SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A2
|X| Quarterly Report under Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1997
------------------
|_| Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ______ to ______.
Commission File No.: 0-22848
U.S. Wireless Data, Inc.
(Exact name of registrant as specified in its charter)
Colorado 84-1178691
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(State of incorporation) (IRS Employer Identification No.)
2200 Powell Street, Suite 800
Emeryville, California 97608
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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 September 30, 1997 there were outstanding 9,192,270 shares of the
Registrant's Common Stock (no par value per share).
Transitional Small Business Disclosure Format
Yes ___ No _X_
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U.S. WIRELESS DATA, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
----
Item 1. Financial Statements (Unaudited and Restated)
Balance Sheets --
September 30, 1997, and June 30, 1997...................3
Statements of Operations --
Three Months Ended September 30, 1997 and 1996..........4
Statements of Cash Flows --
Three Months Ended September 30, 1997 and 1996..........5
Notes to Financial Statements (Restated).......................6-9
Item 2. Management's Discussion and Analysis (Restated)...............10-13
PART II OTHER INFORMATION
Item 1. Material Developments in Connection with Legal Proceedings.....13
Item 2. Changes in Securities..........................................13
Item 3. Defaults Upon Senior Securities................................14
Item 5. Other Information .............................................14
Item 6. Exhibits and Reports on Form 8-K...............................14
RESTATEMENT OF FINANCIAL STATEMENTS AND CHANGES TO CERTAIN INFORMATION
This amended filing contains restated financial information and related
disclosures for the quarter ended September 30, 1997 (See Note 1 to Financial
Statements). Quarterly financial statement information and related disclosures
included in this amended filing reflect, where appropriate, changes as a result
of the restatement. This information is consistent with the contents of the
Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1998,
which was filed with the SEC on December 17, 1998 (see "Note 15. Unaudited
Restated Quarterly Financial Information", in the 10-KSB).
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<TABLE>
<CAPTION>
U.S. WIRELESS DATA, INC.
BALANCE SHEET
(Unaudited and Restated)
September 30, 1997 June 30, 1997
(Restated - see Note 1) -------------
-----------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash ......................................................... $ 68,000 $ 6,000
Accounts receivable, net of allowance for .................... 220,000 131,000
doubtful accounts of $16,000 in September 1997 and $16,000
in June 1997
Inventory, net
224,000 209,000
Other current assets ......................................... 1,151,000 103,000
------------ ------------
Total current assets ................................ 1,663,000 449,000
Property and equipment, net .......................................... 35,000 41,000
Other assets ......................................................... 22,000 11,000
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Total assets ......................................................... $ 1,720,000 $ 501,000
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable ............................................. $ 453,000 $ 354,000
Accrued liabilities .......................................... 704,000 126,000
Borrowings, current portion .................................. 804,000 738,000
------------ ------------
Total current liabilities ............................ 1,961,000 1,218,000
Borrowings, long-term portion Long Term Debt ......................... 45,000 45,000
------------ ------------
Total Liabilities .................................................... 2,006,000 1,263,000
------------ ------------
Redeemable common stock and warrants ................................. 560,000 --
------------ ------------
Stockholders' Deficit:
Common stock, no par value, 12,000,000 ....................... 9,192,000 5,614,000
shares authorized; 9,192,270 and 5,613,952 shares
issued and outstanding at 9/31 and 6/30, respectively
Additional paid-in capital ................................... 8,264,000 10,613,000
Accumulated deficit .......................................... (18,274,000) 16,961,000)
Notes Receivable from Shareholder ............................ (28,000) (28,000)
------------ ------------
Total stockholders' deficit .......................... (846,000) (762,000)
------------ ------------
Total liabilities and stockholders' equity (deficit) ................. $ 1,720,000 $ 501,000
============ ============
</TABLE>
Accompanying Notes are an integral part of the Financial Statements
3
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<TABLE>
<CAPTION>
U.S. WIRELESS DATA, INC.
