UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the quarterly period ended March 31, 2004
Commission File Number 0-31729
INTEGRATED DATA CORP.
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(Exact name of registrant as specified in its charter)
Delaware 23-2498715
-------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
625 W. Ridge Pike, Suite C-106, Conshohocken, PA 19428
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(Address of principal executive offices)
Telephone: (610) 825-6224
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 90 days. [X]Yes [ ]No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [ ]Yes [X]No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. [X]Yes [ ]No
As of April 13, 2004 there were 7,685,677 shares outstanding of the
Registrant's $.001 par value common stock.
INTEGRATED DATA CORP.
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION.............................................1
Item 1. Financial Statements.........................................1
Consolidated Balance Sheets at March 31, 2004 (unaudited)
and June 30, 2003 (audited)......................................1
Consolidated Statements of Operations for the three months
and nine months ended March 31, 2004 and 2003(unaudited).........2
Consolidated Statement of Stockholders' Equity (Deficit)
for the nine months ended March 31, 2004 (unaudited).............3
Consolidated Statements of Cash Flows for the nine months
ended March 31, 2004 and 2003 (unaudited)........................4
Notes to Consolidated Financial Statements (unaudited)...........6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................21
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.................................................24
Item 4. Controls and Procedures.....................................24
PART II. OTHER INFORMATION...............................................26
Item 1. Legal Proceedings...........................................26
Item 2. Changes in Securities and Use of Proceeds...................26
Item 3. Defaults Upon Senior Securities.............................26
Item 4. Submission of Matters to a Vote of Security Holders.........26
Item 5. Other Information...........................................26
Item 6. Exhibits and Reports on Form 8-K............................26
SIGNATURES................................................................28
-i-
NOTE REGARDING FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-Q, including exhibits thereto, contains
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements are
typically identified by the words "anticipates", "believes", "expects",
"intends", "forecasts", "plans", "future", "strategy", or words of similar
meaning. Various factors could cause actual results to differ materially
from those expressed in the forward-looking statements. The Company assumes
no obligations to update these forward-looking statements to reflect actual
results, changes in assumptions, or changes in other factors, except as
required by law.
-ii-
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INTEGRATED DATA CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars and Shares in Thousands)
March 31, June 30,
2004 2003
----------- ----------
(Unaudited) (Audited)
CURRENT ASSETS
Cash and cash equivalents $ 1,675 $ 2,143
Accounts receivable, net allowance of $18 & $55 4,760 2,038
Inventory 2,840 1,225
Prepaid expenses and other current assets 897 487
--------- ---------
Total Current Assets 10,172 5,893
PROPERTY AND EQUIPMENT, NET 1,803 1,730
INTANGIBLE ASSETS, NET
Amortizable 3,878 4,330
Goodwill 1,464 1,464
INVESTMENT IN UNCONSOLIDATED SUSIDIARIES 8 8
OTHER ASSETS 54 54
--------- ---------
TOTAL ASSETS $ 17,379 $ 13,479
========= =========
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 10,083 $ 6,141
Short-term borrowings from related parties 713 318
Deferred revenue 27 146
--------- ---------
Total Current Liabilities 10,823 6,605
MINORITY INTEREST 1,100 811
STOCKHOLDERS' EQUITY
COMMON STOCK
$0.001 par value; 300,000 shares authorized;
Issued and outstanding, 7,686 shares at March
31, 2004 and 7,686 shares at June 30, 2003 8 8
WARRANTS OUTSTANDING, NET 807 1,613
ADDITIONAL PAID-IN-CAPITAL 284,533 283,727
ACCUMULATED DEFICIT (280,002) (279,308)
ACCUMULATED OTHER COMPREHENSIVE INCOME 110 23
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 5,456 6,063
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,379 $ 13,479
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
-1-
INTEGRATED DATA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars and Shares in Thousands, Except Per Share Amounts)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ ------------------
2004 2003 2004 2003
-------- -------- -------- --------
REVENUE $ 4,630 $ 69 $ 13,565 $ 94
COST OF REVENUE 2,649 20 7,969 26
-------- -------- -------- --------
GROSS PROFIT 1,981 49 5,596 68
OPERATING EXPENSES
Marketing expenses 374 - 1,198 -
Research and development expenses 375 - 1,121 -
Depreciation and amortization 456 242 1,192 429
General and administrative 967 178 2,643 503
Income from unconsolidated subsidiary - - - (8)
-------- -------- -------- --------
LOSS FROM OPERATIONS (191) (371) (558) (856)
-------- -------- -------- --------
OTHER INCOME (EXPENSE)
Other income 8 - 27 -
Interest expense - - - (1)
Minority interest (61) - (200) -
Gain on foreign exchange 18 - 37 -
-------- -------- -------- --------
(35) - (136) (1)
-------- -------- -------- --------
NET LOSS BEFORE EXTRAORDINARY GAIN (226) (371) (694) (857)
EXTRAORDINARY GAIN ON DISCHARGE OF
INDEBTEDNESS - - - 3,975
-------- -------- -------- --------
NET INCOME (LOSS) $ (226) $ (371) $ (694) $ 3,118
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 7,686 7,523 7,686 3,120
BASIC AND DILUTED INCOME (LOSS)
PER COMMON SHARE
Net loss before extraordinary $ (0.03) $ (0.05) $ (0.09) $ (0.27)
Extraordinary gain on discharge
of indebtedness - - - 1.27
-------- -------- -------- --------
Net income (loss) $ (0.03) $ (0.05) $ (0.09) $ 1.00
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
INTEGRATED DATA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
NINE MONTHS ENDED MARCH 31, 2004
(Dollars and Shares in Thousands)
COMMON STOCK COMMON
--------------- STOCK
NUMBER WARRANTS ADD'L
OF OUTSTAN- PAID-IN ACCUMULATED
SHARES AMOUNT DING,NET CAPITAL DEFICIT
------ ------ --------- --------- ----------
BALANCES, JUNE 30, 2003 7,686 $ 8 $ 1,613 $ 283,727 $(279,308)
Nine months ended March
31, 2004(unaudited):
Exercise of stock options - - - - -
