UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended JUNE 30, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____ to ____
Commission File No. 33-90344
Integrated Data Corp.
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(Name of small business issuer in its charter)
Delaware 23-2498715
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3422 Old Capitol Trail, Suite 741
Wilmington, Delaware 19808
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (484) 212-4137
Securities registered pursuant to Section 12 (b) of the Exchange Act: NONE
Securities registered pursuant to Section 12 (g) of the Exchange Act: NONE
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 90 days.
Yes[ ] No[X]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [ ]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes[ ] No[X]
Issuer's revenues for its most recent fiscal year: $72,710
As of March 7, 2007 there were 7,883,937 shares of the Company's common stock
issued and outstanding, and the aggregate market value of such common stock
held by non-affiliates was approximately $2,957,034 (based on the closing
price of $1.50 per share).
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes[X] No[ ]
DOCUMENTS INCORPORATED BY REFERENCE: See Item 13, Exhibits and Reports on
Form 8-K.
PART I
ITEM 1. DESCRIPTION OF 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, and the U.K. IDC and its subsidiaries (collectively the
"Company", "We", or "Our") offer a wide range of communications, 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.
History of the Company
----------------------
The Company was originally formed in February 1988 as the successor to a
music and recording studio business owned and operated by a former CEO of the
Company. 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. The resulting wireless technology, trade-named
ClariCAST (ClariCAST is a registered trademark of the Company), allows 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. With the downturn in the telecommunications sector, the unforeseen
costs associated with a U.S. market launch of a voice paging service based
upon ClariCAST technology, and the overall demise of paging in the U.S., the
Company was driven to seek Chapter 11 protection in April 2002. Upon
emergence from Chapter 11 in late 2002, the company name was changed to
Integrated Data Corp. to more accurately reflect its new business focus of
acquiring, managing, and bringing into the global market leading-edge
communication, financial, and network technology solutions and service
providers.
Bankruptcy Proceedings
----------------------
On April 18, 2002, Clariti Telecommunications International, Ltd. filed a
voluntary petition for reorganization under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Eastern
District of Pennsylvania (Case no. 02-15817(DWS)). The Company's Plan of
Reorganization (the "Plan") was approved by the Court on October 23, 2002 and
the Plan became effective November 12, 2002. The bankruptcy proceedings
concluded with an Order and Final Decree on May 6, 2003.
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Changes to Management and the Board of Directors
------------------------------------------------
On August 1, 2006, Abe Carmel rejoined the Company as Chief Executive
Officer, taking over that position from David C. Bryan. Mr. Carmel was also
elected to the Board of Directors on that date. Mr. Bryan retains his
positions of President and Company Director. Further information regarding
the Company's management and Directors can be found in Part III of this Form
10-KSB under Items 9 and 10.
Corporate Holdings
------------------
As of June 30, 2006 Integrated Data Corp owns and/or controls the following
holdings and interests:
CORPORATION OR INTEREST PERCENT OWNERSHIP
C3 Technologies Inc. 100%
DataWave Systems Inc. 38.9%
Integrated Communications Services Ltd 100%
As reported in a Form 8-K Current Report filed March 3, 2005, the DataWave
International License was terminated as of February 1, 2005. IDC's 60%
interest in the non-operating, Italian entity IDC Italia Srl was sold to a
private Italian citizen on May 5, 2006. Integrated Data Technologies Ltd, a
non-operating, wholly-owned UK subsidiary, was sold to AMB Management
Services (Gibraltar) Ltd on June 15, 2006. A description of IDC's remaining
interests follows.
C3 TECHNOLOGIES INC.
--------------------
From 1997 through 2000 the Company had been engaged in the development of a
proprietary technology that utilizes existing FM radio frequencies to provide
a low-cost, metropolitan-wide, wireless data broadcasting network. The
resulting technology and air interface protocol has been given the name
ClariCAST, a registered trademark of the Company. C3 Technologies Inc ("C3")
was formed in April 2002 to manage all the proprietary ClariCAST intellectual
property and assets, including patents, patents pending, trademarks, and
copyrights. C3 is a Delaware corporation and is a wholly-owned subsidiary.
Due primarily to a lack of working capital, C3 currently has no employees and
it is not actively pursuing applications for its ClariCAST intellectual
property.
DATAWAVE SYSTEMS INC.
---------------------
DataWave Systems Inc. ("DataWave") of Wayne, NJ is a profitable Delaware
corporation, the shares of which trade on the National Association of
Securities Dealers' ("NASD") Over-the-Counter Bulletin Board ("OTCBB") under
the symbol DWVS. As an OTCBB-listed public company, DataWave 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
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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.com); however, the information
in, or that can be accessed through, the DataWave website is not part of this
report.
IDC acquired approximately 41% of DataWave on December 12, 2002 in a
transaction with the shareholders of Cash Card Communications Corp. Ltd., a
privately held Bermuda corporation, in exchange for 1,794,900 shares of newly
issued IDC common stock nominally valued at the time at $1.00 per share. On
January 14, 2003 the Company acquired an additional approximately 9.1% of
DataWave through off-market transactions with various shareholders of
DataWave in exchange for 399,803 shares of newly issued IDC common stock. On
February 1, 2005 the Company was issued an additional 2,937,500 common shares
of DataWave (approximately 6.3% of the then DataWave outstanding shares)
bringing IDC's holdings in DataWave to approximately 53.1%. On January 3,
2006 the Company transferred 3,773,918 common shares of DataWave to
Integrated Technologies & Systems Ltd, a greater than 5% shareholder of IDC,
as a partial payback of a loan. Soon thereafter DataWave issued 7,500,000
common shares of its stock to an unrelated party causing IDC's position in
DataWave to drop to approximately 38.9%.
DataWave is a developer and provider of prepaid and stored-value programs.
It sells and distributes prepaid and stored value products using a
proprietary system for activating products at the point-of-sale. It designs,
develops, owns, manages and continually enhances an intelligent, automated,
direct merchandising network. This network, which operates through various
point-of-sale-activation devices or web-based applications, allows for point-
of-sale-activation of high value, high shrinkage products, such as cash
cards, prepaid phone cards and prepaid cellular time. DataWave's systems are
scalable and flexible and can be readily modified to offer new premium
stored-value products, such as prepaid gift cards and prepaid Internet cards.
In addition, DataWave sells prepaid calling cards and point-of-sale activated
prepaid cellular personal identification numbers ("PINs") on a wholesale
basis to certain retail operators and other customers.
DataWave sells and distributes prepaid and stored value products through a
network that includes, but is not limited to:
- point-of-sale-activation ("POSA") terminals,
- free-standing "smart" machines ("DTMs"), and
- cash registers or the web-based applications of some major retail
chains.
All of these devices are connected to DataWave's proprietary server and
database software through wireless, land line wide area networks or host-to-
host connectivity, and are capable of dispensing one or multiple prepaid
products and services.
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DataWave operates its business primarily through its subsidiaries and is
primarily involved in the sale and distribution of prepaid and stored value
products using its proprietary technologies. It develops, owns and operates
point-of-sale technology, including terminals that it markets and places
through the United States and Canada.
Its system distributes inactive prepaid products, which are activated only
once they are purchased by the consumer, thus eliminating the risk of theft
and the cost of inventory management for the retailer.
DataWave's network systems feature:
- the ability to activate prepaid products by assigning a value to them
at the time of purchase;
- the ability to print a prepaid PIN number on a receipt voucher at the
point of purchase;
- real-time monitoring of distribution networks;
- detailed reporting and sales analysis - either paper or web-based;
- the ability to remote download price adjustments or new products and
services to the distribution points;
- the capability to execute multiple simultaneous transactions in a non-
stop processing environment; and
- consumer convenience - payment options, multiple products and
denominations; detailed receipts, including tax information, terms and
conditions and other relevant instructions/information.
Historically, DataWave's core revenues have come from the sale of prepaid
long distance phone cards. In recent years, DataWave has pioneered the move
into prepaid cellular, prepaid cash and prepaid debit card and gift card
products.
In Canada, until recent years, DataWave has followed the traditional business
model of selling bulk pre-activated "live" prepaid phone cards to retail
establishments. In recent years, it has introduced point-of-sale-activation
technology into the retail environment. This enables DataWave to activate or
recharge prepaid products through POSA terminals and the cash register
systems or web-based applications of major chains. During its Fiscal 2006,
DataWave installed 995 POSA terminals in Canada and as of March 31, 2006, it
had an installed base of 4,853 company-owned POSA terminals in Canada. It
also provides prepaid products to 863 distributor-owned terminals and host-
to-host (cash register) locations.
In the United States, DataWave has established a network of free-standing
vending machines or DTMs that sell prepaid long distance phone cards. It
also sells phone cards through POSA terminals and during Fiscal 2004 it
introduced a POSA host-to-host solution to a grocery chain in the North-
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Eastern states. During its Fiscal 2006, DataWave's installed base of DTMs
and over the counter terminals in the U.S. decreased by 111 due to a decline
in high traffic locations, and as of March 31, 2006, it had an installed base
of 809 DTMs and 224 POSA terminals and host-to-host retail locations in the
United States.
DataWave has approximately 90 employees working out of three offices located
in Richmond (Vancouver), British Columbia, Canada; Mississauga (Toronto),
Ontario, Canada; and Wayne, New Jersey, U.S.A.
Subsequent to this filing period, on January 5, 2007, DataWave was acquired
by InComm Holdings Inc. for $36,000,000 in cash. As a result the Company has
exchanged its 21,110,612 common shares of DataWave for $12,369,490.48 in
cash. Per the DataWave Acquisition Agreement and Plan of Merger, at closing
an additional $3,597,225.60 was placed in escrow as Working Capital and
Indemnification Holdbacks. The Company is entitled to approximately 35% of
the Holdbacks after any adjustments in accordance with the Holdback
adjustment terms in the DataWave Acquisition Agreement and Plan of Merger.
INTEGRATED COMMUNICATIONS SERVICES LTD.
