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 March 31, 1999.
---------------
|_| 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
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(State of incorporation) (IRS Employer Identification No.)
2200 Powell Street, Suite 800
Emeryville, California 94608
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(Address of principal executive offices, including zip code)
(510) 596-2025
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(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, 1999 there were outstanding 17,330,783 shares of the
Registrant's Common Stock (no par value per share).
Transitional Small Business Disclosure Format
Yes ___ No _X_
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U.S. WIRELESS DATA, INC.
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TABLE OF CONTENTS
Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets --
March 31, 1999, and June 30, 1998..................................3
Statements of Operations --
Three Months and Nine Months Ended March 31, 1999 and 1998.........4
Statements of Cash Flows --
Nine Months Ended March 31, 1999 and 1998..........................5
Notes to Financial Statements.............................................6-10
Item 2. Management's Discussion and Analysis......................................11-19
PART II OTHER INFORMATION
Item 1. Legal Proceedings.........................................................19
Item 2. Changes in Securities.....................................................20
Item 3. Defaults Upon Senior Securities...........................................20
Item 6. Exhibits and Reports on Form 8-K..........................................21
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2
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U.S. WIRELESS DATA, INC.
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BALANCE SHEET
(Unaudited)
March 31, 1999 June 30, 1998
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ASSETS
Current assets:
Cash ................................................................... $ 3,000 $ 4,000
Accounts receivable, net of allowance for doubtful ..................... 115,000 55,000
accounts of $30,000 at March 31, 1999;
$22,000 at June 30, 1998
Inventory, net ......................................................... 231,000 480,000
Other current assets ................................................... 127,000 187,000
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Total current assets .............................................. 476,000 726,000
Processing units - deployed .................................................... 466,000 517,000
Property and equipment, net .................................................... 238,000 253,000
Other assets ................................................................... 338,000 69,000
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Total assets .......................................................... $ 1,518,000 $ 1,565,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................................... $ 1,245,000 $ 1,506,000
Accrued liabilities ...................................................... 585,000 1,735,000
Borrowings, current portion .............................................. 366,000 452,000
------------ ------------
Total current liabilities .............................................. 2,196,000 3,693,000
Borrowings, long-term portion .................................................. 1,711,000 45,000
------------ ------------
Total liabilities .................................................. 3,907,000 3,738,000
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Redeemable common stock
232,000 372,000
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Stockholders' deficit:
Preferred stock, at $1 stated value,15,000,000 authorized, 789,000 3,060,000
789,325 and 3,060,000 Series A issued and outstanding at March 31, 1999
and June 30, 1998, respectively
Common stock, at $1 stated value, 40,000,000 ........................... 17,331,000 12,195,000
shares authorized; 17,330,783 and 12,195,358 shares
issued and outstanding at March 31, 1999 and
June 30, 1998, respectively
Additional paid-in capital ............................................. 12,511,000 10,222,000
Accumulated deficit .................................................... (33,252,000) (28,022,000)
------------ ------------
Total stockholders' deficit (2,621,000) (2,545,000)
------------ ------------
Total liabilities and stockholders' deficit ........................ $ 1,518,000 $ 1,565,000
============ ============
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Accompanying notes are an integral part of the financial statements
3
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U.S. WIRELESS DATA, INC.
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STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 31, Nine months ended March 31,
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1999 1998 1999 1998
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Net revenues:
Product sales ..................... $ 124,000 $ 153,000 $ 633,000 $ 504,000
Services ------------ ------------ ------------ ------------
137,000 99,000 509,000 134,000
------------ ------------ ------------ ------------
261,000 252,000 1,142,000 638,000
------------ ------------ ------------ ------------
Cost of revenues:
Product sales ..................... 89,000 91,000 449,000 318,000
------------ ------------ ------------ ------------
Services 151,000 24,000 482,000 34,000
------------ ------------ ------------ ------------
240,000 115,000 931,000 352,000
------------ ------------ ------------ ------------
Gross margin
21,000 137,000 211,000 286,000
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative 789,000 2,518,000 3,857,000 6,659,000
Research and development 105,000 78,000 363,000 251,000
Litigation settlement
-- 1,353,000 -- 1,353,000
------------ ------------ ------------ ------------
Total operating expense 894,000 3,949,000 4,220,000 8,263,000
------------ ------------ ------------ ------------
Loss from operations .................. (873,000) (3,812,000) (4,009,000) (7,977,000)
Interest income ....................... -- -- 8,000 --
Interest expense ...................... (448,000) (439,000) (681,000) (707,000)
Other expense -- (165,000) (161,000) (166,000)
------------ ------------ ------------ ------------
Net loss .............................. $ (1,321,000) $ (4,416,000) $ (4,843,000) $ (8,850,000)
============ ============ ============ ============
Basic and diluted loss per share: ..... $ (0.09) $ (0.48) $ (0.39) $ (1.01)
============ ============ ============ ============
Weighted average common shares ........ 14,093,000 9,281,000 13,386,000 8,753,000
outstanding - basic/diluted ============ ============ ============ ============
</TABLE>
Accompanying notes are an integral part of the financial statements
4
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U.S. WIRELESS DATA, INC.
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STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended March 31,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................. $(4,843,000) $(8,850,000)
Adjustments to reconcile net loss to net cash used in
Operating activities:
Depreciation and amortization ........................ 203,000 65,000
Non-cash consulting services and warrant extension ... 1,933,000 2,124,000
Non-cash variable option-compensation expense ........ (1,252,000) 1,707,000
Non-cash interest expense - debentures ............... 589,000 637,000
Non-cash litigation expense .......................... -- 1,353,000
Non-cash other expense - warrants .................... 378,000 --
Debt forgiveness ..................................... (192,000) --
Changes in current assets and liabilities:
Accounts receivable ............................... (60,000) 46,000
Inventory ......................................... 213,000 (671,000)
Other current assets .............................. 27,000 (152,000)
Accounts payable .................................. (270,000) 911,000
Accrued liabilities ............................... (63,000) 52,000
----------- -----------
Net cash used in operating activities ............. (3,337,000) (2,778,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment ........... (46,000) (291,000)
Processing units - deployed .......................... (82,000) (383,000)
Decrease (Increase) in other assets .................. 10,000 (56,000)
----------- -----------
Net cash used in investing activities ............. (118,000) (730,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock ...................... 26,000 585,000
Proceeds from sale of options to purchase common stock 1,000 192,000
Issuance of notes payable ............................ 2,744,000 28,000
Principal payment on borrowings ...................... (122,000) --
Net proceeds from issuance of debt ................... 1,805,000 2,762,000
Redemption of preferred stock ........................ (1,000,000) --
----------- -----------
Net cash provided by financing activities ......... 3,454,000 3,567,000
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Net increase in cash ......................................... (1,000) 59,000
Cash at beginning of period .................................. 4,000 6,000
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Cash at end of period ........................................ $ 3,000 $ 65,000
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</TABLE>
Supplemental Disclosure of non-cash financing and investing:
1. Conversion of $2,567,000 notes payable and interest to 2,934,00
Accompanying notes are an integral part of the financial statements
5
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U.S. WIRELESS DATA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1 -- ACCOUNTING PRINCIPLES
The balance sheet as of March 31, 1999, as well as the statements of
operations for the three and nine month period ended March 31, 1999 and
March 31, 1998, and statement of cash flows for the nine month periods
ended March 31, 1999 and March 31, 1998 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, 1999 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 are read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-KSB for the
fiscal year ended June 30, 1998. The results of operations for interim
periods presented are not necessarily indicative of the operating results
for the year.
Note 2 -- FINANCIAL CONDITION AND LIQUIDITY
The Company continues to have difficulties due to its financial
condition and lack of liquidity. The Company has accumulated a deficit of
approximately $33 million since inception, including a loss of $1.3
million during the third quarter of fiscal year 1999, and has limited
financial resources. In May 1999, the Company completed the first phase of
a $1.5 to $5.0 million private placement pursuant to Regulation D of the
Securities Act of 1933. The financing was facilitated by an institutional
investor, through which the Company raised gross proceeds of $1,500,000.
At present, development of the Company's products and services requires
significant additional financing.
Due to the change in its distribution strategy to channel product sales
and service offerings through existing merchant acquirers, the Company has
been able to make significant reductions in its direct sales force and
reduce its cash requirements. However, execution of the Company's business
plan is dependent on a significant debt or equity-financing event in the
immediate future. The Company continues to work both directly and through
its consultants to secure such financing which is required to fund
operations while a significant recurring revenue stream is developed.
There can be no assurance that the Company will be successful with efforts
to raise additional capital. The inability of the Company to secure
additional financing in the near term could adversely impact the Company's
financial position, including its ability to continue as a going concern.
The accompanying 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
Earnings (loss) per common share (EPS) is computed using Statement of
Financial Accounting Standard (SFAS) No. 128, "Earnings per Share." SFAS
No. 128 establishes standards for the computation, presentation, and
disclosure of earnings per share. Basic and diluted 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. Diluted EPS
excludes exercisable stock options and warrants from the calculation since
their effect would be anti-dilutive. Such stock options and warrants could
potentially dilute earnings or decrease losses per share in the future.
EPS for the three-month and nine-month periods ended March 31, 1998 have
been restated to conform to SFAS No.128. In the third quarter of fiscal
1999, the net loss available to common shareholders equals the net loss
less $25,000 of preferred stock dividends charged to retained earnings.
For the first nine months of fiscal 1999, the net loss available to common
shareholders equals the net loss plus $387,000 of preferred stock
dividends and redemption premium charged to accumulated deficit.
6
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Note 4 -- FINANCINGS
As the Company entered the first quarter of fiscal 1999, it continued
to face the need for increased liquidity to meet its obligations. In July
1998, the Company completed a private offering of $2,000,000 of 6%
convertible subordinated debentures due July 21, 2000 and 100,000 Common
Stock Purchase Warrants exercisable at $4.25 per share until July 21,
2001. The shares of Common Stock underlying the 6% Debentures and Warrants
carry registration rights. The net proceeds to the Company from the
offering were approximately $1.8 million. The Company used approximately
$250,000 of the proceeds from the offering to pay off a $250,000 short
term bridge loan from one of the investors, which was evidenced by a
promissory note executed July 1998, and the balance of the proceeds was
used for working capital. In consideration of the bridge loan, the
investor received a warrant to purchase 20,000 shares of Common Stock at
$4.375 per share, exercisable through September 9, 2001. The warrant
contains anti-dilution provisions and "piggyback" registration rights
applicable to the Common Stock issuable upon exercise of the warrant.
Holders of the Company's Series A Preferred Stock purchased $1,000,000 of
the Debentures.
In August 1998, the Company obtained effectiveness of a registration
statement on Form SB-2 (SEC File No. 333-52625) under which it registered
a total of 7,240,356 shares of Common Stock, for resale by certain
security holders of the Company (the "August SB-2"). After the August SB-2
was declared effective by the SEC, the National Association of Securities
Dealers, Inc. ("NASD") determined that it would undertake a detailed
review of the registration statement. Pending the completion of the NASD
review, the Company suspended the sale of shares under the registration
statement through NASD member firms. Approximately 250,000 of the
registered shares were sold under that registration statement before the
Company suspended sales under it. During the NASD's review, the Company
further determined that the Prospectus contained in the August SB-2 was no
longer current and that a "post-effective amendment" would be required to
be filed and declared effective by the SEC before additional sales could
be made under the August SB-2. A total of 1,030,310 shares of Common Stock
included in the August SB-2 were registered for sale on behalf of the
holders of the Company's Series A Preferred Stock. As of March 31, 1999,
there remained 789,000 shares of Series A Preferred Stock outstanding. All
shares of the Common Stock issuable upon conversion of, or as dividends
on, the Series A Preferred stock became eligible for sale under SEC Rule
144 as of December 10, 1998.
On September 22, 1998, the Company entered into an agreement with
Liviakis Financial Communications, Inc., a significant shareholder of the
Company, for a $1,300,000 debt financing. The note payable was due April
1, 1999, bears interest at 8% per year, and is secured by substantially
all available assets of the Company. The Company used $1,000,000 of the
proceeds to redeem $833,000 of the approximate $2.3 million balance of its
Series A Convertible Preferred Stock. The Company paid 120% of face value
for the redemption. The participating investors, representing
approximately 1,342,000 shares of the remaining Series A Preferred, agreed
to hold their Series A Preferred shares until at least October 15, 1998
after which time one-third of the Series A Preferred shares could be
converted to common stock on each of October 15, November 15, and December
15 of 1998, respectively. As an incentive to these investors, the Company
agreed to issue Common Stock purchase warrants exercisable to purchase
that number of shares of Common Stock equal to five percent of the number
of shares of Series A Preferred Stock held by the participating investor
at the end of each period. On December 31, 1998, the Company was obligated
to issue warrants for 78,089 shares exercisable at $2.40 per share through
October 15, 2001, 67,084 shares exercisable at $3.36 per share through
November 15, 2001, and 67,084 shares exercisable through December 15,
2001. The Company also agreed to increase the dividend rate from 4% to 8%
on the balance of the unconverted Series A Preferred Stock. By October 31,
1998, the Company was to file a registration statement for the shares
underlying the Warrants as well as additional shares issuable upon
conversion of the Series A Preferred Stock, beyond those included in the
original SB-2 Registration Statement, due to a decline in the stock price
subsequent to effectiveness of the August SB-2. The Company has not met
this obligation, but intends to include the shares underlying the warrants
in the upcoming registration statement for the Series B Preferred Stock.
During the quarter ended March 31, 1999, the Company issued common stock
purchase warrants to JW Genesis as consideration for services rendered in
conjunction with the redemption of Series A Preferred Stock. A total of
15,000 warrants were issued at $2.70 per share and are exercisable through
September 13, 2001. The shares of Common Stock underlying the warrants
have "piggy-back" registration rights,
7
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On October 28, 1998, the Company borrowed $500,000 and issued an 8%
Note Payable due March 1, 1999, from the CEO and 50% owner of Cardservice
International, Inc. In consideration for the loan, the Company agreed to
issue a Common Stock Purchase Warrant exercisable to purchase 25,000
shares of Common Stock at $3.038 per share through October 27, 2001.
During the second fiscal quarter of 1999, the Company received two
bridge loans from Liviakis Financial Communications, Inc. (LFC) totaling
$300,000 in the form of 8% Notes Payable due April 1, 1999. In January and
February, the Company received $390,000 of additional bridge loans from
LFC in the form of 8% Notes Payable, due April 1, 1999.
On March 19, 1999, the Company and holders of the 8% Notes, LFC and the
CSI affiliate, agreed to convert $2,490,000 of principal plus accrued
interest to Common Stock at the rate of $.875 per share. This rate was
established at a 20% discount from the closing price of the Common Stock
as of March 18, 1999. The Company issued 2,933,671 shares under these
agreements. These shares are restricted securities and will become
eligible for sale under SEC Rule 144 one year after the original issuance
dates of the promissory notes.