Common stock warrants expired - - (806) 806 -
Net income (loss) - - - - (694)
Foreign currency translation
adjustment - - - - -
------ ------ -------- --------- ----------
BALANCES, MARCH 31,
2004 (unaudited) 7,686 $ 8 $ 807 $ 284,533 $(280,002)
====== ====== ======== ========= ==========
ACCUMULATED
-CONTINUED- OTHER
COMPREHENSIVE COMPREHENSIVE
INCOME INCOME
------------- -------------
BALANCES, JUNE 30, 2003 $ - $ 23
Nine months ended March
31, 2004(unaudited):
Exercise of stock options - -
Common stock warrants expired - -
Net income (loss) (694) -
Foreign currency translation
adjustment 87 87
---------- ----------
BALANCES, MARCH 31,
2004 (unaudited) $ (607) $ 110
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
INTEGRATED DATA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
Nine Months Ended
March 31,
----------------------------
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (694) $ 3,118
Adjustments to reconcile net loss to net
cash flows used in operating activities:
Extraordinary gain on discharge of
indebtedness - (3,975)
Depreciation and amortization 1,192 429
Minority interest 200 -
Income from unconsolidated subsidiary - (8)
Change in current assets and liabilities
which increase (decrease) cash:
Accounts receivable (2,722) (129)
Inventory (1,615) -
Prepaid expenses & other current assets (410) (4)
Accounts payable & accrued liabilities 3,942 (101)
Deferred revenue (119) -
------------ ------------
Net cash provided by (used in)
operating activities (226) (670)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash of acquired company - 1,242
Investment in long-lived assets (802) -
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 395 667
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 165 -
------------ ------------
NET CHANGE IN CASH AND EQUIVALENTS (468) 1,239
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 2,143 5
------------ ------------
CASH AND EQUIVALENTS, END OF PERIOD $ 1,675 $ 1,244
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
INTEGRATED DATA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
(Dollars in Thousands)
Nine Months Ended
March 31,
----------------------------
2004 2003
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period:
Interest $ - $ -
Income taxes $ - $ -
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Conversion of debt into equity $ - $ 1,996
Issuance of shares upon acquisitions:
DataWave Systems Inc. $ - $ 2,198
C4 Services Ltd. $ - $ 4,200
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
NOTE 1 - BASIS OF INTERIM PRESENTATION
The accompanying interim period financial statements of Integrated Data Corp.
("IDC" or the "Company") are unaudited, pursuant to certain rules and
regulations of the Securities and Exchange Commission, and include, in the
opinion of management, all adjustments (consisting of only normal recurring
accruals) necessary for a fair statement of the results for the periods
indicated, which, however, are not necessarily indicative of results that may
be expected for the full year. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations. The financial
statements should be read in conjunction with the financial statements and
the notes thereto included in IDC's June 30, 2003 Form 10-K and other
information included in IDC's Forms 8-Ks and amendments thereto as filed with
the Securities and Exchange Commission.
NOTE 2 - HISTORY AND NATURE OF THE BUSINESS
Integrated Data Corp. ("IDC"), formerly Clariti Telecommunications
International Ltd., is a non-operating U.S. holding company with interests in
the U.S., Canada, the U.K., and Italy. IDC and its subsidiaries
(collectively the "Company", "We", or "Our") offer a wide range of
telecommunications, wireless, point-of-sale activation, financial
transaction, and other services. In 2002 IDC successfully completed
reorganization under Chapter 11 and is now operating with no secured debt
liabilities.
The Company was originally formed in February 1988 as the successor to a
music and recording studio business owned and operated by the Company's
former CEO. The Company became publicly held upon its merger in January 1991
with an inactive public company incorporated in Nevada. The surviving
corporation changed its name to Sigma Alpha Entertainment Group, Ltd. and was
subsequently reincorporated in Delaware. Beginning in 1995, the Company
began shifting its focus away from the music and recording business and
toward the development and commercialization of a proprietary data
broadcasting technology. This wireless technology allowed for the
metropolitan-wide distribution of data utilizing the existing broadcast
infrastructure of FM radio stations. In 1998 the Company began to acquire
interests in the telecommunications business and changed its name to Clariti
Telecommunications International, Ltd. Upon emergence from Chapter 11 in
2002, the company name was changed to Integrated Data Corp. to more
accurately reflect its new business focus of acquiring, managing, and forming
leading-edge communication, financial, and network technology solution and
service providers. During year ended June 30, 2003, the Company acquired
100% of C4 Services Ltd. and a majority ownership in DataWave Systems Inc.
-6-
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year End
---------------
The Company's fiscal year ends on June 30. In these financial statements,
the three-month periods ended March 31, 2004 and 2003 are referred to as
Fiscal 3Q04 and Fiscal 3Q03, respectively, and the nine-month periods ended
March 31, 2004 and 2003 are referred to as Fiscal Nine Months 2004 and Fiscal
Nine Months 2003, respectively.
DataWave System's Inc. has a March 31 fiscal year end and the Company has
adopted the policy to consolidate the March 31 financial statements of
DataWave in its June 30 financial statements. Therefore, because of the
three-month lag, the March 31, 2004 financial statements of the Company
include the balance sheet of DataWave as of December 31, 2003. The results
of operations of DataWave for the three months and nine months ended December
31, 2003 are included in the statement of operations of the Company for the
three months and nine months ended March 31, 2004.
Principles of Consolidation and Basis of Presentation
-----------------------------------------------------
The consolidated financial statements include the accounts of the Company and
its wholly-owned and majority owned subsidiaries. All significant
intercompany transactions have been eliminated in consolidation.
