SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
|X| Quarterly Report under Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1997
|_| 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.)
2200 Powell Street, Suite 450
Emeryville, California 97608
----------------------------
(Address of principal executive offices, including zip code)
(510) 596-2025
--------------
(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 September 30, 1997 there were outstanding 9,192,270 shares of the
Registrant's 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 --
September 30, 1997........................................3
Statements of Operations --
Three Months Ended September 30, 1997 and 1996............4
Statements of Cash Flows --
Three Months Ended September 30, 1997 and 1996............5
Notes to Financial Statements....................................6-8
Item 2. Management's Discussion and Analysis.............................9-11
PART II OTHER INFORMATION
Item 1. Material Developments in Connection with Legal Proceedings.......12
Item 3. Defaults Upon Senior Securities..................................12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K.................................13
<PAGE>
U.S. WIRELESS DATA, INC.
<TABLE>
<CAPTION>
BALANCE SHEET
(Unaudited)
September 30, 1997
-----------------------
ASSETS
Current Assets:
<S> <C>
Cash .................................................... $ 68,018
Accounts receivable, net of allowance for ............... 208,907
doubtful accounts of $15,979 15,979
------
224,886
Sales-type lease receivables ............................ 11,023
Inventory, net .......................................... 223,478
Other current assets
113,964
Total current assets ........................... 625,390
Property and equipment, net ..................................... 35,159
Notes receivable ................................................ 324,857
-------
360,026
Other assets
22,286
Total assets .................................................... $
682,835
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ........................................ $ 452,953
Accrued liabilities ..................................... 152,347
Notes payable
803,649
-------
Total current liabilities
1,408,949
---------
Long Term Debt .................................................. 45,000
Total Liabilities ............................................... 1,453,949
Commitments and contingencies (See Notes)
Stockholders' Equity:
Common stock, no par value, 12,000,000 .................. 9,192,270
shares authorized; 9,192,270
shares issued and outstanding
Common stock subscribed ................................. 0
Additional paid-in capital .............................. 7,579,509
Accumulated deficit
(17,514,943)
Notes Receivable from Shareholder
(27,950)
-------
Total stockholders' equity ...................... (771,114)
Total liabilities and stockholders' equity ...................... $ 682,835
============
</TABLE>
See Accompanying Notes
3
<PAGE>
U.S. WIRELESS DATA, INC.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30, 1997 September 30, 1996
<S> <C> <C>
Revenue ................................................. $ 257,473 $ 387,218
Cost of goods sold ...................................... 173,796 265,449
------- -------
Gross margin (deficit) .................................. 83,677 121,769
----------- -----------
Operating Expenses:
Selling, general and administrative ................. 530,855 171,157
Research and development ............................ 95,314 118,469
----------- -----------
626,169 289,626
----------- -----------
Loss from operations .................................... (542,492) (167,857)
Interest income ......................................... 0 5,967
Interest expense (23,900)
Other income ............................................ 12,302
------
11,590
Litigation settlement 0 0
Loss from continuing operations ......................... (554,090) (161,890)
----------- -----------
Loss from discontinued operation -- --
----------- -----------
Loss before extraordinary item -- --
----------- -----------
Extraordinary gains on restructuring of payables and debt -- --
----------- -----------
Net loss ................................................ $ (554,090) $ (161,890)
=========== ===========
Earnings (loss) per share:
From continuing operations .......................... $ (.07) $ (.03)
From discontinued operation
0 0
From restructuring of payables and debt
0 0
----------- -----------
Net loss per share .................................. $ (.07) $ (.03)
=========== ===========
Weighted average common shares outstanding .............. 7,769,847 4,653,482
=========== ===========
</TABLE>
See Accompanying Notes
4
<PAGE>
U.S. WIRELESS DATA, INC.