As noted above, the Company had a pending commitment to file a
registration statement, which was due October 7, 1998, covering the shares
of Common Stock issuable upon conversion of the 6% Convertible Debentures
and related warrants. A registration was not effective with the SEC within
the required 120 calendar days of the Initial Issuance Date (which was
July 21, 1998), and the Company became obligated to pay a cash penalty of
two percent (2%) of the face amount of the 6% Debentures and thereafter an
amount equal to three percent (3%) of the face amount for every thirty
calendar days (or any fraction thereof) until the registration is
effective. At March 31, 1999, the Company had not filed or obtained
effectiveness of a registration statement, thereby giving the holders the
right to require the Company to redeem the 6% Debentures at 120% of face
value plus accrued and unpaid interest and penalties to the date of
redemption. The Company has recorded $280,000 in penalties as of March 31,
1999 for this obligation. On May 7, 1999, the Company and the 6% Debenture
holders agreed to convert all the accrued interest and penalties into
shares of the Series B Preferred Stock. In addition, they waived their
default rights under the original schedule described above and adopted the
default schedule for the Series B Preferred Stock (See "Subsequent
Events").
On March 12, 1999, the Company completed a note and common stock
purchase agreement with RBB Bank Aktiengesellschaft, which is the agent
for the holders of certain shares of the Company's Series A Preferred
Stock, and $1,000,000 of 6% Debentures. As part of this agreement, 50,000
shares of common stock and a $250,000 promissory note bearing interest at
10% due June 12, 1999 were issued. In connection with the issuance of the
Note, the Company also granted RBB Bank a right of first refusal to fund
any such additional bridge financing needed by the Company. This right
must be exercised within one day of RBB Bank being notified of the terms
of any such additional bridge financing. The shares issued as part of this
agreement are restricted securities and the Company will include the
shares in the Registration Statement to be filed for the 6% Convertible
Debentures and other share issuances. The loan was intended as a
short-term bridge loan and was originally required to be repaid from the
proceeds of any aggregate equity placements made by the Company which
amount to at least $1,000,000. This provision was subsequently eliminated
in an amendment to the agreement dated April 22,1999. Liviakis Financial
Communications, Inc, agreed to guarantee the note (See "Subsequent
Events").
In March 1999, the Company entered into a consulting agreement with EBI
Securities Corporation for purposes of assisting the Company as a
corporate finance consultant in obtaining additional capital and liquidity
for its stock. The intent of the agreement is to position the Company for
future financing, including but not limited to a secondary public
offering. The agreement has an initial term of six months with an
available extension of 3 months. For its services, the Company has agreed
to issue warrants to purchase 100,000 shares of its Common Stock
exercisable at $1.00 per share expiring three years from March 15, 1999.
The Company amortized a prepaid expense of $60,000 during the current
quarter for these warrants. The Warrants contain standard anti-dilution
provisions, provide EBI Securities with a cashless exercise provision, and
"piggy-back" registration rights. The Company also agreed to pay a monthly
consulting fee of $5,000. Additionally, the agreement provides for a fee
to be paid for services rendered in conjunction with any merger or
acquisition or significant investment by the Company with fees ranging
from 1% to 5% based on the value of the transaction.
8
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Note 5 -- LIVIAKIS FINANCIAL COMMUNICATIONS INC. ("LFC") - CONSULTING
On June 30, 1998, the Company and LFC agreed to extend their consulting
relationship through the entry of a new consulting agreement covering the
period from August 1, 1998 through March 15, 1999 (the "New LFC
Agreement"). The terms of the New LFC Agreement are substantially the same
as the original LFC Agreement of June 1997. For services to be rendered
under the New LFC Agreement, LFC received 290,000 shares of Common Stock,
issued as a signing bonus upon execution of the New LFC Agreement. The
consulting agreement was valued as $1,078,438 of prepaid consulting
services based on the share price on the date of the agreement less a 15%
discount, attributable to the fact that the shares were restricted and
subject to a "lock-up" provision as described below. The consulting
services have been expensed over the term of the agreement. The Common
Stock issued to LFC under the New LFC Agreement carries certain
registration rights. In conjunction with the entry of the New LFC
Agreement, LFC agreed to a further lock-up of all shares owned by LFC and
its affiliates, pursuant to which they agreed not to sell such shares
before February 1, 1999. LFC and the principals of LFC subsequently agreed
to extend their "lock-up" of Company shares through the end of calendar
year 1999.
Note 6 - LITIGATION
Settlement of Claims of Certain Noteholders
In April 1998, the Company entered into an agreement with certain
Noteholders under which the Company issued shares of Common Stock in
settlement of the dispute. Terms of the settlement entitled the
Noteholders to certain guarantee or put provisions related to the shares.
The guarantee provision of the settlement agreement allows the former
Noteholders to recover the difference between the guarantee price (which
is $3.00 per share for the shares that are still entitled to the
guarantee) and the gross amount the Noteholder receives upon a sale of the
shares. The guarantee is operative at any time during the one year period
commencing on the date the shares became saleable under SEC Rule 144. The
Company is obligated to pay the amount due within thirty days of receiving
a demand, accompanied by documentation confirming the sale. Under the
"put" provision of the settlement agreement, the former Noteholders will
have a five day period commencing on the date one year from the date the
shares become saleable under SEC Rule 144 during which the former
Noteholders may "put" any shares remaining unsold by them at the time back
to the Company. Upon exercise of the put, the Company must either (1)
purchase the shares for the put price of $3.00 per share, or (2) require
the shareholder to sell the shares into the market, with the Company
making up the difference between the put price and the gross amount
received by the shareholder upon such sale, within 15 days after receipt
of written notice and documentation confirming the sale. The shares
originally issued upon conversion of the notes and the additional shares
resulting from the settlement are reflected as Redeemable Common Stock on
the balance sheet. The originally issued shares are reflected at their
conversion value adjusted for the value attributable to the guarantee and
"put" provisions. In the event redemption of such shares becomes probable
and the actual redemption amount is in excess of the carrying amount, such
excess amount will be recorded as litigation settlement expense. The
additional shares are reflected at their redemption value. As of March 31,
1999, there were up to approximately 128,000 shares subject to the
guarantee and "put" provision, with a carrying value of $232,000, and a
maximum redemption value of approximately $384,000 prior to any reduction
for amounts the holder may receive upon the sale of such shares. On April
29, 1999, certain Noteholders holding approximately 83,500 shares, agreed
to waive their guarantee and "put" rights in return for the isssuance of
200,000 restricted shares of the Company's common stock (See "Subsequent
Events").
Note 7 -- RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (FAS 133). The new standard requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting changes in the values of these
derivatives will be reported in the statement of operations or as a
deferred item, depending on the use of the derivatives and whether they
qualify for hedge accounting. The key criterion for hedge accounting is
that the derivative must be highly effective in achieving offsetting
changes in fair value or cash flows of the hedged items during the term of
the hedge. The Company plans to adopt FAS 133 in the first quarter of
fiscal 2000 and has not yet determined the effect, if any, of adopting the
new standard.
Note 8 -- SUBSEQUENT EVENTS
On April 29, 1999, the Company agreed with certain Noteholders to waive
their "put" rights in return for issuance of 200,000 restricted shares of
USWD's Common Stock on a pro-rata basis for their 83,500 shares of the
original distribution covered in the Settlement Agreement. Issuance of the
shares is subject to a final agreement and verification by the Company of
eligibility of the 83,500 shares for the put/guarantee rights (See "Note
6-Litigation").
9
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On May 6, 1999, the Company completed the minimum amount of a $1.5 to
$5.0 million private placement pursuant to Regulation D of the Securities
Act of 1933. The financing was facilitated by an institutional investor,
through which the Company raised gross proceeds of $1,500,000. The Company
issued 6% Cumulative Convertible Redeemable Preferred Stock (Series B) for
$1.00 per share. The instrument gives the holder the right to convert the
Preferred Stock into shares of the Company's Common Stock in the future at
80% of then current market price. Concurrent with this transaction, the
holders of the Company's 6% Convertible Debentures agreed to convert all
accrued interest and penalties into shares of the Series B Preferred
Stock. The Series B Preferred Stock and Common Stock to be issued upon
conversion have not been registered under the Act and may not be offered
or sold in the United States absent registration or an applicable
exemption from registration requirements.
The Company immediately used $401,000 of the proceeds to pay principal
and interest on a $400,000 bridge note entered into subsequent to the end
of third quarter 1999. In addition, proceeds will be used to pay finders
fees of $180,000 plus estimated offering expenses of $41,000 (including
approximately $26,000 for the investor's legal fees). The Company is
obligated to utilize an additional $413,000 of the proceeds to pay past
and future legal and accounting fees, while the estimated balance of
$465,000 is to be used as working capital.
As described under Note 4 - Financings, the Company was obligated to
file a registration statement by October 7, 1998 covering the shares of
Common Stock issuable upon conversion of the 6% Debentures. Since the
Company did not meet the registration requirements, certain penalties
accrued through April 18, 1999. The Company issued 454,705 shares of
Series B Preferred Stock at $1.00 per share to compensate the 6% Debenture
holders for the penalties and interest owed on the 6% Debentures through
June 1999. As part of this agreement, the Debenture holders agreed to
adopt the default schedule set for the Series B Preferred Stock and to
waive their rights under certain prior defaults.
The Company also entered into an agreement (the "Registration
Rights Agreement") with the purchasers of the Series B Preferred to file a
registration statement with the SEC covering the Common Stock underlying
the Series B Preferred and the Warrants within 30 days of the Closing Date
to be effective within 90 days of the Closing Date. If the Company fails
to meet this requirement, monthly penalties accrue at the rate of 2 to 3
percent of the purchase price, and in certain circumstances can equal up
to 6% per month. In addition, if the Series B Registration Statement has
not been filed within 60 days of the Closing Date or has not been declared
effective within 150 days of the Closing Date, the holders of the Series B
Preferred may require the Company to redeem the Series B Preferred for
$1.25 per share, plus all accumulated dividends. The filing of this
registration statement will activate certain prior registration rights
granted by the Company to holders of certain of its securities.
The Company also issued a Common Stock Purchase Warrant exercisable to
purchase 300,000 shares of common Stock at $1.50 per share for five years
from April 30,1999 (the "Series B Warrants") to the cash purchaser of the
Series B Preferred.
As noted in Note 4, RBB Bank Aktiengesellschaft, which is the agent for
the holders of certain shares of the Company's Series A Preferred Stock,
$1,000,000 of 6% Debentures and a promissory note in the principal amount
of $250,000, agreed to waive the right to immediate repayment of the
$250,000 note (which was originally payable upon completion of the next
funding received by the Company of at least $1,000,000). RBB Bank agreed
to forebear initiating an action against the Company to collect the amount
due until the earlier of receipt by the Company of funding in the
aggregate of at least $2,500,000, or December 1, 1999.
Mr. John Liviakis, a significant shareholder of the Company, also
agreed to transfer a total of 443,077 shares of Company Common Stock owned
by him to the finder who located the cash purchaser of the Series B
Preferred Stock. The shares will be transferred as "restricted securities"
as defined in Rule 144 under the Securities Act of 1933 and will not have
any registration rights.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The Company may, in discussions of its future plans, objectives and
expected performance in periodic reports filed by the Company with the
Securities and Exchange Commission (or documents incorporated by reference
therein) and in written and oral presentations made by the Company,
include projections or other forward-looking statements within the meaning
of Section 27A of the Securities Exchange Act of 1933 or Section 21E of
the Securities Act of 1934, as amended. Such projections and
forward-looking statements are based on assumptions, which the Company
believes are reasonable but are, by their nature, inherently uncertain. In
all cases, results could differ materially from those projected. Some of
the important factors that could cause actual results to differ from any
such projections or other forward-looking statements are detailed below,
and in other reports filed by the Company under the Securities Exchange
Act of 1934, including the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1998.
History of Losses and Potential Fluctuations in Operating Results:
Throughout the Company's history including the first nine months of the
fiscal year ending June 30, 1999, the Company has continued to experience
significant operating losses. The Company has sold securities or borrowed
funds to cover these losses. In addition, because the Company generally
ships its products on the basis of credit card processing applications or
purchase orders, increments to recurring revenue and other component sales
in any quarter are highly dependent on orders shipped in that quarter and,
accordingly, may fluctuate materially from quarter to quarter. The
Company's operating expense levels are based on the Company's internal
forecasts for future demand and not on firm customer orders. Failure by
the Company to achieve these internal forecasts could result in expense
levels that are inconsistent with actual revenues. The Company's results
may also be affected by fluctuating demand for the Company's products and
by increases in the costs of components acquired from the Company's
vendors.
Requirement for Additional Capital: At present, the development of the
Company's infrastructure, product development initiatives, and transition
to the new distribution program requires additional financing. Proceeds
from recently completed financings have provided the Company with the
ability to launch joint marketing and distribution programs with credit
card acquirers, however, execution of the Company's business plan is
dependent on a more significant debt or equity financing event. Recently,
operating expenses have been satisfied by several bridge financings, a
private equity offering, and making selective payments on certain accounts
payable. The Company continues to work both directly and through its
consultants to secure additional debt or equity financing which is
required to fund operations while a significant recurring revenue stream
is built. 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 failure of the Company to obtain additional
financing could have a material adverse impact on the Company, including
its ability to continue as a going concern.
Distribution Program: The Company has recently executed a Letter of
Intent with Cardservice International which outlines CSI's intent to
produce its LinkPoint(TM) processing terminals using the Company's
proprietary Wireless Express Payment ServiceSM (WEPSSM). Lipman USA Inc.
has also announced the availability of its NURIT 2090 terminal using
WEPSSM. The Company anticipates that CSI and Lipman will promote these
products within their own markets using their respective distribution
channels. The Company also has joint marketing and distribution agreements
in place with GTE Wireless, Bell Atlantic Mobile, and Ameritech. These and
anticipated additional distribution programs are expected to have a
positive impact on the Company's future revenue stream. In addition, the
Company anticipates it will execute a definitive agreement with CSI and
sign distribution agreements with other significant partners. The failure
to successfully complete the agreements and successfully execute the
specified programs through any of these distributors could have a material
adverse effect on the Company.
The Company's Dependence on a Single Type of Product and Technological
Change: All of the Company's revenue is derived from sales of its credit
card transaction services and CDPD enabling products. Demand for these
products could be affected by numerous factors outside the Company's
control, including, among others, market acceptance by prospective
customers, or the introduction of new or superior competing technologies.
The Company's success will depend in part on its ability to respond
quickly to technological changes through the development and improvement
of its products.
Competition by Existing Competitors and Potential New Entrants into the
Market: The Company has identified several potential competitors
attempting to develop CDPD based terminals and solutions. In addition,
companies with substantially greater financial, technical, marketing,
manufacturing and human resources, as well as name recognition than the
Company may also enter the market.
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CDPD Resale Agreements Containing Minimum Purchase Obligations: The
Company has to date entered into four CDPD service resale agreements, one
of which contains minimum obligations which can be characterized as "take
or pay" provisions. The agreement with AT&T Wireless contains such
provisions. The Company is obligated to pay for the minimum amount of
service stated in the agreement even if it fails to place enough service
with merchants to meet the minimums. The failure of the Company to meet
these service minimums could have an adverse financial impact upon the
Company.