Cash Equivalents
----------------
The Company considers certificates of deposit, money market funds and all
other highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Foreign Currency Translation
----------------------------
Assets and liabilities of its foreign subsidiaries have been translated using
the exchange rate at the balance sheet date. The average exchange rate for
the period has been used to translate revenues and expenses. Translation
adjustments are reported separately and accumulated in a separate component
of equity (accumulated other comprehensive income).
Estimates
---------
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates based on management's
knowledge and experience. Accordingly actual results may differ from those
estimates.
-7-
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue and Cost Recognition
----------------------------
The Company's revenues are primarily generated from the resale of prepaid
long distance and cellular telephone time, principally from the sale of
prepaid calling cards and point of sale activated PINs. Sales of prepaid
calling cards and point of sale activated PINs under third party brands,
where DataWave is not the primary obligor of the related phone service, does
not incur significant inventory risk, has no significant continuing
obligation with respect to services being rendered subsequent to sale, the
price to the consumer is fixed and determinable and collection is reasonably
assured, are recognized at the date of sale to the consumer on a net basis.
The resulting net agency revenue earned is calculated as the difference
between the gross proceeds received and the cost of the related phone time.
Sales of DataWave or custom branded cards where DataWave incurs inventory
risk but does not provide the related telephone time are recognized on the
gross basis on the date of sale to the consumer when title to the card
transfers, collectability of proceeds is reasonably assured, the full
obligation to the phone service provider is fixed and determinable, and
DataWave has no significant continuing obligations. Revenues from certain
prepaid phone cards where our obligation to the phone service provider is not
fixed or determinable at the date of delivery is deferred and recognized on a
gross basis when services have been rendered to the buyer, phone service is
delivered and its cost determined, as the card is used or expires.
Financial Instruments
---------------------
The Company's financial instruments consist primarily of cash and
equivalents, accounts receivable, accrued expenses, and short-term
borrowings. These balances, as presented in the balance sheet approximate
their fair value because of their short maturities.
Accounts receivable includes amounts due from contractors who collect cash
from and service the DataWave's DTM and other vending machines. Certain of
these contractors are not bonded resulting in credit risk to DataWave.
DataWave is also exposed to certain concentrations of credit risk. DataWave
actively monitors the granting of credit and continuously reviews accounts
receivable to ensure credit risk is minimized.
The Company is exposed to foreign exchange risks due its sales denominated in
foreign currency.
Inventory
---------
Inventories include prepaid pre-activated calling cards and related cards and
promotional supplies, which are valued at the lower of average cost and
market. Component parts and supplies used in the assembly of machines and
related work-in-progress are included in machinery and equipment.
-8-
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Direct Cost of Revenues
-----------------------
Direct cost of revenues consists primarily of long distance telephone time,
commissions to agents and site landlords, and standard phone cards. Direct
costs are also associated with the DTM machines including direct production
salaries, parts and accessories and costs to service the machines.
Research and Development Costs
------------------------------
Research and development costs are charged as an expense in the period in
which they are incurred.
Advertising Costs and Sales Incentives
--------------------------------------
Advertising costs are expensed as incurred.
The majority of the DataWave's advertising expense relates to its consumer
long distance business. Most of the advertisements are in print media, with
expenses recorded as they are incurred.
Effective July 1, 2002, the Company adopted the provisions of the Financial
Accounting and Standards Board's Emerging Issues Task Force Issue 01-9,
"Accounting for Consideration Given by a Vendor to a Customer" ("EITF 01-9").
Under EITF 01-9, DataWave's sales and other incentives are recognized as a
reduction of revenue, unless an identifiable benefit is received in exchange.
Certain advertising and promotional incentives in which DataWave exercises
joint-control over the expenditure, receives an incremental benefit and can
ascertain the fair value of advertising and promotion incurred are included
in Cost of Sales.
Property and Equipment
----------------------
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is calculated over the estimated useful lives of machinery and
equipment as follows:
Computer equipment & software 30% declining balance or 5-year straight line
Office equipment 20% declining balance or 5-year straight line
Other machinery & equipment 30% declining balance
Vending, DTM & OTC equipment 3 years straight-line
Leasehold improvements 4 years straight-line
Parts, supplies and components are depreciated when they are put in use.
-9-
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment of Long-Lived Assets
-------------------------------
The Company reviews its long-lived assets, other than goodwill, for
impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. To determine
recoverability, the Company compares the carrying value of the assets to the
estimated future undiscounted cash flows. Measurement of an impairment loss
for long-lived assets held for use is based on the fair value of the asset.
Long-lived assets classified as held for sale are reported at the lower of
carrying value and fair value less estimated selling costs. For assets to be
disposed of other than by sale, an impairment loss is recognized when the
carrying value is not recoverable and exceeds the fair value of the asset.
For goodwill, an impairment loss will be recorded to the extent that the
carrying amount of the goodwill exceeds its fair value. No such impairment
losses were identified at March 31, 2004.
Goodwill and Other Intangible Assets
------------------------------------
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 141 ("SFAS 141"), "Business
Combinations," and Statement of Financial Accounting Standard No.142 ("SFAS
142"), "Goodwill and Other Intangible Assets."
SFAS 141 requires that business combinations be accounted for under the
purchase method of accounting and addresses the initial recognition and
measurement of assets acquired, including goodwill and intangibles, and
liabilities assumed in a business combination. The Company adopted SFAS 141
on a prospective basis effective July 1, 2002 with no significant effect on
its financial position or results of operations.
SFAS 142 requires that goodwill and intangible assets with indefinite lives
no longer be amortized. Instead, these amounts will be subject to a fair-
value based annual impairment assessment.
Separable intangible assets that are not deemed to have an indefinite life
will continue to be amortized over their useful lives.