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
9/30/97 9/30/96
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ...................................................... $(554,090) $(161,890)
Depreciation and amortization ................................. 5,286 20,496
Non-cash consulting services .................................. 95,889
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable ................................. (88,377) 95,948
Inventory ........................................... (14,611) (26,382)
Other assets ........................................ (16,687) 28,608
Increase (decrease) in:
Accounts payable .................................... 88,740 139,100
Accrued liabilities ................................. 17,467 (100,222)
Net cash used in operating activities ............... (457,090) (25,942)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) in Other assets .................................... (10,791) --
------- ---------
Net cash used in investing activities ............... (10,791) --
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock ............................... 514,033 --
---------
Proceeds from issuance of debt
15,783 --
--------- ---------
Net cash provided by financing activities ............ 529,816 --
INCREASE (DECREASE) IN CASH ........................................ 61,935 (25,942)
CASH, Beginning of period
6,083 40,350
--------- ---------
CASH, End of period ................................................ $ 68,018 $ 14,408
========= =========
</TABLE>
See Accompanying Notes
5
<PAGE>
U.S. WIRELESS DATA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1 -- ACCOUNTING PRINCIPLES
The balance sheet as of September 30, 1997, as well as the statements of
operations and of cash flows for the three months ended September 30, 1997
and September 30, 1996, 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 September 30, 1997 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, 1997. 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 has incurred an accumulated deficit of approximately $17.5
million since inception, including a loss of $554 thousand in the first
quarter of fiscal year 1998. In order to continue as a going concern, the
Company has transitioned to a recurring revenue focus, is working on
programs to increase revenue levels and product margins, is negotiating
new distribution agreements and seeking additional debt or equity
financing.
Subsequent to June 30, 1997, the Company has strengthened the management
team, signed several significant distribution agreements, which are
expected to build a recurring revenue base, started the expansion of the
sales force and expanded its contract manufacturing relationships. The
current sales volume is inadequate to fund the infrastructure growth and
business transition. As a result, and as part of its continuing effort to
find working capital funding in order to continue operations, the Company
has entered into certain consulting agreements designed to facilitate
financing relationships with third parties. While management is confident
it can accomplish this objective, there is no guarantee that this
additional funding will occur in the required time frame.
The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets and liabilities that might be necessary should the Company be
unable to continue as a going concern.
Note 3 -- 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.
<PAGE>
Note 4 -- LIVIAKIS FINANCIAL COMMUNICATIONS INC. ("LFC") - FINANCING
As the Company entered the first quarter of fiscal 1998, it faced the
need for increased liquidity to meet its obligations and fund a
significant rollout of the CDPD TRANZ Enabler product. In August 1997,
through an introduction by the entrenet Group, LLC. ("entrenet"), the
Company sold 3.5 million unregistered shares of common stock and 1.6
million warrants to purchase common stock at an exercise price of $0.01
per share to two officers of LFC for $500,000 in cash. The warrants are
exercisable from January 15, 1998 through August 4, 2002. The securities
sold to LFC carry future registration rights, including a one-time demand
registration, with fees to be paid by the Company (See also Note 9,
below).
In accordance with its agreement with entrenet, The Company has granted
entrenet the to right to receive 280,000 unregistered shares of the
Company's Common Stock as compensation for an 8% finders fee for the
direct source financing. The stock will be issued to entrenet at such
time as the Company has obtained shareholder approval for an increase in
authorized Common Stock. The agreement provides entrenet with "piggyback
registration rights"
Note 5 -- LIVIAKIS FINANCIAL COMMUNICATIONS INC. ("LFC") - CONSULTING
Additionally, in August 1997, the Company retained LFC to advise and
assist the Company in matters concerning investor relations, corporate
finance and strategic management and planning covering the period from
July 31, 1997 through July of 1998. As compensation for these services,
the Company will issue a total of 300,000 unregistered restricted shares
of its Common Stock and $10,000 in cash as consulting fees. The issuance
of the shares of Common Stock will occur at various times during the
consulting agreement, commencing November 15, 1997. Pursuant to the
consulting agreement, the Company will also pay LFC a cash fee equal to
2.5% of the gross proceeds received as a finder's fee for any direct
financing located for the Company. The shares will also contain
registration rights as described in Note 4, above.
Note 6 -- LITIGATION
In September of 1996, the Company agreed to terms to settle securities
fraud litigation, pending since 1994, which was brought in relation to
the Company's initial public offering of December 1993. The parties'
agreement (the "Settlement Agreement") was filed in the United States
District Court for the District of Colorado on January 15, 1997 in
consolidated Case N0. 94-Z-2258, Appel, et al. v. Caldwell, et al. By its
order approving the settlement, the court certified a plaintiff's
settlement class and provided the mechanism for payment of claims. The
Company contributed directly or by indemnification a total of $10,000 to
the total settlement fund of $2,150,000. The remaining portion of the
settlement was contributed by certain underwriters of the Company's
initial public offering and securities counsel. No objections to the
Settlement Agreement were made. No potential class member opted-out of
the settlement and all are bound by the release granted the Company. All
claims against the Company in those consolidated cases were dismissed by
final federal court order on September 4, 1997. No appeal was filed.