Status of Federal Corporate Tax Filings: The Company has not completed
federal income tax filings for fiscal years 1996, 1997, and 1998. While it
is unlikely that the Company will owe any taxes due to the sustained
losses during the periods, the Company may be subject to penalties for the
delinquency. The Company intends to take the steps required to complete
the tax filings as soon as practicable.
Dilutive and Other Possible Adverse Effects of Outstanding Options,
Warrants and Other Rights to Acquire Common Stock: The Company has a
substantial number of outstanding rights to acquire Common Stock in the
form of the Series A and Series B Preferred Stock, 6% Convertible
Subordinated Debentures, various warrants, and contract rights. A
substantial number of these rights are exercisable at prices which are
less than the present market price for the Common Stock. Under the terms
of such rights, the holders thereof are given an opportunity to profit
from a rise in the market price of the Common Stock with a resulting
dilution in the interests of other shareholders. The terms on which the
Company may obtain additional financing may be adversely affected by the
existence of such rights. For example, the holders of these rights could
exercise them at a time when the Company was attempting to obtain
additional capital through a new offering of securities on terms more
favorable than those provided by the rights.
Current Status of Registration Statements: The Company was obligated to
file a registration statement with the Securities and Exchange Commission
by October 7, 1998, covering the shares of Common Stock issuable upon
conversion of the 6% Debentures which the Company sold in July 1998. In
September 1998, the Company redeemed a total of 833,000 shares of its
Series A Preferred Stock. In conjunction with that redemption, the Company
also agreed to issue warrants exercisable to purchase a total of 212,257
shares of Common Stock to the holders of the remaining shares of Series A
Preferred Stock. The redemption agreement includes provisions that
obligated the Company to file a registration statement by October 31,
1998, covering the shares underlying these warrants plus any additional
shares issuable upon conversion of the Series A Preferred Stock. A
registration statement to cover these shares has not been filed as of the
date of filing of this Report. The Company is preparing to file a
registration statement covering the Common Stock issuable upon conversion
of the 6% Debentures and Series B Preferred Stock described below and will
include the shares of Common Stock underlying the warrants, Series A
Preferred Stock and other securities having piggyback registration rights
in this registration (See "Securities Issuances to Fund Operations" in
Results of Operations, below).
RESULTS OF OPERATIONS
Company Background
U.S. Wireless Data, Inc. (the "Company" or "USWD") was incorporated in
the State of Colorado on July 30, 1991. The Company is in the business
of providing products and services to enable the use of wireless
technology for electronic payment and other transactions.
Over the past three years, USWD has focused its product development
effort on incorporating Cellular Digital Packet Data (CDPD) technology
into its product line. 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 has significant
performance and communication cost advantages when compared with the
traditional dial-up terminals currently being sold in the U.S. market
today.
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In fiscal year 1998, to broaden distribution of the TRANZ Enabler CDPD
based product, the Company entered into agreements with large
telecommunications carriers for direct distribution of products and
services to merchants. The Company signed joint marketing and operating
agreements with Bell Atlantic Mobile, Ameritech Mobile Communications,
Inc., and GTE Wireless. Commencing in the second quarter of fiscal 1998
and continuing into the first quarter of fiscal 1999, USWD made
significant investments to support a nationwide deployment of TRANZ
Enablers to merchants through GTE's and other telecommunications carriers'
national sales forces. Under these deployment programs, the carrier's
sales representative introduced USWD's credit card processing solution and
TRANZ Enabler to the end user merchant. Upon execution of a credit card
processing agreement, a TRANZ Enabler unit(s) was provided to the merchant
by USWD. Under this program, the Company would retain a portion of the
monthly credit card fees based on the dollar volume and number of
transactions processed through the TRANZ Enabler.
Placements of TRANZ Enabler units pursuant to the Company's agreements
with telecommunications carriers did not develop as rapidly as anticipated
and have not reached anticipated (and necessary) levels to pay for the
infrastructure to support the programs. Costs to the Company of
implementing the joint marketing and distribution agreements with GTE
Wireless, Bell Atlantic Mobile and Ameritech have exceeded revenue
generated by the programs since they began. The GTE Agreement also
required the Company to generate minimum CDPD service billings to GTE
Wireless from merchants signed up for GTE Wireless's CDPD service through
the Company. Actual placements did not allow the Company to meet the
renegotiated minimum purchase obligations. To remedy this minimum purchase
requirement, the Company and GTE amended the agreement on September 9,
1998 which removed any minimum purchase requirement and established new IP
address pricing for merchants placed under the agreement.
Revision to Business Plan
-------------------------
Because revenue did not develop as planned under the carrier
distribution program, and expenditures relating thereto outstripped the
Company's ability to support its business plan, management began to
reexamine the Company' s business plan in the fourth quarter of fiscal
1998 and came to the conclusion that the Company could not continue to
function at its current expenditure levels.
During the first quarter of fiscal 1999, Roger Peirce, previous
Vice President of Operations for Visa and most recently the President of
First Data Merchant Services joined the USWD Board of Directors. While
acclimating to USWD's business plan and strategy, Mr. Peirce was asked by
the Board of Directors to take a more active role in the Company.On August
21, 1998 Mr. Peirce became the Chief Executive Officer of the Company. Mr.
Peirce was also a nonvoting member of the Board of Directors of Cardservice
International. Inc. ("CSI"), a related party. Mr. Peirce replaced Evon A.
Kelly as the Company's CEO and Rod Stambaugh as Chairman. Mr. Kelly
resigned as an officer and director of the Company, but remains as an
employee of the Company under a one-year employment agreement.
Beginning in late August 1998, several changes in the Company's
distribution and operational strategy were implemented. The fundamental
change in the strategy involves positioning the Company as an enabler of
wireless products and services to the marketplace and not as a competitor
to the current incumbents. This repositioning of the Company in the
marketplace encompasses the discontinuation of soliciting and owning
merchant contracts for providing bankcard-processing services. The
Company's approach to the market in fiscal 1998 effectively positioned
itself as a direct competitor to the major merchant acquirers. The
Company's new strategy involves an end-to-end systems approach to enabling
the marketplace. The Company is enabling the marketplace with a new
service offering - Wireless Express Payment ServiceSM (WEPSSM). WEPSSM
includes an expanding set of internet based software offerings and
wireless terminal devices that incorporate the Company's proprietary CDPD
modem, a web-based IP address provisioning and terminal activation process
that includes real time remote diagnostic capabilities, the CDPD network
service, and server technology that delivers wireless transactions to the
current front end of card processors. The Company is targeting large
merchant acquirers and card processors for this service. The initial
response for WEPSSM from the targeted prospects has been positive.
In furtherance of this new strategy, on October 1, 1998, the Company
and CSI entered into a non-binding Letter of Intent to form a
non-exclusive strategic partnership to jointly exploit payment system
opportunities using wireless technologies. Upon entry of a final
agreement, CSI will produce and promote its LinkPoint(TM) processing
terminals using the Company's proprietary USWD 500 CDPD modem and USWD's
Wireless Express Payment ServiceSM. CSI will promote these products within
its own markets using its approximately 2,200-person sales force.
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<PAGE>
Lipman USA, Inc., the third largest supplier of point of sale terminals
is also in the process of integrating the USWD 500 CDPD modem into its
Nurit 2090 POS/EDC terminal. The terminal is expected to be available for
distribution to the market in the Company's fourth quarter of fiscal 1999
and will utilize WEPSSM to manage the transaction from point of sale to
the payment processor.
Management Changes
------------------
In early May 1999, Dean M. Leavitt was appointed CEO and Chairman of
the Company. He succeeds Roger Peirce, who resigned as CEO and Chairman
for personal reasons in March 1999. Mr. Leavitt is the founder and former
president of US Data Capture, Inc., a merchant service provider in the
credit card processing industry. Also in May 1999, Messrs. Caesar Berger
and Richard Barton resigned as directors of the Company.
Securities Issuances to Fund Operations
---------------------------------------
To fund its operating requirements, the Company has had to rely
primarily on the issuance of debt or equity securities over the last two
fiscal years.
In August 1998, the Company obtained effectiveness of a registration
statement on Form SB-2 (SEC File No. 333-52625) under which it registered
a total of 7,240,356 shares of Common Stock for resale by certain security
holders of the Company (the "August SB-2"). The August SB-2 was filed to
honor the registration rights of the holders of the Company's Series A
Preferred Stock and one previously issued 50,000 share Warrant. After the
August SB-2 was declared effective by the SEC, the National Association of
Securities Dealers, Inc. ("NASD") determined that it would undertake a
detailed review of the registration statement. Pending the completion of
the NASD review, the Company suspended the sale of shares under the
registration statement through NASD member firms. Approximately 244,000 of
the registered shares were sold under the registration statement before
the Company suspended sales under it. During the NASD's review, the
Company further determined that the Prospectus contained in the August
SB-2 was no longer current and that a "post-effective amendment" would be
required to be filed and declared effective by the SEC before additional
sales could be made under the August SB-2. A post-effective amendment has
not been filed to date. A total of 1,030,310 shares of Common Stock
included in the August SB-2 were registered for sale on behalf of the
holders of the Company's Series A Preferred Stock. As of March 31, 1999,
there remained 789,000 shares of Series A Preferred Stock outstanding. All
shares of the Common Stock issuable upon conversion of, or as dividends
on, the Series A Preferred stock became eligible for sale under SEC Rule
144 as of December 10, 1998.
In September 1998, the Company negotiated a partial redemption of the
outstanding Series A Preferred Stock with several of the security holders.
The Company borrowed $1,300,000 from Liviakis Financial Communications,
Inc. ("LFC") and used $1 million of that money to redeem $833,000 face
value of the Series A Preferred Stock, paying 120% of face value for the
redemption. The note payable was due April 1, 1999 and bore interest at 8%
per year. On March 19, 1999, LFC agreed to convert this note to equity
(See "Other Recent Borrowings and Financing Activities"). The security
holders participating in the Series A redemption also agreed to a gated
conversion schedule over the following three months. The participating
investors, representing approximately 1,342,000 shares of the remaining
Series A Preferred agreed to hold their Series A Preferred shares until at
least October 15, 1998. Following October 15, 1998, one-third of the
Series A Preferred shares became convertible to common stock on each of
October 15, November 15, and December 15 of 1998, respectively. As an
incentive to these investors, the Company issued Common Stock purchase
warrants exercisable to purchase that number of shares of Common Stock
equal to five percent of the number of shares of Series A Preferred Stock
held by the participating investor at the end of each period. The warrants
are exercisable for three year terms, at a per share price equal to 110%
of the average of the closing bid price over the five days prior to the
effective date of each warrant. The Company also agreed to increase the
dividend rate from 4% to 8% on the balance of the unconverted Series A
Preferred Stock and to register with the SEC for public resale a
sufficient number of shares of Common Stock to cover all conversions of
the Series A Preferred stock plus the shares of Common Stock underlying
the warrants. The registration statement was to be filed by October 31,
1998, and "penalties similar to the current deal" apply if the Company is
tardy in getting the registration statement effective. As of the date of
this report, the Company has not met this obligation, but intends to
include the shares underlying the warrants in the upcoming registration
statement for the Series B Preferred Stock. During the quarter ended March
31, 1999, the Company agreed to issue Common Stock purchase warrants to JW
Genesis as consideration for services rendered in conjunction with the
redemption of Series A Preferred Stock. The warrant is exercisable to
purchase 15,000 shares of Common Stock at $2.70 per share through
September 13, 2001.
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Private Offering of 6% Convertible Subordinated Debentures due July 21,
2000.
--------------------------------------------------------------------------
On July 27 1998, the Company completed a private offering of $2,000,000
principal amount of 6% Convertible Subordinated Debentures due July 21,
2000 (the "6% Debentures") and Common Stock Purchase Warrants Exercisable
to Purchase 100,000 shares of Common Stock exercisable at $4.25 per share
until July 21, 2001 (the "Warrants"). The net proceeds to the Company from
the offering were approximately $1,810,000, after paying finder's fees of
$190,000, but before paying additional expenses of the offering, which
were approximately $20,000. The Company used $250,000 of the proceeds from
the offering to pay off a $250,000 short term bridge loan from one of the
participating investors, which was evidenced by a promissory note dated
June 26, 1998, and used the balance of the proceeds as working capital and
to repay existing obligations. Holders of 1,600,000 shares of the
Company's Series A Cumulative Convertible Redeemable Preferred Stock
purchased $1,000,000 of the 6% Debentures. JW Genesis Securities, Inc. of
Boca Raton, Florida, acted as the primary finder in the transaction and
the Company paid JW Genesis a finder's fee equal to seven percent (7%) of
the amount raised from the sale of the 6% Debentures, which amounted to
$140,000. In addition, JW Genesis received a three-year, 60,000 share
Common Stock purchase warrant exercisable at $4.50 per share. The shares
underlying the Warrant are entitled to piggyback registration rights, with
the registration expenses to be paid by the Company. The Company also paid
a $50,000 finder's fee to Liviakis Financial Communications, Inc. ("LFC"),
which was 2.5% of the amount raised on the sale of the 6% Debentures,
under the consulting relationship between the Company and LFC. Messrs.
John M. Liviakis and Robert B. Prag, who are affiliates of LFC, are
significant shareholders of the Company.
The 6% Debentures are convertible into shares of Common Stock at the
option of the holders at the lesser of: 80% of the average closing bid
price of the Common Stock over the five trading days prior to conversion;
or $4.25 per share (the "Fixed Conversion Price"). Fifty percent of the 6%
Debentures held by any holder become convertible on the earlier of
effective registration of the underlying shares with the SEC or 120 days
after the Initial Issuance Date. The remaining 50% of the 6% Debentures
become convertible 150 days after the Initial Issuance Date. Subject to
certain adjustments described below, the 6% Debentures could not be
converted below a "floor" price, which is $2.125 per share. The floor was
eliminated 180 days after the Initial Issuance Date.
Once the underlying Common Stock has been registered with the SEC for
at least 90 days and the Common Stock has traded at or above $8.50 for at
least 20 consecutive trading days (based on the average closing bid price
over such period), the Company can require conversion of the 6%
Debentures, subject to certain restrictions if the stock is suspended from
trading or the registration of the underlying Common Stock is suspended.
Any 6% Debentures that have not been converted to Common Stock as of
the maturity date, or upon a merger, consolidation or other sale of the
Company or its assets in which the Company is not the surviving entity,
are to either be converted into Common Stock at the conversion price then
in effect or, at the option of the holders, must be redeemed by the
Company.
The Company committed to file a registration statement covering the
shares of Common Stock underlying the 6% Debentures by October 7, 1998. No
registration statement has yet been filed. Since the registration was not
effective with the SEC within 120 calendar days of the Initial Issuance
Date, the Company became obligated to pay a cash penalty of two percent
(2%) of the face amount of the 6% Debentures and thereafter an amount
equal to three percent (3%) of the face amount for every thirty calendar
days (or any fraction thereof) until the registration is effective.