STATEMENTS OF OPERATIONS
(Unaudited and Restated)
Three Months Ended
September 30, 1997 September 30, 1996
(Restated-see Note 1) ------------------
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<S> <C> <C>
Revenue ...................................... 270,000 387,000
Cost of revenue .............................. 176,000 265,000
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Gross profit ................................. 94,000 122,000
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Operating expenses:
Selling, general and administrative ...... 1,288,000 171,000
Research and development ................. 95,000 119,000
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Total operating expenses ................. 1,383,000 290,000
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Loss from operations ......................... (1,289,000) (168,000)
Interest income .............................. -- 6,000
Interest expense ............................. (24,000) --
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Net loss ..................................... $(1,313,000) $ (162,000)
=========== ===========
Basic and diluted net loss per share: ....... $ (.17) $ (.03)
=========== ===========
Weighted average common shares ............... 7,770,000 4,653,000
outstanding - basic and diluted =========== ===========
</TABLE>
Accompanying Notes are an integral part of the Financial Statements
4
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<TABLE>
<CAPTION>
U.S. WIRELESS DATA, INC.
STATEMENTS OF CASH FLOWS
(Unaudited and Restated)
Three Months Ended
September 30, 1997 September 30,1996
(Restated - see Note 1) -----------------
-----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ......................................... $(1,313,000) $ (162,000)
Depreciation and amortization .................... 5,000 20,000
Non-cash consulting services ..................... 855,000 --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable .................... (88,000) 96,000
Inventory .............................. (15,000) (26,000)
Other assets ........................... (17,000) 29,000
Increase (decrease) in:
Accounts payable ....................... 89,000 139,000
Accrued liabilities .................... 27,000 (100,000)
----------- -----------
Net cash used in operating activities .. (457,000) (4,000)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in other assets ......................... (11,000) --
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Net cash used in investing activities .. (11,000) --
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock .................. 514,000 --
Repayments of notes payable ...................... -- (22,000)
Proceeds from issuance of notes payable
16,000 --
----------- -----------
Net cash provided by financing activities 530,000 (22,000)
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INCREASE (DECREASE) IN CASH ........................... 62,000 (26,000)
CASH, Beginning of period ............................. 6,000 40,000
----------- -----------
CASH, End of period ................................... $ 68,000 $ 14,000
=========== ===========
</TABLE>
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 and Restated)
Note 1 -- RESTATEMENT
The accompanying restated balance sheet as of September 30, 1997 and the
accompanying restated statements of operations and cash flows for the
three months ended September 30, 1997 have been restated to reflect the
proper treatment of the Liviakis Financial Communications, Inc. financing
and consulting transactions as stated in Note 5. The effect of these
restatements is to increase selling, general and administrative expenses
and increase reported loss by $507,000 for the three months ended
September 30, 1997 ($0.07 for fully diluted earnings per share), reduce
total assets by $61,000, increase total liabilities by $552,000, increase
redeemable common stock and warrants by $560,000 and increase
stockholders' deficit by $1,173,000. These restatements do not affect
previously reported net cash flows.
Note 2 -- ACCOUNTING PRINCIPLES
The balance sheet as of September 30, 1997, as well as the statements of
operations and of cash flows for the three months ended September 30, 1997
and September 30, 1996, have been prepared by the Company without an
audit. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments necessary to present fairly the financial
position, results of operations and cash flows at September 30, 1997 and
for all periods presented have been made.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
these financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-KSB for
fiscal year end June 30, 1997. The results of operations for interim
periods presented are not necessarily indicative of the operating results
for the full year.
Note 3 -- FINANCIAL CONDITION AND LIQUIDITY (Restated)
The Company has incurred an accumulated deficit of approximately $18.3
million since inception, including a loss of $1.3 million in the first
quarter of fiscal year 1998. In order to continue as a going concern, the
Company has transitioned to a recurring revenue focus, is working on
programs to increase revenue levels and product margins, is negotiating
new distribution agreements and seeking additional debt or equity
financing.
Subsequent to June 30, 1997, the Company has strengthened the management
team, signed several significant distribution agreements, which are
expected to build a recurring revenue base, started the expansion of the
sales force and expanded its contract manufacturing relationships. The
current sales volume is inadequate to fund the infrastructure growth and
business transition. As a result, and as part of its continuing effort to
find working capital funding in order to continue operations, the Company
has entered into certain consulting agreements designed to facilitate
financing relationships with third parties. While management is confident
it can accomplish this objective, there is no guarantee that this
additional funding will occur in the required time frame.
The accompanying 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.
6
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Note 4 -- NET LOSS PER SHARE
Net loss per common share is computed by dividing the net loss by the
weighted average number of common shares outstanding at the end of the
period. Exercisable stock options and warrants are not included in the
calculation since their effect would be anti-dilutive.