---------------------------------------
Integrated Communications Services Ltd ("ICS") is a London-based, wholly-
owned subsidiary of IDC. During the reporting period ICS became a terminator
of corporate and wholesale telephony in the United Kingdom by purchasing the
assets of Data Marq UK Limited. Data Marq specialized in the termination of
UK mobile, local, national and international call traffic in the UK for a
broad range of SME corporate and wholesale customers. As part of the
acquisition ICS took possession of the physical technical assets of the
business, the customer base and corporate and wholesale customer
relationships and goodwill. After posting consecutive quarterly losses, the
management of ICS chose to cease operations as of June 30, 2006. In January
of 2007, IDC disposed of the ICS shell company, including all assets and
liabilities, to AMB Management Services (Gibraltar) Ltd.
Corporate Growth & Strategy
---------------------------
Historically a technology holding company, IDC continually looks for
acquisitions in the information technology, networking & communications,
prepaid services, and telecommunications business arenas to strengthen its
portfolio of companies. There can be no assurance that the Company will be
able to raise enough capital to carry out its acquisition plans.
With the disposition of DataWave subsequent to this reporting period, IDC's
growth strategy is toward investments in resort real estate development. On
January 23, 2007, the Company entered into a Sale and Purchase Contract with
Mr. John Mittens, a private individual and majority shareholder of Montana
Holdings Ltd ("MHL"), a private limited company registered in the Bahamas.
Under the terms of this Sale and Purchase Contract the Company acquired a 20%
equity interest in MHL through the purchase of 1,120 shares of the 5,600
outstanding shares of MHL common stock. MHL currently owns a resort
development project, Rum Cay Resort Marina, on Rum Cay in the Bahamas.
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Information on the Rum Cay Resort Marina can be found on the web at
www.RumCay.com; however, the information in, or that can be accessed through,
the Rum Cay website is not part of this report. The Company also entered
into an agreement to provide MHL an ongoing loan facility of up to US$6M (Six
Million US Dollars) to be utilized in defraying the general costs of MHL's
Rum Cay development project in the Bahamas during the whole of 2007. In
addition the Company has agreed to provide up to US$1M (One Million US
Dollars) in loans to be utilized in MHL's proposed development of a semi-
autonomous Floor and Wall Tile Production Facility on Rum Cay.
Intellectual Property
---------------------
The company seeks to protect its intellectual property through patent,
copyright, trade secret and trademark law, and through contractual
restrictions such as confidentiality agreements. In March 1999, the U.S.
Patent and Trademark Office issued to the Company a patent, originally filed
in January 1996, dealing with FM Subcarrier Digital Voice Messaging. In July
2000, the U.S. Patent and Trademark Office issued the Company a second patent
on the invention with improved claim coverage. This invention had previously
been approved by government authorities in South Africa and Taiwan. In April
2000 the U.S. Patent and Trademark Office issued to the Company a patent,
which was originally filed in March 1999, on the overall design of its
Wireless Voicemail Player, the Voca. The Company's current patents expire
between 2014 and 2016. ClariCAST, the name given to the proprietary
technology dealing with FM subcarrier data broadcasting, and Voca are
registered trademarks of the Company.
There can be no assurance that such patents, trademarks, or other
intellectual property protection will not be circumvented and/or invalidated
by competitors of the Company. Further, the enforcement of patent and other
intellectual property rights often requires the institution of litigation
against infringers, which litigation is often costly and time consuming.
There can be no assurance that the Company will be able to adequately protect
its technology from competitors in the future.
Employees
---------
As of June 30, 2006, the Company had no direct employees. A part-time
consultant performs all required administrative duties on behalf of the
Company.
Available Information
---------------------
IDC's Web site is located at http://www.IntegratedDataCorp.com. IDC makes
available free of charge, on or through its Web site, its annual, quarterly,
and current reports, and any amendments to those reports, as soon as
reasonably practical after electronically filing such reports with the U.S.
Securities and Exchange Commission ("SEC"). Information contained on IDC's
Web site is not part of this report or any other report filed with the SEC.
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ITEM 2. DESCRIPTION OF PROPERTY.
The Company owns no real property. It maintains a mail drop service in
Wilmington, DE as its primary corporate address and keeps its physical
records in space subleased by C3 Technologies, a wholly-owned subsidiary. C3
Technologies subleases approximately 120 square feet of general office space
from a non-affiliated company at 220 Commerce Drive, Suite 300, Fort
Washington, PA 19034. The other wholly-owned subsidiary, Integrated
Communications Services, is based in London, England and owns no real
property.
ITEM 3. LEGAL PROCEEDINGS.
The Company knows of no material, active, or pending legal proceedings
against IDC, nor is it involved as a plaintiff in any material proceeding or
pending litigation. There are no proceedings in which any of the Company's
directors, officers, or affiliates, or any registered or beneficial
shareholder, is an adverse party or has a material interest adverse to the
Company's interest.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY & RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is currently quoted on over-the-counter (OTC)
securities markets, primarily "Pink Sheets", under the symbol "ITDD". The
Pink Sheets is a centralized quotation service that collects and publishes
market maker quotes for OTC securities in real-time. Pink Sheets is neither
a Securities and Exchange Commission (SEC) Registered Stock Exchange nor a
Broker-Dealer.
Market Information
------------------
The following tables set forth, for the periods indicated, the high and low
closing prices per share of common stock as quoted on over-the-counter
securities markets. These quotations represent prices between dealers and do
not include retail mark-up, mark-down, or commission and may not necessarily
represent actual transactions.
Year Ended June 30, 2006
------------------------ High Bid Low Bid
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Quarter ended:
September 30, 2005 $ 0.35 $ 0.30
December 31, 2005 $ 0.35 $ 0.15
March 31, 2006 $ 1.01 $ 0.35
June 30, 2006 $ 0.75 $ 0.35
Year Ended June 30, 2005
------------------------ High Bid Low Bid
-------- -------
Quarter ended:
September 30, 2004 $ 1.00 $ 0.39
December 31, 2004 $ 0.60 $ 0.39
March 31, 2005 $ 0.35 $ 0.35
June 30, 2005 $ 1.01 $ 0.30
On March 1, 2007 the closing price for the Company's common stock was $1.70
per share.
Holders
-------
As of March 1, 2007 the Company had approximately 275 shareholders of record
of its common stock. Such number of record holders was derived from the
stockholder list maintained by the Company's transfer agent, American Stock
Transfer & Trust Co., and does not include the list of beneficial owners of
the Company whose shares are held in the names of various dealers and
clearing agencies.
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Dividends
---------
To date, the Company has not declared or paid any cash dividends and does not
intend to do so for the foreseeable future. The Company intends to retain
all earnings, if any, to finance the continued development of its business.
Any future payment of dividends will be determined solely in the discretion
of the Company's Board of Directors.
Changes in Securities and Use of Proceeds
-----------------------------------------
During the period covered by this Form 10-KSB, 200,000 shares of the
Company's $0.001 par value common stock were issued as compensation for
services provided in Fiscal 2005 to Directors and Officers of the Company.
These shares were not registered under the Securities Act of 1933, as amended
(the "Act") at the time of issuance and were not previously reported in a
Quarterly Report on Form 10-Q. Given the fact that the shares are
restricted, there is little or no liquidity in the stock, and the market
price per shares varied between $0.15 and $0.35 at the time the shares were
issued, these shares were valued at $0.20.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Certain information included in this Annual Report may be deemed to include
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, that involve risk and uncertainty, such as
our ability to successfully do any or all of the following:
- Obtain financing for operations and expansion
- Effectively manage our subsidiaries
- Effectively compete in the markets we choose to enter
- Develop commercially viable applications with our technologies
- Develop a corporate-wide marketing strategy for our products and
services
- Develop partnerships, both foreign and domestic, to help market,
sell, and distribute our products and services
- Develop effective manufacturing and distribution channels for our
products and services
- Make profitable investments in the resort real estate development
market
- Effectively manage the risks, restrictions and barriers of conducting
business internationally
- Reduce future operating losses and negative cash flow
In addition, certain statements may involve risk and uncertainty if they are
preceded by, followed by, or that include the words "intends," "estimates,"
"believes," "expects," "anticipates," "should," "could," or similar
expressions, and other statements contained herein regarding matters that are
not historical facts. Although we believe that our expectations are based on
reasonable assumptions, we can give no assurance that our expectations will
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be achieved. The important factors that could cause actual results to differ
materially from those in the forward-looking statements herein (the
"Cautionary Statements") include, without limitation, ability to obtain
funding, ability to reverse operating losses, competition and regulatory
developments, as well as the other risks identified below under "Risk
Factors" and those referenced from time to time in our filings with the
Securities and Exchange Commission. All subsequent written and oral forward-
looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary
Statements. We do not undertake any obligation to release publicly any
revisions to such forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
ANALYSIS OF THE BUSINESS
------------------------
The following discussion should be read in conjunction with the Company's
consolidated financial statements appearing elsewhere in this report.
General Operations
------------------
We are a non-operating U.S. holding company with interests in the U.S.,
Canada, and the U.K. Our subsidiaries offer a wide range of
telecommunications, wireless, point-of-sale activation, financial
transaction, and other services.
As of June 30, 2006 Integrated Data Corp owns and/or controls the following
holdings and interests:
CORPORATION OR INTEREST PERCENT OWNERSHIP
C3 Technologies Inc. 100%
DataWave Systems Inc. 38.9%
Integrated Communications Services Ltd 100%
As reported in a Form 8-K Current Report filed March 3, 2005, the DataWave
International License was terminated as of February 1, 2005. IDC's 60%
interest in the non-operating, Italian entity IDC Italia Srl was sold to a
private Italian citizen on May 5, 2006. Integrated Data Technologies Ltd, a
non-operating, wholly-owned UK subsidiary, was sold to AMB Management
Services (Gibraltar) Ltd on June 15, 2006. Further descriptions of our
operations, holdings, and subsidiaries are included above under Item 1,
Description of Business.