Because the Company failed to obtain effectiveness of a registration
statement by January 18, 1999, the holders had the right to require the
Company to redeem the 6% Debentures at 120% of face value plus accrued and
unpaid interest and penalties to the date of redemption. The Company has
recorded as interest expense $280,000 in penalties as of March 31, 1999
for this obligation. The Company issued 454,705 shares of Series B
Preferred Stock to compensate the 6% Debenture holders for the penalties
as well as the interest owed through June 1999 at the rate of $1.00 per
share. In addition, the holders waived their default rights under the
original schedule described above and adopted the default schedule for the
Series B Preferred Stock. The Company is preparing to file a registration
statement covering the Common Stock issuable upon conversion of the 6%
Debentures and Series B Preferred Stock described below.
Private Offering of 6% Cumulative Convertible Redeemable Preferred Stock
(Series B)
--------------------------------------------------------------------------
On May 6, 1999, the Company completed the minimum amount phase of a
$1.5 to $5.0 million private placement pursuant to Regulation D of the
Securities Act of 1933. The financing was facilitated by an institutional
investor, through which the Company raised gross proceeds of $1,500,000.
The Company issued 6% Cumulative Convertible Redeemable Preferred Stock
(Series B) for $1.00 per share. The instrument gives the holder the right
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<PAGE>
to convert the Preferred Stock into shares of the Company's Common Stock in
the future at 80% of then current market price. Concurrent with this
transaction, the holders of the Company's 6% Convertible Debentures agreed
to convert all accrued interest and penalties into shares of the Series B
Preferred Stock. The Series B Preferred Stock and Common Stock to be issued
upon conversion have not been registered under the Act and may not be
offered or sold in the United States absent registration or an applicable
exemption from registration requirements.
The Company immediately used $400,000 of the proceeds to pay principal
and interest on a $400,000 bridge note entered into subsequent to the end
of third quarter 1999. In addition, proceeds will be used to pay finders
fees of $180,000 plus estimated offering expenses of $41,000 (including
approximately $26,000 for the investor's legal fees). The Company is
obligated to utilize an additional $413,000 of the proceeds to pay past and
future legal and accounting fees, while the estimated balance of $465,000
is to be used as working capital.
The Company also entered into an agreement (the "Registration Rights
Agreement") with the purchasers of the Series B Preferred to file a
registration statement with the SEC covering the Common Stock underlying
the Series B Preferred and the Warrants within 30 days of the Closing Date
to be effective within 90 days of the Closing Date. If the Company fails to
meet this requirement, monthly penalties accrue at the rate of 2 to 3
percent of the purchase price. In addition, if the Series B Registration
Statement has not been filed within 60 days of the Closing Date or has not
been declared effective within 150 days of the Closing Date, the holders of
the Series B Preferred may require the Company to redeem the Series B
Preferred for $1.25 per share, plus all accrued dividends. This will
activate certain prior registration rights granted by the Company to
holders of certain of its securities. The Company estimates that in
addition to the shares it will be required to register to cover conversions
of the Series B Preferred, it will include up to approximately 7,000,000
additional shares of Common Stock on the Series B Registration Statement to
honor such registration rights (including 150% of the shares needed to
cover conversions of the 6% Debentures).
The Company also issued a Common Stock Purchase Warrant exercisable to
purchase 300,000 shares of common Stock at $1.50 per share for five years
from April 30,1999 (the "Series B Warrants") to the cash purchaser of the
Series B Preferred. Holders of the 6% Debentures did not receive Series B
Warrants.
Mr. John Liviakis, a significant shareholder of the Company, also
agreed to transfer a total of 443,077 shares of Company Common Stock owned
by him to the finder who located the cash purchaser of the Series B
Preferred Stock. The shares will be transferred as "restricted securities"
as defined in Rule 144 under the Securities Act of 1933 and will not have
any registration rights.
Other Recent Borrowings and Financing Activities
------------------------------------------------
On October 28, 1998, the Company borrowed $500,000 from the CEO and 50%
owner of Cardservice International, Inc. The note bore interest at 8% per
annum and was payable in full on the earlier of the receipt by the Company
of proceeds from the sale of the Company's Common Stock to this individual
or March 1, 1999. In consideration for the loan, the Company also agreed
to issue a Common Stock Purchase Warrant exercisable to purchase 25,000
shares of Common Stock at $3.038 per share through October 27, 2001.
During the second fiscal quarter of 1999, the Company received two
additional bridge loans from Liviakis Financial Communications, Inc. (LFC)
totaling $300,000 in the form of 8% Notes Payable due April 1, 1999. In
January and February, the Company received an additional $390,000 of
bridge loans in the form of 8% Notes Payable, due April 1, 1999.
On March 19, 1999, the Company and holders of the 8% Notes agreed to
convert all $2,490,000 of principal plus accrued interest to Common Stock
at the rate of $.875 per share. This rate was established at a 20%
discount from the closing price of the Common Stock as of March 18, 1999.
Shares totaling 2,933,671 were issued as part of this agreement. These
shares are restricted securities and will become eligible for sale under
SEC Rule 144 one year after the original issuance dates of the promissory
notes.
On March 12, 1999, the Company entered into a note and common stock
purchase agreement with RBB Bank Aktiengesellschaft, which is the agent
for the holders of certain shares of the Company's Series A Preferred
Stock, and $1,000,000 of 6% Debentures. As part of this agreement, 50,000
shares of common stock and a $250,000 promissory note bearing interest at
10% due June 12, 1999 were issued. In connection with the issuance of the
Note, the Company also granted RBB Bank a right of first refusal to fund
any such additional bridge financing needed by the Company. This right
must be exercised within one day of RBB Bank being notified of the terms
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<PAGE>
of any such additional bridge financing. The shares issued as part of this
agreement are restricted securities and the Company will include the
shares in the Registration Statement to be filed for the 6% Convertible
Debentures and other share issuances. The loan was intended as a
short-term bridge loan and was originally required to be repaid from the
proceeds of any aggregate equity placements done by the Company which
amount to at least $1,000,000 in equity financing. In April 1999, RBB Bank
agreed to waive the right to immediate repayment of the $250,000. RBB Bank
agreed to forebear initiating an action against the Company to collect the
amount due until the earlier of receipt by the Company of funding in the
aggregate of at least $2,500,000, or December 1, 1999. Liviakis Financial
Communications, Inc, agreed to guarantee the note.
In March 1999, the Company entered into a consulting agreement with EBI
Securities Corporation for purposes of assisting the Company as a
corporate finance consultant in obtaining additional capital and liquidity
for its stock. The intent of the agreement is to position the Company for
future financing, including but not limited to a secondary public
offering. The agreement has an initial term of six months with an
available extension of 3 months. For its services, the Company issued
warrants to purchase 100,000 shares of its Common Stock exercisable at
$1.00 per share expiring three years from March 15, 1999. The Company
recorded a prepaid expense of $60,000 during the current quarter for these
warrants. The Warrants contain standard anti-dilution provisions and
provide EBI Securities with a cashless exercise provision and "piggy-back"
registration rights. The Company also agreed to pay a monthly consulting
fee of $5,000. Additionally, the agreement provides for a fee to be paid
for services rendered in conjunction with any merger or acquisition or
significant investment by the Company with fees ranging from 1% to 5%
based on the value of the transaction.
Year 2000 Issues
----------------
The Company has completed a review of the impact of the Year 2000 issue
on the Company's business. This issue concerns the potential problems and
liabilities faced by all users and persons dependent on computers that
might result from software or system failure or malfunctions if the
systems fail to properly recognize the date change between 1999 and 2000.
The Company's internal business systems have been evaluated, and with the
exception of the accounting system, are Year 2000 compatible. The Company
intends to replace the accounting software during fiscal year 1999. The
cost of conversion is not expected to be material. The engineering staff
has made an assessment of USWD products and is not aware of any
complications regarding the products the Company delivers to the end
users. The specific entities providing credit card processing services to
the Company have active Y2K projects underway. On a broader basis, the
Company is reliant on the electronic payments infrastructure utilized by
credit card processors, banks and financial institutions within the United
States, and could be subject to unresolved issues which impact this
infrastructure. The Company could be adversely, materially affected, both
operationally and financially, to the extent third parties with which it
interfaces, either directly or indirectly, has not properly addressed
their Year 2000 issues.
Fiscal 1999 Compared to Fiscal 1998
Net Revenue
-----------
Revenue of $261,000 for the third quarter of fiscal 1999 increased
slightly from revenue of $251,000 generated during the third quarter of
fiscal 1998 as the Company continued the shift to its new business model.
For the nine-month period, total revenue increased 79% to $1,142,000 from
the prior year's $637,000. In the third quarter, product sales of POS-500,
WEPSSM Enabler, POS-50 and other equipment sales decreased approximately
$28,000 while service revenue, which includes application fees,
transaction processing, and repair revenue increased by approximately
$38,000. Product sales slowed from the previous quarter as resellers
worked down their inventory levels. Services revenue of $137,000 decreased
somewhat from the immediate preceding quarter as the Company discontinued
sales under its former credit card processing offering and is just
starting the placement of units under the new WEPSSM program. In the
latter part of the first quarter of fiscal 1999, the Company embarked on a
significant shift in its product and distribution strategy. This involves
the integration of the Company's WEPSSM modem and server technology into
the product offerings of other terminal manufacturers and development of
distribution agreements with the major merchant card acquirers and card
processors. The transition to the new business model has been delayed
17
<PAGE>
somewhat due to the Company's constrained financial resources. The Company
anticipates that the transition will take several months as new products,
services and distribution capabilities are introduced to the market.
Gross Profit
------------
Gross profit of $21,000 in the third quarter of fiscal 1999 decreased
from the prior year level of $136,000. Gross margin decreased as a percent
of revenue to 8% in the current quarter from 54% in the prior quarter.
This was attributable to a decrease in product margins as product prices
were adjusted to wholesale versus retail structure, and negative margins
in the services segment. The services cost structure in the third quarter
reflects the components of the previous business model which includes
ongoing TRANZ Enabler amortization for processing units deployed. Efforts
are also underway to eliminate underutilized CDPD addresses from the CDPD
carrying cost. Billing for the new WEPSTM service has started and is
expected to improve the margin relationships as it becomes a more
predominate component of the services offering in the future. For the
nine-month period, gross profit decreased by $74,000 on a significant
increase in revenue during the nine-month period. The decrease in gross
profit for the nine-month period was attributable to the third quarter
variance described above.
Operating Expenses
------------------
Selling, general and administrative expense decreased from $2,518,000
in the third quarter of fiscal 1998 to $788,000 in the third quarter of
fiscal 1999. The large decrease in expense was primarily attributable to a
quarterly adjustment for a variable stock option resulting in a $658,000
non-cash credit to reflect the change in the carrying value of the option
due to the change in the Company's stock price during the quarter versus a
charge in the prior year third quarter of $519,000. Non-cash consulting
expense $594,000 in the third quarter of fiscal 1999 included a decrease
from the prior quarter of $214,000 related to investor relations and
business consulting. In response to the new business model, the Company's
personnel was reduced from 53 as of the end of September 1998 to 27 at the
end of March 1999, thereby reducing salary related expense by
approximately $120,000 per month. Several key consultants were added to
the management staff and compensated with stock options instead of cash.
The option valuation resulted in a $138,000 non-cash consulting charge to
general and administrative expense in the quarter. Expense for the
nine-month period decreased by $2,803,000 to $3,856,000, predominately due
to the accounting for the variable stock option and decreased compensation
expense noted above.
Research and development expenses increased by $27,000 from the prior
fiscal year's quarter to $105,000 in the third fiscal quarter of 1999.
This increase was primarily related to an increasing in staffing. For the
nine-month period, research and development expense increased by $112,000
to $363,000 in the current fiscal year, with a decrease in materials
expense partially offsetting the increased staff expense.
The prior year third quarter results include a $1,353,000 charge to
Litigation Settlement for the valuation of common shares issued to a group
of Certain Noteholders, in settlement of a dispute regarding rights
related to the conversion of the notes into shares of Common Stock.
Interest Expense and Other Income
---------------------------------
Interest expense of $448,000 in the current quarter includes accrued
interest on the 6% Convertible Debentures and various notes payable, and
$280,000 of late registration penalties related to the 6% Convertible
Debentures. Accrued interest and penalties on the Debentures were
converted into shares of Series B Preferred Stock in the fourth quarter of
the fiscal year. The prior year interest expense includes a $397,000 and
$622,000 non-cash charge to interest expense in the three and nine month
periods of fiscal 1998, respectively, related to an "in-the -money"
convertible option associated with the December 1997 private placement.
For the nine-month period, interest expense decreased slightly from
$707,000 to $681,000 in the current fiscal year.
For the nine-month period of fiscal 1999, other expense of $162,000
includes $351,000 resulting from the valuation of warrants issued to
several holders of the Series A Preferred Stock in return for an agreement
to restrict conversion of shares into Common Stock during the quarter.
This was partially offset by a $189,000 credit resulting from the
restructuring of a note payable to a former terminal equipment supplier.
18
<PAGE>
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
----------------------------------------------------
The Company continues to have significant problems due to its financial
condition and lack of liquidity. While management is optimistic with its
medium and long term opportunities, the Company is constrained by its
immediate financial condition and requirement for increased liquidity. The
Company has accumulated a deficit of approximately $33 million since
inception to March 31, 1999, with a working capital deficit of
approximately $1,720,000 at March 31, 1999, versus a deficit of $2,967,000
at year-end June 30, 1998. The Company was successful in restructuring
several note payable obligations to equity and has converted accrued
interest and late registration penalties on the 6% Convertible Debentures
to shares of Series B Preferred Stock. The Company is continuing to work
with key vendors on payables. The Company has completed the minimum amount
of an equity private placement and intends to raise additional funds via
the issuance of additional shares of Series B Preferred Stock. The Company
believes that it will be able to restructure commitments as necessary
while it completes an anticipated financing event designed to satisfy its
obligations and fund the business plan, although no assurance can be given
that this will be the case.
The increase in other assets from June 30, 1998 to March 31, 1999 is
attributable to unamortized debt issuance expense related to the 6%
Convertible Debenture issued in July 1998. The increase in long term
borrowings is also related to the 6% Convertible Debenture.
With the implementation of the new distribution strategy initiated in
the latter part of the first quarter of fiscal 1999 (see "Revisions to
Business Plan"), the Company has taken steps to reduce spending. With the
new focus on distribution through large merchant acquirers, the Company
has reduced personnel from 60 at June 30, 1998, to 27 as of March 31,
1998, with most of the reduction occurring in the direct sales force.
Based on current staffing levels, the Company's cash expenditures are
running at a monthly rate of approximately $225,000 versus $450,000 per
month during the fourth quarter of fiscal 1998. However, execution of the
Company's current business plan is dependent on a significant debt or
equity financing event in the immediate future. The Company continues to
work both directly and through its consultants to secure additional debt
or equity financing which is required to fund operations while a
significant recurring revenue stream is built. While management is
confident it can accomplish this objective, the inability of the Company
to secure additional financing in the near term could adversely impact the
Company's financial position, including its ability to continue as a going
concern.
