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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
Commission File Number 0-31729
INTEGRATED DATA CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2498715
- --------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
625 W. Ridge Pike, Suite C-106, Conshohocken, PA 19428
----------------------------------------------------------
(Address of principal executive offices)
Telephone: (610) 825-6224
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
As of May 15, 2003, there were 7,686,044 shares outstanding of the Registrant's
$.001 par value common stock.
1
INTEGRATED DATA CORP.
INDEX TO FORM 10-Q
PAGE(S)
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets at
March 31, 2003 (unaudited) and
June 30, 2002 (audited) 3
Consolidated Statements of Operations
for the three months and nine months ended
March 31, 2003 and 2002 (unaudited) 4
Consolidated Statement of Stockholders'
Equity (Deficit) for the nine months ended
March 31, 2003 (unaudited) 5
Consolidated Statements of Cash Flows
for the nine months ended March 31, 2003
and 2002 (unaudited) 6-7
Notes to Consolidated Financial
Statements (unaudited) 8-17
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 18-20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of
Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
2
PART I. - FINANCIAL STATEMENTS.
INTEGRATED DATA CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars and Shares in Thousands)
Mar. 31, June 30,
2003 2002
----------- ---------
(Unaudited) (Audited)
CURRENT ASSETS
Cash and cash equivalents $ 1,244 $ 5
Accounts receivable 2,451 -
Inventory 690 20
Prepaid expenses and other current assets 521 -
--------- ---------
4,906 25
PROPERTY AND EQUIPMENT, NET 2,430 418
INTANGIBLE ASSETS, NET
Amortizable 4,314 75
Goodwill 2,260
INVESTMENT IN UNCONSOLIDATED SUSIDIARIES 8 8
--------- ---------
TOTAL ASSETS $ 13,918 $ 526
========= =========
CURRENT LIABILITIES
Accounts payable-trade $ 68 $ 23
Accrued expenses and other liabilities 4,528 -
Short-term borrowings from related parties 168 -
Deferred revenue 320 -
Minority interest 1,669 -
Post-petition financing - 156
Liabilities subject to compromise - 5,557
--------- ---------
6,753 5,736
LONG-TERM LIABILITIES 863 -
--------- ---------
TOTAL LIABILITIES 7,616 5,736
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
$.001 par value; authorized 300,000 shares;
issued and outstanding, 7,686 shares at
March 31, 2003 and 385 shares at
June 30, 2002 8 -
WARRANTS OUTSTANDING 3,110 5,047
ADDITIONAL PAID-IN-CAPITAL 282,230 271,907
ACCUMULATED DEFICIT (279,046) (282,164)
--------- ---------
TOTAL STOCKHOLDERS' DEFICIT 6,302 ( 5,210)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 13,918 $ 526
========= =========
See accompanying notes
3
INTEGRATED DATA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars and Shares in Thousands, Except Per Share Amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------- --------------------
2003 2002 2003 2002
--------- --------- --------- ---------
REVENUE $ 69 $ - $ 94 $ -
COST OF REVENUE 20 - 26 -
-------- -------- -------- --------
GROSS PROFIT 49 - 68 -
Depreciation and amortization 242 149 429 238
General and administrative expenses 178 846 503 4,209
(Income) loss from unconsolidated
subsidiary - - ( 8) -
-------- -------- -------- --------
LOSS FROM OPERATIONS ( 371) ( 995) ( 856) ( 4,447)
-------- -------- -------- --------
OTHER INCOME (EXPENSE)
Interest expense - (20) ( 1) (75)
-------- -------- -------- --------
NET LOSS FROM CONTINUING OPERATIONS ( 371) ( 1,015) ( 857) ( 4,522)
DISCONTINUED OPERATIONS
Loss on disposal - - - ( 100)
-------- -------- -------- --------
NET LOSS BEFORE EXTRAORDINARY GAIN ( 371) ( 1,015) ( 857) ( 4,622)
EXTRAORDINARY GAIN ON DISCHARGE OF
INDEBTEDNESS - 1,568 3,975 1,568
-------- -------- -------- --------
NET INCOME (LOSS) $( 371) $ 553 $ 3,118 $( 3,054)
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 7,523 385 3,120 380
BASIC AND DILUTED EARNINGS (LOSS)
PER COMMON SHARE
Net loss from continuing
operations $( 0.05) $( 2.63) $( 0.27) $( 11.90)
Discontinued operations
Loss on disposal - - - ( 0.26)
-------- -------- -------- --------
Net loss before extraordinary
gain ( 0.05) 4.07 ( 0.27) ( 12.16)
Extraordinary gain on discharge
of indebtedness - - 1.27 4.13