Results of Operations
---------------------
On June 2, 2004 we signed an Agreement and Plan of Merger with DataWave
Systems Inc. ("DataWave") to acquire the remaining 49.9% interest in DataWave
not already owned. On November 9, 2004 we announced the termination of the
merger agreement and cancellation of the merger process. Various delays
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pushed the projected merger completion date past December 31, 2004, and we
were not prepared to continue to expend more funds on a merger transaction
with no definitive completion date.
Effective February 1, 2005, we entered into a License Termination Agreement
with DataWave effectively selling the DataWave International License back to
DataWave. The consideration amount received from DataWave for termination of
the DataWave International License was $865,000, $265,000 in cash and
$600,000 in a Promissory Note.
Also effective February 1, 2005, we entered into a Merger Break-Up and Mutual
Release Agreement with DataWave. We agreed to accept $470,000 in
compensation for costs expended with regard to the aborted Agreement and Plan
of Merger, and each of us agreed to hold harmless and indemnify the other
from any such claims or future claims, as the case may be. The consideration
was paid in $235,000 cash and 2,937,500 DataWave shares valued at $0.08 per
share. The DataWave shares were issued to us in May 2005 bringing our total
ownership position in DataWave to 53.1%.
On August 25, 2005 we entered into an agreement with Integrated Technologies
& Systems Ltd ("IT&S") to pay off the loan balance owed IT&S of $955,030. We
transferred the $600,000 DataWave Promissory Note to IT&S and agreed to sell
up to 3,773,918 shares of DataWave stock at $0.15 per share for a credit of
$566,088. On January 3, 2006 ownership of 3,773,918 shares of DataWave stock
were transferred to IT&S for the full $566,088 credit paying down the IT&S
loan to zero and achieving a credit balance from IT&S of $114,889.
The transference of 3,773,918 DataWave shares dropped our ownership position
in DataWave from 50.1% to 45.1%. On February 17, 2006, DataWave issued
7,500,000 new shares of common stock to Sigma Opportunity Fund LLC diluting
our interest in DataWave to 38.9%. With DataWave ownership dropping below
50%, consolidation of the DataWave financial statements into our consolidated
financial statements ceased as of the quarter ended March 31, 2006. For this
annual report, our DataWave investment is accounted for using the Equity
method of accounting, and for direct comparison to our consolidated financial
statements for the year ended June 30, 2005, these statements have been
restated in this report using the Equity method of accounting for our
DataWave investment.
IDC's 60% interest in the non-operating, Italian entity IDC Italia Srl was
sold to a private Italian citizen on May 5, 2006. Integrated Data
Technologies Ltd, a non-operating, wholly-owned UK subsidiary, was sold to
AMB Management Services (Gibraltar) Ltd on June 15, 2006.
Subsequent to this reporting period, DataWave was acquired by InComm Holdings
Inc. on January 5, 2007 (the "DataWave Acquisition"). As a result we
exchanged our remaining 21,110,612 common shares of DataWave for
$12,369,490.48 in cash. Per the DataWave Acquisition Agreement and Plan of
Merger, at closing an additional $3,597,225.60 has been placed in escrow as
Working Capital and Indemnification Holdbacks. We are entitled to
approximately 35% of the Holdbacks after any adjustments in accordance with
the Holdback adjustment terms in the DataWave Acquisition Agreement and Plan
of Merger.
-12-
On January 23, 2007, we entered into a Sale and Purchase Contract with Mr.
John Mittens, a private individual and majority shareholder of Montana
Holdings Ltd ("MHL"), a private limited company registered in the Bahamas.
Under the terms of this Sale and Purchase Contract we acquired a 20% equity
interest in MHL through the purchase of 1,120 shares of the 5,600 outstanding
shares of MHL. MHL and its resort development on Rum Cay in the Bahamas has
been independently valued at US$65M (Sixty-five Million US Dollars);
therefore, total consideration for 20% of MHL was US$13M (Thirteen Million US
Dollars) payable as follows:
(i) $3,880,000 in cash;
(ii) $6,120,000 in the form of 3,060,000 restricted shares of common stock
of the Company; and
(iii) $3,000,000 in the form of an unsecured loan from MHL to us bearing
accruing interest of 3% per annum and payable in cash on the 5th
anniversary of the Sale and Purchase Contract or, at our sole
discretion, at any time prior to the 5th anniversary in restricted
shares of common stock of Company at a fixed price of $2.00 per share.
We also entered into an agreement to provide MHL an ongoing loan facility of
up to US$6M (Six Million US Dollars) to be utilized in defraying the general
costs of MHL's Rum Cay development program in the Bahamas during the whole of
2007. In addition we agreed to provide up to US$1M (One Million US Dollars)
in loans to be utilized in MHL's proposed development of a semi-autonomous
Floor and Wall Tile Production Facility.
Year Ended June 30, 2006 (Fiscal 2006)
vs. Year Ended June 30, 2005 (Fiscal 2005)
------------------------------------------
For Fiscal 2006, we incurred net income of $390,000 or $0.05 per share as
compared to a net loss of $779,000, or $(0.10) per share for Fiscal 2005.
Even though our revenues were significantly less in Fiscal 2006 than in
Fiscal 2005 ($73,000 versus $267,000, respectively), we had a positive net
income in Fiscal 2006 versus a net loss in Fiscal 2007 because of
significantly reduced operating expenses. There was essentially no
depreciation and amortization expense in Fiscal 2006 because all our assets
have been fully depreciated or amortized and no new assets were purchased or
acquired during Fiscal 2006 or Fiscal 2005. From Fiscal 2005 to Fiscal 2006,
general and administrative expenses were cut by $312,000, or over half,
because (1) our two full-time employees were terminated during Fiscal 2005 in
favor of a single part-time consultant and (2) Fiscal 2005 included expenses
from the aborted merger with DataWave. Finally in Fiscal 2005 we "sold" our
DataWave International License back to DataWave, i.e. the license was
terminated, creating a negotiated fair market value and causing us to take an
impairment loss of $465,000 (see Financial Note 2). With the license gone,
there was no equivalent impairment loss in Fiscal 2006.
Our revenue is almost exclusively attributable to our wholly-owned subsidiary
ICS located in London, England. Comparing Fiscal 2006 to Fiscal 2005, ICS
revenue dropped by $194,000, from $267,000 in Fiscal 2005 to $73,000 in
Fiscal 2006. Because of increasing competition in the telecommunications
-13-
market in the U.K., ICS management and board of directors have concluded that
the ICS business model is no longer viable and have decided to discontinue
operations. ICS became a non-operating shell company in Fiscal 2006 which we
sold, along with all its assets and liabilities, to a related party after our
year-end close. The majority of our other income in Fiscal 2006 came from
the disposing or selling of ICS assets, such as customer lists, prior to
disposal of the shell.
The majority of our income for Fiscal 2006 and Fiscal 2005 came from
investment gains on our investment in DataWave. With DataWave posting net
incomes of approximately $663,000 and $1,142,000 in Fiscal 2005 and 2006
respectively, equity in earnings from our investment were $345,000 in Fiscal
2005 and $506,000 in Fiscal 2006.
We were able to significantly decrease our current liabilities during Fiscal
2006 through an Asset Purchase and Loan Repayment Agreement with IT&S, a
greater than 5% shareholder and our source of capital via a short-term loan
facility since our bankruptcy in 2002. More details of this agreement are
given in the Liquidity and Capital Resources section below, but the IT&S loan
was completely paid off in Fiscal 2006. The short-term borrowings from
related party of $171,000 remaining on our June 30, 2006 balance sheet
represents a loan to ICS from IT&S and/or IT&S affiliates. Even with the
payoff of our short-term loan from IT&S, cash remained approximately the same
at the end of Fiscal 2006 as it was at the end of Fiscal 2005.
Liquidity and Capital Resources
-------------------------------
At June 30, 2006, we had a working capital deficit of $299,000 (including a
cash balance of $12,000) as compared to a working capital deficit of $770,000
(including a cash balance of $10,000) at June 30, 2005. The working capital
increase of $471,000 is primarily due to a decrease in short-term borrowings
of $989,000 accomplished by the selling of our $600,000 Promissory Note from
DataWave and 3.8 million shares of DataWave common stock to IT&S in Fiscal
2006.
Integrated Technologies & Systems Ltd ("IT&S") and/or its affiliates provided
funding to the Company for its working capital requirements through August
25, 2005. At that time we entered into an Asset Purchase and Loan Repayment
Agreement whereby we transferred ownership of the $600,000 DataWave
Promissory Note and agreed to further transfer up to 3,773,918 DataWave
shares at $0.15 per share when requested by IT&S. This agreement kept us
liquid until January 5, 2007 when DataWave was acquired by InComm Holdings
Inc. for cash and IDC received $12,369,000.
While the purchase of the 20% equity interest in Montana Holdings Ltd
required $3,880,000 in cash, we expect to operate the Company for the
foreseeable future on interest generated from our cash reserves.
Future mergers and acquisitions may 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.
-14-
Off-Balance Sheet Arrangements
------------------------------
We do not have any off-balance sheet arrangements.
ITEM 7. FINANCIAL STATEMENTS.
The Consolidated Financial Statements of the Company, including the notes
thereto, together with the report of independent registered public accounting
firm thereon, are presented beginning at page F-1. Such consolidated
financial statements are hereby incorporated by reference into this Item 7.
-15-
INTEGRATED DATA CORP.
INDEX TO FINANCIAL STATEMENTS
PAGE(S)
------------
A. Report of Independent Registered Public Accounting Firm.....F-1
B. Consolidated Balance Sheets at June 30, 2006 and 2005.......F-2
C. Consolidated Statements of Operations for the
years ended June 30, 2006 and 2005........................F-3
D. Consolidated Statement of Stockholders' Equity
for the years ended June 30, 2006 and 2005............F-4 to F-5
G. Consolidated Statements of Cash Flows for the
years ended June 30, 2006 and 2005....................F-6 to F-7
H. Notes to Consolidated Financial Statements..............F-8 to F-21
-16-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Integrated Data Corp. and Subsidiaries
Wilmington, Delaware
We have audited the accompanying consolidated balance sheets of Integrated
Data Corp. and Subsidiaries as of June 30, 2006 and 2005, and the related
consolidated statements of operations, stockholders' equity (deficit), and
cash flows for each of the years then ended. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Integrated Data Corp. and Subsidiaries as of June 30, 2006 and 2005, and
the results of their consolidated operations and their cash flows for each of
the years then ended, in conformity with accounting principles generally
accepted in the United States.