PART II
ITEM 1 - Legal Proceedings
Settlement of Claims of Certain Noteholders
In April 1998, the Company entered into an agreement with certain
Noteholders under which the Company issued shares of Common Stock in
settlement of the dispute. Terms of the settlement entitled the
Noteholders to certain guarantee or put provisions related to the shares.
The guarantee provision of the settlement agreement allows the former
Noteholders to recover the difference between the guarantee price (which
is $3.00 per share as to the shares that are still entitled to the
guarantee) and the gross amount the Noteholder receives upon a sale of the
shares. The guarantee is operative at any time during the one year period
commencing on the date the shares became saleable under SEC Rule 144. The
Company is obligated to pay the amount due within thirty days of receiving
a demand, accompanied by documentation confirming the sale. Under the
"put" provision of the settlement agreement, the former Noteholders will
have a five day period commencing on the date one year from the date the
shares become saleable under SEC Rule 144 during which the former
Noteholders may "put" any shares remaining unsold by them at the time back
to the Company. Upon exercise of the put, the Company must either (1)
purchase the shares for the put price of $3.00 per share, or (2) require
the shareholder to sell the shares into the market, with the Company
making up the difference between the put price and the gross amount
received by the shareholder upon such sale, within 15 days after receipt
of written notice and documentation confirming the sale. The shares
originally issued upon conversion of the notes and the additional shares
resulting from the settlement are reflected as Redeemable Common Stock on
the balance sheet. The originally issued shares are reflected at their
conversion value adjusted for the value attributable to the guarantee and
"put" provisions. In the event redemption of such shares becomes probable
and the actual redemption amount is in excess of the carrying amount, such
excess amount will be recorded as litigation settlement expense. The
additional shares are reflected at their redemption value. As of March 31,
1999, there are up to approximately 128,000 shares subject to the
guarantee and "put" provision, with a carrying value of $232,000,
outstanding, which have a maximum redemption value of approximately
$384,000 prior to any reduction for amounts the holder may receive upon
the sale of such shares. On April 29, 1999, certain Noteholders having
approximately 83,500 shares, agreed to waive their guarantee and "put"
rights in return for the isssuance of 200,000 restricted shares of the
Company's Common Stock.
19
<PAGE>
ITEM 2 - CHANGES IN SECURITIES
Recent Issuances of Unregistered Securities:
During the fiscal quarter ended March 31, 1999, the Company sold or
issued the following securities without registering the securities under
the Securities Act of 1933, as amended (the "Act").
March 1, 1999: 15,000 Common Stock purchase warrants issued to a
consultant exercisable at $2.70 per share through September 13, 2001.
March 12, 1999: 50,000 shares of Common Stock issued to RBB Bank
Aktiengesellschaft as partial consideration for a bridge loan.
March 15, 1999: 100,000 Common Stock purchase warrants issued to a
finance consultant exercisable at $1.00 per share through September 13,
2002.
March 19, 1999: 2,933,671 Common Shares issued upon conversion of 8%
Promissory Notes.
The Company relied upon the registration exemption contained in Section
4(2) of the Securities Act of 1933 for these transactions. None of the
transactions involved a public offering. Representations were received
from the purchasers of the securities to the effect that the purchasers
were taking for investment purposes only and not with a view to
distribution; "restricted securities" legends were or will be imprinted
on all certificates; and stop-transfer instructions will be lodged with
the Company's transfer agent as to all shares of common stock issued upon
exercise of the Warrants.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
6% Convertible Subordinated Debentures Due July 21, 2000
Pursuant to the Debenture Agreement relating to the Company's 6%
Convertible Subordinated Debentures due July 21, 2000, the Company
committed to file a registration statement with the Securities and
Exchange Commission by October 7, 1998, covering the shares of Common
Stock issuable upon conversion of the 6% Debentures which the Company sold
in July 1998. That registration statement has not been filed as of the
date of filing of this Report. The security required effective
registration of the underlying shares within 120 days of July 21, 1998,
with the following cash penalties for failure to obtain effectiveness by
that time: 2% of the face amount of the Debentures at 120 days; and 3% of
the face amount of the Debentures for each additional 30 day period (or
any part of any 30-day period) during which the registration statement
remains ineffective. The holders also have the right to require the
Company to redeem the Debentures for 120% of face value plus accrued
interest if the shares were not registered by January 18, 1999. The
Company had not made the penalty or interest payments totaling $363,000 as
of March 31, 1999. The holders also have the right to accelerate the
payment of all amounts due and owing under the Debentures if an "Event of
Default" (as defined in the Debenture Agreement) is not cured within 45
days of its occurrence. Failure to pay the penalties and/or interest
within the periods required by the Debenture Agreement may constitute
"Events of Default." On May 7, 1999, the Company and the 6% Debenture
holders agreed to convert all the accrued interest and penalties into
shares of the Series B Preferred Stock. In addition, they waived their
default rights under the original schedule described above and adopted the
default schedule for the Series B Preferred Stock.
20
<PAGE>
Series A Preferred Stock
In September 1998, the Company redeemed a total of 833,000 shares of
its Series A Preferred Stock. In conjunction with that redemption, the
Company also agreed to issue warrants exercisable to purchase a total of
212,257 shares of Common Stock to the holders of the remaining shares of
Series A Preferred Stock. The redemption agreement includes provisions
that obligated the Company to file a registration statement by October 31,
1998, covering any additional shares issuable upon conversion of the
Series A Preferred Stock (beyond those included in the original SB-2
Registration Statement that was declared effective as of August 7, 1998,
which, because of a declining stock price, included an insufficient number
of shares to cover conversion of all of the outstanding shares of Series A
Preferred Stock), plus the shares issuable upon exercise of the warrants.
The Company has not filed this registration statement as of the date of
filing of this Report, and penalties similar to those contained in the
original Designation of Series A Preferred Stock apply if the Company is
"late" in getting the shares registered
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits required by Item 601 of Regulation S-B
4.1 Note and Common Stock Purchase Agreement with RBB Bank,
dated March 12, 1999
10.1 Promissory Note Conversion and Common Stock Purchase
Agreement with Burtzloff Family Trust, dated March 19, 1999
10.2 Common Stock Purchase Agreement Pursuant to Note Payable
Conversion to Equity with Liviakis Financial Communications,
Inc., dated March 19, 1999
27 Financial Data Schedule
b) Reports on Form 8-K - none filed during this period.
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 17, 1999 By: \s\Dean M. Leavitt
------------------------------
May 17, 1999 By: \s\ Robert E. Robichaud
------------------------------
Chief Financial Officer
U.S. WIRELESS DATA, INC.
NOTE AND COMMON STOCK PURCHASE AGREEMENT
1. General. This Note and Common Stock Purchase Agreement sets forth the
terms under which the undersigned ("Investor") agrees to purchase a $250,000
principal amount, 10% Promissory Note (the "Note") of U.S. Wireless Data, Inc.,
a Colorado corporation (the "Company") due June 12, 1999 (the "Due Date"),
together with 50,000 shares no par value Common Stock of the Company (the
"Common Stock"). The shares will be issued as restricted securities and the
Company will include the shares in the Registration Statement to be filed for
the 6% Convertible Debentures and other share issuances.
By execution hereof, Investor acknowledges that Investor understands that
the Company is relying upon the accuracy of the representations and warranties
of Investor contained herein.
2. Subscription Amount and Payment. Investor tenders $250,000 in full
payment for theNote and Common Stock.
3. Company Need for Additional Financing; Investor's Right of First
Refusal.
a. Need for Additional Financing. Investor understands and agrees that
the Company is presently engaged in several negotiations aimed at raising
substantial additional equity financing in an amount of at least
$1,000,000, but may require additional bridge financing in the form of
Company debt in the immediate future, and prior to the time when the
Company is able to complete a more substantial equity or debt financing
(such intermediate funding being referred to hereafter as the "Bridge
Financing"). Investor agrees that the Company shall be entitled to seek and
obtain such Bridge Financing.
b. First Right of Refusal. Investor is hereby given a right of first
refusal to fund any such additional Bridge Financing. Upon receipt by the
Company of any bona fide proposal for such Bridge Financing from any
person, the Company shall provide a copy of the proposal and/or a summary
of the terms of such proposed financing to Investor, which shall have one
business day from receipt of such information to determine whether to
exercise its first right of refusal, and fund the Bridge Financing on the
same terms and conditions as have been offered by the other party. If
Investor rejects such offer, or fails to respond within the applicable
period, the Company shall be free to accept such proposal from the other
party. Any substantial change in the terms of such proposal by the other
party subsequent to a rejection by Investor and prior to funding shall
reactivate Investor's first right of refusal, which shall be presented to
Investor on the revised terms.
4. Prepayment of the Note. Investor understands that the Company has been
engaged in discussions with various parties, including Investor, regarding the
possible issuance by the Company of additional debt or equity securities (apart
from the Bridge Financing described in Section 4 above), including the possible
issuance of a Preferred Stock to be authorized and issued by the Company upon
final agreement as to the terms of such Preferred Stock. The Company and
Investor agree that at any time prior to the Due Date of the Note, the Note
shall be paid in full (as to all amounts of unpaid principal and interest then
owing) from the proceeds of the sale of any equity or debt securities of the
Company (including shares of Preferred Stock), provided the Company has received
gross proceeds in the minimum amount of U.S. One Million Dollars ($1,000,000)
from the sale of such equity or debt securities (but from which amount any
proceeds from a Bridge Financing shall be excluded).
5. Investor's Representations and Warranties. Investor represents, warrants
and covenants to the Company that:
a. Investor has carefully reviewed the information contained in the
Company's most recent Quarterly Report on Form 10-QSB for the fiscal
quarter ended December 31, 1998. Investor acknowledges Investor has
received, read, understood and become thoroughly familiar with the "Risk
Factors" section set forth therein, as well as the "Risk Factors" contained
in the Company's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1998. Investor has not relied on any information or statement not
contained in these financial reports. Investor understands that an
investment in the Company's securities is one of high risk and that no
person has been authorized to give any information or to make any statement
concerning the Company that in any way contradicts what is stated in the
financial reports.
b. Investor has had an adequate opportunity to discuss the Company's
business, management and financial affairs with the Company's management
and has received satisfactory responses to such inquiries.
c. By reason of Investor's business and financial experience or of
those persons Investor has retained to advise Investor with respect to
Investor's investment in the Company, Investor, together with Investor's
advisors, has the capacity to evaluate the merits and risks of the
prospective investment.
d. Investor has been informed that all documents, records and books
pertaining to the Company and this investment were at all times available
to Investor. Investor has utilized such access to Investor's satisfaction
for the purpose of obtaining information regarding the investment. All
documents, records and books pertaining to this investment requested by
Investor have been made available to Investor and the persons Investor has
retained to advise Investor with respect to this investment. Investor and
such persons have been supplied with such additional information concerning
this investment as they have requested.
e. To the extent Investor deemed necessary, Investor has consulted
with Investor's attorney and/or Investor's accountant regarding all aspects
of the proposed investment, including the tax aspects thereof, and said
attorney and/or accountant have reviewed and analyzed the Company's most
recent financial reports on Form 10-KSB and Form 10-QSB.
f. Investor is able to bear the economic risk of this investment and
could afford a complete loss of such investment.
g. Investor is the sole party in interest as to the investment and is
acquiring the Note and Common Stock for Investor's own account, for
investment only and not with a view toward the resale or distribution
thereof, unless and until the initial Common Stock is registered under
applicable federal and state securities law or an exemption from such
registration requirements is available for distribution of the shares.
h. Investor understands that neither the Note nor the shares of Common
Stock have been registered under the Securities Act of 1933 (the "Act") and
may not be resold unless registered or an exemption from such registration
is available. Investor agrees that Investor will not attempt to dispose of
the Note or, if applicable, the shares that may be issued upon conversion
of the Note, except in compliance with the Act.
i. Investor has the authority to purchase the Note and Common Stock
and to execute any other instruments or documents required to be executed
in connection with a purchase of the Note and Common Stock.
6. Indemnification. The Investor shall indemnify and hold harmless the
Company, the officers, directors, employees and/or agents of the Company from
and against any and all loss, damage, liability or expense, including costs and
reasonable attorneys' fees, to which they may be put or which they may incur by
reason of or in connection with any failure of the Investor's representations
and warranties to be fully true, correct, and complete or Investor's failure to
fulfill any of Investor's covenants or agreements under this Agreement.
7. Events of Default. The Note will be considered in default immediately
upon the happening of any of the following events:
a. Failure to pay any installment of principal and interest within ten
(10) days of its due date; or
b. the Company (I) admits in writing its inability to pay its debts
generally as they become due, (II) files a petition in bankruptcy or
petition to take advantage of any insolvency act, (III) makes an assignment
for the benefit of its creditors, (IV) consents to the appointment of a
receiver of itself or of the whole or any substantial part of its property,
(V) a petition in bankruptcy filed against it, has an order for relief
entered against it, (VI) files a petition or answer seeking reorganization
or arrangement under the federal bankruptcy laws or any state insolvency
law, or (VII) distributes any of its assets upon any dissolution, winding
up-or liquidation of the Company.
8. Miscellaneous.
a. This Agreement shall be governed by and construed in accordance
with the laws of the State of Colorado, excluding, however, so much of said
law as relates to conflict of laws and/or choice of law.
b. This Agreement contains the entire agreement between the parties
with respect to its subject matter. The provisions of this Agreement may
not be modified or waived except in writing signed by the party to be bound
by any which modification or waiver.
9. NASD Affiliation. Neither Investor nor any person affiliated with
Investor is a member of a broker-dealer licensed with the National Association
of Securities Dealers, Inc. ("NASD") nor is any such parson affiliated, directly
or indirectly, by ownership or otherwise, with any NASD member.
10. Investor's Status. The Investor represents and warrants that Investor
is an accredited investor because (please initial all that are applicable):
___ The Investor is a director or executive officer of the Company.
___ The Investor and Investor's spouse (if any) have an aggregate
net worth exceeding $1,000,000.
___ The Investor has had an individual income in excess of
$200,000 or joint income with Investor's spouse in excess of $300,000 in each of
the two most recent years and reasonably expects the same income in the current
year.
___ The Investor is an entity in which all of the equity
owners are accredited investors within the meaning of Rule 501(a) under the Act.
_X__ The Investor is a bank, savings and loan association,
broker or dealer, insurance company, investment company, business development
company, small business investment company, employee benefit plan, non-profit
organization, or trust meeting the requirements of Rule 501(a) under the Act.
IN WITNESS WHEREOF, Investor has executed this Note Purchase
Agreement the ______ day of _______, 1999.
RBB Bank as agent for clients
- ---------------------------------- ACCEPTED:
(Print Name)
/s/ Herbert Strauss
- ---------------------------------- U.S. WIRELESS DATA, INC.
(Signature) Herbert Strauss,
Managing Director US Equity
Social Security or Tax I.D. Number: /s/ Robert E. Robichaud
- ----------------------------------- ---------------------------------
By: Robert E. Robichaud, President
- -----------------------------------
Address: Date: March 12, 99
Burgring 16
- ----------------------
8010 Graz, Austia
- ----------------------
U.S. WIRELESS DATA, INC.
