-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LCI4haz1ncKP0mGqv8dHv6vC8Srpw2NB/e84v06s3eIyXg4zEnAMCmxDouK6trka 6j+0WYSMA9O7TpJrVUucSw== 0000927797-96-000015.txt : 19960513 0000927797-96-000015.hdr.sgml : 19960513 ACCESSION NUMBER: 0000927797-96-000015 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960510 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: U S WIRELESS DATA INC CENTRAL INDEX KEY: 0000895716 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 841178691 STATE OF INCORPORATION: CO FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-22848 FILM NUMBER: 96559147 BUSINESS ADDRESS: STREET 1: 5700 FLATIRON PARKWAY CITY: BOULDER STATE: CO ZIP: 80301 BUSINESS PHONE: 3034405464 MAIL ADDRESS: STREET 2: 5700 FLATIRON PKWY CITY: BOULDER STATE: CO ZIP: 00301 10QSB 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB Quarterly Report under Section 13 or Section 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 1996 Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______ to ______. Commission File No.: 0-22848 U.S. Wireless Data, Inc. (Exact name of registrant as specified in its charter) Colorado 84-1178691 (State of incorporation) (IRS Employer Identification No.) 5700 Flatiron Parkway Boulder, Colorado 80301 (Address of principal executive offices, including zip code) (303) 440-5464 (Registrant s Telephone Number, including area code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes X No As of March 31, 1996 there were outstanding 4,409,033 shares of the Registrants Common Stock (no par value per share). Transitional Small Business Disclosure Format Yes No X U.S. WIRELESS DATA, INC. TABLE OF CONTENTS PART I FINANCIAL INFORMATION Page Item 1. Financial Statements (Unaudited) Balance Sheet -- March 31, 1996 3 Statements of Operations -- Three Months and Nine Months Ended March 31, 1996 and 1995 4 Statements of Cash Flows -- Nine Months Ended March 31, 1996 and 1995 5 Notes to Financial Statements 6-7 Item 2. Management s Discussion and Analysis 8-12 PART II OTHER INFORMATION Item 1. Material Developments in Connection with Legal Proceedings 13 Item 3. Defaults Upon Senior Securities 13 Item 6. Exhibits and Reports on Form 8-K 14 U.S. WIRELESS DATA, INC. BALANCE SHEET (Unaudited)
March 31, 1996 ASSETS Current Assets: Cash $ 42,674 Accounts receivable, net of allowance for doubtful accounts of $15,760 41,500 Sales-type lease receivables 59,545 Inventory, net 2,739,012 Other current assets 2,327 Total current assets 2,885,058 Property and equipment, net 120,851 Other assets 22,755 Total assets $ 3,028,664
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 1,775,690 Accrued liabilities 201,970 Notes payable 420,266 Total current liabilities 2,397,926 Stockholders Equity: Common stock, no par value, 12,000,000 4,326,265 shares authorized, 4,409,033 shares issued and outstanding Additional paid-in capital 11,583,384 Accumulated deficit (15,278,911) Total stockholder's equity 630,738 Total liabilities and stockholders equity $ 3,028,664 See Accompanying Notes
U.S. WIRELESS DATA, INC. STATEMENTS OF OPERATIONS (Unaudited) Revenue 410,964 1,107,870 1,085,183 2,788,424 Cost of goods sold 343,548 1,175,578 954,301 2,966,129 Gross margin 67,416 (67,708) 130,882 (177,705) Operating Expenses Selling, general and administrative 266,509 1,446,270 984,715 4,307,276 Research and development 112,288 358,617 362,943 950,240 378,797 1,804,887 1,347,658 5,257,516 (Loss) from operations (311,381) (1,872,595) (1,216,776) (5,435,221) Other income/ (expense) (10,348) (59,537) (28,635) (13,739) Net (loss) (321,729) (1,932,132) (1,245,411) (5,448,960) Net (loss) per common share (.07) (.44) (.28) (1.31) Weighted average common shares outstanding 4,401,664 4,390,910 4,394,469 4,153,629 See Accompanying Notes
U.S. WIRELESS DATA, INC. STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended 3/31/96 3/31/95 Cash Flows from operating activities Net loss $ (1,245,411) $ (5,448,960) Depreciation and amortization 39,183 612,898 Stock issued for services 3,880 -- Changes in assets and liabilities: (Increase) decrease in: Accounts receivable 309,798 (664,654) Inventory 734,421 339,266 Other assets 24,281 (1,449,988) Increase (decrease) in: Accounts payable 50,178 1,262,543 Accrued liabilities (61,238) 121,037 Notes payable -- 472,800 Net cash used in operating activities (144,908) (4,755,058) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment and furniture 59,201 (31,045) Payment for purchase of Direct Data, Inc., net of cash acquired -- (1,979,789) Net cash used in investing activities 59,201 (2,010,834) CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of stock -- -- Proceeds from exercise of warrant -- 13,125 Net cash provided by financing activities -- 13,125 INCREASE (DECREASE) IN CASH (85,707) (6,752,767) CASH, Beginning of period 128,381 6,915,074 CASH, End of period 42,674 162,307