/s/ MORISON COGEN LLP
---------------------
Bala Cynwyd, Pennsylvania
March 7, 2007
F-1
INTEGRATED DATA CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2006 AND 2005
(Dollars and Shares in Thousands)
June 30, June 30,
2006 2005
--------- ---------
ASSETS
CURRENT ASSETS
Cash and equivalents $ 12 $ 10
Note receivable from related parties 59 600
Prepaid expenses 8 -
--------- ---------
79 610
PROPERTY AND EQUIPMENT, NET - 1
INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES 3,228 3,324
OTHER ASSETS - 4
--------- ---------
TOTAL ASSETS $ 3,307 $ 3,939
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities 207 220
Short-term borrowings from related party 171 1,160
--------- ---------
378 1,380
LONG-TERM LIABILITIES - -
--------- ---------
TOTAL LIABILITIES 378 1,380
STOCKHOLDERS' EQUITY
PREFERRED STOCK
$.001 par value; authorized 2,000 shares; no shares
issued and outstanding at June 30, 2006 and 2005 - -
COMMON STOCK
$.001 par value; authorized 50,000 shares; issued
and outstanding, 7,884 shares at June 30, 2006
and 7,684 shares at June 30, 2005 8 8
ADDITIONAL PAID-IN-CAPITAL 285,380 285,340
ACCUMULATED DEFICIT (282,468) (282,795)
ACCUMULATED OTHER COMPREHENSIVE INCOME 9 6
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 2,929 2,559
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,307 $ 3,939
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
INTEGRATED DATA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED JUNE 30, 2006 AND 2005
(Dollars Thousands, Except Per Share Amounts)
Fiscal Fiscal
2006 2005
---------- ----------
REVENUE $ 73 $ 267
COST OF REVENUES 95 129
---------- ----------
(22) 138
OPERATING EXPENSES
Depreciation and amortization expenses 1 226
General and administrative expenses 273 585
Impairment loss - 481
---------- ----------
TOTAL OPERATING EXPENSES 274 1,292
---------- ----------
LOSS BEFORE OTHER INCOME (296) (1,154)
---------- ----------
OTHER INCOME (EXPENSE)
Other income 188 30
Other expenses (46) -
Equity in Earnings in Unconsolidated Subsidiary 506 345
Gain on sale of Investment in DataWave 27 -
Gain on disposal of fixed assets 11 -
---------- ----------
NET INCOME (LOSS) 390 (779)
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 7,884 7,684
BASIC AND DILUTED NET INCOME (LOSS)
PER COMMON SHARE $ 0.05 $ (0.10)
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
INTEGRATED DATA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FISCAL YEARS ENDED JUNE 30, 2006 AND 2005
(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, 2004 7,686 $ 8 $ 269 $ 285,071 $(282,144)
====== ====== ========= ========= ==========
Year ended June 30, 2005:
Adjustment related to
Investment in DataWave 128
(see Note 4)
Common stock warrants expired - - (269) 269 -
Common Stock Cancellation (2) (0) - - -
Net loss - - - - (779)
Foreign currency translation
adjustment - - - - -
------ ------ -------- --------- ----------
BALANCES, JUNE 30, 2005 7,684 $ 8 $ - $ 285,340 $(282,795)
====== ====== ======== ========= ==========
Year ended June 30, 2006:
Adjustment related to
Investment in DataWave (63)
(see Note 4)
Common stock warrants expired - - - - -
Common stock issued for
D&O Compensation 200 - - 40 -
Net income - - - - 390
Foreign currency translation
adjustment - - - - -
------ ------ -------- --------- ----------
BALANCES, JUNE 30, 2006 7,884 $ 8 $ - $ 285,380 $(282,468)
====== ====== ======== ========= ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
INTEGRATED DATA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FISCAL YEARS ENDED JUNE 30, 2006 AND 2005
-CONTINUED-
(Dollars and Shares in Thousands)
ACCUMULATED
-Continued- OTHER
COMPREHENSIVE COMPREHENSIVE
INCOME INCOME
------------- -------------
BALANCES, JUNE 30, 2004 $ - $ (3)
========== ==========
Year ended June 30, 2005:
Adjustment related to
Investment in DataWave - -
(see Note 4)
Common stock warrants expired - -
Common Stock Cancellation - -
Net loss (779) -
Foreign currency translation
adjustment 9 9
---------- ----------
BALANCES, JUNE 30, 2005 $ (770) $ 6
========== ==========
Year ended June 30, 2006:
Adjustment related to
Investment in DataWave - -
(see Note 4)
Common stock warrants expired - -
Common stock issued for
D&O Compensation - -
Net income 390 -
Foreign currency translation
adjustment 3 3
---------- ----------
BALANCES, JUNE 30, 2006 $ 393 $ 9
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
INTEGRATED DATA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED JUNE 30, 2006 AND 2005
(Dollars in Thousands)
Fiscal Fiscal
2006 2005
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 390 $ (779)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1 226
Stock issued for compensation 40 -
(Gain) loss on disposition of property and equipment (11) 5
Impairment loss - 481
Reimbursement of merger costs - (235)
Equity in earnings from unconsolidated subsidiary (506) (345)
Gain on sale of investment in DataWave (27) -
Changes in assets and liabilities which
increase (decrease) cash:
Accounts receivable - 14
Prepaid expenses (8) 5
Other assets 4 -
Accounts payable and accrued expenses (13) 88
--------- ---------
Net cash used in operating activities (130) (540)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment - (1)
Proceeds from sale of license - 265
Proceeds from sale of property and equipment 11 -
--------- ---------
Net cash provided by investing activities 11 264
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 191 273
Repayments of short-term borrowings (73) -
--------- ---------
Net cash provided by financing activities 118 273
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 3 9
--------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
INTEGRATED DATA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED JUNE 30, 2006 AND 2005
-CONTINUED-
(Dollars in Thousands)
Fiscal Fiscal
2006 2005
---------- ----------
Increase in cash and equivalents 2 6
Cash and equivalents, beginning of period 10 4
--------- ---------
Cash and equivalents, end of period $ 12 $ 10
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Sale of investment in DataWave in
satisfaction of short-term borrowings $ 566 $ -
Note receivable sold in satisfaction of
short-term borrowings $ 600 $ -
Adjustment to accumulated deficit related to
investment in DataWave (See Note 4) $ 63 $ 128
Note receivable received in exchange for
sale of license $ - $ 600
Expiration of warrants $ - $ 269
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 2006 AND 2005
NOTE 1. 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, and the U.K. IDC and its subsidiaries, C3 Technologies
Inc. ("C3") and Integrated Communication Services Ltd. ("ICS") (collectively
the "Company", "We", or "Our") offer a wide range of telecommunications and
wireless communication services. DataWave Systems Inc. ("DataWave"), in
which the Company holds a minority interest, offers 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 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. The resulting wireless technology, trade named
ClariCAST(r), allows 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 bringing into the global market 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. During the year ended June 30,
2005, the company sold their DataWave's International License to DataWave
Systems, Inc. For the year ending June 30, 2006, the Company sold 8.06% of
common stock of DataWave Systems, Inc. and DataWave issues 7,500,000 new
shares of common stock resulting in a 38.859% minority interest in DataWave
Systems, Inc.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year End
---------------
The Company's fiscal year ends on June 30. In these financial statements,
the twelve month periods ended June 30, 2006 and 2005 are referred to as
Fiscal 2006 and Fiscal 2005 respectively.
F-8
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 2006 AND 2005
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 inter-
company transactions have been eliminated in consolidation.
In Fiscal 2006, the Company adopted the equity method of accounting to
reflect its 38.859% minority interest in DataWave Systems Inc. and
retrospectively applied the equity method to Fiscal 2005 as a change in
reporting entity in accordance with SFAS No. 154, "Accounting Changes and
Error Corrections". (See Note 4.)
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).
Reporting Currency
------------------
ICS's functional currency is the British Pound ("BP"); however, the reporting
currency is the United States Dollar ("USD").
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.
Financial Instruments
---------------------
The Company's financial instruments consist primarily of cash and
equivalents, accrued expenses, and short-term borrowings. These balances, as
presented in the balance sheet as of June 30, 2006 and 2005, approximate
their fair value because of their short maturities.
F-9
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 2006 AND 2005
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company is exposed to foreign exchange risks due to its sales denominated
in foreign currency.
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 using the straight-line method.
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. An impairment loss
of $16,000 for goodwill and $465,000 for the DataWave International License
was identified at Fiscal 2005.
Income Taxes
------------
The Company follows 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 affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount 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)
F-10
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 2006 AND 2005
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 2006 and 2005 were the same because the
effect of using the treasury stock method would be anti-dilutive.
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.
The Company follows 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 10.
Recently Issued Accounting Pronouncements
-----------------------------------------
In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123 (revised 2004) (SFAS No. 123(R)), "Share-Based Payment", which
addresses the accounting for share-based payment transactions in which an
enterprise receives employee services in exchange for (a) equity instruments
of the enterprise or (b) liabilities that are based on the fair value of the
enterprise's equity instruments or that may be settled by the issuance of
such equity instruments. SFAS No. 123(R) eliminates the ability to account
for share-based compensation transactions using the intrinsic value method
under APB Opinion No. 25, and requires instead that such transactions be
accounted for using a fair-value based method. In January 2005, the SEC
F-11
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 2006 AND 2005
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
issued SAB No. 107, "Share-Based Payment", which provides supplemental
implementation guidance for SFAS No. 123(R). SFAS No. 123(R) will be
effective for the Company beginning in the first quarter of its Fiscal 2007.
