The Defendants and allegations are the same as in the original and
subsequent
lawsuits. Currently, the court is deciding whether to consolidate the two
federal cases.
The Company believes these lawsuits are without merit and denies that it
engaged in
any fraudulent acts or omissions, or otherwise violated Federal or Colorado
law. In each
case, the Company intends to contest the litigation on its merits, as well as
the suitability
of the plaintiff shareholders to act for the alleged class. Nonetheless,
because litigation
of this type involves inherent risks, it is not possible for the Company at
this time to
make an assessment of potential exposure, nor to predict with precision what
the
ultimate outcome will be.
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
The Company is indebted to Omron Systems, Inc. (
Omron ) under a Secured
Installment Note dated March 27, 1995, for the principal amount of $472,800
and interest
thereon. The terms of such note required the Company to make payments of
principal
and interest each month from April 1995 through December 1995, at which time
the note
became due. The Company made one principal payment, has continued to make
monthly interest payments in accordance with the terms of the note, but has
made no
other principal payments under this note and for that reason is in default.
The Company
believes that as of the date of the filing of this report, the total amount
due under such
note is $420,266. The note is secured by 1,770 credit card terminals which
are not
currently needed by the Company for its business operations. Subsequent to
the end
of the third fiscal quarter, the Company has entered into discussion with
Omron
regarding the possible restructuring or mutually agreeable settlement of this
note.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
None
b) Reports on Form 8-K
There were no reports on Form 8-K that were
filed during the fiscal quarter
ended March 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
U.S. WIRELESS DATA, INC.
Registrant
Date: May 10, 1996
By: \s\ Michael J. Brisnehan
President, Chief Executive Officer, Chief Financial Officer, and Treasurer
(Principal
Financial and Accounting Officer)