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Stock issued to Direct Data, Inc. shareholders 1,793,750 Fair market value of Direct Data, Inc. assets acquired 2,053,691 Direct Data, Inc. liabilities assumed 4,165,867 See Accompanying Notes
U.S. WIRELESS DATA, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) Note 1 -- ACCOUNTING PRINCIPLES The balance sheet as of March 31, 1996, as well as the statements of operations and of cash flows for the three months ended March 31, 1996 and March 31, 1995, and for the nine months ended March 31, 1996 and March 31, 1995, have been prepared by the Company without an audit. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows at March 31, 1996 and for all periods presented have been made. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company s Form 10-KSB for fiscal year end June 30, 1995. The results of operations for interim periods presented are not necessarily indicative of the operating results for the full year. Note 2 -- FINANCIAL CONDITION AND LIQUIDITY The Company currently has significant concerns regarding its financial condition and liquidity. The Company has incurred an accumulated deficit of approximately $15 million since inception and has incurred additional losses subsequent to the year ended June 30, 1995. In order to continue as a going concern, the Company needs to: sustain or increase revenue levels and product margins; continue to renegotiate arrangements with manufacturing suppliers; negotiate additional product development contracts; successfully complete the development and ramp to production of new products; generate positive cash flow from operations; and/or seek additional debt or equity financing. Note 2 -- INVENTORIES Inventories for the period presented are stated at the lower of cost or market and consist primarily of finished goods. Note 3 -- UNCERTAINTY RELATED TO THE CARRYING VALUE OF INVENTORIES Discussions with Solectron, the Company s manufacturer, during the third quarter of fiscal 1995 led to a conclusion that $1.4 million of raw materials inventory held by Solectron should be recorded as a liability on the Company s books. This inventory and the related liability has been reflected in the accompanying financial statements since March 31, 1995. However, subsequent to the end of March 31, 1996 fiscal quarter, the Company successfully negotiated an arrangement with Solectron whereby the Company was relieved of its obligations related to the raw materials inventory. Because of lower than anticipated sales levels, there is substantial uncertainty about the Company s ability to realize the recorded carrying value of finished goods inventory. Note 4 -- REVENUE RECOGNITION Direct sales are recognized upon shipment of products to customers. Sales to reseller organizations are recognized upon the Company s receipt of payment from the reseller. Note 5 -- NET LOSS PER SHARE Net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding at the end of the period. Exercisable stock options and warrants are not included in the calculation since their effect would be anti-dilutive. Note 6 -- DIRECT DATA, INC. ACQUISITION/DISSOLUTION In September 1994, the Company completed the acquisition of Direct Data, Inc. ( Direct Data ). The Company paid approximately $2 million in cash and issued 700,000 shares (valued at $2.56 per share) of its common stock in exchange for all outstanding shares of Direct Data. The transaction was accounted for using the purchase method of accounting and the Company recorded goodwill of approximately $6 million. During the fourth quarter of fiscal 1995, the Company determined that the goodwill related to the acquisition of Direct Data was fully impaired, and therefore, wrote-off the entire balance resulting in a charge included in the Statement of Operations for fiscal year 1995. In September 1995, Direct Data received notice that its bank note creditor would not extend the loan payment terms and demanded payment on a $1.3 million bank note. An officer and director of Direct Data and former director of the Company (the Officer ) had personally guaranteed the note. In early October 1995, the Officer repaid the note and, pursuant to the Officer s guaranty arrangement with the bank, became the holder of a security interest in all of Direct Data s assets. Subsequently, on October 5, 1995, the Officer and the Company consummated an agreement whereby in exchange for the Company s approval of the surrender of all of Direct Data s assets ($1,032,719 at June 30, 1995 and approximately $780,000 at October 5, 1995), the Officer released the Company from its $1.3 million obligation (to assume the Officer s obligation under the guaranty) and agreed that the Company would have the option to purchase 397,684 shares of the Company s common stock owned by the Officer, for a period