The Company's assessment of the estimated stock-based compensation expense is
affected by the Company's stock price, volatility, employee stock option
exercise behaviors and the related tax impacts. The Company will recognize
stock-based compensation expense on all awards on a straight-line basis over
the requisite service period using the modified prospective method as
permitted by SFAS No. 123(R). Although the adoption of SFAS No. 123(R) is
not expected to have a material effect on the Company's results of
operations, future changes to various assumptions used to determine the fair
value of awards issued or the amount and type of equity awards granted create
uncertainty as to the ultimate impact of SFAS No. 123(R) on the Company's
results of operations.
In June 2006, the FASB issued Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes". FIN 48 prescribes detailed guidance for
the financial statement recognition, measurement and disclosure of uncertain
tax positions recognized in an enterprise's financial statements in
accordance with FASB Statement No. 109, "Accounting for Income Taxes". Tax
positions must meet a more-likely-than-not recognition threshold at the
effective date to be recognized upon the adoption of FIN 48 and in subsequent
periods. FIN 48 will be effective for fiscal years beginning after December
15, 2006 (our Fiscal 2008) and the provisions of FIN 48 will be applied to
all tax positions under Statement No. 109 upon initial adoption. The
cumulative effect of applying the provisions of this interpretation will be
reported as an adjustment to the opening balance of retained earnings for
that fiscal year. The Company is currently evaluating the potential impact
of FIN 48 on its consolidated financial statements.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108 ("SAB No.
108"). SAB No. 108 addresses the process and diversity in practice of
quantifying financial statement misstatements resulting in the potential
build up of improper amounts on the balance sheet. We will be required to
adopt the provisions of SAB No. 108 in Fiscal 2007. We currently do not
believe that the adoption of SAB No. 108 will have a material impact on our
consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements",
(SFAS No. 157"). SFAS No. 157 establishes a framework for measuring fair
value and expands disclosures about fair value measurements. The changes to
current practice resulting from the application of this Statement relate to
the definition of fair value, the methods used to measure fair value, and the
expanded disclosures about fair value measurements. The Statement is
effective for fiscal years beginning after November 15, 2007 and interim
F-12
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 2006 AND 2005
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
periods within those fiscal years. We do not believe that the adoption of
the provisions of SFAS No. 157 will materially impact our financial position
and results of operations.
NOTE 3. NOTE RECEIVABLE FROM RELATED PARTIES
As of June 30, 2006 the Company was due $58,889 from Integrated Technologies
& Systems Ltd. ("IT&S"), a greater than 5% shareholder. It was repaid in
Fiscal 2007. As of June 30, 2005, the Company had a promissory note from
DataWave Systems Inc. in the amount of $600,000 which arose from the transfer
of the DataWave International License (see Note 5).
NOTE 4. INVESTMENT IN DATAWAVE
On December 12, 2002, the Company acquired an approximate 41% interest in
DataWave Systems Inc. ("DataWave") 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
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, creating
a majority interest in DataWave of 50.062%. The acquisition was accounted
for under the purchase method of accounting.
As of June 30, 2004, the Company's total holdings in DataWave were adjusted
to 21,947,030, or a 50.005% majority interest. This adjustment was made
because of default on the transfer of 25,000 shares of DataWave under the
Share Exchange Agreements of January 14, 2003 (see above paragraph).
On February 1, 2005, the Company acquired an additional 2,937,500 shares of
common stock of DataWave Systems, Inc increasing the Company's total holding
in DataWave to 24,884,530 shares of common stock, a 53.142% majority
interest. As a result of this change in ownership interest, the Company
recorded a $128,000 adjustment to accumulated deficit. The acquisition was
accounted for under the purchase method of accounting. Due to the change in
reporting entity in Fiscal 2006, the equity method of accounting was
retroactively applied to the financial statements for Fiscal 2005. The book
value of the DataWave investment at June 30, 2005 incorporating the equity
method is $3,324,212.
F-13
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 2006 AND 2005
NOTE 4. INVESTMENT IN DATAWAVE (continued)
On January 3, 2006, the Company sold 3,773,918 of DataWave Systems, Inc.
common stock resulting in an approximate 8.059% decrease in the interest of
DataWave Systems. At June 30, 2006, DataWave's issued and authorized common
stock was 54,326,834 whereby the company's current ownership of 21,110,612
shares has created a 38.859% minority interest. As a result of the change in
ownership interest, the Company recorded a $63,000 adjustment to accumulated
deficit. The company for period ending June 30, 2006 reflects the DataWave
investment utilizing the equity method of accounting due to its current
minority interest. The book value of the DataWave investment at June 30,
2006 incorporating the equity method is $3,227,918.
The company recorded equity income of $505,691 for Fiscal 2006 and $345,000
for Fiscal 2005.
Net investment in DataWave is represented by the following (in thousands):
Fiscal 2006 Fiscal 2005
----------- -----------
Net current assets $ 21,565 $ 16,420
Property, plant and equipment 2,278 2,453
Other assets 3,085 3,203
Net current liabilities (19,081) (15,496)
Other long-term liabilities (688) (1,313)
Interests of other shareholders (4,377) (2,469)
----------- -----------
Company's interest $ 2,782 $ 2,798
Goodwill 446 526
----------- -----------
Net Investments $ 3,228 $ 3,324
=========== ===========
F-14
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 2006 AND 2005
NOTE 4. INVESTMENT IN DATAWAVE (continued)
The results of operations of DataWave were (in thousands):
Fiscal 2006 Fiscal 2005
----------- -----------
Sales $ 32,094 $ 24,327
----------- -----------
Income before taxes $ 1,669 $ 560
Income taxes (682) -
Other income 155 103
----------- -----------
Net income $ 1,142 $ 663
Company's share (636) (318)
Withholding taxes - -
----------- -----------
Equity in earnings $ 506 $ 345
----------- -----------
Dividends received - -
=========== ===========
Subsequent to this reporting period DataWave was acquired by InComm Holdings
Inc. on January 5, 2007 (the "DataWave Acquisition"). As a result the
Company exchanged its 21,110,612 common shares of DataWave for $12,369,490.48
in cash. Per the DataWave Acquisition Agreement and Plan of Merger, at
closing an additional $3,597,225.60 has been placed in escrow as Working
Capital and Indemnification Holdbacks. The Company is entitled to
approximately 35% of the holdbacks after any adjustments in accordance with
the holdback adjustment terms in the DataWave Acquisition Agreement and Plan
of Merger.
NOTE 5. ACQUISITIONS AND DISPOSITIONS
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 31,
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 owned the exclusive worldwide
(excluding the Americas) rights to own, operate, and license any and all
DataWave technologies and services (the "DataWave International License")
before the license was sold to DataWave System, Inc. during the 2005 fiscal
year.
F-15
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 2006 AND 2005
NOTE 5. ACQUISITIONS AND DISPOSITIONS (continued)
Effective February 1, 2005, the DataWave International License acquired in
December 2002 with the acquisition of C4 Services was effectively transferred
back to DataWave through termination of the DataWave International License.
Consideration from DataWave amounted to $865,000 -- $265,000 in cash and
$600,000 in the form of a Promissory Note.
On May 5, 2006, the Company sold its 60% interest, including all assets and
liabilities, in the non-operating, Italian entity IDC Italia Srl to a private
Italian citizen for one (1) Euro. Integrated Data Technologies Ltd, a non-
operating, wholly-owned UK subsidiary, was sold along with all assets and
liabilities to AMB Management Services (Gibraltar) Ltd on June 15, 2006 for
one (1) Euro.
As of June 30, 2006, the management and board of Integrated Communication
Services Ltd ("ICS") elected to cease operations of ICS because it was deemed
that profitable operation of the business was no longer possible. On January
25, 2007, the Company sold the ICS shell along with all assets and
liabilities to AMB Management Services (Gibraltar) Ltd for one (1) Euro.
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment of the Company and its consolidated subsidiaries
consist of the following (in thousands):
Fiscal Fiscal
2006 2005
---------- ----------
Office equipment and furniture 86 358
Less accumulated depreciation (86) (357)
---------- ----------
$ -0- $ 1
========== ==========
Depreciation expense was $1,000 and $98,000 for Fiscal 2006 and for Fiscal
2005 respectively.
NOTE 7. SHORT-TERM BORROWINGS FROM RELATED PARTY
IT&S agreed to fund the Company's working capital requirements post Chapter
11 filing through June 30, 2006. The amount funded as of June 30, 2006 and
2005 was $171,000 and $1,160,000.
F-16
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 2006 AND 2005
NOTE 8. INCOME TAXES
There is no income tax benefit for operating losses for Fiscal 2006 and
Fiscal 2005 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 carry forwards.
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.
The reconciliation of the statutory federal taxes to the Company's effective
income tax expense is as follows (dollars in thousands):
Fiscal Fiscal
2006 2005
--------- ---------
Statutory provision (benefit) $ 19 $ (503)
Tax benefit not recognized
on current year loss - 503
Tax benefit on use of loss carry forwards
not previously recognized (19) -
--------- ---------
$ - $ -
========= =========
The components of the deferred assets (liabilities) are as follows:
Fiscal Fiscal
2006 2005
--------- ---------
Net operating loss carry forward $ 82,294 $ 82,313
Property and equipment - 19
Intangibles - (141)
--------- ---------
$ 82,294 $ 82,191
Valuation Allowance (82,294) (82,191)
--------- ---------
- -
========= =========
F-17
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 2006 AND 2005
NOTE 8. INCOME TAXES (continued)
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 carry forwards for United States income tax
purposes is limited when there has been a substantial change in ownership (as
defined) during a three-year period. In the event of a change in the
ownership of the Company's common stock, 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.