-------- -------- -------- --------
Net income (loss) $( 0.05) $ 1.44 $ 1.00 $( 8.03)
======== ======== ======== ========
See accompanying notes
4
INTEGRATED DATA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
NINE MONTHS ENDED MARCH 31, 2003
(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, 2002 38,530 $38.5 $ 5,047 $ 271,869 $( 282,164)
Nine months ended
March 31, 2003
(unaudited):
Exercise of stock
options 53 - - - -
Common stock warrants
expired - - ( 1,937) 1,937 -
Issuance of shares upon
conversion of debt 3,750 3.8 - 71 -
Reverse stock split
1 for 100 (41,910) (41.9) - 42 -
Issuance of shares upon
conversion of debt 865 .9 - 1,920 -
Issuance of shares upon
acquisitions 6,398 6.4 - 6,391 -
Net income - - - - 3,118
------ ----- -------- --------- ----------
BALANCES, MARCH 31,
2003 (unaudited) 7,686 $ 7.7 $ 3,110 $ 282,230 $( 279,046)
====== ===== ======== ========= ==========
See accompanying notes
5
INTEGRATED DATA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
NINE MONTHS ENDED
MARCH 31,
----------------------
2003 2002
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 3,118 $( 3,054)
Adjustments to reconcile net loss to net
cash flows used in operating activities:
Extraordinary gain on discharge of
indebtedness ( 3,975) ( 1,568)
Loss from discontinued operations 100
(Income) loss from unconsolidated subsidiary ( 8)
Depreciation and amortization 429 238
Issuance of common stock and common
stock warrants for expenses - 80
Other - ( 70)
Change in current assets and liabilities, net
of effects of acquisition
which increase (decrease) cash:
Accounts receivable ( 129) -
Prepaid expenses and other current assets ( 4) 105
Accounts payable-trade 45 66
Accrued expenses and other current
liabilities ( 146) 3,555
-------- --------
Net cash used in operating activities ( 670) ( 548)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash of acquired company 1,242 -
Proceeds from sale of fixed assets - 19
-------- --------
Net cash used in investing activities 1,242 19
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock for cash - 150
Commission on sale of common stock - ( 15)
Short-term borrowings 667 272
-------- --------
Net cash received from financing activities 667 407
-------- --------
NET CHANGE IN CASH AND EQUIVALENTS 1,239 ( 122)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 5 124
-------- --------
CASH AND EQUIVALENTS, END OF PERIOD $ 1,244 $ 2
======== ========
6
INTEGRATED DATA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
NINE MONTHS ENDED
MARCH 31,
-----------------------
2003 2002
---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period:
Interest $ - $ -
Income taxes $ - $ -
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Conversion of debt into equity $ 1,996 -
Issuance of shares upon acquisitions
DataWave Systems, Inc. $ 2,198 -
International License to DataWave Systems
Inc. Technology & Integrated
Communication Services, Ltd. $ 4,200 -
See accompanying notes
7
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
NOTE 1 - BASIS OF INTERIM PRESENTATION
The accompanying interim period financial statements of Integrated Data Corp.
("IDC" or the "Company") are unaudited, pursuant to certain rules and
regulations of the Securities and Exchange Commission, and include, in the
opinion of management, all adjustments (consisting of only normal recurring
accruals) necessary for a fair statement of the results for the periods
indicated, which, however, are not necessarily indicative of results that may
be expected for the full year. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations. The financial
statements should be read in conjunction with the financial statements and the
notes thereto included in IDC's June 30, 2002 Form 10-K and other information
included in IDC's Forms 8-Ks and amendments thereto as filed with the
Securities and Exchange Commission.
NOTE 2 - DESCRIPTION OF THE BUSINESS
Integrated Data Corp. is a non-operating U.S. parent company with subsidiaries
in the U.S., Canada, United Kingdom and Italy. In this Form 10-Q, the terms
"IDC" and "the Company" are used interchangeably in reference to the parent
company and/or any of its subsidiaries. IDC holds proprietary technology for
digital transmission of data utilizing radio frequencies transmitted by FM
radio stations.