The Company has performed an impairment test of its goodwill and determined
that no impairment of the recorded goodwill existed. Therefore, no
impairment loss was recorded during the three months and six months ended
March 31, 2004. The customer list is amortized over 6 years, management's
best estimate of its useful life, following the pattern in which the expected
benefits will be consumed or otherwise used up. The DataWave International
License is amortized over the term of the agreement expiring in March 2010.
-10-
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
------------
The Company has adopted FASB Statement No. 109, "Accounting for Income
Taxes," which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for temporary differences between financial
statement and tax bases of assets and liabilities that will result in taxable
or deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to be
realized. Income tax expense is the tax payable or refundable for the period
plus or minus the change during the period in deferred tax assets and
liabilities.
Comprehensive Income (Loss)
---------------------------
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income." This
statement establishes rules for the reporting of comprehensive income (loss)
and its components. The component of comprehensive income consists of
foreign currency translation adjustments.
Net Income (Loss) Per Common Share
----------------------------------
Net income (loss) per common share is based upon the weighted average number
of common shares outstanding during the period. The treasury stock method is
used to calculate dilutive shares. Such method reduces the number of
dilutive shares by the number of shares purchasable from the proceeds of the
options and warrants assumed to be exercised. Basic and diluted weighted
average shares outstanding for Fiscal 3Q04 and Fiscal 3Q03 and Fiscal Nine
Months 2004 and Fiscal Nine Months 2003 were the same because the effect of
using the treasury stock method would be antidilutive.
DataWave has an employee stock option plan providing for the issuance of
stock options to purchase DataWave common stock. Since these options are not
"in the money" at the DataWave level, there is no impact on the Company's
earnings per share. However, such options, when and if exercised, will
dilute the Company's actual ownership interest in DataWave. Based on the
current program, the potential percentage ownership interest attributable to
exercisable DataWave options as of March 31, 2003 is, on a diluted basis,
approximately 9%.
Accounting for Stock-Based Compensation
---------------------------------------
Compensation costs attributable to stock option and similar plans are
recognized based on any difference between the quoted market price of the
stock on the date of the grant over the amount the employee is required to
pay to acquire the stock (the intrinsic value method under APB Opinion 25).
Such amount, if any, is accrued over the related vesting period, as
appropriate.
-11-
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company has adopted FASB Statement 123, "Accounting for Stock-Based
Compensation," which encourages employers to account for stock-based
compensation awards based on their fair value on their date of grant. The
fair value method was used to value common stock warrants issued in
transactions with other than employees during the periods presented.
Entities may choose not to apply the new accounting method for options issued
to employees but instead, disclose in the notes to the financial statements
the pro forma effects on net income and earnings per share as if the new
method had been applied. The Company has adopted the disclosure-only
approach to FASB Statement 123 for options issued to employees. See Note 14.
Recent Accounting Pronouncements
--------------------------------
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 will be effective for any guarantees that
are issued or modified after December 31, 2002. The Company has adopted the
disclosure requirements and is currently evaluating the effects of the
recognition provisions of FIN 45. The adoption of this statement did not
have a material impact on the Company's results of operations or financial
position.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities - an interpretation of ARB No.
51". FIN 46 requires that if any entity has a controlling financial interest
in a variable interest entity, the assets, liabilities and results of
activities of the variable interest entity should be included in the
consolidated financial statements of the entity. FIN 46 provisions are
effective for all arrangements entered into after January 31, 2003. For
those arrangements entered into prior to January 31, 2003, FIN 46 provisions
are required to be adopted at the beginning of the first interim or annual
period beginning after June 15, 2003. This statement is not currently
applicable to the Company.
In April 2003, the FASB issued Statement of Financial Accounting Standard No.
149 ("SFAS 149"), "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities." SFAS 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS 133. SFAS 149 is generally
effective for derivative instruments, including derivative instruments
-12-
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
embedded in certain contracts, entered into or modified after June 30, 2003
and for hedging relationships designated after June 30, 2003. This statement
is not currently applicable to the Company.
In May 2003, the FASB issued Statement of Financial Accounting Standard No.
150 ("SFAS 150"), "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity." SFAS 150 clarifies the
accounting for certain financial instruments with characteristics of both
liabilities and equity and requires that those instruments be classified as
liabilities on the balance sheet. Previously, many of those financial
instruments were classified as equity. SFAS 150 is effective for financial
instruments entered into or modified after May 31, 2003 and otherwise is
effective at the beginning of the first interim period beginning after June
15, 2003. This statement is not currently applicable to the Company.
On April 22, 2003, the FASB announced its decision to require all companies
to expense the fair value of employee stock options. Companies will be
required to measure the cost according to the fair value of the options.
Although the new guidelines have not yet been released, it is expected that
they will be finalized soon and be effective in 2004. When final rules are
announced, the Company will assess the impact to its financial statements.
NOTE 4 - ACQUISITIONS
On December 11, 2002, the Company acquired all of the outstanding capital
stock of C4 Services Ltd. ("C4 Services") for 4,200,000 newly issued shares
of the Company's common stock valued at $1.00 per share. The acquisition was
accounted for under the purchase method, and the results of C4 Services have
been included in the Company's consolidated results effective December 1,
2002. At the time of acquisition, C4 Services owned the exclusive
international (excluding the Americas) DataWave technology license and
Integrated Communication Services Ltd ("ICS"). Both were transferred
directly to the parent company, Integrated Data Corp, and the C4 Services
entity was discontinued. Hence, the Company now owns the exclusive worldwide
(excluding the Americas) rights to own, operate, and license any and all
DataWave technologies and services (the "DataWave International License"),
and ICS is a wholly-owned subsidiary of the Company. The purchase price of
$4,200,000 has been allocated to the DataWave International License.