Note 5 -- RELATED PARTIES (Restated)
Transactions with Liviakis Financial Communications, Inc. ("LFC") and
Affiliates of LFC
In July of 1997, the Company entered into a Consulting Agreement with
Liviakis Financial Communications, Inc. ("LFC") pursuant to which LFC
provides the Company with financial and business consulting and public and
investor relations services. The Company was obligated to pay LFC
consulting fees of $10,000 in cash and 300,000 shares of its Common Stock
over the one-year term of the Consulting Agreement. Pursuant to the
Consulting Agreement, the Company must also pay LFC cash equal to 2.5% of
the gross proceeds received in any direct financing located for the Company
by LFC. In connection with the closing of the sale of $3,060,000 of 8%
Convertible Debentures, the Company paid LFC $76,500 in December 1997.
The Company also sold a total of 3,500,000 shares of Common Stock and
warrants to purchase up to an additional 1,600,000 shares of Common Stock
exercisable at $.01 per share to two LFC affiliates in August 1997 for
$500,000 in cash. Pursuant to this transaction, LFC and these affiliates
became significant shareholders of the Company. The Common Stock issued
(and issuable pursuant to the Consulting Agreement and upon exercise of the
warrants) to LFC and its affiliates carries certain registration rights.
The warrants provide that if for any reason the Company does not issue
shares upon exercise, the Company is required to repurchase the warrants
for the difference between the $.01 exercise price and the then-current
market price of the Common Stock. Pursuant to the agreements, the LFC
affiliates were granted the right to appoint certain officers and directors
of the Company.
Since the LFC related financing transaction and the LFC Consulting
Agreement were entered into by the Company at approximately the same time,
the Company has treated these transactions as one transaction for
accounting purposes. Based on the fair market value of the Common Stock as
determined by an independent valuation, the initial 3,500,000 shares of
Common Stock and warrants for 1,600,000 shares of Common Stock issued in
the transactions, net of cash proceeds received, were valued at
approximately $1,285,000 and recorded as prepaid consulting services. The
consulting services are amortized on a straight-line basis over the term of
the Consulting Agreement commencing with the July 25, 1997 effective date
of the agreement. The warrants are classified as redeemable securities as a
result of the repurchase provisions described above. The 300,000 shares
which are issuable over the term of the contract are being valued as such
shares vest, and resulted in an additional $507,000 in consulting expense
during the quarter ended September 30, 1997.
Transactions with entrenet Group, LLC
In June 1997, the Company entered into a consulting agreement with entrenet
Group, LLC ("entrenet"), for purposes of assisting the Company in strategic
planning, the creation of a detailed business and marketing plan and in
locating financing sources. For its services, the Company issued a $150,000
convertible promissory note to entrenet, with interest payable at 10% per
annum, due in full on or before June 2, 1998. In addition, the Company was
obligated to pay entrenet a finder's fee of 8% for any direct financing it
located for the Company, payable in Company securities identical to what
was issued in the subject financing. entrenet located the $500,000 LFC
financing. During the first quarter of fiscal 1998, the Company and
entrenet were in discussions over the interpretation of the provisions
specifying the consideration payable to entrenet as its finder's fee for
locating LFC.
7
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Note 6 -- LITIGATION
In September of 1996, the Company agreed to terms to settle securities
fraud litigation, pending since 1994, which was brought in relation to the
Company's initial public offering of December 1993. The parties' agreement
(the "Settlement Agreement") was filed in the United States District Court
for the District of Colorado on January 15, 1997 in consolidated Case N0.
94-Z-2258, Appel, et al. v. Caldwell, et al. By its order approving the
settlement, the court certified a plaintiff's settlement class and provided
the mechanism for payment of claims. The Company contributed directly or by
indemnification a total of $10,000 to the total settlement fund of
$2,150,000. The remaining portion of the settlement was contributed by
certain underwriters of the Company's initial public offering and
securities counsel. No objections to the Settlement Agreement were made. No
potential class member opted-out of the settlement and all are bound by the
release granted the Company. All claims against the Company in those
consolidated cases were dismissed by final federal court order on September
4, 1997. No appeal was filed. Similar state court claims were dismissed by
Colorado district court order dated October 9, 1997.
To resolve cross-claims asserted by underwriters in the litigation, U.S.
Wireless Data, Inc. agreed to transfer to RAS Securities Corporation, H.J.
