SOURCE: Payment Data Systems, Inc.

March 02, 2005 16:01 ET

Payment Data Systems, Inc. Announces KUBRA's Exercise of Warrants

SAN ANTONIO, TX -- (MARKET WIRE) -- March 2, 2005 -- Payment Data Systems, Inc. (OTC BB: PYDS) today announced that KUBRA has chosen to exercise its initial set of warrants. The common stock issued in exchange for these warrants will be unregistered stock that has a holding period up to two years and is covered under rule 144.

Rick Watkin, KUBRA's CEO, said, "We feel this is a great time for us to exercise our initial set of warrants and become a shareholder in Payment Data. We value our relationship with PDS and are looking forward to earning more ownership in PDS through our creation of more revenue for PDS through the movement of our customers to them for payment processing."

PDS is one of KUBRA's providers for credit/debit card payment processing. PDS is the preferred payment processor cartridge within KUBRA's comprehensive technology network. The incentive warrant agreement, signed September 30, 2004, is performance-based and provides for both an initial 250,000 warrants -- priced at a premium to market -- and future warrants are earned by KUBRA by referral or transfer of profitable payment processing, from new or existing clients, to PDS.

Additional terms allow for KUBRA to earn warrants through the achievement of yearly or quarterly revenue markers, the top tier of which is leveled at $45,000,000 annual gross revenue or $11,250,000 quarterly gross revenue. Future warrants, unregistered and restricted, are only earned through delivery of tiered gross revenue to PDS and are priced at 120% of the market price when earned. Along with opportunity for dramatic revenue growth as the result of referrals, the incentive warrants provided to KUBRA, upon exercise, create significant additional capital for PDS.

Payment Data Systems, Inc. CEO Michael Long said, "It is good news that this transaction will provide PDS with a cash infusion of $60,000. More importantly than the proceeds, I believe it demonstrates the fact that KUBRA has solidified its belief in the strength of our relationship as well as the future of PDS through stock ownership. This, I believe, should be viewed as the second step toward further implementation of our plans and agreement with KUBRA that we announced in October 2004."

About Payment Data Systems, Inc.

Payment Data Systems, Inc., is an Integrated Payments Solution Provider delivering comprehensive, cost-effective solutions to billers and retailers for the processing and management of electronic payments via the Internet, point of sale, or payments taken by Customer Service Representatives or an Interactive Voice Response (IVR).

Additional products available from PDS include services and products that can be implemented more quickly and less expensively than the alternative of adding multiple payments companies as these solutions offer a full range of payment processing capabilities. These service offerings include: one-time and recurring ACH debits and credits, electronic lockbox and returned check services, Web pay acceptance of credit cards and checks, telephone pay to Customer Service Representatives for acceptance of credit cards and checks, Interactive Voice Response systems which completely automate the payment receiving process, and data warehousing that enable the storage and retrieval of all payment history from one location.

These are all managed within a single comprehensive storage and retrieval system thereby providing the customer consolidated tracking and reporting of all payment types regardless of source or channel.

For additional information, visit www.paymentdata.com.

FORWARD-LOOKING STATEMENTS DISCLAIMER

Except for the historical information contained herein, the matters discussed in this release include certain forward-looking statements, which are intended to be covered by safe harbors. Those statements include, but may not be limited to, all statements regarding our and management's intent, belief and expectations, such as statements concerning our future and our operating and growth strategy. Investors are cautioned that all forward-looking statements involve risks and uncertainties including, without limitation, the factors detailed from time to time in our filings with the Securities and Exchange Commission. One or more of these factors have affected, and in the future could affect, our businesses and financial results in the future and could cause actual results to differ materially from plans and projections. We believe that the assumptions underlying the forward-looking statements included in this release will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. All forward-looking statements made in this release are based on information presently available to our management. We assume no obligation to update any forward-looking statements, except as required by law.

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