of three years, at a price of $.25 per share. Additionally, the Officer granted the Company the right to vote these shares during the three year option period. As of June 30, 1995 and October 5, 1995, Direct Data had $3,053,336 and approximately $3,000,000 in liabilities, respectively. Direct Data notified its creditors that it would be unable to pay its remaining liabilities, and pursuant to the Colorado Business Corporation Act, Direct Data was dissolved effective October 19, 1995. Because of the dissolution of Direct Data directly after the Company s September 30, 1995 quarter end, the accompanying financial statements for the three and nine month periods ending March 31, 1996 exclude the results of operations of Direct Data. For the three and nine month periods ending March 31, 1995, the results of operations for Direct Data are included. For comparison purposes and differences attributable to Direct Data, see Management s Discussion and Analysis of Financial Condition and Results of Operations.
Unaudited Pro Forma Statement of Operations (excluding the results of Direct Data) Three Months Three Months Ended 3/31/95 Ended 3/31/95 Revenue 497,870 1,393,220 Loss from operations (930,085) (3,719,468) Net loss (932,075) (3,633,828) Net loss per share (.21) (.87)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company was incorporated on July 30, 1991, and was in the development stage until the quarter ended September 30, 1994. Since inception, the Company has raised equity capital through the sale of its securities, completed development of its initial product, negotiated agreements with suppliers of components, developed a marketing strategy, and initiated sales of the POS-50 portable credit card and check verification terminal. During fiscal 1995, the Company continued to promote its product through the cellular reseller channel and, in the second half of fiscal 1995, enhanced its marketing strategy by focusing sales efforts on the Independent Sales Organization (ISO) channels. During fiscal 1996, the Company continues to generate the majority of its revenue through the ISO channel and, in addition, has completed development and introduced its new CDPD product line. Since inception, the Company s financial resources have been used in completing the design, engineering and development of the POS-50 , performing field tests of the product, and initiating production and marketing plans and strategies. Prior to the December 1993 initial public offering ( IPO ), working capital was used to develop a marketable product. Since the IPO, funds have been used to develop sales and marketing channels, to continue product enhancements and new product development, to build finished goods inventory to meet potential demand, to defend and settle legal matters, and to acquire, support and ultimately liquidate the operations of Direct Data. In 1993, the Company established a contractual relationship with Solectron Corporation in Milpitas, California for subcontract manufacturing of the POS-50 . The Company ordered and received approximately 2,900 POS-50 terminals through September 1995. The Company built a large inventory of finished goods to facilitate promptly filling orders from customers. Because of higher-than-desirable inventory levels and poor sales results, the Company stopped production by Solectron in April 1994. Discussions with Solectron during the Company s third fiscal quarter of 1995 led to a conclusion that $1.4 million of raw materials inventory held by Solectron should be recorded as a liability on the Company s financial statements. The Company has continued to negotiate with Solectron and, subsequent to the end of the third fiscal quarter of 1996, the Company successfully negotiated an arrangement with Solectron whereby the Company was relieved of its obligations related to the raw materials inventory as well as all other financial obligations. Because of lower than anticipated sales levels, there is substantial uncertainty about the Company s ability to realize the recorded carrying value of finished goods inventory. During fiscal 1995, the Company acquired all of the outstanding shares of Direct Data, a distributor of POS-related products. Subsequent to the end of fiscal 1995, all Direct Data assets were surrendered to Direct Data s secured creditor in lieu of the creditor s foreclosure on a past due $1.3 million obligation. As a result, Direct Data had no assets, ceased operations and was dissolved effective October 19, 1995. See Financial Condition, Capital Resources and Liquidity . The following table reflects the comparative Statement of Operations for the three months ended March 31, 1996 and March 31, 1995, where the three months ended March 31, 1995 have been adjusted to exclude the results of operations for Direct Data, Inc. which was dissolved in October, 1995.