PROMISSORY NOTE CONVERSION AND
COMMON STOCK PURCHASE AGREEMENT
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Promissory Note Conversion and Issuance of Common Stock................3
1.1 Promissory Note Conversion and Issuance of Common Stock......3
1.2 Closing......................................................3
2. Representations and Warranties of the Company..........................3
2.1 Organization, Good Standing and Qualification................4
2.2 Capitalization...............................................4
2.3 SEC Documents; Company Financial Statements..................4
2.4 Authorization................................................5
2.5 Valid Issuance of Preferred and Common Stock.................5
2.6 Compliance with Other Instruments............................5
2.7 Litigation...................................................5
2.8 Environmental and Safety Laws................................6
2.9 Title to Property and Assets.................................6
2.10 Patents and Trademarks......................................6
2.11 Employee Benefits...........................................6
2.12 Offering....................................................7
2.13 Holding Period Under Rule 144...............................7
3. Representations and Warranties of the Investor.........................7
3.1 Authorization................................................7
3.2 Purchase Entirely for Own Account............................8
3.3 Disclosure of Information....................................8
3.4 Investment Experience........................................8
3.5 Accredited Investor..........................................8
3.6 Restricted Securities........................................8
3.7 Further Limitations on Disposition...........................8
3.8 Legends......................................................9
4. Conditions of each Investor's Obligations at Closing...................9
4.1 Representations and Warranties...............................9
4.2 Performance..................................................9
4.3 Qualifications..............................................10
4.4 No Material Adverse Change..................................10
4.5 Officer's Certificate.......................................10
---------------------
5. Conditions of the Company's Obligations at Closing....................10
5.1 Representations and Warranties..............................10
5.2 Payment of Purchase Price...................................10
5.3 Qualifications..............................................10
i
<PAGE>
6. Miscellaneous.........................................................10
6.1 Survival of Warranties......................................10
6.2 Successors and Assigns......................................10
6.3 Governing Law...............................................11
6.4 Counterparts................................................11
6.5 Titles and Subtitles........................................11
6.6 Notices.....................................................11
6.7 Finder's Fee................................................11
6.8 Expenses....................................................11
6.9 Amendments and Waivers......................................11
6.10 Severability...............................................12
6.11 Entire Agreement...........................................12
ii
<PAGE>
U.S. WIRELESS DATA, INC.
PROMISSORY NOTE CONVERSION AND
COMMON STOCK PURCHASE AGREEMENT
THIS PROMISSORY NOTE CONVERSION AND STOCK PURCHASE AGREEMENT is entered
into as of the 19th day of March 1999 (the "Effective Date"), by and among U.S.
Wireless Data, Inc., a Colorado corporation (the "Company"), and the Burtzloff
Family Trust (which is herein referred to as the "Investor") to evidence the
terms and conditions pursuant to which the Company and Investor shall convert
that certain Note Payable in the principal amount of $500,000 issued by the
Company to Investor as of October 28, 1999 (the "Promissory Note"), a copy of
which is attached hereto as Exhibit A.
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Promissory Note Conversion and Issuance of Common Stock.
--------------------------------------------------------
1.1 Promissory Note Conversion and Issuance of Common Stock.
------------------------------------------------------------
(a) On or prior to the Closing (as defined below), the Company shall
have authorized the conversion of the Promissory Note and the issuance of
the Common Stock (the "Shares") to the Investor, as described below. The
Shares shall have the rights, preferences, privileges and restrictions set
forth in the Articles of Incorporation in the form attached hereto as
Exhibit B (the "Articles of Incorporation").
(b) Subject to the terms and conditions of this Agreement, the
Investor agrees to convert the Promissory Note and all interest accrued but
unpaid thereon, into 589,213 shares of the Company's Common Stock at the
rate of $0.875 of principal and accrued interest owing on the Promissory
Note (through March 19, 1999) per share (which is equal to the closing
price of the Common Stock as of the date prior to the Effective Date this
Agreement, less a discount of 20%).
(c) Closing. The conversion of the Promissory Note and the issuance of
the Shares in exchange therefor shall be deemed to have occurred as of the
Effective Date. The date as of which both parties shall have executed this
Agreement is referred to herein as the "Closing Date." Within five business
days after the Closing Date, the Company shall deliver to the Investor a
certificate representing the Shares being issued to Investor hereunder,
against delivery of the original Promissory Note to the Company, endorsed
by Investor as "Paid."
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investor that, except as set forth on the
Schedule of Exceptions provided to Investor herewith (the "Schedule of
Exceptions"), which exceptions shall be deemed to modify the representations and
warranties of the Company made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Colorado and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in
good standing in each jurisdiction in which the failure to so qualify would
have a material adverse effect on its business or properties.
2.2 Capitalization. The Company's Quarterly Report on Form 10-QSB for
the period ended December 31, 1998 accurately describes the authorized and
outstanding capital stock and securities of the Company as of that date.
2.3 SEC Documents; Company Financial Statements. As of their
respective filing dates, each annual, quarterly and other report and each
registration statement filed by Company with the SEC (the "Company SEC
Documents") comply in all material respects with the requirements of the
Securities Act of 1933 and the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), as the case may be, and the rules and regulations of
the SEC promulgated thereunder applicable to such Company SEC Documents,
and none of the Company SEC Documents contained on their filing dates any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
except to the extent corrected by a subsequently filed Company SEC
Document. The financial statements of the Company included in the Company
SEC Documents (the "Company Financial Statements") complied as to form in
all material respects with the published rules and regulations of the SEC
with respect thereto, were prepared in accordance with GAAP applied on a
consistent basis throughout the periods indicated (except as may be
indicated in the notes thereto or, in the case of unaudited financial
statements, as permitted under Form 10-QSB under the Exchange Act) and
fairly presented the consolidated financial position of the Company at the
respective dates thereof and the consolidated results of the Company's
operations and cash flows for the periods indicated (subject, in the case
of unaudited statements, to normal and recurring year-end audit
adjustments), except to the extent corrected by a financial statement in a
subsequently filed Company SEC Document. There has been no change in the
Company's accounting policies or estimates, except as described in the
notes to the Company Financial Statements or as required by GAAP. Since the
date of the most recent balance sheet included in the Company SEC Documents
to the date hereof, there has been no change, event or effect that is
materially adverse to the business, assets (including intangible assets),
financial condition or results of operations of the Company taken as a
whole, except for continuing losses incurred in the ordinary course of
business and the continuing default by the Company (and consequential
penalties) on its $2,000,000 of 6% Convertible Subordinated Debentures Due
July 21, 2000. Until such time as the Shares being acquired hereunder are
freely transferable by the Investor or any permitted transferee pursuant to
Rule 144(k), the Company agrees to timely file all Company SEC Documents
required to be filed pursuant to Rule 144(c)(1).
2.4 Authorization. All corporate action on the part of the Company,
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement (as defined herein), the
performance of all obligations of the Company hereunder and thereunder, and
the authorization, issuance (or reservation for issuance), sale and
delivery of the Shares being sold hereunder has been taken or will be taken
prior to the Closing, and this Agreement constitutes valid and legally
binding obligations of the Company, enforceable in accordance with their
respective terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, and (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies.
2.5 Valid Issuance of Common Stock. The Common Stock that is being
purchased by the Investor hereunder, when issued, sold and delivered in
accordance with the terms of this Agreement for the consideration expressed
herein, will be duly and validly issued, fully paid, and nonassessable, and
will be free of restrictions on transfer other than restrictions on
transfer under this Agreement and under applicable state and federal
securities laws.
2.6 Compliance with Other Instruments. The Company is not in violation
or default of any provision of its Articles of Incorporation or Bylaws, or
in any material respect of any instrument, judgment, order, writ, decree or
contract to which it is a party or by which it is bound, or, to the best of
its knowledge, of any provision of any federal or state statute, rule or
regulation applicable to the Company, except as to those violations or
defaults described in the Company's Quarterly Report on Form 10-QSB for the
period ended December 31, 1998 all of which continue to exist as of the
date of this Agreement. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will
not result in any such violation or be in conflict with or constitute, with
or without the passage of time and giving of notice, either a default under
any such provision of its Articles of Incorporation or Bylaws, or in any
material respect of any instrument, judgment, order, writ, decree or
contract to which it is a party or by which it is bound, or, to the best of
its knowledge, of any provision of any federal or state statute, rule or
regulation applicable to the Company.
2.7 Litigation. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the
Company that questions the validity of this Agreement, the right of the
Company to enter into this Agreement, or to consummate the transactions
contemplated hereby, or that might result, either individually or in the
aggregate, in any material adverse changes in the assets, condition,
affairs or prospects of the Company, financially or otherwise, or any
change in the current equity ownership of the Company, except as may result
from an action based on the default by the Company on its 6% Convertible
Subordinated Debentures Due July 21, 2000.
2.8 Environmental and Safety Laws. To its knowledge (but without
having conducted any environmental assessments or studies), the Company is
not in violation of any applicable statute, law or regulation concerning
the environment or occupational health and safety, and to the best of its
knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation, which violation
is materially adverse to the business, assets (including intangible
assets), financial condition or results of operations of the Company taken
as a whole.
2.9 Title to Property and Assets. The Company owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances,
except such encumbrances and liens that arise in the ordinary course of
business and do not materially impair the Company's ownership or use of
such property or assets. With respect to the property and assets it leases,
the Company is in compliance in all material respects with such leases and,
to the best of its knowledge, holds a valid leasehold interest free of any
liens, claims or encumbrances, except for liens, claims or encumbrances
that do not materially impair the Company's ownership or use of such
property or assets.
2.10 Patents and Trademarks. To its knowledge (but without having
conducted any special investigation or patent or trademark search), the
Company has sufficient title and ownership of or licenses to all patents,
trademarks, service marks, trade names, copyrights, trade secrets,
information, proprietary rights and processes necessary for its business as
now conducted without any conflict with or infringement of the rights of
others, except for such items as have yet to be conceived or developed or
that are expected to be available for licensing on reasonable terms from
third parties. The Company has not received any communications alleging
that the Company has violated or, by conducting its business as proposed,
would violate any of the patents, trademarks, service marks, trade names,
copyrights or trade secrets or other proprietary rights of any other person
or entity. The Company is not aware that any of its employees is obligated
under any contract (including licenses, covenants or commitments of any
nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of
his or her best efforts to promote the interests of the Company or that
would conflict with the Company's business as proposed to be conducted.
Neither the execution nor delivery of this Agreement, nor the carrying on
of the Company's business by the employees of the Company, will, to the
Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated.
The Company does not believe it is or will be necessary to utilize any
inventions of any of its employees (or people it currently intends to hire)
made prior to their employment by the Company.
2.11 Employee Benefits. Except as described in the SEC Documents, the
Company is not a party to or bound by any bonus, deferred compensation,
incentive, pension, retirement, profit sharing, employee stock ownership,
stock bonus, stock purchase, restricted stock or stock option plans, any
employment agreements, retirement agreements or other employee compensation
agreements, or any other benefit plans, policies, agreements or
arrangements, including but not limited to "employee benefit plans," within
the meaning of Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), except as set forth in Section 3.12 of the
Schedule of Exceptions (each a "Plan" and collectively the "Plans"). All
Plans are in substantial compliance with ERISA, the Code and any other
applicable laws, and each Plan which is an "employee benefit plan" within
the meaning of Section 3(2) of ERISA and which is intended to be qualified
under Section 401(a) of the Code, has received a favorable determination
letter from the Internal Revenue Service, and the Company is not aware of
any circumstances that could result in revocation of any such favorable
determination letter. The Company has not engaged in any transaction with
respect to any Plan subject to ERISA that could subject the Company to any
material tax or penalty imposed by either Section 4975 of the Code or
Section 502(i) of ERISA. The Company does not and has at no time,
sponsored, maintained, contributed to or been obligated to make
contributions to any employee benefit pension plan subject to Title IV of
ERISA including, without limitation, any "multiemployer plan" as defined in
Section 3(37) or 4001(a)(3) of ERISA.
2.12 Offering. Subject in part to the truth and accuracy of the
Investor's representations set forth in Section 3 of this Agreement, the
offer, sale and issuance of the Shares as contemplated by this Agreement
are exempt from the registration requirements of any applicable state and
federal securities laws, and neither the Company nor any authorized agent
acting on its behalf will take any action hereafter that would cause the
loss of such exemption.
2.13 Holding Period Under Rule 144. The Company represents to, and
agrees with, the Investor, that the holding period for the Shares being
issued to the Investor hereunder commenced, as provided under Rule
144(d)(3)(ii), on October 28, 1998, the date of the Investor's initial
acquisition of the Promissory Note being converted into such Common Stock.
The Company agrees that, except as may be required of it as a result of a
change in the law or SEC regulations occurring after the Effective Date
(including interpretations of law or regulations as set forth in an SEC
No-Action Letter first available after the Effective Date), it will not
assert any different date as the commencement of the Rule 144 holding
period in connection with any further transfer of the Shares.
3. Representations and Warranties of the Investor. The Investor, as to
itself only and not as to any other Investor, hereby represents and warrants
that:
3.1 Authorization. The Investor has full power and authority to enter
into this Agreement and it constitutes valid and legally binding
obligations, enforceable in accordance with its terms except (i) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium, and other
laws of general application affecting enforcement of creditors' rights
generally, and (ii) as limited by laws relating to the availability of
specific performance, injunctive relief, or other equitable remedies.
3.2 Purchase Entirely for Own Account. This Agreement is made with the
Investor in reliance upon the Investor's representation to the Company,
which by the Investor's execution of this Agreement the Investor hereby
confirms, that the Shares to be received by the Investor (the "Security")
will be acquired for investment for Investor's own account, not as a
nominee or agent, and not with a view to the resale or distribution of any
part thereof, and that the Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same, in each
case, in violation of the Securities Act or any state securities laws. By
executing this Agreement, the Investor further represents that the Investor
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any
third person, with respect to the Security.
3.3 Disclosure of Information. The Investor believes it has received
all the information it considers necessary or appropriate for deciding
whether to purchase the Shares. The Investor further represents that it has
had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Shares and the
business, properties, prospects and financial condition of the Company. The
foregoing, however, does not limit or modify the representations and
warranties of the Company in Section 2 of this Agreement or the right of
the Investor to rely thereon.
3.4 Investment Experience. The Investor is an investor in securities
of companies in the development stage and acknowledges that it is able to
fend for itself, can bear the economic risk of its investment, and has such
knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Shares.
If other than an individual, Investor also represents it has not been
organized for the purpose of acquiring the Shares.
3.5 Accredited Investor. The Investor is an "accredited investor"
within the meaning of Securities and Exchange Commission ("SEC") Rule 501
of Regulation D, as presently in effect.
3.6 Restricted Securities. The Investor understands that the Shares it
will receive are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations the Shares may be resold without registration under
the Act only in certain limited circumstances. In this connection, the
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the
Act.