Meyers & Co, Inc., Sands & Co. Ltd. and R.J. Steichen & Co. a total of
600,000 U.S. Wireless Data, Inc. common shares upon the effective date of
the Settlement Agreement, which was April 25, 1997. The Company has agreed
to register such shares upon demand not sooner than April 26, 1998.
Further, on September 17, 1997 the Company agreed to entry of a consent
judgment against it and in favor of Don Walford, the sole shareholder of
underwriter Walford Securities, Inc., in the amount of $60,000, payable
over a three-year period. The total charge recognized during fiscal 1997
consists of the following: $93,600 for the value of the common shares
issued based upon the fair market value of the Company's common stock on
the date the commitment of such shares was made; $10,000 for actual cash to
be paid by the Company pursuant to the settlement with stockholders; and
$60,000 for the note payable executed with Don Walford as discussed above.
In July of 1997, the Company executed a two-year agreement for consulting
services. In addition to monthly cash compensation, the consultant received
a $50,000 two-year convertible note with 10% interest per annum. The note
principal balance of the note is convertible into Common Stock at $.40 per
share. A dispute arose between the consultant and the Company and the
consulting agreement was terminated at the end of August 1997. The
consultant and the Company are currently in discussion to determine if the
matter can be resolved amicably.
Note 7 -- RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings per
Share". SFAS No. 128, which is effective for periods ending after December
15, 1997, requires changes in the computation, presentation, and disclosure
of earnings per share. All prior period earnings per share data must be
restated to conform to the provisions of SFAS No. 128. The Company will
adopt SFAS No. 128 during the fourth quarter of fiscal 1998, but does not
expect the new accounting standard to have a material impact on the
Company's reported loss per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130, which is effective for all periods beginning after
December 15, 1997, establishes standards for reporting and displaying
comprehensive income and its components with the same prominence as other
financial statements. All prior periods must be restated to conform to the
provisions of SFAS No. 130. The Company will adopt SFAS No. 130 during the
first quarter of fiscal 1999, but does not expect the new accounting
standard to have a material impact on the Company's reported financial
results.
8
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In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131, which is effective
for fiscal years beginning after December 15, 1997, establishes new
disclosure requirements for operating segments, including products,
services, geographic areas, and major customers. The Company will adopt
SFAS No. 131 for the 1999 fiscal year. The Company does not expect the new
accounting standard to have a material impact on the Company's reported
financial results.
Note 8 -- SUBSEQUENT EVENTS
Subsequent to September 1997, the Company received two bridge loans from
the principals of Liviakis Financial Communications Inc. totaling $275,000,
pending completion of more permanent financing. Following a significant
funding, the company will repay the bridge loans along with interest of 9%
percent per annum.
Subsequent to September 1997, the Company has been working on structuring a
private offering of securities targeted to raise between $2 to $4 million
through the sale of convertible debt from "accredited investors" as defined
in Rule 501 of Regulation D under the Securities Act of 1933. In
conjunction with this financing, the Company intends to submit proposed
amendments to its Articles of Incorporation at the upcoming shareholders
meeting to authorize the creation of Preferred Stock and increase the
number of authorized shares of Common Stock available to the Company. The
Company also anticipates that it will be required to register shares of
common stock underlying the securities sold in the offering. No assurances
can be given that the Company will be successful in completing this
financing.
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Restated)
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 Act of 1933 or Section 21E of the Securities
Exchange 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 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,
1997.
Amounts in this discussion and analysis have been restated as disclosed in
Notes 1, 3 and 5 of the Notes to the Financial Statements.
RESULTS OF OPERATIONS
---------------------
U.S. Wireless Data, Inc., a Colorado corporation, (the "Company" or
"USWD"), was organized on July 30, 1991 for the purpose of designing,
manufacturing and marketing a line of wireless and portable credit card and
check authorization terminals. The Company's first product, known as the
POS-50(R), is the world's first integrated wireless credit card and check
authorization terminal using cellular communication technology. With over
4,000 POS-50(R) terminals in the marketplace, the Company is recognized as
the leader in providing wireless terminal transaction equipment for the
mobile marketplace. The POS-50 product accounted for most of the sales
recorded in the first quarter ended September 30, 1997.