Similar state court claims were dismissed by Colorado district court
order dated October 9, 1997.
To resolve cross-claims asserted by underwriters in the litigation, U.S.
Wireless Data, Inc. agreed to transfer to RAS Securities Corporation, H.J.
Meyers & Co, Inc., Sands & Co. Ltd. and R.J. Steichen & Co. a total of
600,000 U.S. Wireless Data, Inc. common shares upon the effective date of
the Settlement Agreement. The Company has agreed to register such shares
upon demand not sooner than April 26, 1998. Further, on September 17, 1997
the Company agreed to entry of a consent judgment against it and in favor
of Don Walford, the sole shareholder of underwriter Walford Securities,
Inc., in the amount of $60,000, payable over a three-year period.
The total charge recognized during fiscal 1997 consists of the following:
$93,600 for the value of the common shares issued based upon the fair
market value of the Company's common stock on the date the commitment of
such shares was made; $10,000 for actual cash to be paid by the Company
pursuant to the settlement with stockholders; and $60,000 for the note
payable executed with Don Walford as discussed above.
<PAGE>
In July of 1997, the Company executed a two-year agreement for consulting
services to be provided by Mr. Gary Woolley. In addition to monthly cash
compensation, Mr. Wooley received a $50,000 two-year convertible note
with 10% interest per annum. The principal balance of the note is
convertible into Common Stock at $.40 per share. A dispute arose between
Mr. Wooley and the Company and the consulting agreement was terminated at
the end of August 1997. Mr. Wooley and the Company are currently in
discussion to determine if the matter can be resolved amicably.
Note 7 -- Stock Warrants.
As a result of the issuance of securities to LFC as described in Note 4,
above, and adjustments to the exercise terms of the Common Stock purchase
warrants issued to the underwriters in conjunction with the Company's
December 1993 initial public offering was required. Those warrants which
were initially exercisable to purchase 165,000 shares @ $12.33 per share
are now exercisable to purchase 285,621 shares @ $7.12 per share.
Note 8 -- RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings per
Share". SFAS No. 128, which is effective for periods ending after
December 15, 1997, requires changes in the computation, presentation, and
disclosure of earnings per share. All prior period earnings per share
data must be restated to conform to the provisions of SFAS No. 128. The
Company will adopt SFAS No. 128 during the fourth quarter of fiscal 1998,
but does not expect the new accounting standard to have a material impact
on the Company's reported loss per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130, which is effective for all periods beginning after
December 15, 1997, establishes standards for reporting and displaying
comprehensive income and its components with the same prominence as other
financial statements. All prior periods must be restated to conform to
the provisions of SFAS No. 130. The Company will adopt SFAS No. 130
during the first quarter of fiscal 1999, but does not expect the new
accounting standard to have a material impact on the Company's reported
financial results.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131, which is
effective for fiscal years beginning after December 15, 1997, establishes
new disclosure requirements for operating segments, including products,
services, geographic areas, and major customers. The Company will adopt
SFAS No. 131 for the 1999 fiscal year. The Company does not expect the
new accounting standard to have a material impact on the Company's
reported financial results.
Note 9 -- SUBSEQUENT EVENTS
Subsequent to September 1997, the Company received two bridge loans from
the principals of Liviakis Financial Communications Inc. totaling $275,000,
pending completion of more permanent financing. Following a significant
funding, the company will repay the bridge loans along with interest of 9%
percent per annum.
