UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) August 21, 2006
PAYMENT DATA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 000-30152 98-0190072
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
12500 SAN PEDRO, SUITE 120, SAN ANTONIO, TEXAS 78216
(Address of principal executive offices) (Zip Code)
Registrant''s telephone number, including area code (210) 249-4100
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(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant
under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
EXPLANATORY NOTE
We hereby amend our Current Report on Form 8-K filed August 25, 2006 in this
Current Report on Form 8-K/A to revise the effective annual interest rate of the
Promissory Note from 25% as disclosed previously to 41% as disclosed below under
Item 2.03.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
On August 21, 2006, we entered into a zero-discount Promissory Note with
Dutchess Private Equities Fund, II, LP. Pursuant to terms of the Promissory
Note, we borrowed $500,000 and promised to pay Dutchess $625,000 with a
maturity date of August 21, 2007, which represents an effective annual
interest rate of 41% based on the minimum repayment terms of the Promissory
Note. We also issued 1,042,000 shares of restricted common stock to Dutchess as
an incentive for the investment and agreed to register the common stock issued
pursuant to the promissory note on the next registration statement we file.
Payments on the Promissory Note are to be made from the equity line of credit
that we previously entered into with Dutchess. We will make payments to Dutchess
of 100% of each put, until $52,083 has been paid during a full calendar month,
after which 50% of the put amounts for that month will be paid to Dutchess until
the face amount of the Promissory Note is paid in full, with a minimum monthly
amount of $52,083 due to Dutchess by the last business day of each month. The
payments are due at the closing of every put to Dutchess and after the
cumulative amount of financing we receive from any source, including puts,
during the term of the note exceeds $500,000, we will make a prepayment of 100%
of any financing proceeds over $500,000 that we receive within one business day
of receipt until the face amount is paid in full. We issued as collateral thirty
put notices to Dutchess for the maximum amount
applicable under the terms of the Investment Agreement and agreed to issue puts
at the maximum frequency allowed under the Investment Agreement, until such time
as the Note is paid in full.
In the event that on the maturity date, there are any remaining amounts unpaid
on this note, Dutchess can exercise its right to increase the face amount by 10%
as an initial penalty and 2.5% per month paid as liquated damages. In the event
that we default, Dutchess has the right, but not the obligation, to switch the
residual amount to a five-year, 14% interest bearing convertible debenture at a
conversion rate at the lesser of (i) 75% of the lowest closing bid price during
the fifteen trading days immediately preceding the notice of conversion or (ii)
100% of the average of the lowest bid price for the twenty trading days
immediately preceding the convertible closing date. If Dutchess chooses to
convert the residual amount to a convertible debenture, we shall have twenty
business days after notice of default to file a registration statement covering
an amount of shares equal to 300% of the residual amount. In the event we do not
file such registration statement within twenty business days of Dutchess'
request, or such registration statement is not declared by the Securities and
Exchange Commission to be effective within the time period described, the
residual amount shall increase by $1,000 per day.
The foregoing description of the terms and conditions of the Promissory Note
are qualified in their entirety by, and made subject to, the more
complete information set forth in the Promissory Note included on this Form
8-K/A as Exhibit 10.1 and incorporated herein by reference.
This report contains forward-looking statements that involve risks and
uncertainties. We generally use words such as "believe," "may," "could," "will,"
"intend," "expect," "anticipate," "plan," and similar expressions to identify
forward-looking statements. You should not place undue reliance on these
forward-looking statements. Our actual results could differ materially from
those anticipated in the forward-looking statements for many reasons including
our ability to implement our business plan, our ability to raise additional
funds and manage our substantial debts, consumer acceptance of our products, our
ability to broaden our customer base, and other risks described in our
reports filed with the Securities and Exchange Commission from time to time.
Although we believe the expectations reflected in the forward-looking
statements are reasonable, they relate only to events as of the date on
which the statements are made, and our future results, levels of
activity, performance or achievements may not meet these expectations. We do
not intend to update any of the forward-looking statements after the date of
this document to conform these statements to actual results or to changes
in our expectations, except as required by law.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
EXHIBIT NO. DOCUMENT DESCRIPTION
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10.1 Promissory Note between the Company and Dutchess Private
Equities Fund, II, LP, dated August 21, 2006 (included as exhibit
10.1 to the Form 8-K filed August 25, 2006, and incorporated
herein by reference).
SIGNATURE
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 hereunto duly authorized.
Payment Data Systems, Inc.
(Registrant)
Date August 29, 2006
/s/ Michael R. Long
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(Signature)
Michael R. Long
Chief Executive Officer and
Chief Financial Officer