U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the quarterly period ended September 30, 2003.
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the transition period from ____ to ____ .
- --------------------------------------------------------------------------------
Commission File Number: 000-50140
PRINT DATA CORP.
(Name of small business issuer in its charter)
DELAWARE 16-1642709
(State or other jurisdiction of incorporation) (I.R.S. Employer
Identification No.)
B24-B27,1/F., BLOCK B
PROFICIENT INDUSTRIAL CENTRE, 6 WANG KWUN ROAD
KOWLOON, HONG KONG
(Address of principal executive offices)
(852) 2799-1996
(Registrant's telephone number)
Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or 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 [ ]
The number of shares of common stock, par value $.001 per share, of the
Registrant as of November 3, 2003 was 27,829,936 shares.
Transitional small business disclosure format (check one) Yes [ ] No [X]
Page No.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
September 30, 2003 (unaudited) and December 31, 2002 1-2
Condensed Consolidated Statements of Operations for
the three and nine months Ended September 30, 2003
and September 30, 2002 (unaudited) 3
Condensed Consolidated Statements of Stockholders' Equity
for the year ended December 31, 2002 and nine months ended
September 30, 2003 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 2003 and
September 30, 2002 (unaudited) 5-6
Notes to Condensed Consolidated Financial Statements (unaudited) 7-12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12-17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 18
ITEM 4. CONTROLS AND PROCEDURES 19
PART II OTHER INFORMATION 19-21
Item 1 Legal Proceedings
Item 2 Change in Securities
Item 4 Submission of Matters to a Vote of Securities Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
SIGNATURES 22
EXHIBITS 23-26
- 1 -
ITEM 1. FINANCIAL STATEMENTS.
PRINT DATA CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
AS OF
SEPTEMBER 30, AS OF
2003 DECEMBER 31,
(UNAUDITED) 2002
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 118,164 $ 178,937
Accounts receivable, including amounts
from related parties of $7,712,271 and
$5,243,626, respectively 8,754,355 6,327,742
Inventories 1,303,953 402,089
Due from related party -- 483,745
Other current assets 360,679 361,100
----------- -----------
Total current assets 10,537,151 7,753,613
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization 53,065 45,301
----------- -----------
$10,590,216 $ 7,798,914
=========== ===========
The accompanying notes are an integral part
of these condensed consolidated financial statements
- 1 -
PRINT DATA CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses 4,956,414 3,974,794
Lines of Credit 2,264,632 1,992,574
Current portion of long term debt 710,000 710,000
Income tax payable 204,731 18,332
Due to related party 1,389,525 --
Other current liabilities 59,479 26,693
----------- -----------
Total current liabilities 9,584,781 6,722,393
Long term debt net of current portion 548,173 1,071,597
----------- -----------
Total liabilities 10,132,954 7,793,990
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, 50,000,000
shares authorized; 27,829,936 shares and
22,380,000 shares, respectively, issued
and oustanding for 2003 and 2002 27,830 22,380
Additional paid-in capital 3,110,405 362,235
Accumulated deficit (2,680,973) (379,691)
----------- -----------
Total stockholders' equity 457,262 4,924
----------- -----------
$10,590,216 $ 7,798,914
=========== ===========
The accompanying notes are an integral part
of these condensed consolidated financial statements
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PRINT DATA CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
NET SALES
Related parties $ 5,973,462 $ 3,524,980 $ 11,223,988 $ 7,007,778
Others 14,327,071 18,621,699 41,236,555 61,775,995
------------ ------------ ------------ ------------
Total net sales 20,300,533 22,146,679 52,460,543 68,783,773
COST OF SALES 18,550,042 21,107,810 49,039,746 65,419,355
------------ ------------ ------------ ------------
GROSS PROFIT 1,750,491 1,038,869 3,420,797 3,364,418
OPERATING EXPENSES:
Sales and marketing 17,862 122,575 279,189 352,404
General and administrative 981,204 723,884 1,724,468 1,958,043
Merger cost 2,753,620 -- 2,753,620 --
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (2,002,195) 192,410 (1,336,480) 1,053,971
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Loss on disposal of property and equipment (18,413) -- (18,413) --
Interest expense (40,648) (105,131) (228,837) (302,525)
------------ ------------ ------------ ------------
Total other income (expense) (59,061) (105,131) (247,250) (302,525)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (2,061,256) 87,279 (1,583,730) 751,446
INCOME TAXES 128,327 13,965 204,731 120,231
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (2,189,583) $ 73,314 $ (1,788,461) $ 631,215
============ ============ ============ ============
EARNINGS (LOSS) PER SHARE
- - BASIC AND DILUTED $ (0.10) $ 0.00 $ (0.08) $ 0.03
============ ============ ============ ============
NUMBER OF WEIGHTED AVERAGE SHARES
- - BASIC AND DILUTED 22,380,000 22,380,000 22,380,000 22,380,000
============ ============ ============ ============
The accompanying notes are an integral part
of these condensed consolidated finanial statements.