Subsequent to September 1997, the Company has been working on structuring a
private offering of securities targeted to raise between $2 to $4 million
through the sale of convertible debt from "accredited investors" as defined
in Rule 501 of Regulation D under the Securities Act of 1933. In
conjunction with this financing, the Company intends to submit proposed
amendments to its Articles of Incorporation at the upcoming shareholders
meeting to authorize the creation of Preferred Stock and increase the
number of authorized shares of Common Stock available to the Company. The
Company also anticipates that it will be required to register shares of
common stock underlying the securities sold in the offering. No assurances
can be given that the Company will be successful in completing this
financing.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
U.S. Wireless Data, Inc., a Colorado corporation, (the "Company" or
"USWD"), was organized on July 30, 1991 for the purpose of designing,
manufacturing and marketing a line of wireless and portable credit card
and check authorization terminals. The Company's first product, known as
the POS-50(R), is the world's first integrated wireless credit card and
check authorization terminal using cellular communication technology.
With over 4,000 POS-50(R) terminals in the marketplace, the Company is
recognized as the leader in providing wireless terminal transaction
equipment for the mobile marketplace. The POS-50 product accounted for
most of the sales recorded in the first quarter ended September 30, 1997.
Over the past two and a half years, USWD has focused its product
development effort on incorporating Cellular Digital Packet Data (CDPD)
technology into its product line. CDPD is a high-speed digital packet
data, internet protocol (IP) based technology that operates in parallel
with current cellular voice networks. It is designed for high speed
encrypted data transmission over the air-link and will not interfere with
or degrade cellular voice traffic. Because of the high speed nature of
CDPD technology, and the ability to bypass the public switched telephone
network, the Company's new line of CDPD-based terminals can have
significant performance and communication cost advantages when compared
with the traditional dial-up terminals currently being sold in the U.S.
market today. The result is that the Company now offers two new CDPD
products that reduce the current authorization time from approximately 15
seconds to 3 to 5 seconds.
The most significant USWD product is the TRANZ* Enabler which allows
current VeriFone Tranz(R) 330 or Tranz(R) 380 users to immediately
convert their terminals and printers from a land-line telephone dial-up
mode to a high-speed wireless mode of operation. By effecting this
technological upgrade, the cost of dedicated telephone lines is
eliminated as are the delays created by busy telephony networks during
peak periods of authorization activity. Furthermore, the efficiencies
created by adopting the CDPD technology and USWD's alliance with a major
transaction processor enabled U.S. Wireless Data to develop a pricing
schedule which lowers transaction and/or discounts rates that most
retailers are currently paying to handle credit and debit card
transactions. The TRANZ Enabler is directed at the existing U.S.
installed base of more than 3.5 million TRANZ 330 and TRANZ 380
terminals. *TRANZ is a registered trademark of Verifone, Inc.
The second CDPD product created by the Company is the POS-500, a
self-contained card terminal and printer that provides the same mobility
features of the POS-50(R) product and also incorporates the processing
benefits of the TRANZ Enabler. The unit is geared for the user who either
does not have a dial-up terminal/printer in place or requires the
advantages of the CDPD technology in a mobile application.
In mid fiscal year 1997, the Company made a fundamental decision to
change the manner in which it generates revenue. If successfully
implemented, this significant decision transforms the Company from being
a "box maker" in which it earned one time wholesale margins from the sale
of its products to earning recurring revenue by providing wireless credit
card and debit card processing services to retail merchants. In January
1997 the Company executed a Member Service Provider ("MSP") agreement
with NOVA Information Systems ("NOVA"), the nation's 7th largest credit
card transaction processor. As a registered MSP of NOVA, the Company can
enroll merchants to process their credit and debit card transactions with
NOVA. This MSP agreement allows U.S. Wireless Data to earn revenue on
each card swipe and every dollar processed by merchants enrolled by the
Company.
<PAGE>
Another key element of USWD's strategic direction is the close alliance
with large communications carriers such as GTE Mobilnet. In addition to
the CDPD service agreement signed in fiscal 97, GTE Wireless and U.S.
Wireless Data, Inc., in August 1997, announced a joint marketing and
operating agreement to distribute USWD's proprietary TRANZ Enabler credit
card processing system using GTE's CDPD network. Both companies are
engaged in a nation wide deployment, which will extend TRANZ Enabler
sales to merchants through over 450 GTE sales representatives. The
agreement contains certain operational and financial performance
criteria, directly related to the joint marketing program, which must be
met by the Company. The Company is building a sales and support
organization to provide local support for the GTE sales representatives.
By leveraging the sales organizations of the major CDPD providers, the
Company has the potential to quickly reach a large number of merchants.