PRO FORMA STATEMENT OF OPERATIONS (Unaudited) Three Months Ended 3/31/95 Consolidated Pro Forma Three Months Statement of Less: Direct Statement of Ended 3/31/96 Operations Data, Inc. Adjustments Operations Revenue 410,964 1,107,870 610,000 -- 497,870 Cost of goods sold 343,548 1,175,578 612,279 -- 563,299 Gross margin 67,416 (67,708) (2,279) -- (65,429) Operating Expenses Selling, general and administrative 266,509 1,446,270 541,552 214,194 690,524 Research and development 112,288 358,617 184,485 -- 174,132 378,797 1,804,887 726,037 214,194 864,656 (Loss) from operations (311,381) (1,872,595) (728,316) (214,194) (930,085) Other income/ (expense) (10,348) (59,537) (57,547) -- (1,990) Net (loss) (321,729) (1,932,132) (785,863) (214,194) (932,075) Net (loss) per common share (.07) (.44) (.21) Weighted average common shares outstanding 4,401,664 4,390,910 4,390,910 (1) Amortization of goodwill
Net Sales Net sales of $410,964 for the third fiscal quarter of 1996 decreased from $497,870 for the third fiscal quarter of 1995. This decrease is attributable to reduced revenue from its POS-50 product, offset partially by revenue of $108,000 for CDPD products and contract development work. During the last half of fiscal 1995 (and continuing to present), in an effort to convert existing finished goods inventory to cash, the Company has periodically reduced the selling price of its POS-50 product. Gross Margin Gross margins in the third fiscal quarter of 1996 were $67,416 compared to $(65,429) for the same period in fiscal 1995. The increase was due primarily to: a) a reduction in staffing levels of the manufacturing support organization, and; b) initial sales of CDPD products and contract development work, both of which have more favorable margins than the POS-50 product. Operating Expenses Selling, general and administrative expenses decreased from $690,524 in the third fiscal quarter of 1995 to $266,509 in the third fiscal quarter of 1996. This decrease was due to: a) a reduction in staffing levels and other cost reductions which have been implemented from time to time since the last half of fiscal 1995, and; b) a reduction in legal expenses of approximately $140,000. Research and development expenses decreased from $174,132 in the third fiscal quarter of 1995 to $112,288 in the third fiscal quarter of 1996. This decrease was due to reductions in staffing levels as required to meet existing business conditions. Other Income/(Expense) Other income/(expense) decreased from $(1,990) in the third fiscal quarter of 1995 to $(10,348) in the third fiscal quarter of 1996. This decrease was due to: a) interest expense on a note payable to a supplier, and; b) reduction of interest income because of lower cash balances. Financial Condition, Capital Resources and Liquidity The Company continues to have significant concerns regarding its financial condition and liquidity. During the first quarter of fiscal 1995, the Company completed its acquisition of Direct Data. Pursuant to the acquisition agreement, the Company acquired all of the outstanding shares of common stock of Direct Data in exchange for 700,000 shares of the Company s Common Stock plus approximately $2 million in cash. In addition, the Company agreed to assume Richard P. Draper s ( Draper ) personal guaranty of the $1.3 million bank debt of Direct Data; however, the Company had never been in a position of fulfill this obligation to Draper. At the time of the Company s acquisition of Direct Data, Draper held approximately 65% of the outstanding shares of Direct Data and was an officer and director of Direct Data. Draper remained an officer and director of Direct Data after the acquisition, and also became a director of the Company until his resignation in April 1995. The Company also provided loans totaling $1.9 million to Direct Data, of which $500,000 was loaned prior to the closing of the acquisition. Since its inception, Direct Data had been in a loss position and had been issuing and selling equity to meet its working capital needs. The Company s loans were required to continue to meet Direct Data s working capital requirements from September 1994 through February 1995, at which time the Company stopped providing additional loans. At the time of the acquisition, the Company had expected that both its and Direct Data s sales performance would generate sufficient cash to support both entities working capital needs. However, it became apparent in the second fiscal quarter of 1995 that neither the Company s