3.7 Further Limitations on Disposition. Without in any way limiting
the representations set forth above, the Investor further agrees not to
make any disposition of all or any portion of the Shares unless and until
the transferee has agreed in writing for the benefit of the Company to be
bound by this Section 3; provided, and to the extent, this Section and such
agreement are then applicable, and:
(a) (i) The Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed
disposition, and (ii) if reasonably requested by the Company, the
Investor shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such disposition will not
require registration of such Shares under the Act. It is agreed that
the Company will not require opinions of counsel for transactions made
pursuant to Rule 144 except in unusual circumstances.
(b) Notwithstanding the provisions of Paragraph (a) above, no
such registration statement or opinion of counsel shall be necessary
for a transfer by the Investor that (i) is a partnership to a partner
of such partnership or a retired partner of such partnership who
retires after the date hereof, or to the estate of any such partner or
retired partner or the transfer by gift, will or intestate succession
of any partner to his or her spouse or to the siblings, lineal
descendants or ancestors of such partner or his or her spouse, or (ii)
is a trust to a settlor or beneficiary of such trust or to the estate
of any such settlor or beneficiary, in each case, if the transferee
agrees in writing to be subject to the terms hereof to the same extent
as if he or she were an original Investor hereunder.
3.8 Legends. It is understood that the certificates evidencing the
Shares may bear one or all of the following legends (or a legend
substantially similar to the following legends):
(a) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for
sale, pledged or hypothecated in the absence of a registration
statement in effect with respect to the securities under such Act or
an opinion of counsel satisfactory to the Company that such
registration is not required or unless sold pursuant to Rule 144 of
such Act."
(b) Any legend required by applicable state securities laws.
4. Conditions of the Investor's Obligations at Closing. The obligations of
the Investor under subsection 1.1(b) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective against the Investor who does not consent
thereto:
4.1 Representations and Warranties. The representations and warranties
of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties
had been made on and as of the date of such Closing.
4.2 Performance. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the
Closing.
4.3 Qualifications. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale
of the Shares pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
4.4 No Material Adverse Change. Since the date of the most recent
balance sheet included in the Company SEC Documents, there shall have been
no change, event, or effect that is materially adverse to the business (as
such business is presently conducted and as it is proposed to be
conducted), assets (including intangible assets), financial condition or
results of operations of the Company taken as a whole, except as described
in the Company SEC Documents or the representations and warranties of the
Company included herein.
4.5 Officer's Certificate. The Investor shall have received a
certificate of the Company's President and Chief Financial Officer
attesting to Sections 4.1 through 4.4 of this Agreement as of the Closing
Date.
5. Conditions of the Company's Obligations at Closing. The obligations of
the Company to the Investor under this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions by the Investor:
5.1 Representations and Warranties. The representations and warranties
of the Investor contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
5.2 Payment of Purchase Price. The Investor shall have delivered the
Promissory Note for conversion and cancellation as specified in Section 1.2
of this agreement.
5.3 Qualifications. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale
of the Shares pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
6. Miscellaneous.
6.1 Survival of Warranties. The warranties, representations and
covenants of the Company and Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and
the Closing and shall in no way be affected by any investigation of the
subject matter thereof made by or on behalf of the Investor or the Company.
6.2 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties
(including transferees of any Shares). Nothing in this Agreement, express
or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
6.3 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
6.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be
deemed effectively given upon personal delivery to the party to be notified
or upon deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified
at the address indicated for such party on the signature page hereof, or at
such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
6.7 Finder's Fee. Each party represents that it neither is nor will be
obligated for any finders' fee or commission in connection with this
transaction. The Investor agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature
of a finders' fee (and the costs and expenses of defending against such
liability or asserted liability) for which such Investor or any of its
officers, partners, employees, or representatives is responsible. The
Company agrees to indemnify and hold harmless the Investor from any
liability for any commission or compensation in the nature of a finders'
fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Company or any of its officers, employees
or representatives is responsible.
6.8 Expenses. Irrespective of whether the Closing is effected, the
Company and the Investor shall pay their own respective costs and expenses
incurred with respect to the negotiation, execution, delivery and
performance of this Agreement. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which such party
may be entitled.
6.9 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the
Investor. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon the holder of any securities purchased
under this Agreement at the time outstanding (including securities into
which such securities are convertible), each future holder of all such
securities, and the Company.
6.10 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision was so excluded and shall be enforceable
in accordance with its terms.
6.11 Entire Agreement. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall
be liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
[The remainder of this page has been left blank intentionally.]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
U.S. WIRELESS DATA, INC.
/s/ Rod Stambaugh
-----------------------------------
By: Rod Stambaugh
President
Address: 2200 Powell Street, Suite 800
Emeryville, CA 94608
INVESTOR:
BURTZLOFF FAMILY TRUST
By: /s/ Charles Burtzloff
--------------------------------
Charles Burtzloff, Trustee
Address: c/o Cardservice International, Inc.
26775 Malibu Hills Road
Agoura Hills, CA 91301
U.S. WIRELESS DATA(R) INC.
COMMON STOCK PURCHASE AGREEMENT
RELATING TO
2,344,458 SHARES OF COMMON STOCK
PURSUANT TO NOTES PAYABLE CONVERSION TO EQUITY
March 19, 1999
<PAGE>
I
11
TABLE OF CONTENTS
1. PROMISSORY NOTE CONVERSION and ISSUANCE OF COMMON STOCK ..............1
a. Authorization ..................................................1
b. Conversion .....................................................1
c. Closing..........................................................1
2. REPRESENTATIONS AND WARRANTIES OF PURCHASER ............................ 2
a. Nature of Purchase......................... .................... 2
b. Receipt and Review of Certain Documents; Acknowledgment of Risk
in Purchase..................................................... 2
c. Purchaser Must Bear Economic Risk ............................. 2
d. Acquisition for Own Account ................................... 2
e. Purchaser's Ability to Protect Purchaser's Own Interests;
Ability to Withstand Loss of Entire Investment .............. 3
f. Purchaser's Formation Status.....................................3
g. Further Limitations on Disposition...............................3
h. Access to Information........................................... 4
i. Confidentiality of Information...................................4
j. Authority to Purchase............................................4
k. No Brokers or Finders............................................4
l. Legends..........................................................4
3. PURCHASER'S OBLIGATION TO INDEMNIFY THE COMPANY.......................5
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................5
a. Organization, Good Standing and Qualification....................5
b. Capitalization...................................................5
c. Due Authorization; No Conflicts or Defaults......................5
d. Defaults on Other Agreements.....................................6
e. No Misrepresentations............................................6
f. Due and Valid Issuance of the Common Stock.......................6
g. Reporting Company Status.........................................6
h. Approvals........................................................7
i. Absence of Certain Changes.......................................7
j. Full Disclosure..................................................7
k. Absence of Litigation............................................7
5. CONDITIONS TO CLOSING.................................................7
a. Conditions to Purchaser's Obligations............................7
b. Conditions to the Company's Obligations..........................7
<PAGE>
6. MISCELLANEOUS.........................................................8
a. Survival of Covenants; Successors and Assigns....................8
b. Assignability of Rights..........................................8
c. Communications and Notices.......................................8
d. Law Governing....................................................9
e. Aggregation of Stock.............................................9
f. Expenses; Right to Recover Attorney Fees.........................9
g. Finder's Fees....................................................9
h. Subsequent Instruments and Acts.................................10
i. Severability....................................................10
j. Entire Agreement; Amendments....................................10
k. Authority of Signatories........................................10
l. Gender, Number and Tense........................................10
m. Headings........................................................10
n. Counterparts; Facsimile Signatures............................. 10
o. Purchaser's Status..............................................11
APPENDIX TO COMMON STOCK PURCHASE AGREEMENT ...................................A
SCHEDULE OF EXCEPTION ....................................................I
EXHIBIT A
<PAGE>
PROMISSORY NOTE CONVERSION AND
COMMON STOCK PURCHASE AGREEMENT
THIS PROMISSORY NOTE CONVERSION AND COMMON STOCK PURCHASE AGREEMENT is
entered into as of this 19th day of March, 1999, by and between U.S. WIRELESS
DATA, INC., a Colorado corporation (the "Company") and Liviakis Financial
Communications, Inc. (the "Purchaser") for purposes of setting forth the terms
and conditions pursuant to which the Company and Purchaser shall convert that
certain Note Payable in the principal amount of $1,990,000 issued by the Company
to Investor between September 22,1998 and February 26, 1999 (the "Promissory
Notes"), a schedule of which is attached hereto as Exhibit A.
AGREEMENT
In consideration of the mutual promises, covenants and conditions set
forth below, the parties mutually agree as follows:
1. PROMISSORY NOTE CONVERSION AND ISSUANCE OF COMMON STOCK.
a. Authorization. On or prior to the Closing (as defined below), the
Company shall have authorized the conversion of the Promissory
Notes and the issuance of the Common Stock (the "Shares") to the
Purchaser, as described below. The Common Stock shall have the
rights, preferences, privileges and restrictions set forth in the
Articles of Incorporation in the form attached hereto as Exhibit A
(the "Articles of Incorporation").
b. Conversion. Subject to the terms and conditions of this Agreement,
the Purchaser agrees to convert the Promissory Notes into
2,344,458 shares of the Company's Common Stock at the rate of
$0.875 of principal and accrued interest owing on the Promissory
Note (through March 19, 1999) per share (which is equal to the
closing price of the Common Stock as of the date prior to the
Effective Date this Agreement, less a discount of 20%).
c. Closing. The conversion of the Promissory Note and the issuance of
the Shares in exchange therefor shall be deemed to have occurred
as of the Effective Date. The date as of which both parties shall
have executed this Agreement is referred to herein as the "Closing
Date." Within five business days of the Closing Date, the Company
shall deliver to the Purchaser a certificate representing the
Common Stock being issued to Purchaser hereunder, against delivery
of the original Promissory Note to the Company, endorsed by
Purchaser as "Paid."
1
<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants as follows:
a. Nature of Purchase. Purchaser understands that the Shares are being
acquired in a transaction that does not involve a public offering and
that the Shares represented in this agreement have not been, and will
not be, registered under the Securities Act of 1933, as amended (the
"Act") or under any state securities laws. Purchaser also understands
that the Shares are being offered and sold pursuant to an exemption
from registration contained in the Act and applicable state securities
laws based in part upon Purchaser's representations contained in this
Agreement.
Waiver of Registration Rights. Notwithstanding anything to the contrary
in any other agreement, Purchaser irrevocably waives, with respect to
the Shares, any and all registration rights inuring to Purchaser's
benefit under any agreement previously made by or among the Company and
Purchaser.
b. Receipt and Review of Certain Documents; Acknowledgment of Risk in
Purchase . Purchaser understands that the Company is a "public company"
and files reports pursuant to the Securities Exchange Act of 1934, as
amended and the Securities Act of 1933, as amended. Purchaser has
reviewed carefully any of the Company's public reports to the full
extent Purchaser feels was necessary to make a decision to invest in
the Company.
Purchaser also understands that an investment in the Company's
securities is one of high risk and that no person has been authorized
to give any information or to make any statement concerning the Company
that in any way contradicts the information contained in the reports
filed pursuant to the Securities Exchange Act of 1934, as amended and
the Securities Act of 1933, as amended. Purchaser understands and
acknowledges that any investment in the Company's securities could
result in the complete loss of the investment.
c. Purchaser Must Bear Economic Risk. Purchaser is in a position to
bear the economic risk of this investment indefinitely. The Purchaser
understands the only means of disposing of the Shares would be pursuant
to a registration exemption, which is likely to be pursuant to SEC Rule
144 or some successor to SEC Rule 144. Purchaser understands that the
Company has not given any guarantee that Rule 144 or any other
registration exemption will be available to Purchaser. Purchaser
understands that even if available, any registration exemption may not
allow Purchaser to dispose of the Shares under the circumstances, if at
all, in amounts, or at the times, Purchaser might desire.
d. Acquisition for Own Account. Purchaser confirms, that the Shares to
be received by Purchaser are being acquired for investment for
Purchaser's own account, and not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof, and that
Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, Purchaser further represents that Purchaser does not have
any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participation to such person or to any third
person, with respect to the Shares.
2
<PAGE>
e. Purchaser's Ability to Protect Purchaser's Own Interests; Ability to
Withstand Loss of Entire Investment. Purchaser has, by reason of
business or financial experience, the capacity to protect Purchaser's
own interests in connection with the transactions contemplated in this
Agreement. Purchaser acknowledges that the purchase of the Shares is a
speculative investment. Purchaser is experienced in investments
involving companies in the development stage. The investment being made
by Purchaser in the Shares is not out of proportion to the Purchaser's
net worth or other investments and Purchaser represents and warrants
that Purchaser could bear the loss of the entire investment without
materially changing Purchaser's lifestyle or standard of living.
f. Purchaser's Formation Status. If Purchaser is other than a natural
person, Purchaser represents and warrants that it was not specifically
formed for the purpose of purchasing the Shares and consummating this
transaction.
g. Further Limitations on Disposition. Without in any way limiting the
representations set forth above, Purchaser further agrees not to make
any disposition of all or any portion of the Shares unless and until
the transferee has agreed in writing for the benefit of the Company to
be bound by this Section, provided and to the extent this Section and
such agreement are then applicable, and:
i. Purchaser shall have notified the Company of the proposed
disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the
proposed disposition, and (i) if reasonably requested by the
Company, Purchaser shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company
that such disposition will not require registration of the
Shares (or any portion thereof) under the Act; and (ii)
Purchaser's transferee shall have entered into such agreements
with the Company as the Company shall reasonably require to
assure that a registration exemption is available for the
proposed transfer and remains available for the transactions
pursuant to which the Shares were originally issued to
Purchaser.
ii. Notwithstanding the provisions of the preceding Paragraph,
no such registration statement or opinion of counsel shall be
necessary for a transfer by Purchaser that is a partnership to
a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the
estate of any such partner or retired partner or the transfer
by gift, will or intestate succession of any partner to his or
her spouse or to the siblings, lineal descendants or ancestors
of such partner or his or her spouse, if the transferee agrees
in writing to be subject to the terms hereof to the same
extent as if he or she were an original Purchaser hereunder.
3
<PAGE>
h. Access to Information. Purchaser has been given access to all
Company documents, records, and other information, and has received
physical delivery of all documents requested. Purchaser believes that
he, she or it has received all the information considered necessary or
appropriate for deciding whether to purchase the Shares. Purchaser has
had adequate opportunity to review the documents and has been given the
opportunity to ask questions of, and receive answers from, the
Company's officers, employees, agents, accountants, and representatives
concerning the Company's business, operations, properties, prospects,
financial condition, assets, liabilities, and all other matters
Purchaser considers relevant to an investment in the Shares.
i. Confidentiality of Information. With respect to any non-public
information provided to Purchaser for purposes of evaluating an
investment in the Shares and the information contained therein and any
oral information provided to Purchaser, whether or not such information
has been designated or marked "confidential," Purchaser represents and
agrees that such information has been and will be kept strictly
confidential and Purchaser has not made and will not make any use of,
or disclose such information to any person (other than Purchaser's
officers, agents, attorneys, advisors and others who may assist
Purchaser in evaluating the merits of a potential investment in the
Company and who have agreed in writing to be bound by this
confidentiality provision) for any purpose other than for purposes of
evaluating the investment contemplated by this Agreement.
j. Authority to Purchase. Purchaser has the authority to purchase the
Shares and to execute any other instruments or documents required to be
executed in connection with a purchase of the Shares.
k. No Brokers or Finders. Purchaser has not retained any investment
banker, broker, or finder in connection with the transactions
contemplated by this Agreement. Purchaser agrees to indemnify and hold
harmless the Company from any liability for any commission or
compensation in the nature of a finder's fee (and the costs and
expenses of defending against such liability) for which Purchaser is
responsible.
l. Legends. Purchaser acknowledges that each certificate representing
any of the Shares (including any certificates that may be issued in
replacement of the Shares) will be imprinted with legends restricting
the right to transfer or dispose of the Shares under federal and state
securities laws, including a legend in substantially the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED;
as well as any legend required by applicable state securities laws.