The Company plans to execute similar joint marketing agreements with the
other CDPD service providers with which it currently has cellular service
resale agreements.
In August 1997, the Company retained Liviakis Financial Communications,
Inc. to advise and assist the Company in matters concerning investor
relations, corporate finance and strategic management planning.
Remuneration for the consulting agreement which has a term of one year
includes $10,000 in cash over a one year period and 300,000 shares of
unregistered stock with 150,000 shares of the stock payable over a
10-month period. The Company completed a private placement of restricted
securities pursuant to Regulation D of the Securities Act of 1933 with
two officers of Liviakis. The Company raised $500,000 in cash for 3.5
million shares of common stock and 1.6 million warrants to purchase
common stock for $.01 per share, exercisable from January 15, 1998
through August 4, 2002. The securities carry future registration rights,
including a one-time demand registration, with fees to be paid by the
Company.
In September 1997, the Company signed an agreement with Unicard Systems
Inc. to develop terminal application software that will perform both the
Unicard enrollment process as well as deliver wireless credit card
transaction processing. Unicard Systems will become a registered agent of
U.S. Wireless Data and has placed an initial order for 400 TRANZ Enabler
units. Unicard Systems is a Dallas based service provider to over 500
restaurants and nightclubs in Texas.
In October 1997, the Company signed an exclusive agreement with GoldCan
Recycling, Inc. for wireless monitoring of its state of the art automated
aluminum redemption centers. This is the first application of USWD's
TRANZ Enabler technology outside the credit card/point-of-sale industry.
USWD will receive a monthly equipment and wireless service fee on every
TRANZ Enabler placed by GoldCan. GoldCan anticipates placing in excess of
3,000 units over the next three years.
Between October and November 1997, the Company received two bridge loans
from Liviakis Financial Communications, Inc. totaling $275,000, pending
completion of more permanent financing. Following a funding of at least
$1 million, the Company will repay the bridge loan along with interest of
nine percent.
In early August 1997, the Company announced the appointment of Evon Kelly
to the position of Chief Executive Officer. At this same time, Rod
Stambaugh assumed the position of President. Also in August, the Company
hired Clyde Casciato, Vice President Sales; Tom Cote, Vice President
Major Accounts; and in September hired Robert Robichaud, Chief Financial
Officer. In September 1997, the Company executed a lease for office space
in Emeryville, California. The lease provides for approximately 4,500
square feet at an initial rate of $9,942 per month commencing October
1997, and containing an initial term of 5 years. The monthly rent will
progress to a rate of $11,640 in year five.
Net Sales
Net sales of $257,473 for the first quarter of fiscal 1998 decreased from
net sales of $387,218 generated during the first fiscal quarter of 1997.
Unit sales decreased in part because of a decrease in direct sales
headcount during fiscal 97 as the company continued to face significant
financial pressure. In addition, efforts were focused on completing the
development of a business plan, which will shift the company from a
per-unit sales approach to a recurring revenue model. Efforts were also
focused on completing negotiations with GTE and establishing a new
management team to execute the new business plan. The POS-50 product
accounted for most of the sales recorded in the first quarter ended
September 30, 1997.
<PAGE>
Gross Margin
Gross margins in the first fiscal quarter of 1998 were $83,687 compared
to $122,008 for the same period in fiscal 1997. As a percent of revenue,
gross margins increased by approximately 1.4%, despite the sale of to the
sale of $83,000 of TRANZ Enabler sales demo units at cost for the new GTE
marketing rollout. The increase was due primarily to more favorable
margins on the POS-50(R) product as a result of reduced product cost.
Operating Expenses
Selling, general and administrative, and research and development
expenses increased from $171,157 in the first fiscal quarter of 1997 to
$530,855 in the first fiscal quarter of 1998. This increase was due to
expenditures of $150,000 for consulting fees related to the development
of the new business plan, increased compensation expense for new
additions to the management team and increased travel and communication
expense related to the new marketing program. The Company continues to
add sales and support personnel to impliment the new marketing programs.
In the near term operating expense will rise in advance of sales revenue.
Research and development expenses decreased from $118,469 in the first
fiscal quarter of 1996 to $95,314 in the first fiscal quarter of 1998.
This decrease was due to reduced occupancy and allocation of overhead
spending expense.