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PRINT DATA CORP.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common stock
Additional Total
paid-in Accumulated stockholders'
Shares Amount capital deficit equity
------------ ------------ ------------ ------------ ------------
Balance at January 1, 2002 22,380,000 $ 22,380 $ 362,235 $ (1,161,402) $ (776,787)
Net income -- -- -- 781,711 781,711
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2002 22,380,000 22,380 362,235 (379,691) 4,924
Reverse acquisition between
Print Data Corp. and Atlantic
Components Limited (unaudited) 2,829,936 2,830 (2,830) -- --
Issuance of common stock to consultants
related to reverse-acquisition (unaudited) 2,620,000 2,620 2,751,000 -- 2,753,620
Dividend declared (unaudited) -- -- -- (512,821) (512,821)
Net loss (9 months) (unaudited) -- -- -- (1,788,461) (1,788,461)
------------ ------------ ------------ ------------ ------------
Balance at September 30, 2003 (unaudited) 27,829,936 $ 27,830 $ 3,110,405 $ (2,680,973) $ 457,262
============ ============ ============ ============ ============
The accompanying notes are an integral part
of these condensed consolidated financial statements
- 4 -
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2003 2002
----------- -----------
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net (loss) income $(1,788,461) $ 631,215
----------- -----------
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Depreciation and amortization 14,329 17,678
Loss on disposal of property and equipment 18,413 --
Issuance of common stock to consultants
related to reverse-acquisition 2,753,620 --
Compensation to related party 624,462 624,462
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS
Accounts receivable (2,426,613) (1,816,559)
Inventories (901,864) (963,298)
Other current assets 421 (106,558)
INCREASE (DECREASE) IN LIABILITIES
Accounts payable and accrued expenses 981,620 2,555,550
Other current liabilities 32,786 (7,824)
Income tax payable 186,399 --
----------- -----------
Total adjustments 1,283,573 303,451
----------- -----------
Net cash (used for) provided by
operating activities (504,888) 934,666
----------- -----------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchases of property and equipment (40,506) (9,466)
Repayments (advances) of loan receivable
from related party -- (98,536)
----------- -----------
Net cash used for investing activities (40,506) (108,002)
----------- -----------
CASH FLOWS PROVIDED BY (USED FOR)
FINANCING ACTIVITIES:
Proceeds (repayments) on lines of credit 272,058 (104,513)
Advances from related party, net 735,987 --
Repayments from long term debt (523,424) (471,315)
----------- -----------
Net cash provided by (used for)
financing activities 484,621 (575,828)
----------- -----------
NET INCREASE (DECREASE) IN CASH (60,773) 250,836
CASH, beginning of period 178,937 54,537
----------- -----------
CASH, end of period $ 118,164 $ 305,373
=========== ===========
The accompanying notes are an integral part
of these condensed consolidated financial statements
- 5 -
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2003 2002
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 228,837 $ 302,525
============ ============
Income tax paid $ -- $ --
============ ============
NON CASH ACTIVITIES:
Dividend declared to stockholder/related to
increase due to related party $ 512,821 $ --
============ ============
The accompanying notes are an integral part
of these condensed consolidated financial statements
- 6 -
PRINT DATA CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS
BASIS OF PRESENTATION
The condensed consolidated financial statements include the financial statements
of Print Data Corp. and its wholly-owned subsidiary Atlantic Components Limited
(collectively, "Print Data" or the "Company"). The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete consolidated financial statements. These
condensed consolidated financial statements and related notes should be read in
conjunction with the Company's audited financial statements for the fiscal year
ended December 31, 2002 and 2001 to be filed in the Form 8-K/A amending Form 8-K
filed by the Company on October 16, 2003 relating to the Company's transaction
with Atlantic Components Limited described in the next paragraph. In the opinion
of management, these condensed consolidated financial statements reflect all
adjustments which are of a normal recurring nature and which are necessary to
present fairly the consolidated financial position of Print Data Corp. as of
September 30, 2003 and December 31, 2002, and the results of operations for the
three-month and nine-month periods ended September 30, 2003 and 2002 and the
cash flows for the nine month-month periods ended September 30, 2003 and 2002.
The results of operations for the three-month and nine-month periods ended
September 30, 2003 are not necessarily indicative of the results, which may be
expected for the entire fiscal year. All significant intercompany accounts and
transactions have been eliminated in preparation of the condensed consolidated
financial statements.
NATURE OF BUSINESS OPERATIONS
Print Data Corp. was incorporated under the laws of Delaware on August 4, 1984.