4
<PAGE>
3. PURCHASER'S OBLIGATION TO INDEMNIFY THE COMPANY
Purchaser shall indemnify and hold harmless the Company, its officers,
directors, employees and/or agents, from and against any and all loss, damage,
liability or expense, including costs and reasonable attorneys' fees to which
they may be put or which they may incur by reason of or in connection with any
failure of Purchaser's representations and warranties to be fully true, correct,
and complete or Purchaser's failure to fulfill any of Purchaser's covenants or
agreements under this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser that:
a. Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Colorado and is duly qualified to do business
in the State of California, the only state other than Colorado where
the Company owns or leases real property.
b. Capitalization.
i. Authorized and Issued. The authorized and outstanding
capital securities of the Company are as stated in the
Company's Quarterly Report on Form 10-QSB for the fiscal
quarter ended December 31, 1998 except as indicated on the
Schedule of Exceptions. Except as otherwise disclosed in
writing to Purchaser, there have been no material changes in
the authorized securities of the Company. ii. Assets and
Liabilities. The Company's material assets and liabilities are
as set forth in the December 31, 1998 Quarterly Report. To the
best of the Company's knowledge, there are no other events or
conditions of any character which have or might materially
adversely affect the business, prospects, condition, affairs,
operations, properties or assets of the Company except as set
forth in the Schedule of Exceptions.
c. Due Authorization; No Conflicts or Defaults.
i. All corporate action on the part of the Company, its
officers, directors, and shareholders necessary for the
authorization and issuance of the Shares, and for the
authorization of the execution, delivery, and performance of
this has been taken, such that this Agreement will be a valid
and binding obligation of the Company, enforceable in
accordance with their terms, except (i) as limited by
applicable bankruptcy, insolvency, moratorium, reorganization,
or other laws of general application affecting creditors'
rights and (ii) as limited by the application of general
principles of equity.
5
<PAGE>
ii. The execution and delivery of this Agreement and the
consummation of the transactions contemplated herein and
therein will not: (i) conflict with, result in a breach of, or
constitute a default under any of the terms of any corporate
restriction or of any indenture, mortgage, deed of trust,
pledge, bank loan or credit agreement, corporate charter, or
bylaw, or any instrument by which the Company or its
properties may be bound or affected, (ii) violate any
judgment, order, or demand of any court, arbitrator, grand
jury, or any governmental agency, or (iii) result in the
creation or imposition of any lien, charge, or encumbrance of
any nature whatsoever upon any property or asset of the
Company under the terms or provisions of any of the foregoing.
d. Defaults on Other Agreements. Except as disclosed in writing to
Purchaser in the December 31, 1998 Quarterly Report, the Company is not
in material default in the observance of any of the terms contained in
any indenture or other agreement creating, evidencing, or securing
indebtedness of the Company or pursuant to which any such indebtedness
is issued, or other agreement or instrument by which the Company or any
properties of the Company may be bound or materially affected.
e. No Misrepresentations. The information set forth in this Agreement,
or any certificate or other document delivered by the Company hereunder
does not contain any untrue statement of a material fact, or omit to
state a material fact necessary to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading. This representation shall apply only as of the time such
statements were originally made, and shall not be deemed violated if a
statement contained in any such document has been superceded by the
Company in a document prepared subsequent to the date of the document
it corrects.
f. Due and Valid Issuance of the Common Stock. The Common Stock to be
issued to Purchaser hereunder has been duly authorized and, when issued
pursuant to the terms of this Agreement will be validly issued, fully
paid and nonassessable shares of the Company's Common Stock, free of
any preemptive or other rights of any person.
g. Reporting Company Status. The Company has registered its Common
Stock pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the Common Stock is traded on the OTC
Electronic Bulletin Board. The Company has received no notice, either
oral or written, with respect to the continued eligibility of the
Common Stock for such trading privileges. The Company has filed all
required reports under the Exchange Act.
6
<PAGE>
h. Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or
stock exchange or market or of the shareholders of the Company is
required to be obtained for the issuance and sale of the Shares to
Purchaser as contemplated by this Agreement, except such
authorizations, approvals and consents as have been obtained.
i. Absence of Certain Changes. Since December 31, 1998, there have been
no material adverse changes and no material adverse development in the
business, properties, operations, financial condition, or results of
operations of the Company, except as disclosed in writing to Purchaser.
j. Full Disclosure. There is no fact known to the Company (other than
the general economic conditions known to the public generally) or as
disclosed in the Offering Memorandum that has not been disclosed in
writing to Purchaser that (i) could reasonably be expected to have a
material adverse effect on the condition (financial or otherwise) or in
the earnings, business affairs, properties or assets of the Company or
(ii) could reasonably be expected to materially and adversely affect
the ability of the Company to perform its obligations pursuant to this
Agreement.
k. Absence of Litigation. Except as set forth in the Offering
Memorandum, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or,
to the knowledge of the Company or any of its subsidiaries, threatened
against or affecting the Company, wherein an unfavorable decision,
ruling or finding is likely to have a material adverse effect on the
properties, business, condition (financial or other), results of
operations or prospects of the Company taken as a whole or the
transactions contemplated by this Agreement or any of the documents
contemplated hereby or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company to
perform its obligations under, this Agreement or any of such other
documents.
5. CONDITIONS TO CLOSING
a. Conditions to Purchaser's Obligations. Purchaser's obligation to
purchase the Shares and to otherwise consummate the transactions
contemplated in this Agreement is subject to satisfaction of the
following condition as of the time of Closing:
the Company's representations and warranties in this Agreement
and in any certificate or document delivered pursuant to this
Agreement shall be true and correct in all material respects
on and as of the Closing Date.
7
<PAGE>
b. Conditions to the Company's Obligations. The Company's obligation to
consummate the transactions contemplated in this Agreement is subject
to the satisfaction of the following conditions at the Closing
i. the Purchaser's representations and warranties herein and
in any documents delivered pursuant to this Agreement shall be
true and correct on and as of the Closing Date;
ii. Purchaser shall have met (and the Company shall be
reasonably satisfied that the Purchaser meets) all of the
suitability criteria required to purchase the Shares as set
forth in the Offering memorandum; and
iii. Purchaser shall have irrevocably tendered the Notes
Payable to the Company.
6. MISCELLANEOUS
a. Survival of Covenants; Successors and Assigns. All covenants,
agreements, representations and warranties made by the parties in this
Agreement shall survive the closing of the transactions contemplated by
this Agreement. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.
b. Assignability of Rights. Neither the Company nor Purchaser may
assign any of its rights or delegate any of its duties under this
Agreement without the written consent of the other party.
c. Communications and Notices.
i. All communications and notices provided for in this
Agreement shall be in writing and will be given by telegram,
facsimile (with delivery confirmed by the party giving
notice), express courier holding itself out as able to make
delivery within one business day of receipt, hand delivery
receipted by the addressee, or by mail (postage-paid,
registered or certified mail, return receipt requested) to
such address, and to such attention, as any party may from
time to time designate by notice in writing to the other
party, as the case may be. Notice will be effective one
business day after delivery to a telegraph company or express
courier, three business days after deposit in the U.S. Mail as
provided above, or as of the date of delivery (if such day is
a business day, or the next business day thereafter if the
date of delivery is not a business day) if hand-delivered or
facsimile-delivered.
8
<PAGE>
ii. All notices shall be sent to Purchaser at the address as
it appears on the Company's records, which as of the date
hereof is the address stated in the signature page of this
Agreement. All notices to be sent to the Company shall be sent
as follows:
U.S. Wireless Data, Inc.
Attention: President
2200 Powell Street, Suite 800
Emeryville, California 94608
Facsimile (510) 596-2029
The address and facsimile number to which any notice is to be sent
hereunder may be changed by the sending of notice to such effect,
setting forth the changed address to which notices should be sent
thereafter.
d. Law Governing. This Agreement shall be governed by the Laws of the
State of California in all respects, as such laws are applied to
agreements among California residents entered into and to be performed
entirely within California.
e. Aggregation of Stock. All shares of Common Stock held or acquired by
affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this
Agreement.
f. Expenses; Right to Recover Attorney Fees. Irrespective of whether
the Closing is effected, the Company and each Purchaser shall pay their
own respective costs and expenses incurred with respect to the
negotiation, execution, delivery and performance of this Agreement. If
any action at law or in equity is necessary to enforce or interpret the
terms of this Agreement, the prevailing party shall be entitled to
reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
g. Finder's Fees. Each party represents that it neither is nor will be
obligated for any finders' fee or commission in connection with this
transaction. Purchaser shall indemnify and hold harmless the Company
from any liability for any commission or compensation in the nature of
a finders' fee (and the costs and expenses of defending against such
liability or asserted liability) for which Purchaser or any of its
officers, partners, employees, or representatives is responsible or
alleged to be responsible. The Company agrees to indemnify and hold
harmless Purchaser from any liability for any commission or
compensation in the nature of a finders' fee (and the costs and
expenses of defending against such liability or asserted liability) for
which the Company or any of its officers, employees or representatives
is responsible.
9
<PAGE>
h. Subsequent Instruments and Acts. The parties agree that they will
execute any further instruments and perform any acts that may become
reasonably necessary to carry out this Agreement.
i. Severability. If any term, provision, covenant, or condition of this
Agreement, or its application to any person or circumstance, shall be
held by a court of competent jurisdiction to be invalid, unenforceable,
or void, the remainder of this Agreement and such term, provision,
covenant, or condition as applied to other persons or circumstances
shall remain in full force and effect.
j. Entire Agreement; Amendments.
i. Entire Agreement. This Agreement and the other documents
and agreements delivered pursuant hereto constitute the full
and entire agreement and understanding among the parties with
regard to the subjects hereof and thereof.
ii. Amendments in Writing. This Agreement may not be amended
orally. Amendment to this Agreement, or of any supplement, and
of the rights and obligations of the Company and of Purchaser
may be made only by the Company and Purchaser in writing.
k. Authority of Signatories. Each of the undersigned representatives of
the parties warrants and represents that he or she is duly authorized
to execute this Agreement on behalf of the respective party for which
he or she signs, and that the organization on whose behalf he or she
signs is currently in good standing in the jurisdiction where
organized.
l. Gender, Number and Tense. Throughout this Agreement, as the context
may require, the masculine gender includes the feminine and neuter; and
the neuter gender includes the masculine and feminine; and the singular
number includes the plural, and the plural number includes the
singular.
m. Headings. The headings of the Sections and Paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute a part of this Agreement.
n. Counterparts; Facsimile Signatures. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
Closing of the transactions contemplated hereby may be done using
facsimile signatures, provided that signed original documents are
delivered between the parties as soon as practicable thereafter.
10
<PAGE>
o. Purchaser's Status. Purchaser represents and warrants that Purchaser
is an "accredited" investor, as defined in Rule 501(a) of Regulation D
promulgated by the SEC because (please check all that are applicable):
|_| Purchaser is a director or executive officer of the Company
|X| Purchaser and Purchaser's spouse (if any) have an aggregate net
worth exceeding $1,000,000.
|_| Purchaser has had an individual income in excess of $200,000 or
joint income with Purchaser's spouse in excess of $300,000 in each
of the two most recent years and reasonably expects the same
income in the current year.
|_| Purchaser is an entity in which all of the equity owners are
accredited investors within the meaning of Rule 501(a) under the
Act.
|_| Purchaser is a bank, savings and loan association, broker or
dealer, insurance company, investment company, business
development company, small business investment company, employee
benefit plan, non-profit organization, or trust meeting the
requirements of Rule 501(a) under the Act.
IN WITNESS WHEREOF, Purchaser has executed this Common Stock Purchase Agreement
this 12th day of April, 1999.
PURCHASER Address:
/s/ John Liviakis, President
____________________________________ 2420 "K" Street, Suite 220
[Signature] Sacramento, CA 95816
LIVIAKIS FINANCIAL COMMUNICATIONS, Inc.
[Print name] (916) 448-6084, telephone
(916) 448-6089, facsimile
- -------------------------------------
[Social Security or Tax I.D. Number]
Acceptance Signature Page for Common Stock Purchase Agreement
Name of Purchaser: John Liviakis
ACCEPTED:
U.S. WIRELESS DATA, INC.
By: /s/ Rod Stambaugh
----------------------------------
Rod Stambaugh, President
Date: March 19, 1999
<PAGE>
Schedule of Exceptions to
COMMON STOCK PURCHASE AGREEMENT
March 19, 1999
2.2 Capitalization. On March 15, 1999, the Company completed at $250,000 bridge
financing from an existing investor. The investor received a $250,000 promissory
note which bears interest at 10% per annum and is due at the earlier of June 12,
1999, or receipt by the Company of proceeds from a subsequent financing of at
least $1 million. The investor received 50,000 shares of the Company's Common
Stock and a fee equal to 12% of the proceeds of the investment.
Effective March 19, 1999, the Company and the Burtzloff Family Trust entered
into a Promissory Note Conversion and Stock Purchase Agreement whereby $500,000
of notes payable plus accrued interest were converted into 598,213 shares of the
Company's Common Stock.
The Company continues to receive requests for conversion of Series A Preferred
Stock to Common Stock from existing investors. On March 19, the Company issued
approximately 78,500 shares of Common Stock in conversion of Series A stock.
2.3 SEC documents. On March 11, 1999, the Company announced that Roger Peirce,
CEO and Chairman, resigned for personal reasons. The Board of Directors is
actively seeking a replacement for Mr. Peirce.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,000
<SECURITIES> 0
<RECEIVABLES> 145,000
<ALLOWANCES> (30,000)
<INVENTORY> 231,000
<CURRENT-ASSETS> 476,000
<PP&E> 1,348,000
<DEPRECIATION> 644,000
<TOTAL-ASSETS> 1,518,000
<CURRENT-LIABILITIES> 2,196,000
<BONDS> 0
0
789,000
<COMMON> 17,331,000
<OTHER-SE> (20,741,000)
<TOTAL-LIABILITY-AND-EQUITY> 1,518,000
<SALES> 0
<TOTAL-REVENUES> 261,000
<CGS> 240,000
<TOTAL-COSTS> 1,134,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 448,000
<INCOME-PRETAX> (1,321,000
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,321,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,321,000)
<EPS-PRIMARY> (0.09)
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