On October 23, 2002, the Company's Plan of Reorganization was approved by the
United States Bankruptcy Court and became effective on November 12, 2002. The
Company continues to operate from its Conshohocken (suburban Philadelphia), PA
headquarters. As part of the Plan of Reorganization, the Company changed its
name from Clariti Telecommunications International, Ltd. to Integrated Data
Corp. and the Delaware Secretary of State accepted this change of the Company's
Certificate of Incorporation, effective November 20, 2002. Also under the
Plan, the Company implemented a reverse stock split converting each 100 shares
into 1 share of IDC common stock.
Additionally, the Company formed C3 Technologies, Inc. a wholly owned
subsidiary and Delaware Company, to manage its technologies and intellectual
property. C3 Technologies develops wireless data devices and applications.
Several new initiatives, including the VideoTopper are being developed for
deployment. The VideoTopper product line is designed to provide dynamic,
full motion video and audio services for Automatic Teller Machines (ATMs),
Point of Sale (POS) terminals, and as a stand alone unit. Utilizing several
communications channels including ClariCAST(R), the subject matter and schedule
of the VideoTopper are changed remotely. Providing services such as
advertising, consumer education, and public service announcements, the
VideoTopper is being deployed in test markets including the New York and
Philadelphia regions.
8
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
NOTE 2 - DESCRIPTION OF THE BUSINESS (continued)
Using its experience in communications engineering, C3 Technologies also
provides consulting services to companies seeking integration of wireless
technologies into their existing product lines.
Also, effective January 14, 2003, the Company agreed to purchase 4,023,030
freely tradable shares of DataWave Systems, Inc., a Yukon Canadian public
company, which trades on the TSE Venture Exchange with the symbol "DTV" and on
the Nasdaq OTCBB with the symbol "DWVSF". Theses shares when added to
17,949,000 shares acquired in December 2002, bring the Company's total holdings
in DataWave to 21,972,030 shares, which constitutes a majority of 50.062% of
the issued and outstanding shares of DataWave. The newly acquired 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).
DataWave Systems Inc. designs, develops, produces, owns and manages a
proprietary, intelligent, automated direct merchandising network (the "DataWave
System"). DataWave uses the DataWave System to distribute prepaid calling
cards. The DataWave System is comprised of DataWave Telecard Merchandisers
("DTMs"), which are free-standing "smart" machines capable of dispensing
multiple prepaid product offerings, and over-the-counter "swipe" units ("OTCs")
for point-of-sale prepaid retailing all of which are connected to the Company's
proprietary server software and databases through a wireless and/or land line
wide area network. In addition DataWave sells prepaid calling cards and point
of sale activated prepaid cellular PINs on a wholesale basis to certain retail
operators and other customers.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year End
- ---------------
The Company's fiscal year ends on June 30. In these financial statements, the
three-month periods ended March 31, 2003 and 2002 are referred to as Fiscal
3Q03 and Fiscal 3Q02, respectively, and the nine-month periods ended March 31,
2003 and 2002 are referred to as Fiscal Nine Months 2003 and Fiscal Nine Months
2002, respectively.
DataWave System's Inc. has a March 31 fiscal year end and the Company has
adopted the policy to consolidate the March 31 financial statements of DataWave
in its June 30 financial statements. Therefore, because of the three-month
lag, the March 31, 2003 financial statements of the Company include the balance
sheet of DataWave as of December 31, 2002. The results of operations of
DataWave for the period January 14, 2003 through March 31, 2003 will be
included in the statement of operations of the Company for the year ended June
30, 2003.
Principles of Consolidation and Basis of Presentation
- -----------------------------------------------------
The consolidated financial statements include the accounts of the Company and
all wholly-owned subsidiaries where management control is not deemed to be
9
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (continued)
temporary. All significant intercompany transactions have been eliminated in
consolidation.
Income Taxes
- ------------
There is no income tax expense (benefit) for income (losses) for the three
month and nine-month periods ended March 31, 2003 and 2002 due to the
following:
Current tax expense - availability of net operating loss carryforwards
Current tax benefit - the operating losses cannot be carried back to
earlier years.
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.
Fair Value of Financial Instruments
- -----------------------------------
The Company's financial instruments consist primarily of cash and equivalents,
accounts receivable and accrued expenses. These balances, as presented in the
balance sheet as of March 31, 2003 and June 30, 2002 approximate their fair
value because of their short maturities.
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 3Q03 and Fiscal 3Q02 were the same because the effect of
using the treasury stock method would be antidilutive.