On December 12, 2002, the Company acquired an approximate 41% interest in
DataWave Systems, Inc. for 1,794,900 newly issued shares of the Company's
common stock valued at $1.00 per share.
Effective January 14, 2003, the Company agreed to purchase an additional
4,023,030 freely tradable shares of DataWave. The shares were purchased in
-13-
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
NOTE 4 - ACQUISITIONS (Continued)
off-market transactions for consideration of 402,303 newly issued Rule 144
restricted shares of the Company (one share of the Company's common stock
being exchanged for each ten shares of DataWave) valued at $1.00 per share.
These shares, when added to 17,949,000 shares acquired in December 2002,
bring the Company's total holdings in DataWave to 21,972,030 shares, which
constitute a majority of 50.062% of the issued and outstanding shares of
DataWave. The acquisition was accounted for under the purchase method of
accounting.
DataWave Systems Inc. has a March 31 fiscal year end and the Company has
adopted the policy to consolidate the March 31 financial statements of
DataWave in its June 30 financial statements. Therefore, because of the
three-month lag, the March 31, 2004 financial statements of the Company
include the balance sheet of DataWave as of December 31, 2003. The results
of operations of DataWave for the three months and nine months ended December
31, 2003 are included in the statement of operations of the Company for the
three months and nine months ended March 31, 2004.
The following summary presents the Company's unaudited pro forma consolidated
results of operations for the three and nine months ended March 31, 2003 as
if DataWave was acquired July 1, 2002 (in thousands).
3 Months 9 Months
-------- --------
Revenue $ 4,641 $14,248
Net loss before extraordinary gain $ (311) $ (682)
Extraordinary gain $ - $ 3,975
Net income $ (311) $ 3,293
Basic and diluted income (loss) per share
Net loss before extraordinary gain $ (0.04) $ (0.21)
Extraordinary gain $ - $ 1.27
Net income $ (0.04) $ 1.06
NOTE 5 - ACCOUNTS RECEIVABLE
Accounts receivable and other receivables consist of the following (in
thousands):
Fiscal Fiscal
3Q04 2003
------ ------
Trade accounts receivable (net of allowance
for doubtful accounts of $18 and $55) $ 3,631 $ 1,698
Input tax credits receivable 559 211
Other receivables 570 129
------- -------
$ 4,760 $ 2,038
======= =======
-14-
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
NOTE 6 - INVENTORY
Inventory consists of the following (in thousands):
Fiscal Fiscal
3Q04 2003
------ ------
DataWave Telecard Merchandisers $ 138 $ 142
Long-distance and cellular time 2,542 997
Prepaid cards 160 86
------- -------
$ 2,840 $ 1,225
======= =======
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment of the Company and its consolidated subsidiaries
consist of the following (in thousands):
Fiscal Fiscal
3Q04 2003
------ ------
Computer equipment and software $ 1,988 $ 1,844
Office equipment and furniture 222 193
Other machinery and equipment 51 55
Parts, supplies and components 581 581
Vending machines in assembly 55 55
Vending equipment 3,819 3,325
Leasehold improvements 37 53
------- -------
Total Cost $ 6,753 $ 6,106
Less accumulated depreciation (4,950) (4,376)
------- -------
$ 1,803 $ 1,730
======= =======
Depreciation expense was $286,000 and $87,000 for Fiscal 3Q04 and Fiscal
3Q03, and $671,000 and $196,000 for Fiscal Nine Months 2004 and Fiscal Nine
Months 2003.
-15-
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
NOTE 8 - INTANGIBLE ASSETS
Amortizable intangible assets consist of the following (in thousands):
Fiscal Fiscal
3Q04 2003
------ ------
DataWave International License $ 4,200 $ 4,200
Customer lists 687 623
Patents and technology 450 450
------- -------
$ 5,337 $ 5,273
Less accumulated amortization (1,459) (943)
------- -------
$ 3,878 $ 4,330
======= =======
Goodwill in the amount of $1,464,000 resulted from the acquisition of
DataWave.
Amortization expense was $170,000 and $155,000 for Fiscal 3Q04 and Fiscal
3Q03, and $521,000 and $233,000 for Fiscal Nine Months 2004 and Fiscal Nine
Months 2003.
NOTE 9 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following (in
thousands):
Fiscal Fiscal
3Q04 2003
------ ------
Trade accounts payable $ 6,637 $ 3,902
Accrued compensation and benefits 120 266
Co-op and rebate accruals 403 300
Long-distance time accruals 1,137 926
Other accrued liabilities 816 155
State, local, GST and other taxes payable 970 592
------- -------
$10,083 $ 6,141
======= =======
-16-
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
NOTE 10 - EXTRAORDINARY GAIN ON DISCHARGE OF INDEBTEDNESS
An extraordinary gain on discharge of indebtedness of $3,635,000 in Fiscal
2Q03 resulted from the Chapter 11 Reorganization of the Company, and
extraordinary gain on discharge of indebtedness of $340,000 in Fiscal 1Q03
resulted from the Chapter 7 liquidation of RadioNet International Inc., a
wholly-owned subsidiary of the Company.
NOTE 11 - SHORT-TERM BORROWINGS FROM RELATED PARTY
Integrated Technologies & Systems Ltd. ("IT&S"), a greater than 5%
shareholder, and/or its affiliates agreed to fund the Company's working
capital requirements post Chapter 11 filing through the end of Fiscal Year
2004. The amount funded as of June 30, 2003 was $968,000. However, $650,000
of the loan amount was converted into shares of the Company's common stock in
December 2002 valued at $2.00 per share. The balance of the loan as of March
31, 2004 and June 30, 2003 was $713,000 and $318,000.
NOTE 12 - INCOME TAXES
There is no income tax benefit for operating losses for Fiscal 3Q04 and
Fiscal 3Q03 and Fiscal Nine Months 2004 and Fiscal Nine Months 2003 due to
the following:
Current tax benefit - the operating losses cannot be carried back to earlier
years and any taxable income will be offset by net operating loss
carryforwards.