The valuation allowance for allowance for deferred tax assets as of June 30,
2006 and 2005 was $82,294,000 and $82,191,000. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which the
net operating losses and temporary differences become deductible. Management
considered projected future taxable income and tax planning strategies in
making this assessment. At June 30, 2006, the Company had net operating loss
carry forwards for Federal and State income tax purposes of approximately
$242,000,000 (the "NOL carry forwards"), which were available to offset
future taxable income, if any, through 2026. Based upon the limited
operating history of the Company and losses incurred to date, management has
fully reserved the deferred tax asset.
NOTE 9. 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.
Leases
------
The Company at June 30, 2006 leases office space via a sublease from an
unrelated party on a month to month basis. The current monthly rent is $450.
There are no future minimum payments with respect to leases for equipment or
furniture.
Rent expense for operating leases in Fiscal 2006 and Fiscal 2005 was $15,408
and $37,436, respectively.
F-18
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 2006 AND 2005
NOTE 10. STOCKHOLDERS' EQUITY
Common Stock
------------
During Fiscal 2006, 200,000 shares of the Company's $0.001 par value common
stock were issued as compensation for services provided in Fiscal 2005 and
accrued at June 30, 2006 to Directors and Officers of the Company. These
shares were not registered under the Securities Act of 1933, as amended (the
"Act") at the time of issuance and were not previously reported in a
Quarterly Report on Form 10-Q. Given the fact that the shares are
restricted, there is little or no liquidity in the stock, and the market
price per shares varied between $0.15 and $0.35 at the time the shares were
issued, the estimated fair market value of these shares is $0.20 per share.
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. There were no warrants outstanding at
Fiscal 2006 and Fiscal 2005.
The Company follows 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 in Fiscal 2006
and Fiscal 2005.
Stock Option Plan
-----------------
The Company, with stockholder approval, adopted a Stock Option Plan (the
"Plan") in November 1991 providing for the granting of options to officers,
key employees, certain consultants and others. Options to purchase the
Company's common stock could 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 stockholders could not be for less than 110% of fair
market value or for a term of more than five years. The aggregate fair
market value of the stock for which an employee could be granted incentive
options first exercisable in any calendar year could not exceed $100,000.
The Stock Option Plan terminated by default in November 2001. All options
granted under the Stock Option Plan remain valid through the specified life
of the option, typically 10 years. As of June 30, 2006 there were 1,566
common share options outstanding with none of the options being "in the
F-19
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 2006 AND 2005
NOTE 10. STOCKHOLDERS' EQUITY (continued)
money". During Fiscal 2006 and Fiscal 2005, no options were exercised under
the Stock Option Plan.
Stock Options
-------------
Prior to November 1991 the Company's Board of Directors periodically
authorized the issuance of options to purchase the Company's common stock to
employees and members of the Board of Directors. These options could
generally be exercised at the fair market value of the common stock on the
date of the grant. The following table summarizes activity for stock options
during the 2-year period ended June 30, 2006:
Weighted Average
Shares Exercise Price Exercise Price
(000) Per Share Per Share
------ -------------- ----------------
Options outstanding and
exercisable, 6/30/05 5 $ 9.00 - $1,188.00 $637.00
Options forfeited (3) $ 9.00 - $1,088.00 $530.00
----
Options outstanding and
exercisable, 6/30/06 2 $475.00 - $1,188.00 $902.00
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 2006 and
Fiscal 2005.
NOTE 11. EMPLOYEE BENEFIT PLANS
The Company and its United States subsidiaries sponsored a defined
contribution pension plan for their employees in the form of a 401(k) plan.
The Company made no such contributions to the plan. During Fiscal 2006, the
Company elected to discontinue the defined contribution pension plan. The
Company does not currently pay for the cost of medical insurance for its
employees. The Company provides no post-retirement medical benefits. The
Company had no employees during Fiscal 2006.
F-20
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JUNE 30, 2006 AND 2005
NOTE 12. SUBSEQUENT EVENTS
Subsequent to this reporting period, on January 23, 2007 the Company acquired
a 20% equity interest in Montana Holding Ltd ("MHL") through the purchase of
1,120 shares of the 5,600 outstanding shares of MHL. MHL and its resort
development on Rum Cay in the Bahamas has been independently valued at
US$65,000,000; therefore, total consideration for 20% of MHL was $13,000,000
payable as: (1) $3,880,000 in cash; (2) $6,120,000 in the form of 3,060,000
restricted shares of common stock of the Company; and (3) $3,000,000 in the
form of an unsecured loan from MHL bearing an accrued interest rate of 3% per
annum and payable in cash on the 5th anniversary of the Sale and Purchase
Contract or, at the Company's sole discretion, at any time prior to the 5th
anniversary in restricted shares of common stock of Company at a fixed price
of $2.00 per share. This investment will be accounted for under the equity
method of accounting.
F-21
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On August 1, 2006, the Board of Directors of Integrated Data Corp. (the
"Company") elected to dismiss Webb & Company, P.A. ("Webb & Company") as
independent auditor for the Company. Webb & Company never performed an audit
of the Company's financial statements. There have been no disagreements with
Webb & Company on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Webb & Company, would have caused them to
make reference thereto in their report on the financial statements.
The Company engaged Morison Cogen LLP of Bala Cynwyd, Pennsylvania as its new
independent auditors as of August 2, 2006. Prior to such date, the Company
did not consult with Morison Cogen LLP regarding (i) the application of
accounting principles, (ii) the type of audit opinion that might be rendered
by Morison Cogen LLP or (iii) any other matter that was the subject of a
disagreement between the Company and its former auditor as described in Item
304(a)(1)(iv) of Regulation S-B.
ITEM 8A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
------------------------------------------------
Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we conducted
an evaluation of our disclosure controls and procedures, as such term is
defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the
Securities Exchange Act of 1934, as amended (Exchange Act), as of the end of
the fiscal year. Based on this evaluation, our principal executive officer
and principal financial officers have concluded that our disclosure controls
and procedures are effective to ensure that information required to be
disclosed by us in the reports we file or submit under the Exchange Act is
recorded, processed, summarized, and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms and
that our disclosure and controls are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under
the Exchange Act is accumulated and communicated to our management, including
our principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
Changes in Internal Controls
----------------------------
We have not made any significant changes to our internal controls subsequent
to the Evaluation Date. We have not identified any significant deficiencies
or material weaknesses or other factors that could significantly affect these
controls, and therefore, no corrective action was taken.
-17-
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the names, ages and positions of all directors
(including their term of service) and executive officers of the Company and
their positions in the Company as of March 1, 2007:
Current Position(s) Date First Elected
Name Age with Company or Appointed
------------------- --- ----------------------- ------------------
Abe Carmel 73 Director and Chief August 2006
Executive Officer
David C. Bryan 52 Director and President August 2003
Stuart W. Settle Jr. 66 Director and Secretary April 2002
Ian Tromans 68 Director April 2002
Eduard Will 65 Director January 2003
All directors serve until their successors are duly elected and qualified.
Vacancies in the Board of Directors are filled by majority vote of the
remaining directors. The executive officers of the Company are elected by,
and serve at the discretion of, the Board of Directors.
A brief description of the business experience during the past five years or
more of each director and executive officer of the Company is as follows:
Having retired from the Company in August 2003, Abe Carmel rejoined the
Company as CEO in August 2006. Prior to his August 2003 retirement, Mr.
Carmel was a board member of the Company since 1999 and became CEO/Chairman
in April 2002. Mr. Carmel has been an international investment and
management consultant in various industries since graduating with an MBA from
the Harvard Business School in 1967. Mr. Carmel joined a large mutual fund
group in Geneva, Switzerland in 1967 holding offices of Corporate Secretary,
Vice President, and eventually Chairman of its large Germany operations based
in Munich. While headquartered in Germany and upon approval of the German
Banking Authority in Berlin, he also became Chairman of a subsidiary German
bank and mutual fund. From 1971 to 1975, Mr. Carmel founded and lead
Germania Holding, a Munich based investment advisory group, together with
Oppenheimer & Co. and ADCA Bank. Germania is still a successfully operating
company. Mr. Carmel was then co-founder and CEO/Chairman of a number of US
oil and gas E&P companies from 1978 to 1984 that raised, explored,
developed, and managed $300 million in the continental US. Pursuant to that
Mr. Carmel worked as an independent investment banker in technology, real
estate, oil and gas E&P helping raise over $100 million in various companies
in the US. Mr. Carmel was Director and Chairman of DataWave Systems Inc.
from 1999 until 2001. Mr. Carmel is fluent in a number of European and
Middle East languages.
-18-
David C. Bryan took over the duties of President and Chief Executive Officer
in August 2003 and relinquished his duties of Chief Executive Officer to Mr.
Carmel in August 2006. He joined the Company in July 1997 as its Senior Vice
President and Chief Operating Officer and was instrumental in the multi-year,
multi-million dollar development of the ClariCAST(r) technology. In April of
2002, Mr. Bryan founded C3 Technologies Inc, a wholly-owned subsidiary of the
IDC, to manage the ClariCAST(r) technology and expand its applications in the
commercial, wireless communications arena. At that time, he also was
promoted to Executive Vice President of IDC. Between August 2001 and April
2002, Mr. Bryan held the position of Senior Vice President and Chief
Operating Officer of RadioNet International, Ltd., which at the time was a
wholly-owned subsidiary of the Company. He held the same positions with
another wholly-owned Company subsidiary prior to that, Clariti Wireless
Messaging, Inc., between December 1998 and August 2001. Prior to joining the
Company, Mr. Bryan spent 18 years with Magnavox/General Atronics Corporation,
a company engaged in the development and manufacturing of military RF
communication and telecommunication systems and products, where he held a
variety of senior-level management positions including Director of Business
Development, Division General Manager, and part owner. Mr. Bryan holds a
BSEE from Bucknell University, an MSEE from Villanova University, and an MBA
from Temple University.
Stuart W. Settle, Jr. is a graduate of the United States Naval Academy and
received his law degree from Harvard University. He is a member of the bars
of Virginia and New York and the federal bars in those states, as well as the
bar of the Supreme Court of the United States. For the past 30 years he has
concentrated in the areas of corporate finance, venture capital, and
securities law. Mr. Settle has served as counsel in a number of private and
public financings, acquisitions of public and privately held companies, and
has served as an officer and director of numerous corporations and charitable
foundations. Mr. Settle is a member of the International Bar Association in
London.
