UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 10, 2004
Payment Data Systems, Inc.
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(Exact name of registrant as specified in its charter)
Nevada 000-30152 98-0190072
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(State or other jurisdiction (Commission (IRS Employer
of incorporation ) File Number) Identification No.)
12500 San Pedro, Suite 120 San Antonio, TX 78216
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(Address of principal executive offices) (Zip Code)
(210) 249-4100
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(Registrant's telephone number, including area code)
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))
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
On December 10, 2004, we entered into a Promissory Note with Dutchess Private
Equities Fund, II, LP. Pursuant to terms of the Promissory Note, we promised to
pay Dutchess $284,000 with a maturity date of April 10, 2005. We shall issue
75,000 shares of restricted common stock to Dutchess as an incentive for the
investment. We agreed to register the Common Stock issued pursuant to the
Promissory Note on the next registration statement we file. Proceeds from the
Promissory Note will be used to pay back the balance of existing debt and to
support on-going operations.
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 the lesser of $71,000 or 50% of each put, until the face amount of the
promissory note is paid in full. The first payment is due at the closing of the
first put 30 days after the issuance of the Promissory Note and all subsequent
payments will be made at the closing of every put to Dutchess.
Dutchess has the right to elect to lower the amount of a payment if so requested
by us. In the event of this election, the next payment under the Note will be
increased by the greater of 1) the percentage difference between the next
payment and the lowered payment amount or 2) the actual dollar amount difference
between the next payment and the lowered payment amount.
We will issue as collateral twenty-five Put Notices to Dutchess for the full
amount applicable under the terms of the Investment Agreement and shall do so 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, we have any remaining amounts unpaid on
this Note, Dutchess can exercise its right to increase the residual amount by
2.5% per month paid as liquated damages.
In the event that we default, Dutchess has the right, but not the obligation, to
1) switch the residual amount to a three-year, 10% interest bearing convertible
debenture at a conversion rate at the lesser of (i) 75% of the average of the
lowest closing bid price during the fifteen trading immediately preceding the
convertible maturity date or (ii) 100% of the average of the lowest bid price
for the twenty trading days immediately preceding the convertible maturity
date. If Dutchess chooses to convert the residual amount to a convertible
debenture, we shall have twenty business days after notice of the same 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 Commission to be effective under the Securities Act within the
time period described above, the residual amount shall increase by $1,000 per
day.
Item 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
Exhibit Description
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10.1 Promissory Note between the Registrant and Dutchess Private Equities Fund,
II, LP, dated December 10, 2004.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Payment Data Systems, Inc.
BY: /S/ Michael R. Long
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Michael R. Long, Chief Executive Officer and
Chief Financial Officer
Dated: December 16, 2004