Recent Accounting Pronouncements
- --------------------------------
In August 2001, SFAS No. Statement 142, "Goodwill and Other Intangible Assets"
("Statement 142") was issued, which is effective for fiscal years beginning
after December 15, 2001. Statement 142 addresses how intangible assets that
are acquired individually or with a group of assets should be accounted for
upon their acquisition and also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements. Also, for previously recognized non-goodwill intangible
assets, the useful lives must be reassessed with remaining amortization periods
adjusted accordingly, and reflected as a change in accounting principle. The
10
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (continued)
adoption of this standard in Fiscal Nine Months 2003 did not result in any
significant impact on results of operations or financial position of the
Company.
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("Statement
144"), effective in fiscal years beginning after December 15, 2001, with early
adoption permitted, and in general are to be applied prospectively. Statement
144 establishes a single accounting model for the impairment or disposal of
long-lived assets, including discontinued operations. Statement 144 superseded
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," and APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." The adoption of this standard in Fiscal Nine Months 2003 did
not result in any significant impact on its financial position or results of
operations.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" ("Statement 141"), effective for all business
combinations initiated after June 30, 2001. Statement 141 requires all
business combinations to be accounted for under the purchase method. Statement
141 supersedes APB Opinion No. 16, "Business Combinations", and Statement No.
38, "Accounting for Preacquisition Contingencies of Purchased Enterprises".
The Company adopted Statement 141 for its business combinations after June 30,
2001.
The following recently issued accounting pronouncements are currently not
applicable to the Company.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Obligations Associated with the Retirement of Long-Lived
Assets" (Statement 143), effective in fiscal years beginning after June 15,
2002, with early adoption permitted. Statement 143 establishes accounting
standards for the recognition and measurement of an asset retirement obligation
and its associated asset retirement cost. It also provides accounting guidance
for legal obligations associated with the retirement of tangible long-lived
assets.
In April 2002, the Financial Accounting Standards Board issued SFAS No. 145,
"Rescission of FASB Statements No. 4, 44 and 64", Amendment of FASB Statement
No. 13, and Technical Corrections (Statement 145), effective in fiscal years
beginning after May 15, 2002.
NOTE 4 - MANAGEMENT'S PLANS FOR REORGANIZATION
On April 18, 2002, the Company filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code in the United States
11
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
NOTE 4 - MANAGEMENT'S PLANS FOR REORGANIZATION (continued)
Bankruptcy Court for the Eastern District of Pennsylvania (case no. 02-
15817(DWS)). The Company managed its properties and operated its business as
"debtor-in-possession" under jurisdiction of the Bankruptcy Court and in
accordance with applicable provisions of the Bankruptcy Code. The Company's
Plan of Reorganization was approved and became effective on November 12, 2002
and recently on May 6, 2003 the final decree was entered and the case was
closed by the Bankruptcy Court. The Company plans to continue to develop and
utilize its wireless technology in several communications devices.
The Company's approved Plan of Reorganization with the Bankruptcy Court
detailed plans for settling claims of creditors and restructuring the interests
of its equity holders. The following is a brief summary of the Reorganization
Plan:
1. The Company owed Priority Unsecured Claims as of the filing date of
approximately $86,000. Included in these claims are four former employees
who are owed wages, which accrued during the statutory priority period.
Each of these four individuals had a priority claim in the amount of $4,650.
Additionally, the Company owed certain federal, state and local taxes, which
totaled just in excess of $68,000. As detailed in the Plan, The Company has
paid all Priority Unsecured Claims at 100 cents on the dollar.
2. The Company owed Secured Creditors as of the filing date approximately
$1,345,000. Specifically, the Company owed $858,000 to Ansteed (its largest
shareholder), $250,000 to Pasubio Spa, an Italian joint venture partner, and
$237,000 to Eizen Fineburg & McCarthy, former corporate counsel. The
Reorganization Plan called for all three secured creditors to receive a
convertible, non-interest bearing, unsecured promissory note for the face
amount owed to them. The principal amount of the note payable to Ansteed
and/or its affiliate also includes any amounts advanced to the Company
during the bankruptcy case and thereafter until December 31, 2002. The notes
payable would mature on December 31, 2005 if not converted earlier. The
notes were convertible at the Company's discretion at the rate of $2.00 per
share (after the planned 100:1 reverse split) for Ansteed, its affiliate and
Pasubio, and at a rate of $10.00 per share (after the planned 100:1 reverse
split) for Eizen Fineburg & McCarthy. On January 14, 2003, the Company
voted to exercise its right to convert the three non-interest-bearing notes.