nor Direct Data s performance would generate the necessary capital to fund on-going operations, and beginning in January 1995, the Company began reducing its expenses through a series of layoffs and operational cost reductions. In November 1994, the Company had been approached by a large European company to acquire Direct Data. Due to growing concerns regarding both its and Direct Data s performance and liquidity, the Company believed that the potential disposition of Direct Data could provide it with a method to obtain debt relief for Direct Data and a needed cash infusion into the Company, as the holder of both an intercompany loan and as the sole shareholder of Direct Data. The terms of the proposed asset sale would have provided for a cash payment of $1.5 million to Direct Data as payment for assets, an earn-out opportunity by the Company of up to $1 million based upon the subsequent performance of the Direct Data business (as part of the acquiring entity), and the assumption of substantially all of Direct Data s secured and unsecured debt (other than the loan owed to the Company). Since substantially all other of Direct Data s debt was being assumed in the transaction, most of the $1.5 million cash payment would have been paid to the Company in re-payment of its loan and/or as a distribution to the Company as the sole shareholder of Direct Data. The Company continued to make loans to Direct Data until mid-February 1995 (ultimately resulting in a total of $1.9 million in loans) to fund operations in order to maintain Direct Data as a viable acquisition candidate until the sale could be closed. Additionally, in anticipation of the sale, Direct Data s bank (M&I Bank) agreed to extend its secured $1.3 million loan from March 15, 1995 to June 15, 1995. In May 1995, the Company was notified by the acquiring party that the planned acquisition of Direct Data would not be consummated. As a result, neither the Company nor Direct Data had the resources necessary to finance their business operations and obligations, and the Company began exploring all options available to it and Direct Data. The Company issued a press release disclosing the failed transaction and the resulting financial concerns for both the Company and Direct Data. Since May 1995, the Company has continued to reduce its expenses through cost controls and workforce reduction. It also has been successful in securing additional orders from its largest customer, Cardservice International ( CSI ). As a result, the Company has been able to maintain its cash position, although by the end of the third quarter it was still unable to make significant reductions in its obligations to its two largest creditors. However, subsequent to the end of March 31, 1996 fiscal quarter, the Company successfully negotiated an arrangement whereby the Company was relieved of all financial obligations to its largest creditor, Solectron. In order to renegotiate its arrangement with Solectron, the Company entered into an agreement with CSI, its largest customer, and Uniform Industrial Corporation ( UIC ), pursuant to which CSI and UIC paid Solectron $325,000 in exchange for all raw materials inventory and the complete release of all of the Company s obligations to Solectron. In consideration of CSI and UIC s agreement to assume the Solectron obligations, the Company will pay royalties to CSI and UIC on future sales of its products made with the purchased inventory. UIC took title and possession of all raw materials inventory needed to build future product and will be manufacturing product for the Company from that raw material inventory. The Company took title and possession on all excess parts and will be attempting to sell this inventory for cash. Additionally, in order to induce CSI to assume its portion of the Solectron obligation, the Company will issue common stock to CSI at 150% of fair market value on the day the agreement was entered into, and CSI and the Company currently are negotiating the terms of a registration rights agreement relating to such shares. Caesar Berger, a director of the Company, is an executive officer of CSI. The Company has continued its development efforts on the new CDPD-based credit card terminal and has secured and delivered initial orders for these products. In addition, the Company has successfully completed and continues to engage in discussions with terminal providers and transaction processors regarding potential engineering development contracts, which if entered into would provide