Deferred tax benefit - the deferred tax assets were offset by a Valuation
allowance required by FASB Statement 109, "Accounting for Income Taxes." The
valuation allowance is necessary because, according to criteria established
by FASB Statement 109, it is more likely than not that the deferred tax asset
will not be realized through future taxable income.
Integrated Data Corp. files a consolidated corporate income tax return in the
United States and its foreign subsidiaries will be required to file income
tax returns in their respective countries.
The use of net operating loss carryforwards for United States income tax
purposes is limited when there has been a substantial change in ownership (as
defined) during a three-year period. Because of the recent and contemplated
changes in ownership of the Company's common stock, such a change may occur
in the future. In this event, the use of net operating losses each year
would be restricted to the value of the Company on the date of such change
multiplied by the federal long-term rate ("annual limitation"); unused annual
limitations may then be carried forward without this limitation.
-17-
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
NOTE 12 - INCOME TAXES (Continued)
At June 30, 2003 the Company had net operating loss carryforwards for US
Income Tax purposes of approximately $263,704,000 which if not used will
expire primarily during the years 2004 through 2022. For Canadian Income Tax
purposes, the Company had net operating loss and capital loss carryforwards
of $8,700,000 and $800,000, respectively. The net operating loss
carryforwards commenced to expire in 2003 and capital loss carryforwards are
available indefinitely.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Legal Proceedings
-----------------
The Company, from time to time, during the normal course of its business
operations, may be subject to various litigation claims and legal disputes.
Currently there are no claims or disputes.
NOTE 14 - STOCKHOLDERS' EQUITY
Warrants
--------
From time to time, the Board of Directors of the Company may authorize the
issuance of warrants to purchase the Company's common stock to parties other
than employees and directors. Warrants may be issued as a unit with shares
of common stock, as an incentive to help the Company achieve its goals, or in
consideration for cash, financing costs or services rendered to the Company,
or a combination of the above, and generally expire within several months to
5 years from the date of issuance. The following table summarizes activity
for common stock warrants outstanding during the Fiscal Nine Months 2004:
Weighted Average
Shares Exercise Price Exercise Price
(000) Per Share Per Share
------ -------------- ----------------
Warrant outstanding, 6/30/03 7 $5.00 - $1,148.00 $412.00
Warrants canceled/expired (3) $100.00 - $1,148.00 $411.00
------ ----------------- -------
Warrants outstanding, 3/31/04 4 $5.00 - $1,148.00 $348.00
====== ================= =======
The Company has adopted FASB Statement 123, "Accounting for Stock-Based
Compensation," which requires compensation cost associated with warrants
issued to parties other than employees and directors to be valued based on
the fair value of the warrants. There were no warrants issued during Fiscal
Nine Months 2004.
-18-
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
NOTE 14 - STOCKHOLDERS' EQUITY (Continued)
Stock Option Plan
-----------------
The Company, with stockholder approval, has adopted a Stock Option Plan (the
"Plan") which provides for the granting of options to officers, key
employees, certain consultants and others. Options to purchase the Company's
common stock may be made for a term of up to ten years at the fair market
value at the time of the grant. Incentive options granted to a ten percent
or more stockholder may not be for less than 110% of fair market value nor
for a term of more than five years.
The aggregate fair market value of the stock for which an employee may be
granted incentive options which are first exercisable in any calendar year
shall not exceed $100,000. The Company has reserved a total of 1,250,000
shares for issuance under the Plan.
Stock Options
-------------
The Company's Board of Directors periodically authorizes the issuance of
options to purchase the Company's common stock to employees and members of
the Board of Directors. These options may generally be exercised at the fair
market value of the common stock on the date of the grant and generally carry
such other terms as are outlined in the Company's stock option plan. The
following table summarizes activity for stock options during Fiscal Nine
Months 2004:
Weighted Average
Shares Exercise Price Exercise Price
(000) Per Share Per Share
------ -------------- ----------------
Options outstanding,
3/31/04 and 6/30/03 5.5 $9.00 - $1,188.00 $636.85
====== ================= =======
The Company applies APB Opinion 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for the issuance of its
stock options. There were no stock options issued during Fiscal Nine Months
2004.
-19-
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
NOTE 15 - NET AGENCY SALES
DataWave's revenues are primarily generated from the resale of prepaid long
distance and cellular telephone time, principally from the sale of prepaid
calling cards and point of sale activated PINs. Sales of prepaid calling
cards and point of sale activated PINs under third party brands where
DataWave is not the primary obligor of the related phone service does not
incur significant inventory risk and has no significant continuing obligation
with respect to operation of the card subsequent to sale are recognized at
the date of sale on a net basis. The resulting net agency revenue earned is
calculated as the difference between the gross proceeds received and the cost
of the related phone time paid to suppliers and is included as revenue in the
Company's statement of operations. Net agency sales consist of the following
(in thousands):
Fiscal Fiscal Nine
3Q04 Months 2004
---------- -----------
Gross proceeds received on agency sales $ 18,021 $ 47,401
Less payments to suppliers (15,866) (41,282)
--------- ---------
Net agency sales $ 2,155 $ 6,119
========= =========
NOTE 16 - SEGMENT INFORMATION
The Company through its majority owned subsidiary, DataWave, manufactures and
operates prepaid calling card merchandising machines and resells long
distance telephone time through prepaid and other calling cards distributed
through its machines, at retail locations and on a wholesale basis to third
parties. The Company considers its business to consist of one reportable
operating segment; therefore, these consolidated financial statements have
not been segmented.