Accordingly, these transactions have resulted in the issuance of an
aggregate additional 577,577 shares of the Company's common stock.
3. The Company owed General Unsecured Creditors approximately $3,782,000 as of
the filing date. An affiliate of Ansteed agreed to fund the
Reorganization Plan for $300,000 to be used to pay the Administrative costs
totaling approximately $96,000, Priority Unsecured Claims totaling
approximately $86,000 and General Unsecured Claims of approximately
$118,000. The final General Unsecured Claims were paid in January 2003.
This resulted in a gain on discharge of indebtedness of approximately
$3,635,000.
12
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
NOTE 4 - MANAGEMENT'S PLANS FOR REORGANIZATION (continued)
4. Existing equity holders, including common stock option and warrant holders,
were subject to a 100:1 reverse split.
The Company's exclusive source of post-petition operating funds were advanced
by Ansteed and/or its affiliate. The Company reached an agreement with them
to continue to advance funds to permit the business to work further toward the
final development of the ClariCAST(R) FM wireless technology. Since the
inception of the bankruptcy, Ansteed and/or its affiliate have advanced
$818,000 through March 31, 2003.
The Company has chosen to focus its future efforts on development and
commercialization of its patented ClariCAST(R) FM wireless technology.
Because the Company's technology is still under development, the Company
expects no revenues or operating cash flows in the near term. Future cash
expenditure requirements have been significantly reduced through major
reductions in corporate overhead expenses.
The Company is actively pursuing opportunities to secure additional financing
which, if obtained, is expected to be sufficient to develop and market its
wireless technology. There can be no assurances that such funding will be
generated or available, or if available, on terms acceptable to the Company.
Failure to secure additional financing will have a material adverse impact on
the Company.
RadioNet International, Inc., a wholly owned subsidiary of IDC filed a
voluntary petition for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code
in the U.S. Bankruptcy Court for the Eastern District of Pennsylvania on May 3,
2002. The company's operation has ceased. The company did not hold any
significant assets. The Bankruptcy Court closed the case on RadioNet
International, Inc. on July 12, 2002 and the Company recorded an extraordinary
gain on discharge of indebtedness of approximately $340,000 in Fiscal Nine
Months 2003.
The consolidated financial statements do not include any adjustments relating
to the recoverability of recorded asset amounts or the amounts of liabilities
that might be necessary should the Company be unable to continue as a going
concern.
NOTE 5- ACQUISITIONS
On December 11, 2002, the Company acquired all of the outstanding capital stock
of C4 Services, Ltd. ("C4 Services") for 4,200,000 newly issued shares of the
Company's common stock valued at $1.00 per share. The acquisition was
accounted for under the purchase method, and the results of C4 Services have
been included in the Company's consolidated results effective December 1, 2002.
C4 Services owned the international license for the DataWave technology and
100% or ICS. The Company has not finalized the allocation of the purchase
price as of December 31, 2002. An estimation of this allocation was prepared
13
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
NOTE 5- ACQUISITIONS (continued)
and included as part of these financial statements. The purchase price has
been allocated as follows: $4,028,803 to the DataWave technology license and
$171,197 for the shares of ICS. Unaudited pro-forma results have not been
presented since the operations of C4 Services began on November 1, 2002 and
were not significant.
On December 12, 2002, the Company acquired an approximate 41% interest in
DataWave Systems, Inc. for 1,794,900 newly issued shares of the Company's
common stock valued at $1.00 per share. At December 31, 2002 the investment
was accounted for under the equity method of accounting and the Company
recorded Goodwill in the amount of $434,400.
Effective January 14, 2003, the Company agreed to purchase 4,023,030 freely
tradable shares of DataWave Systems, Inc., a Yukon Canadian public company,
which trades on the TSE Venture Exchange with the symbol "DTV" and on the
Nasdaq OTCBB with the symbol "DWVSF". Theses shares when added to 17,949,000
shares acquired in December 2002, bring the Company's total holdings in
DataWave to 21,972,030 shares, which constitutes a majority of 50.062% of the
issued and outstanding shares of DataWave. The newly acquired 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.
DataWave Systems Inc. has a March 31 fiscal year end and the Company has
adopted the policy to consolidate the March 31 financial statements of DataWave
in its June 30 financial statements. Therefore, because of the three-month
lag, the March 31, 2003 financial statements of the Company include the balance
sheet of DataWave as of December 31, 2002. The results of operations of
DataWave for the period January 14, 2003 through March 31, 2003 will be
included in the statement of operations of the Company for the year ended June
30, 2003.