Over the past two and a half years, USWD has focused its product
development effort on incorporating Cellular Digital Packet Data (CDPD)
technology into its product line. CDPD is a high-speed digital packet data,
internet protocol (IP) based technology that operates in parallel with
current cellular voice networks. It is designed for high speed encrypted
data transmission over the air-link and will not interfere with or degrade
cellular voice traffic. Because of the high speed nature of CDPD
technology, and the ability to bypass the public switched telephone
network, the Company's new line of CDPD-based terminals can have
significant performance and communication cost advantages when compared
with the traditional dial-up terminals currently being sold in the U.S.
market today. The result is that the Company now offers two new CDPD
products that reduce the current authorization time from approximately 15
seconds to 3 to 5 seconds.
The most significant USWD product is the TRANZ* Enabler which allows
current VeriFone Tranz(R) 330 or Tranz(R) 380 users to immediately convert
their terminals and printers from a land-line telephone dial-up mode to a
high-speed wireless mode of operation. By effecting this technological
upgrade, the cost of dedicated telephone lines is eliminated as are the
delays created by busy telephony networks during peak periods of
authorization activity. Furthermore, the efficiencies created by adopting
the CDPD technology and USWD's alliance with a major transaction processor
enabled U.S. Wireless Data to develop a pricing schedule which lowers
transaction and/or discounts rates that most retailers are currently paying
to handle credit and debit card transactions. The TRANZ Enabler is directed
at the existing U.S. installed base of more than 3.5 million TRANZ 330 and
TRANZ 380 terminals. *TRANZ is a registered trademark of Verifone, Inc.
The second CDPD product created by the Company is the POS-500, a
self-contained card terminal and printer that provides the same mobility
features of the POS-50(R) product and also incorporates the processing
benefits of the TRANZ Enabler. The unit is geared for the user who either
does not have a dial-up terminal/printer in place or requires the
advantages of the CDPD technology in a mobile application.
In mid fiscal year 1997, the Company made a fundamental decision to change
the manner in which it generates revenue. If successfully implemented, this
significant decision transforms the Company from being a "box maker" in
which it earned one time wholesale margins from the sale of its products to
earning
10
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recurring revenue by providing wireless credit card and debit card
processing services to retail merchants. In January 1997 the Company
executed a Member Service Provider ("MSP") agreement with NOVA Information
Systems ("NOVA"), the nation's 7th largest credit card transaction
processor. As a registered MSP of NOVA, the Company can enroll merchants to
process their credit and debit card transactions with NOVA. This MSP
agreement allows U.S. Wireless Data to earn revenue on each card swipe and
every dollar processed by merchants enrolled by the Company.
Another key element of USWD's strategic direction is the close alliance
with large communications carriers such as GTE Mobilnet. In addition to the
CDPD service agreement signed in fiscal 97, GTE Wireless and U.S. Wireless
Data, Inc., in August 1997, announced a joint marketing and operating
agreement to distribute USWD's proprietary TRANZ Enabler credit card
processing system using GTE's CDPD network. Both companies are engaged in a
nation wide deployment, which will extend TRANZ Enabler sales to merchants
through over 450 GTE sales representatives. The agreement contains certain
operational and financial performance criteria, directly related to the
joint marketing program, which must be met by the Company. The Company is
building a sales and support organization to provide local support for the
GTE sales representatives. By leveraging the sales organizations of the
major CDPD providers, the Company has the potential to quickly reach a
large number of merchants. The Company plans to execute similar joint
marketing agreements with the other CDPD service providers with which it
currently has cellular service resale agreements.
In July 1997, the Company retained Liviakis Financial Communications, Inc.
to advise and assist the Company in matters concerning investor relations,
corporate finance and strategic management planning. Remuneration to LFC
under the Consulting Agreement which has a term of one year includes
$10,000 in cash over a one year period and 300,000 shares of unregistered
stock with 150,000 shares of the stock issuable at November 15, 1997 and
150,000 additional shares issuable over the 10-month period thereafter. The
Company completed a private placement of restricted securities pursuant to
Regulation D of the Securities Act of 1933 with two officers of LFC in
August 1997. The Company raised $500,000 in cash for 3.5 million shares of
common stock and 1.6 million warrants to purchase common stock for $.01 per
share, exercisable from January 15, 1998 through August 4, 2002. The
securities carry future registration rights, including a one-time demand
registration, with fees to be paid by the Company. See "Note 5 - RELATED
PARTIES" in Notes to Financial Statements for a description of the
accounting treatment for these transactions.