additional working capital to the Company. While the Company believes that its relationship with CSI continues to be strong, the Company is highly dependent upon its sales to CSI, and the loss of, or a significant decrease in those sales would have a material adverse effect on the Company s cash position and its ability to sustain operations. In June 1995, Direct Data obtained an additional extension of its M&I Bank loan to September 1995. Also in June 1995, Direct Data executed a three-year exclusive distribution agreement with De La Rue Fortronic ( DLRF ), a manufacturer of POS terminals, to market and sell DLRF terminals in the U.S. In addition to its ability to earn gross margins on its distribution of DLRF products, Direct Data also agreed to undertake, for cash payments, certain software development and market development projects for DLRF. The DLRF agreement permitted Direct Data to, in effect, receive advances on future gross margins up to a maximum advance of $250,000. The funding received from DLRF allowed Direct Data to meet payroll and certain other operational expenses but not its creditors obligations, which included approximately $1.3 million in secured M&I Bank debt, approximately $1.1 million in unsecured trade debt, and $1.9 million in intercompany loans from the Company. From January 1995 until September 1995, Direct Data s workforce decreased by approximately 40%, to approximately 23 employees. Direct Data also continued to negotiate payment terms with its trade creditors. Despite the cost reduction measures described above, Direct Data remained in a negative cash flow situation. The Company and Direct Data investigated various options for short and long term funding, including increasing Direct Data s advance from DLRF to above the $250,000 maximum. Other than the DLRF margin advances and payments for software development, neither of which was sufficient to fund Direct Data s working capital needs, no short or long term funding opportunities had been obtained as of September 1995. In early September 1995, M&I Bank gave notice to Direct Data that it would no longer extend the loan and demanded payment in full on the September 15, 1995 due date. Since Draper, an officer and director of Direct Data, had personally guaranteed the $1.3 million bank loan, he began negotiating with M&I Bank to prevent the foreclosure of his guaranty. He ultimately paid the outstanding $1.3 million to M&I Bank in early October 1995, and pursuant to his guaranty arrangement with M&I Bank, became the holder of a security interest in all of Direct Data s assets. Rather than foreclose on the assets, Draper contacted Direct Data and the Company, as the sole shareholder of Direct Data, to negotiate an arrangement whereby he would be transferred all of the assets in which he had a foreclosable security interest. To prevent the negative effects of a foreclosure proceeding, (including the likelihood of substantial legal fees and associated expenses), Direct Data agreed to surrender the assets to Draper. Separately, the Company, as Direct Data s shareholder, also approved the surrender of assets in order to avoid the foreclosure proceedings and the above-discussed negative effects. In consideration for that approval, Draper released the Company from its $1.3 million obligation to remove him from his personal guaranty on the bank loan (which the Company had never fulfilled), and agreed that the Company would have the option to purchase the 397,684 shares of the Company s Common Stock (the Shares ) beneficially owned by Draper, for a period of three years, at a price of $.25 per share (the fair market value on the Company s Common Stock at the time the transaction was negotiated). Additionally, Draper granted the Company the right to vote the Shares (which constitute approximately 9% of the Company s outstanding Common Stock) during the three-year option period. In addition to being an officer and director of Direct Data until October 6, 1995, Draper was also a director of the Company until April 1995. The transfer of assets to Draper was consummated on October 5, 1995. Immediately prior to the transfer, from September 29, 1995 to October 3, 1995, all remaining Direct Data employees were terminated. As a result of the asset transfer and Draper s earlier re-payment of the M&I Bank debt, Direct Data had no assets, no secured debt, approximately $1.5 million in unsecured trade debt (not including the $1.9 million intercompany loan from the Company) and ceased