Summarized financial information for DataWave as of December 31, 2002 and for
the nine months then ended is as follows:
Financial Position
Current assets $ 4,741,000
Non current assets 3,350,000
Current liabilities 4,752,000
Non current liabilities -
Results of Operations
Net sales $ 14,230,000
Operating income 337,000
Net income 351,000
14
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
NOTE 6 - UNCONSOLIDATED SUBSIDIARY
Clariti Wireless Messaging filed a voluntary petition for bankruptcy under
Chapter 7 of the U.S. Bankruptcy Code. As a result, the Company's financial
statements for Fiscal 1Q02 reflect Clariti Wireless' results of operations
using the equity method of accounting. The following table presents summary
financial information for Clariti Wireless (dollars in thousands):
Fiscal 1Q02:
Net sales $ -
Expenses $ 427
NOTE 7 - EXTRAORDINARY GAIN ON DISCHARGE OF INDEBTEDNESS
Extraordinary gain on discharge of indebtedness of the Company and its
consolidated subsidiaries for the nine months ended March 31, 2003 consist of
the following (in thousands):
Liabilities subject to compromise $ 5,558
Adjustments to claims ( 19)
Secured Claims (1,345)
Priority Claims ( 85)
General Unsecured Claims ( 134)
-------
Extraordinary gain on discharge
of indebtedness $ 3,975
=======
NOTE 8 - SHORT-TERM BORROWINGS FROM RELATED PARTY
On May 3, 2001, the Company borrowed $750,000 from Ansteed Investment, Ltd.
("Ansteed"), a greater than 5% shareholder, for a period of 61 days. The note
carried interest at the rate of 10% per annum and was secured by substantially
all of the Company's assets. In connection with this loan, the Company granted
to Ansteed warrants to purchase 4,000(post reverse split) shares of the
Company's common stock at an exercise price of $95 per share(post reverse
split). Such warrants expired on May 3, 2003.
On November 30, 2001, the Company and Ansteed Investment, Ltd. executed a
Forbearance and Amendment Agreement whereby extending the terms of the
repayment of the $750,000 loan amount to March 31, 2002. In addition, the
Forbearance and Amendment Agreement allowed for Ansteed to advance an
additional $20,500 to the Company for legal fees associated with the agreement.
The additional $20,500 also carried interest at the rate of 10% per annum and
was due by March 31, 2002. On March 3, 2002, the Company borrowed an
additional $13,519 from Ansteed Investment, Ltd. for certain expenses, carrying
the same terms as the original note. The Outstanding Balance of $857,554
including interest was converted into 428,777 shares of the Company's common
stock in January 2003 at a conversion price of $2.00 per share per the Plan of
Reorganization.
15
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
NOTE 8 - SHORT-TERM BORROWINGS FROM RELATED PARTY (continued)
Ansteed and/or its affiliate agreed to fund the Company's working capital
requirements post Chapter 11 filing and through 2003. The amount funded as of
March 31, 2003 was $818,000. However, $650,000 of the loan amount was
converted into shares of the Company's common stock in December 2002 valued at
$2.00 per share.
NOTE 9 - CONVERTIBLE SHORT-TERM BORROWINGS
On July 2, 2001, the Company entered into a Funding Agreement with a third
party pursuant to which the Company borrowed $250,000 (the "Outstanding
Balance"). The Outstanding Balance was secured by a second position security
interest in substantially the same assets as those securing the $750,000 loan
from Ansteed (see Note 8). The Outstanding Balance was converted into 125,000
shares of the Company's common stock in January 2003 at a conversion price of
$2.00 per share per the Plan of Reorganization.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company, from time to time, during the normal course of its business
operations, may be subject to various litigation claims and legal disputes.
Currently there are no claims or disputes.
NOTE 11 - COMMON STOCK
On January 14, 2003, the Company's Board of Directors agreed to exercise its
right to convert three non-interest bearing notes in the respective amounts of
$857,544, $250,000 and $237,000. These notes had been issued to the three
secured creditors in the Company's Chapter 11 Bankruptcy proceedings as of
November 12, 2002, into newly issued restricted shares of common stock of the
Company. The notes in the amount of $857,554 and $250,000 were each converted
at $2 per share, while the note for $237,000 was converted at $10 per share.