In September 1997, the Company signed an agreement with Unicard Systems
Inc. to develop terminal application software that will perform both the
Unicard enrollment process as well as deliver wireless credit card
transaction processing. Unicard Systems will become a registered agent of
U.S. Wireless Data and has placed an initial order for 400 TRANZ Enabler
units. Unicard Systems is a Dallas based service provider to over 500
restaurants and nightclubs in Texas.
In October 1997, the Company signed an exclusive agreement with GoldCan
Recycling, Inc. for wireless monitoring of its state of the art automated
aluminum redemption centers. This is the first application of USWD's TRANZ
Enabler technology outside the credit card/point-of-sale industry. USWD
will receive a monthly equipment and wireless service fee on every TRANZ
Enabler placed by GoldCan. GoldCan anticipates placing in excess of 3,000
units over the next three years.
Between October and November 1997, the Company received two bridge loans
from Liviakis Financial Communications, Inc. for $275,000 pending
completion of more permanent financing. Following a funding of at least $1
million, the Company will repay the bridge loan along with interest of nine
percent.
In early August 1997, the Company announced the appointment of Evon Kelly
to the position of Chief Executive Officer. At this same time, Rod
Stambaugh assumed the position of President. Also in August, the Company
hired Clyde Casciato, Vice President Sales; Tom Cote, Vice President Major
Accounts; and in September hired Robert Robichaud, Chief Financial Officer.
In September 1997, the Company executed a lease for office space in
Emeryville, California. The lease provides for approximately 4,500 square
feet at an initial rate of $9,942 per month commencing October 1997, and
containing an initial term of 5 years. The monthly rent will progress to a
rate of $11,640 in year five.
11
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Net Sales
Net sales of $270,000 for the first quarter of fiscal 1998 decreased from
net sales of $387,000 generated during the first fiscal quarter of 1997.
Unit sales decreased in part because of a decrease in direct sales
headcount during the balance of fiscal 97 as the company continued to
face significant financial pressure. In addition, efforts were focused on
completing the development of a business plan, which will shift the
company from a per-unit sales approach to a recurring revenue model.
Efforts were also focused on completing negotiations with GTE and
establishing a new management team to execute the new business plan. The
POS-50 product accounted for most of the sales recorded in the first
quarter ended September 30, 1997.
Gross Margin
Gross margins in the first fiscal quarter of 1998 were $94,000 compared
to $122,000 for the same period in fiscal 1997. As a percent of revenue,
gross margins increased by approximately 3.3%, despite the sale of of
$83,000 of TRANZ Enabler sales demo units at cost for the new GTE
marketing rollout. The increase was due primarily to more favorable
margins on the POS-50(R) product as a result of reduced product cost.
Operating Expenses
Selling, and general and administrative expenses increased from $171,000
in the first fiscal quarter of 1997 to $1,288,000 in the first fiscal
quarter of 1998. Approximately $855,000 of the increase was attributable
to primarily non-cash consulting charges for financial consulting
services and development of the Company's new business plan. The balance
of the increase was due to increased compensation expense for new
additions to the management team and increased travel and communication
expense related to the new marketing program. The Company continues to
add sales and support personnel to support the new marketing programs. In
the near term, operating expense will continue to increase ahead of
revenue.
Research and development expenses decreased from $119,000 in the first
fiscal quarter of 1996 to $95,000 in the first fiscal quarter of 1998.
This decrease was due to reduced occupancy and allocation of overhead
spending expense.
Other Income/(Expense)
Other income/(expense) decreased from $6,000 in the third fiscal quarter
of 1997 to ($24,000) in the first fiscal quarter of 1998. This decrease
was due primarily to an increase in interest expense related to notes
payable.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
- ----------------------------------------------------
The Company continues to have significant concerns regarding its
financial condition and liquidity. While the Company is optimistic with
its medium and long term opportunities, it is constrained by its
immediate financial condition and requirement for increased liquidity.
The Company has accumulated a deficit of approximately $18.3 million
since inception and currently has a negative working capital position.
The Company's CDPD based products, the GTE joint marketing and
distribution agreement, pending distribution agreements and transition to
a recurring revenue focus present an opportunity for significant revenue
growth, an eventual return to profitability, and the generation of a
positive cash flow from operations. At present, the development of the
Company's infrastructure and expansion of the sales and marketing
organization requires additional financing. Implementation of the
Company's business plan is dependent on the infusion of new debt or
equity financing. As of the date of this report, the Company is seeking
to raise between $2 to $4 million. The Company is working both directly
and through its consultants to secure additional debt or equity financing
which is expected to fund the Company's growth. While management is
confident it can accomplish this objective, there is no guarantee that
this additional funding will occur in the required time frame.