Other Income/(Expense)
Other income/(expense) decreased from $5,967 in the third fiscal quarter
of 1997 to $(11,598) in the first fiscal quarter of 1998. This decrease
was due primarily to an increase in interest expense related to notes
payable.
Financial Condition, Capital Resources and Liquidity
The Company continues to have significant concerns regarding its
financial condition and liquidity. While the Company is optimistic with
its medium and long term opportunities, it is constrained by its
immediate financial condition and requirement for increased liquidity.
The Company has accumulated a deficit of approximately $17.50 million
since inception and currently has a negative working capital position.
The Company's CDPD based products, the GTE joint marketing and
distribution agreement, pending distribution agreements and transition to
a recurring revenue focus present an opportunity for significant revenue
growth, an eventual return to profitability, and the generation of a
positive cash flow from operations. At present, the development of the
Company's infrastructure and expansion of the sales and marketing
organization requires additional financing. Implementation of the
Company's business plan is dependent on the infusion of new debt or
equity financing. As of the date of this report, the Company is seeking
to raise between $2 to $4 million. The Company is working both directly
and through its consultants to secure additional debt or equity financing
which is expected to fund the Company's growth. While management is
confident it can accomplish this objective, there is no guarantee that
this additional funding will occur in the required time frame.
<PAGE>
Part II
ITEM 1 -- LEGAL PROCEEDINGS
In September of 1996, the Company agreed to terms to settle securities
fraud litigation, pending since 1994, which was brought in relation to
the Company's initial public offering of December 1993. The parties'
agreement (the "Settlement Agreement") was filed in the United States
District Court for the District of Colorado on January 15, 1997 in
consolidated Case N0. 94-Z-2258, Appel, et al. v. Caldwell, et al. By its
order approving the settlement, the court certified a plaintiffs'
settlement class and provided the mechanism for payment of claims. The
Company contributed $10,000 to the total settlement fund of $2,150,000.
The remaining portion of the settlement was contributed by certain
underwriters of the Company's initial public offering and securities
counsel. No objections to the Settlement Agreement were made. No
potential class member opted-out of the settlement and all are bound by
the release granted the Company. All claims against the Company in those
consolidated cases were dismissed by final federal court order on
September 4, 1997. No appeal was filed. Similar state court claims were
dismissed by Colorado district court order dated October 9, 1997.
To resolve cross-claims asserted by underwriters in the litigation, U.S.
Wireless Data, Inc. agreed to transfer to RAS Securities Corporation, H.J.
Meyers & Co, Inc., Sands & Co. Ltd. and R.J. Steichen & Co. a total of
600,000 U.S. Wireless Data, Inc. common shares upon the effective date of
the Settlement Agreement. The Company has agreed to register such shares
upon demand not sooner than April 26, 1998. Further, on September 17, 1997
the Company agreed to entry of a consent judgment against it and in favor
of Don Walford, the sole shareholder of underwriter Walford Securities,
Inc., in the amount of $60,000, payable over a three-year period.
In July of 1997, the Company executed a two-year agreement for consulting
services to be provided by Mr. Gary Wooley. In addition to monthly cash
compensation, Mr. Wooley received a $50,000 two-year convertible note
with 10% interest per annum. The note is convertible into Common Stock at
$.40 per share. A dispute arose between Mr. Wooley and the Company and
the consulting agreement was terminated at the end of August 1997. Mr.
Wooley and the Company are currently in discussion to determine if the
matter can be resolved without litigation.
ITEM 2 -- CHANGES IN SECURITIES
See Note 7 - Stock Warrants in Notes to Financial Statements.
<PAGE>
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
The Company is indebted to Omron Systems, Inc. under a Secured
Installment Note dated March 27, 1995, for the principal amount of
$387,866 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, and monthly interest payments
through October 1996, 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 continues to discuss options with Omron
regarding the possible restructuring or mutually agreeable settlement
of this note.
ITEM 5 -- OTHER INFORMATION
See Note 9 - Subsequent Events in Notes to Financial Statements.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits required by Item 601 of Regulation S-B
27 Financial Data Schedule
<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: November 16,1997 By: \s\ Evon Kelly
- ----- ---------------- ------------------
Chief Executive Officer
November 16,1997 By: \s\ Robert E. Robichaud
---------------- ---------------------------
Chief Financial Officer
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