The transactions have resulted in the issuance of an aggregate additional
577,577 shares of the Company's common stock. All these conversion shares in
addition to the statutory restriction imposed under Rule 144 of the Securities
Act of 1933, are subject to a contractual restriction or "lock-up" for an
additional period of one year after the expiration of the Rule 144 restriction.
Effective December 6, 2002, the Company implemented a 1 for 100 shares reverse
stock split of its outstanding stock. The Company's common stock began trading
on a post-split basis at the opening of the stock market on December 6, 2002 on
the OTC Bulletin Board under the new symbol "ITDD". All references in the
consolidated financial statements to common shares, per share amounts, stock
options and warrants have been restated to reflect the reverse stock split for
all periods presented.
16
INTEGRATED DATA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
NOTE 12 - STOCK OPTIONS
There were no new stock options issued during Fiscal Nine Months 2003. All
outstanding stock options to purchase the Company's common stock were adjusted
in accordance with their terms to reflect the reverse stock split.
NOTE 13 - WARRANTS
From time to time, the Company may issue warrants to purchase its common stock
to parties other than employees and directors. Warrants may be issued as a
unit with shares of common stock, in connection with borrowings, as an
incentive to help the Company achieve its goals, or in consideration for cash
or services rendered to the Company, or a combination of the above. Cost
associated with warrants issued to other than employees is valued based on the
fair value of the warrants as estimated using the Black-Scholes model.
During Fiscal Nine Months 2003 the Company did not issue any warrants. Also
during Fiscal Nine Months 2003, 16,350 warrants with exercise prices between
$7.00 and $1,600.00 per share expired without being exercised. The book value
of such expired warrants (approximately $1,937,000) was reclassified from
warrants outstanding to additional paid-in capital. All outstanding warrants
to purchase the Company's common stock were adjusted in accordance with their
terms to reflect the reverse stock split.
17
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Certain information included in this quarterly 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,
- Develop commercially viable applications for the ClariCAST(R)
technology,
- Obtain access to engineering resources required to complete development
and commercial implementation of potential applications for the
ClariCAST(TM) technology,
- Lease SCA channels from FM radio stations,
- Select and develop partnerships to help market, sell and distribute the
wireless products and services we are attempting to develop,
- Develop a marketing strategy for the wireless products and services we
are attempting to develop,
- Develop manufacturing and distribution channels for the wireless
products and services we are attempting to develop,
- Manage the progress and costs of additional research and development of
the ClariCAST(TM) technology,
- Manage the risks, restrictions and barriers of conducting business
internationally,
- Reduce future operating losses and negative cash flow,
- Compete effectively in the markets we choose to enter
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 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.
18
General Operations
- ------------------
The current focus of our business is the development and commercialization
of ClariCAST(R), our proprietary wireless technology that will support data
and information services to a high-speed digital wireless device.
Results of Operations
Three Months Ended March 31, 2003 ("Fiscal 3Q03")
vs. Three Months Ended March 31, 2002 ("Fiscal 3Q02")
- --------------------------------------------------------
For Fiscal 3Q03, the Company incurred net loss of $371,000, or $.05 per
share, on $69,000 in revenue as compared to net income of $553,000, or $1.44
per share, on no revenue in Fiscal 3Q02. The Company is now generating revenues
as a result of the acquisition of the UK company C4 Services Limited.
Excluding extraordinary gain on discharge of indebtedness, the Company incurred
a net loss of $1,015,000, or $2.63 per share, on no revenue in Fiscal 3Q02 as
compared to a net loss of $371,000 in Fiscal 3Q03.
For Fiscal 3Q03, net loss from continuing operations was $371,000 as compared
to a net loss of $1,015,000 in Fiscal 3Q02. The $644,000 reduction in loss
from continuing operations was primarily due to the decrease in general and
administrative expenses offset by an increase in depreciation and amortization
expenses. Since the Chapter 11 proceedings began in April 2002 the Company has
significantly reduced its overhead and operated with limited expenses.
General and administrative expenses decreased $668,000, from $846,000 to
$178,000 in Fiscal 3Q03. Fiscal 3Q03 included a decrease in salary expense due
to a reduction in the work force and the elimination of salaries of three key
executives.
Interest expense decreased from $20,000 in Fiscal 3Q02 to $0 in Fiscal 3Q03 due
to the conversion of interest bearing loans to common stock as a result of the
Plan of Reorganization.