operations. Direct Data notified its creditors that it would be unable to pay its remaining debts, and pursuant to the Colorado Business Corporation Act, Direct Data was dissolved effective October 19,1995. As a result of this development involving Direct Data and in order to continue as a going concern, the Company will need to sustain or increase its revenue levels and product margins, continue to renegotiate arrangements with its manufacturing suppliers, negotiate additional product development contracts, successfully complete the development and delivery of new products, generate positive cash flow from operations and/or seek additional debt or equity financing. Part II The information required for Part II, Items 2, 4 and 5 are not applicable. ITEM 1 -- MATERIAL DEVELOPMENTS IN CONNECTION WITH LEGAL PROCEEDINGS In early September 1994, two shareholders filed a Colorado state court class action lawsuit in Denver District Court against the Company, three of its directors, and others (Jacques A. Machol III, et al, v. U.S. Wireless Data, Inc., et al.). The lawsuit alleges various fraudulent acts, omissions and misrepresentations by the defendants in connection with the initial public offering of and subsequent trading in the Company s stock. A second shareholder class action complaint against the Company, three of its directors, and others was filed by one shareholder in late September 1994 in U.S. District Court, Denver, Colorado (Jeffry Appel on behalf of himself and all others similarly situated, v. Maurice Caldwell Jr., Rod L. Stambaugh, Leonard Trout, Donald L. Walford, Frank LaHue, U.S. Wireless Data, Inc., among others). The complaint also arises out of the Company s public offering and makes allegations similar to those made in the first complaint. The Denver District Court lawsuit has been stayed by court order so as to avoid duplication with the U.S. District Court lawsuit. In February 1995, another class action complaint was filed in U.S. District Court, Denver, Colorado by the same plaintiff who had previously filed the Colorado State class action in early September 1994 (Jacques A. Machol III and Prism Partners I on behalf of themselves and all others similarly situated, v. U.S. Wireless Data, Inc., Maurice R. Caldwell Jr., Rod L. Stambaugh, Leonard Trout, Donald L. Walford, Frank LaHue, among others). The Defendants and allegations are the same as in the original and subsequent lawsuits. Currently, the court is deciding whether to consolidate the two federal cases. The Company believes these lawsuits are without merit and denies that it engaged in any fraudulent acts or omissions, or otherwise violated Federal or Colorado law. In each case, the Company intends to contest the litigation on its merits, as well as the suitability of the plaintiff shareholders to act for the alleged class. Nonetheless, because litigation of this type involves inherent risks, it is not possible for the Company at this time to make an assessment of potential exposure, nor to predict with precision what the ultimate outcome will be. ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES The Company is indebted to Omron Systems, Inc. ( Omron ) under a Secured Installment Note dated March 27, 1995, for the principal amount of $472,800 and interest thereon. The terms of such note required the Company to make payments of principal and interest each month from April 1995 through December 1995, at which time the note became due. The Company made one principal payment, has continued to make monthly interest payments in accordance with the terms of the note, but has made no other principal payments under this note and for that reason is in default. The Company believes that as of the date of the filing of this report, the total amount due under such note is $420,266. The note is secured by 1,770 credit card terminals which are not currently needed by the Company for its business operations. Subsequent to the end of the third fiscal quarter, the Company has entered into discussion with Omron regarding the possible restructuring or mutually agreeable settlement of this note. ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits None b) Reports on Form 8-K There were no reports on Form 8-K that were filed during the fiscal quarter ended March 31, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. U.S. WIRELESS DATA, INC. Registrant Date: May 10, 1996 By: \s\ Michael J. Brisnehan President, Chief Executive Officer, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----