Ian Tromans is a trigonometrical surveyor and mining engineer, having
qualified in HM Royal Engineers in 1959. He has served with the British Army
in Africa and the Middle East and has operated at the Director level in the
UK for several major civil engineering and opencast mining companies,
including Trafalgar House, English China Clays and Public Works Ltd. Mr.
Tromans has been responsible for the overall management of engineering teams
of up to 600 personnel and has played a major role in the supervision of
several major engineering projects including Kielder Dam, Kernick Dam, the M4
Motorway and the Brent Cross Flyover. He has also served as Director in
other areas of commerce including the telecommunications, leisure and
building supplies industries and has controlled annual operating budgets in
excess of $100 million. Mr. Tromans has lectured to the Quarrying
Associations of Australia and the United Kingdom and has, in recent years,
acted as Management Consultant to many London-based international trading
corporations.
-19-
Eduard Will has been an international investment banker for over 30 years
with extensive experience and high-level connections in Europe, Asia and
North America. He started the mergers and acquisitions business of JP Morgan
in Germany, ran corporate finance at Bank of America in London, and was a
partner of Bear Stearns and Co. in New York responsible for international
corporate finance. Mr. Will has a track record of several dozen completed
transactions. Mr. Will is currently the President of Emerson Radio Corp, the
US consumer electronics company whose shares are quoted on Amex.
Certain Legal Proceedings
-------------------------
None of our Officers and/or Directors have filed any bankruptcy petition,
been convicted of or been the subject of any criminal proceedings or the
subject of any order, judgment or decree involving the violation of any state
or federal securities laws within the past five (5) years.
Audit Committee
---------------
We do not have a standing audit committee of the Board of Directors.
Management has determined not to establish an audit committee at present
because of our limited resources and our limited operating activities do not
warrant the formation of an audit committee or the expense of doing so. We
do not have a financial expert serving on the Board of Directors or employed
as an officer based on management's belief that the cost of obtaining the
services of a person who meets the criteria for a financial expert under Item
401(e) of Regulation S-B is beyond its limited financial resources and the
financial skills of such an expert are simply not required or necessary for
us to maintain effective internal controls and procedures for financial
reporting in light of the limited scope and simplicity of accounting issues
raised in its financial statements at this stage of its development.
Compliance with Section 16(A) of the Exchange Act
-------------------------------------------------
Section 16(a) of the Exchange Act requires our officers and directors, and
persons who beneficially own more than 10% of a registered class of our
equity securities, to file reports of ownership and changes in ownership with
the Securities and Exchange Commission and are required to furnish copies to
us. Based solely on its review of the copies of such forms received by the
Company, or written representations from certain reporting persons, the
Company believes the following officers and greater than 10% beneficial
owners are delinquent in their filing requirements: Eduard Will, Integrated
Technologies & Systems Ltd, Ansteed Investments Ltd, I. Hopkins, and B.
Candlin.
Code of Ethics
--------------
We have adopted a Code of Ethics applicable to our Chief Executive Officer
and Chief Financial Officer. This Code of Ethics is filed herewith as an
exhibit.
-20-
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth compensation paid or accrued during the fiscal
years ended June 30, 2006 and 2005 ("Fiscal 2006" and "Fiscal 2005",
respectively) to the Company's Chief Executive Officer and the most highly
compensated executive officers whose total annual salary and bonus earned by
them more than $100,000 during Fiscal 2006 (collectively, the "Named
Executives").
EXECUTIVES' SUMMARY COMPENSATION TABLE
Non- Non-
Equity Qualified
Incentive Deferred
Plan Compen-
Name and Fiscal Stock Option Compen- sation
Principal Year Salary Bonus Awards Awards sation Earnings
Position Ended ($000) ($000) ($000) ($000) ($000) ($000)
----------------- ------ ------ ------ ------ -------- --------- --------
David C. Bryan 2006 - - - - - -
President, Chief 2005 42 - 20 - - -
Executive Officer,
acting Chief
Financial Officer
All
Other
Fiscal Compen-
Year sation Totals
-TABLE CONTINUED- Ended ($000) ($000)
------ ------- ------
2006 60a 60
2005 40a 100
(a) During Fiscal 2005, Mr. Bryan's employment status with the Company
changed from full-time salaried employee to a part-time management
consultant.
Long-Term Incentive Plans - Awards in Most Recently Completed Fiscal Year
-------------------------------------------------------------------------
The Company has no long-term incentive plans in place; therefore, there were
no awards made under any long-term incentive plan to the Named Executives
during Fiscal 2006. A "Long-Term Incentive Plan" is a plan under which
awards are made based on performance over a period longer than one fiscal
year, other than a plan for options, SARs (stock appreciation rights) or
restricted share compensation.
Option Grants for the Year Ended June 30, 2006
----------------------------------------------
During Fiscal 2006 no stock options were granted to the Named Executives.
-21-
Aggregated Options Exercised for the Year Ended June 30, 2006
-------------------------------------------------------------
The Named Executives do not hold any unexercised stock options and no stock
options were exercised during Fiscal 2006.
Compensation Plans
------------------
The Company has no plans pursuant to which cash or non-cash compensation was
paid or distributed during Fiscal 2006, Fiscal 2005 and Fiscal 2004, or is
proposed to be paid or distributed in the future, to the individuals and
group specified under "Executive Compensation" above.
Employment Contracts and Termination Arrangements
-------------------------------------------------
No employment contracts exist between the Company and the Named Executives.
There are no compensatory plans or arrangements with respect to the Named
Executives resulting from the resignation, retirement or other termination of
employment or from a change of control.
Stock Option Plan
-----------------
The Company's original Stock Option Plan (the "Stock Option Plan") was
approved by a majority of the Company's stockholders in November 1991. The
Stock Option Plan was intended to qualify, in part, as an incentive stock
option plan under Section 422 of the Internal Revenue Code (the "Code") and
in part as a non-qualified stock option plan, and to provide an incentive to
those directors, key employees of the Company and its subsidiaries, and
certain other persons who materially contributed to the Company's progress.
The Stock Option Plan terminated by default in November 2001. All options
granted under the Stock Option Plan remain valid through the specified life
of the option, typically 10 years. As of June 30, 2006 there were 1,566
common share options outstanding with none of the options being "in the
money". During Fiscal 2006, no options were exercised under the Stock Option
Plan.
Compensation of Directors
-------------------------
The following table sets forth compensation paid or accrued during Fiscal
2006 and Fiscal 2005 to Company Directors, excluding Mr. Bryan's compensation
reported in the Executive Compensation Table above.
-22-
DIRECTORS' SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation Compensation
------------ Awards
------------
Secur-
ities
Other Restr- Under- All
Annual icted lying Other
Fiscal Compen- Stock Options Compen-
Director's Year Salary Bonus sation Awards /SARs sation
Name Ended ($000) ($000) ($000) ($000) (#000) ($000)
----------------- ----- ------ ------ ------- ------ ------- -------
Stuart W. Settle, Jr.2006 - - - - - -
2005 - - - 3 - -
Ian Tromans 2006 - - - - - -
2005 - - - 3 - -
Eduard Will 2006 - - - - - -
2005 - - - 4 - -
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Company's Board of Directors determines the compensation of the Company's
executive officers. The Company attempts to provide its executives with a
total compensation package that is competitive with those provided to
executives who hold comparable positions or have similar qualifications in
other similar organizations. The Board of Directors works closely with
management to design a compensation program to assist the Company in
attracting and retaining outstanding executives and senior management
personnel in the telecommunications and wireless communications industry who
the Company believes will be, or who are, valuable employees. Compensation
paid to the Company's Chief Executive Officer during Fiscal 2006 consisted
entirely of management consulting fees to which he was entitled.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
generally disallows a tax deduction to public companies for annual
compensation over $1.0 million paid to their chief executive officer and
other highly compensated executive officers. The Code generally excludes
from the calculation of the $1.0 million cap compensation that is based on
the achievement of pre-established, objective performance goals. To maintain
a competitive position with the Company's peer group of corporations, the
Board of Directors retains the authority to authorize payments, including
salary and bonus, which may not be deductible.
By the Board of Directors,
David C. Bryan, Stuart W. Settle, Jr., Ian Tromans, and Eduard Will
-23-
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The following table sets forth, as of June 30, 2006, certain information with
respect to beneficial ownership of the Company's common stock by (i) each
person known to the Company to be the beneficial owner of more than 5% of the
Company's common stock, (ii) each director of the Company, (iii) each named
executive officer of the Company listed in the Summary Compensation Table,
and (iv) all officers and directors of the Company as a group. Unless
otherwise specified, the Company believes that all persons listed in the
table possess sole voting and investment power with respect to all shares of
the Company's common stock beneficially owned by them.
Amount and Nature of
Beneficial Ownership Percent of
Name and Address (#000) Class (a)
-------------------------- ----------- ----------
Integrated Technologies & Systems Ltd 1,677 21.3%
Tortola, British Virgin Islands
Ansteed Investments Ltd 1,536 19.5%
Basel, Switzerland
I. Hopkins 1,015 12.9%
London, England
B. Candlin 1,005 12.7%
London, England
David C. Bryan 100 1.3%
St. Davids, Pennsylvania
Stuart W. Settle, Jr. 33 *
Richmond, Virginia
Ian Tromans 33 *
Oxfordshire, England
Eduard Will 20 *
Montclair, New Jersey
All officers and directors
as a group (5 persons) 185 2.3%
---------------------------------
*less than 1%
(a) Based upon shares beneficially owned as a percent of shares of common
stock of the Company outstanding as of June 30, 2006 (7,883,937 shares).
For purposes of calculating each person's beneficial ownership, any
shares subject to options exercisable within 60 days of June 30, 2006
are deemed beneficially owned by, and outstanding with respect to, such
person.