The Company has long-lived assets of $5,162,000 in the US and $1,983,000 in
Canada at March 31, 2004. Long-lived assets consist of property and
equipment and intangibles. The Company has earned revenue from sales to
customers of approximately $1,781,000 in the U.S., $2,791,000 in Canada, and
$58,000 in the United Kingdom for Fiscal 3Q04 and approximately $5,102,000 in
the U.S., $8,357,000 in Canada, and $106,000 in the United Kingdom for Fiscal
Nine Months 2004. During the Nine Months 2004, two customers comprised
approximately 20% of revenue and 56% of accounts receivable.
-20-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis of our results of operations and
financial position should be read in conjunction with our consolidated
financial statements and the notes thereto included elsewhere in this Report.
General Operations
------------------
Integrated Data Corp. ("IDC") is a non-operating U.S. holding company with
interests in the U.S., Canada, the U.K., and Italy. IDC and its subsidiaries
(collectively the "Company", "We", or "Our") offer a wide range of
telecommunications, wireless communication, point-of-sale activation,
financial transaction, and other services.
As of March 31, 2004 Integrated Data Corp owns and/or controls the following
holdings and interests:
CORPORATION OR INTEREST PERCENT OWNERSHIP
C3 Technologies Inc. 100%
DataWave Systems Inc. 50.1%
DataWave International License 100%
IDC Italia Srl 60%
Integrated Communications Services Ltd 100%
Integrated Data Technologies Ltd 100%
Descriptions of each of these interests and operations can be found in our
Annual Report on Form 10-K for Fiscal 2003.
Results of Operations
---------------------
The Company has undergone significant changes over the past 18 months. In
November 2002 the Company held two operating subsidiaries, C3 Technologies
Inc ("C3") and a 60% ownership in an Italian Joint Venture Company then named
RadioNet Italia and subsequently renamed IDC Italia Srl. C3 was formed to
manage all the proprietary ClariCAST(R) intellectual property and assets,
including patents, patents pending, trademarks, and copyrights developed by
the Company under its former name of Clariti Telecommunications
International. IDC Italia was formed to market and operate ClariCAST(R)
services in Italy.
Since November 2002, the Company has acquired a number of other holdings as
detailed in the table in the General Operations section above and in Note 4
of the accompanying consolidated financial statements of IDC. While C3,
Integrated Communications Services Ltd ("ICS"), and DataWave Systems Inc
-21-
("DataWave") all reported revenue for this reporting quarter, DataWave's
operating results, by far, have the most influence on IDC's consolidated
financial statements. DataWave, as a NASDAQ OTCBB-listed public company,
maintains current filings with the U.S. Securities and Exchange Commission
including annual reports on Form 10-KSB, quarterly reports on Form 10-QSB,
and current reports on Form 8-K. Detailed information on DataWave can be
found by accessing these filings either through the SEC website (www.sec.gov)
or on the DataWave corporate website (www.datawave.ca); however, the
information in, or that can be accessed through, the DataWave website is not
part of this report.
DataWave has a March 31 fiscal year end while the Company has a June 30
fiscal year end. Because of this difference, the Company has adopted the
policy of consolidating the financial statements of DataWave with a three-
month lag allowing like quarters to be consolidated. Hence, in this Form 10-
Q, DataWave's Fiscal 3Q04 financial statements are consolidated with the rest
of IDC's Fiscal 3Q04 financial statements.
When reading any of the following discussions and analysis of financial
condition and results of operations, it must be kept in mind that the Company
is substantially different than the Company of one year ago.
Three Months Ended March 31, 2004 ("Fiscal 3Q04")
vs. Three Months Ended March 31, 2003 ("Fiscal 3Q03")
-----------------------------------------------------
For Fiscal 3Q04, the Company incurred a net loss of $226,000, or $(0.03) per
share, on $4,630,000 in revenue as compared to net loss of $371,000, or
$(0.05) per share, on $69,000 in revenue in Fiscal 3Q03. The sharp increase
in revenue was due to the acquisition of DataWave and the consolidation of
DataWave financials beginning Fiscal 4Q03.
Marketing expenses increased from $0 in Fiscal 3Q03 to $374,000 in Fiscal
3Q04. All of the $374,000 in marketing expenses was incurred by DataWave for
selling and marketing expenses. Research and development expenses increased
from $0 in Fiscal 3Q03 to $375,000 in Fiscal 3Q04 due to product development
costs associated with DataWave.
Depreciation and amortization increased from $242,000 in Fiscal 3Q03 to
$456,000 in Fiscal 3Q04. $276,000 of the $456,000 was attributable to
DataWave. The rest of the Company experienced a $62,000 decrease in
depreciation and amortization for the quarter from one year ago because
certain assets of the Company have been fully depreciated.
General and administrative expenses were $967,000 in Fiscal 3Q04 as compared
to $178,000 in Fiscal 3Q03. This increase of $789,000 was from G&A expenses
consolidated from the DataWave financial statements.
Other income of $8,000 was direct from DataWave. The Minority interest
expense of $61,000 represents the 49.9% of DataWave not held by IDC.
-22-
Nine Months Ended March 31, 2004 ("Fiscal Nine Months 2004")
vs. Nine Months Ended March 31, 2003 ("Fiscal Nine Months 2003")
----------------------------------------------------------------
For Fiscal Nine Months 2004, the Company incurred a net loss of $694,000, or
$(0.09) per share, on $13,565,000 in revenue as compared to net gain of
$3,118,000, or $1.00 per share, on $94,000 in revenue in Fiscal Nine Months
2003. Excluding extraordinary gain on discharge of indebtedness, in Fiscal
Nine Months 2003 the Company incurred a net loss of $857,000, or $(0.27) per
share, on $94,000 in revenue.
Marketing expenses increased from $0 in Fiscal Nine Months 2003 to $1,198,000
in Fiscal Nine Months 2004. All of the $1,198,000 in marketing expenses was
incurred by DataWave. Research and development expenses increased from $0 in
Fiscal Nine Months 2003 to $1,121,000 in Fiscal Nine Months 2004 due to
product development costs associated with DataWave.