Nine Months Ended March 31, 2003 ("Fiscal Nine Months 2003")
v. Nine Months Ended March 31, 2002 ("Fiscal Nine Months 2002")
- ----------------------------------------------------------------
For the Fiscal Nine Months 2003, the Company incurred net income of $3,118,000,
or $1.00 per share, on $94,000 of revenue as compared to a net loss of
$3,054,000, or $8.03 per share, on no revenue for the Fiscal Nine Months 2002.
Excluding gain on discharge of indebtedness, the Company incurred a net loss of
$857,000, or $0.27 per share, on $94,000 in revenue in Fiscal Nine Months 2003
as compared to a net loss of $4,622,000, or $12.16 per share, on no revenue in
Fiscal Nine Months 2002.
The $3,665,000 reduction in loss from continuing operations was primarily
due to a decrease in general and administrative expenses of $3,706,000 from
$4,209,000 to $503,000. Amounts for Fiscal Nine Months 2002 include accruals
of $1,301,000 for certain leases, which were in default and legal proceedings,
which have been settled. Beginning in Fiscal Nine Months 2002 the Company was
forced to reduce its work force, which resulted in a significant reduction in
general and administrative expenses.
19
Interest expense decreased from $75,000 in Fiscal Nine Months 2002 to $1,000 in
Fiscal Nine Months 2003 due to the conversion of interest bearing loans to
common stock as a result of the Plan of Reorganization.
During the period from December 1998 to May 2001, the Company was also a
significant provider of wire-line telecommunication services through its
interest in several businesses with operations in the United States, United
Kingdom, Europe and Australia. During the year ended June 30, 2001, the
Company divested these business operations, which formed the former business
segment, Telephony/Internet Services. During Fiscal Nine Months 2002 the
Company recognized an additional $100,000 loss on the disposal of one of those
businesses.
Liquidity and Capital Resources
- -------------------------------
At March 31, 2003, the Company had a working capital deficit of $1,847,000
(including a cash balance of $1,244,000) as compared to a working capital
deficit of $5,711,000 (including a cash balance of $5,000) at June 30, 2002.
The working capital increase of $3,864,000 is primarily due to the $3,635,000
in extraordinary gain on discharge of indebtedness as a result of closing
Chapter 11 proceedings and an extraordinary gain on discharge of indebtedness
of $340,000 associated with the closing of the Chapter 7 proceedings for
RadioNet International.
The Company has a Funding Agreement with Ansteed Investment, Ltd. and/or its
affiliate, pursuant to which Ansteed and for its affiliate has agreed to
provide limited funding to the Company.
The Company has no firm commitments for funding after March 31, 2003. The
Company has historically relied principally on equity financing to meet its
cash requirements. The Company expects to find the process of raising equity
capital extremely difficult. These matters raise substantial doubt about the
ability to continue as a going concern. There can be no assurances that such
funding will be generated or available, or if available, on terms acceptable to
the Company.
20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company, from time to time, during the normal course of its business
operations, may be subject to various litigation claims and legal disputes.
Currently there are no claims or disputes.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Events
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Officers Statement Pursuant to the Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K:
On January 16, 2003 the Company announced the purchase
of 4,027,381 freely tradable shares of DataWave
Systems, Inc. in exchange for issuing the selling
shareholders an aggregate 402,738 shares of the
Company's common stock. Also, the Company announced
the conversion of $1,345,544 of debt into 577,577
shares of the Company's common stock.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 20, 2003
INTEGRATED DATA CORP.
(REGISTRANT)
By: /s/Abraham Carmel
--------------------
Abraham Carmel
Chief Executive Officer,
President and Acting Chief
Financial Officer
22
EXHIBIT 99.17
INTEGRATED DATA CORP.
OFFICERS STATEMENT PURSUANT TO
REQUIREMENTS OF SARBANES-OXLEY ACT 0F 2002
Each of the undersigned, the Chief Executive Officer and the Chief Financial
Officer, respectively, of Integrated Data Corp. ("the Company"), pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350,
hereby certifies as follows:
To my knowledge: (1) the periodic report of the Company accompanying this
statement fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. Section 78m or 78o(d); and (2) the
information contained in the periodic report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: May 20, 2003 /s/ Abraham Carmel
---------------------------------------
Abraham Carmel, Chief Executive Officer
Date: May 20, 2003 /s/ Abraham Carmel
---------------------------------------
Abraham Carmel, Chief Financial Officer