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
Integrated Technologies & Systems Ltd ("IT&S"), a greater than 5%
shareholder, and/or its affiliates have agreed to fund the Company's working
capital requirements through June 30, 2007. This funding is in the form of a
no interest, no security, short-term loan. As of 30 June 2005, the loan
balance was $916,195.
On August 25, 2005, IT&S and the Company entered into an Asset Purchase &
Loan Repayment Agreement as reported in the Current Report Form 8-K filed on
August 26, 2005. In accordance with the terms of the Asset Purchase & Loan
Repayment Agreement, $1,166,088 was paid back to IT&S in the form of a
$600,000 Promissory Note from DataWave transferred to IT&S on August 25, 2006
with the $566,088 balance paid on January 3, 2006 with the transfer of
3,773,918 shares of DataWave common stock valued at $0.15 per share. As of
30 June 2006, the loan balance was zero.
During Fiscal 2005 and Fiscal 2006 the Company paid approximately $13,028 and
$3,740 respectively to Stuart W. Settle, Jr., a Company director, for
services provided in his role as corporate general counsel.
ITEM 13. EXHIBITS.
The following documents are filed as part of this report:
(1) Consolidated Financial Statements: See Index to Consolidated Financial
Statements under Item 7 on page 16 of this report.
(2) Financial Statement Schedule: See Index to Consolidated Financial
Statements under Item 7 on page 16 of this report.
(3) Exhibits below are incorporated herein by reference or, if marked with
an *, are filed with this report:
Exhibit
No. Description
------- -----------
2.1 Share Exchange Agreement for the acquisition of GlobalFirst Holdings
Limited (Filed December 23, 1998 on Form 8-K (earliest event
reported December 8, 1998))
2.2 Share Purchase and Sale Agreement for the sale of Telnet Products &
Services Limited (Filed February 18, 1999 on Form 8-K)
2.3 Share Exchange Agreement for the acquisition of Mediatel Global
Communications Limited (Filed March 26, 1999 on Form 8-K)
2.4 Amendment to Share Exchange Agreement for the acquisition of
Mediatel Global Communications Limited (Filed March 26, 1999 on
Form 8-K)
2.5 Share Exchange Agreement for the Acquisition of MegaHertz-NKO, Inc.
(Filed May 24, 1999 on Form 8-K)
-25-
2.6 Share Exchange Agreement for the Acquisition of NKA Communications
Pty. Ltd. (Filed under Amendment No. 2 to Annual Report on Form
10-KSB for the year ended June 30, 1999)
2.7 Agreement and Plan of Merger for the acquisition of Tekbilt World
Communications, Inc. (Filed under Amendment No. 1 to Annual Report
on Form 10-K for the year ended June 30, 2000)
2.8 Share Exchange Agreement for the Sale of Clariti Telecommunications
Pty. Ltd. (f/k/a NKA Communications Pty. Ltd.) (Filed as Exhibit 2.8
under Annual Form 10-K for the year ended June 30, 2001)
2.9 Agreement for the sale of certain operating assets and liabilities
of Clariti Telecommunications Europe Ltd. and Clariti Carrier
Services Ltd. (Filed as Exhibit 2.9 under Annual Form 10-K/A for the
year ended June 30, 2001)
2.10 Stock Sale and Purchase Agreement for sale of Tekbilt World
Communications, Inc. (Filed as Exhibit 2 to the May 24, 2001 Form
8-K)
2.11 Stock Sale and Purchase Agreement for sale of MegaHertz-NKO, Inc.
(Filed as Exhibit 2.11 under Annual Form 10-K/A for the year ended
June 30, 2001)
2.12 Acquisition and Share Exchange Agreement for the purchase of
17,949,900 common shares of DataWave Systems Inc. (Filed as Exhibit
A to the January 17, 2003 Schedule 13D)
2.13 Share Exchange Agreement for the purchase of 4,023,030 common shares
of DataWave Systems Inc. (Filed as Exhibit 1 to the January 24, 2003
Schedule 13D)
2.14 Agreement and Plan of Merger dated as of June 2, 2004 by and between
Integrated Data Corp., Integrated Data Corp. Acquisition, Inc. and
DataWave Systems Inc. (Filed June 3, 2004 as Exhibit 99.2 to Form 8-
K)
2.15 License Termination Agreement by and between Integrated Data Corp.
and DataWave Systems Inc. (Filed March 3, 2005 as Exhibit 99.1 to
Form 8-K)
2.16 Merger Break-Up and Mutual Release Agreement by and between
Integrated Data Corp. and DataWave Systems Inc. (Filed March 3, 2005
as Exhibit 99.2 to Form 8-K)
2.17 Asset Purchase & Loan Repayment Agreement by and between Integrated
Data Corp. and Integrated Technologies & Systems Ltd (Filed August
26, 2005 as Exhibit 99.1 to Form 8-K)
2.18 Sale and Purchase Contract Relating to Montana Holdings Ltd dated
January 23, 2007 (Filed January 25, 2007 as Exhibit 2.18 to Form
8-K)
3.1 Articles of Incorporation (Filed with Annual Report on Form 10-KSB
for the period ended July 31, 1990)
3.1.1 Amendment to Articles of Incorporation (Filed with Annual Report on
Form 10-K for the period ended June 30, 2000)
3.2 Bylaws (Filed with Annual Report on Form 10-KSB for the period ended
July 31, 1990)
4.1 Secured Debenture for Borrowing of $750,000 (Filed as Exhibit 4.1
under Annual Form 10-K for the year ended June 30, 2001)
10.1 Employment Agreement with James M. Boyd, Jr. (Filed under Amendment
No. 2 to Annual Report on Form 10-KSB for the year ended July 31,
1997)
-26-
10.4 Employment Agreement with David C. Bryan (Filed under Amendment
No. 2 to Annual Report on Form 10-KSB for the year ended July 31,
1997)
10.5 Employment Agreement with Michael P. McAndrews (Filed under
Amendment No. 2 to Annual Report on Form 10-KSB for the year ended
July 31, 1997)
10.6 Employment Agreement with Ronald R. Grawert (Filed under Amendment
No. 2 to Annual Report on Form 10-KSB for the year ended June 30,
1999)
10.7 Employment Agreement with Joseph A. Smith (Filed under Amendment No.
2 to Annual Report on Form 10-KSB for the year ended June 30, 1999)
10.8 Employment Agreement with Daniel P. McDuffie (Filed under Amendment
No. 2 to Annual Report on Form 10-KSB for the year ended June 30,
1999)
10.9 Employment Agreement with James M. Boyd, Jr. (Filed with Annual
Report on Form 10-K for the period ended June 30, 2000)
10.10 Letter Of Offer to Invest in the Equity of Montana Holdings Ltd
("MHL") and Provide Up to US$7M in Two Loan Facilities dated January
21, 2007 (Filed January 25, 2007 as Exhibit 10.10 to Form 8-K)
14.1* Integrated Data Corp. Code of Ethics (Filed with this report)
14.2* Integrated Data Corp. Financial Code of Ethics (Filed with this
report)
16.1 Letter on change in certifying accountant (Filed December 23, 1998
on Form 8-K (earliest event reported December 18, 1998))
16.2 Letter on change in certifying accountant (Filed September 23,
1999 as Amendment No. 1 to Form 8-K)
16.3 Letter on change in certifying accountant (Filed November 14, 2005
on Form 8-K)
16.4 Letter on change in certifying accountant (Filed August 4, 2006 on
Form 8-K)
21.1* List of Subsidiaries: See "Corporate Holdings" on page 3 of this
report.
31.1* Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (Filed with this report)
31.2* Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (Filed with this report)
32.1* Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 (Filed with this report)
32.2* Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 (Filed with this report)
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Reports on Form 8-K
-------------------
No Current Reports on Form 8-K were filed by the Company during the quarter
ended June 30, 2006. Subsequent Current Reports on Form 8-K that have been
filed after the reporting period include:
(a) A current report on Form 8-K dated August 1, 2006 was filed announcing
the dismissal the Company's independent auditor, the engagement of a new
independent auditor by the Company, and the appointment of Abe Carmel as
Chief Executive Officer and Director of the Company.
(b) A current report on Form 8-K dated September 21, 2006 was filed to
announce the Company's support of the acquisition of DataWave Systems Inc. by
InComm Holdings Inc.
(c) A current report on Form 8-K dated December 1, 2006 was filed announcing
shareholder consent to vote form the DataWave acquisition by InComm Holdings
Inc.
(d) A current report on Form 8-K dated January 5, 2007 was filed to
announce: (1) the closing of the DataWave acquisition by InComm Holdings
Inc. and cash received; (2) the purchase of a 20% equity position in Montana
Holdings Ltd; and (3) the acceptance by Montana Holdings Ltd of a offer to
provide loan facilities to Montana Holdings Ltd of up to US$7,000,000.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
During the years ended June 30, 2006 and 2005, the following fees were
invoiced by Morison Cogen LLP, previously Cogen Sklar LLP, for services
provided.
Audit Fees
----------
The aggregate fees billed for the annual audit of the Company's financial
statements included in our Form 10-K and review of financial statements
included in our Form 10-Qs for the years ended June 30, 2006 and 2005
amounted to approximately $25,000 and $-0-, respectively.
Audit Related Fees
------------------
For the years ended June 30, 2006 and 2005, there were no fees billed related
to other audit related services.
Tax Fees
--------
For the years ended June 30, 2006 and 2005, there were no tax fees billed.
All Other Fees
--------------
For the years ended June 30, 2006 and 2005, there were no other fees billed.
-28-
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
INTEGRATED DATA CORP.
By: /s/Abe Carmel
-------------
Abe Carmel
Chief Executive Officer
Date: March 7, 2007
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/Abe Carmel
-------------
Abe Carmel
Chief Executive Officer
(Principal Executive Officer)
By: /s/David C. Bryan
-----------------
David C. Bryan
President and acting
Chief Financial Officer
(Principal Financial Officer)
Date: March 7, 2007
-29-