Depreciation and amortization increased from $429,000 in Fiscal Nine Months
2003 to $1,192,000 in Fiscal Nine Months 2004. This increase is attributable
to DataWave fiscal consolidation plus the amortization of the DataWave
International License acquired in December 2002.
General and administrative expenses increased $2,140,000, $2,643,000 in
Fiscal Nine Months 2004 as compared to $503,000 in Fiscal Nine Months 2003,
due to DataWave fiscal consolidation. Other income of $27,000 was direct
from DataWave, and the Minority interest expense of $200,000 represents the
49.9% of DataWave not held by IDC.
Liquidity and Capital Resources
-------------------------------
At March 31, 2004, the Company had a working capital deficit of $651,000
(including a cash balance of $1,675,000) as compared to a working capital
deficit of $712,000 (including a cash balance of $2,143,000) at June 30,
2003. Cash decreased by $468,000 due to the use of $802,000 for the purchase
of equipment and $226,000 for operations, offset by $395,000 in proceeds from
short-term borrowings, and $165,000 in gains from exchange rate changes.
The Company has a commitment from Integrated Technologies & Systems Ltd
("IT&S") and/or its affiliates to fund the Company's working capital
requirements through the end of Fiscal 2004. Such working capital
requirements are forecasted to be approximately $50,000 per month,
principally to cover the compensation and related costs of its two
engineering employees and general and administrative expenses. This funding
is under a convertible, non-interest bearing, unsecured promissory note(s)
issued to IT&S and/or its affiliates. Future mergers and acquisitions are
expected to require additional funding. There can be no assurances that such
funding will be generated or available, or if available, on terms acceptable
to the Company.
-23-
Significant Accounting Policies
-------------------------------
Our accounting policies are set out in Note 3 of the accompanying
consolidated financial statements of IDC. In presenting our financial
statements in conformity with accounting principles generally accepted in the
United States, we are required to make estimates and assumptions that affect
the amounts reported therein. Several of the estimates and assumptions we
are required to make relate to matters that are inherently uncertain as they
pertain to future events. However, events that are outside of our control
cannot be predicted and, as such, they cannot be contemplated in evaluating
such estimates and assumptions. If there is a significant unfavorable change
to current conditions, it will likely result in a material adverse impact to
our consolidated results of operations, financial position and in liquidity.
We believe that the estimates and assumptions we used when preparing our
financial statements were the most appropriate at that time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to market risk related to changes in interest and foreign
currency exchange rates, each of which could adversely affect the value of
our current assets and liabilities. At March 31, 2004, we had cash and cash
equivalents consisting of cash on hand and highly liquid money market
instruments with original terms to maturity of less than 90 days. If market
interest rates were to increase immediately and uniformly by 10% from its
levels at March 31, 2004, the fair value would decline by an immaterial
amount. We do not believe that our results of operation or cash flows would
be affected to any significant degree by a sudden change in market interest
rates relative to our cash and cash equivalents, given our current ability to
hold our money market investments to maturity. We do not have any long-term
debt instruments so we are not subject to market related risks such as
interest or foreign exchange on long-term debt. We do not enter into foreign
exchange contracts to manage exposure to currency rate fluctuations related
to its U.S. denominated cash and money market investments.
With a portion of revenues and operating expenses denominated in Canadian
dollars and British pounds, a sudden or significant change in foreign
exchange rates could have a material effect on our future operating results
or cash flows. We purchase goods and services in Canadian dollars, U.S.
dollars, and British pounds and earn revenues in these currencies as well.
Foreign exchange risk is managed by satisfying foreign denominated
expenditures with cash flows or assets denominated in the same currency.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
------------------------------------------------
Our Chief Executive Officer and principal financial officer evaluated the
effectiveness of the Company's disclosure controls and procedures as of the
end of the period covered by this report. Based on that evaluation, the
Chief Executive Officer and principal financial officer concluded that our
disclosure controls and procedures as of the end of the period covered by
-24-
this report are functioning effectively to provide reasonable assurance that
the information required to be disclosed by the Company in reports filed
under the Securities Exchange Act of 1934 is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission's rules and forms. We note that the same person serves as both
the Chief Executive Officer and principal financial officer.
Change in Internal Control over Financial Reporting
---------------------------------------------------
No change in the Company's internal control over financial reporting occurred
during the Company's most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
-25-
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company, from time to time, during the normal course of its business
operations, may be subject to various litigation claims and legal disputes.
Currently there are no claims or disputes.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits
--------
31* Certification of Chief Executive Officer and principal financial
officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32* Certification of Chief Executive Officer and principal financial
officer pursuant to 18 U.S.C. Section 1350.
*filed herewith
Reports on Form 8-K
-------------------
The Company did not file any current reports on Form 8-K during the quarter
ended March 31, 2004. Subsequent to the current reporting period, the
Company did file the following Form 8-K reports:
A current report on Form 8-K dated April 12, 2004 was filed announcing a
reduction in the authorized number of shares of common stock of the
Company(from 300,000,000 to 50,000,000), the shareholder re-election of the
current Board of Directors, and the ratification of Cogen Sklar LLP of Bala
-26-
Cynwyd, Pennsylvania to serve as the Company's independent auditors for the
fiscal year ending June 30, 2004.
A current report on Form 8-K dated April 23, 2004 was filed to announce that
the Company and DataWave have signed a Letter Agreement regarding a proposed
merger in which the shareholders of DataWave will be issued shares of the
Company in exchange for all the issued and outstanding shares of DataWave.
-27-
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.
INTEGRATED DATA CORP.
By: /s/David C. Bryan
-----------------
David C. Bryan
President & Chief Executive Officer
Dated: May 13, 2004
-28-