12
<PAGE>
Part II
ITEM 1 -- LEGAL PROCEEDINGS
In September of 1996, the Company agreed to terms to settle securities
fraud litigation, pending since 1994, which was brought in relation to the
Company's initial public offering of December 1993. The parties' agreement
(the "Settlement Agreement") was filed in the United States District Court
for the District of Colorado on January 15, 1997 in consolidated Case N0.
94-Z-2258, Appel, et al. v. Caldwell, et al. By its order approving the
settlement, the court certified a plaintiffs' settlement class and provided
the mechanism for payment of claims. The Company contributed $10,000 to the
total settlement fund of $2,150,000. The remaining portion of the
settlement was contributed by certain underwriters of the Company's initial
public offering and securities counsel. No objections to the Settlement
Agreement were made. No potential class member opted-out of the settlement
and all are bound by the release granted the Company. All claims against
the Company in those consolidated cases were dismissed by final federal
court order on September 4, 1997. No appeal was filed. Similar state court
claims were dismissed by Colorado district court order dated October 9,
1997.
To resolve cross-claims asserted by underwriters in the litigation, U.S.
Wireless Data, Inc. agreed to transfer to RAS Securities Corporation, H.J.
Meyers & Co, Inc., Sands & Co. Ltd. and R.J. Steichen & Co. a total of
600,000 U.S. Wireless Data, Inc. common shares upon the effective date of
the Settlement Agreement, which was April 25, 1997. The Company has agreed
to register such shares upon demand not sooner than April 26, 1998.
Further, on September 17, 1997 the Company agreed to entry of a consent
judgment against it and in favor of Don Walford, the sole shareholder of
underwriter Walford Securities, Inc., in the amount of $60,000, payable
over a three-year period.
In July of 1997, the Company executed a two-year agreement for consulting
services to be provided by Mr. Gary Wooley. In addition to monthly cash
compensation, Mr. Wooley received a $50,000 two-year convertible note with
10% interest per annum. The note is convertible into Common Stock at $.40
per share. A dispute arose between Mr. Wooley and the Company and the
consulting agreement was terminated at the end of August 1997. Mr. Wooley
and the Company are currently in discussion to determine if the matter can
be resolved amicably.
ITEM 2 - CHANGES IN SECURITIES
Recent Sales of Unregistered Securities:
----------------------------------------
July 2, 1997: $16,825 promissory note was issued for cash of $16,000; the
note was converted into a convertible Demand Note (see April - June, 1997
transactions described above) on or about July 30, 1997;
August 6, 1997: 2,625,000 shares of Common Stock, and 1,200,000 common
stock purchase warrants exercisable at $.01 per share from January 15,
1998 until August 4, 2002, to John M. Liviakis for $375,000 in cash;
August 6,1997: 875,000 shares of Common Stock, and 400,000 Common Stock
purchase warrants exercisable at $.01 per share from January 15, 1998
until August 4, 2002, to Robert B. Prag for $125,000 in cash;
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 imprinted on all stock
certificates; and stop-transfer instructions were lodged with the
Company's transfer agent as to all shares of common stock issued in the
transactions.
13
<PAGE>
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
The Company is indebted to Omron Systems, Inc. under a Secured
Installment Note dated March 27, 1995, for the principal amount of
$387,866 and interest thereon. The terms of such note required the
Company to make payments of principal and interest each month from April
1995 through December 1995, at which time the note became due. The
Company made one principal payment, and monthly interest payments through
October 1996, in accordance with the terms of the note, but has made no
other principal payments under this note and for that reason is in
default. The Company continues to discuss options with Omron regarding
the possible restructuring or mutually agreeable settlement of this note.
ITEM 5 -- OTHER INFORMATION
See Note 8 - Subsequent Events in Notes to Financial Statements.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits required by Item 601 of Regulation S-B
27 Financial Data Schedule
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: February 25, 1999 By: \s\ Roger L. Peirce
------------------ -----------------------
Chief Executive Officer
February 25, 1999 By: \s\ Robert E. Robichaud
------------------ -----------------------
Chief Financial Officer
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