Prior to its acquisition of Atlantic Components Limited, a Hong Kong corporation
("Atlantic"), the Company served as a distributor of information supplies
including preprinted business forms, data management supplies, and various other
paper products and supplies, used in a computer and office environment. See Note
2 (Business Combination) for a description of the transaction among Print Data,
Atlantic and Mr. Chung-Lun Yang.
On October 1, 2003, subsequent to its acquisition of Atlantic, the Company
ceased its core operations as a distributor of information supplies and shifted
its focus to the operations of Atlantic which is a non-exclusive distributor of
memory products in the Asia market.
Atlantic was incorporated in Hong Kong on May 30, 1991 with limited liability.
The principal activities of the Company are distribution of electronic
components under the "Samsung" brandname which comprise DRAM and graphic RAM,
FLASH, SRAM and MASK ROM for the Hong Kong and Southern China markets.
CURRENCY REPORTING
Amounts reported in the accompanying consolidated financial statements and
disclosures are stated in U.S. Dollars, unless stated otherwise. The functional
currency of Atlantic, the Company's wholly-owned subsidiary, which accounted for
most of the Company's operations, is reported in Hong Kong dollars ("HKD").
Foreign currency transactions (outside Hong Kong) during the period are
translated into HKD according to the prevailing exchange rate at the transaction
dates. Assets and liabilities denominated in foreign currencies at the balance
sheet dates are translated into HKD at period-end exchange rates.
For the purpose of preparing these consolidated financial statements, the
financial statements of Atlantic reported in HKD have been translated into
United States Dollars at US$1.00=HKD7.8, a fixed exchange rate maintained
between the two countries.
- 7 -
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses from Extinguishment of Debt," and an amendment of that Statement, FASB
Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements" and FASB Statement No. 44, "Accounting for Intangible Assets of
Motor Carriers." This Statement amends FASB Statement No. 13, "Accounting for
Leases," to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. The Company has implemented the provision of SFAS No. 145 and has
concluded that the adoption does not have a material impact on the Company's
financial statements.
In July 2002, the FASB issued SFAS No. 146 "Accounting for Exit or Disposal
Activities." The provisions of this statement are effective for disposal
activities initiated after December 31, 2002, with early application encouraged.
The Company has implemented the provision of SFAS No. 146 and has concluded that
the adoption does not have a material impact on the Company's financial
statements.
In October 2002, the FASB issued Statement No. 147, "Acquisitions of Certain
Financial Institutions-an amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9," which removes acquisitions of financial institutions from
the scope of both Statement 72 and Interpretation 9 and requires that those
transactions be accounted for in accordance with Statements No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets. In addition,
this Statement amends SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, to include in its scope long-term customer-relationship
intangible assets of financial institutions such as depositor- and
borrower-relationship intangible assets and credit cardholder intangible assets.
The requirements relating to acquisitions of financial institutions is effective
for acquisitions for which the date of acquisition is on or after October 1,
2002. The provisions related to accounting for the impairment or disposal of
certain long-term customer-relationship intangible assets are effective on
October 1, 2002. The adoption of this Statement did not have a material impact
to the Company's financial position or results of operations as the Company has
not engaged in either of these activities.
In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," which amends FASB Statement No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The transition guidance and annual disclosure provisions of Statement
148 are effective for fiscal years ending after December 15, 2002, with earlier
application permitted in certain circumstances. The interim disclosure
provisions are effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002. The adoption of this
statement did not have a material impact on the Company's financial position or
results of operations as the Company has not elected to change to the fair value
based method of accounting for stock-based employee compensation.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are effective for any guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002. The adoption of this statement did not have a material impact to the
Company's financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities."
- 8 -
Interpretation 46 changes the criteria by which one company includes another
entity in its consolidated financial statements. Previously, the criteria was
based on control through voting interest. Interpretation 46 requires a variable
interest entity to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entity's activities or
entitled to receive a majority of the entity's residual returns or both. A
company that consolidates a variable interest entity is called the primary
beneficiary of that entity. The consolidation requirements of Interpretation 46
apply immediately to variable interest entities created after January 31, 2003.
The consolidation requirements apply to older entities in the first fiscal year
or interim period beginning after June 15, 2003. Certain of the disclosure
requirements apply in all financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established. The adoption of
this statement did not have a material impact to the Company's financial
position or results of operations.
During October 2003, the FASB issued Staff Position No. FIN 46 deferring the
effective date for applying the provisions of FIN 46 until the end of the first
interim or annual period ending after December 31, 2003 if the variable interest
was created prior to February 1, 2003 and the public entity has not issued
financial statements reporting that variable interest entity in accordance with
FIN 46. The FASB also indicated it would be issuing a modification to FIN 46
prior to the end of 2003. Accordingly, the Company has deferred the adoption of
FIN 46 with respect to VIEs created prior to February 1, 2003. Management is
currently assessing the impact, if any, FIN 46 may have on the Company; however,
management does not believe there will be any material impact on its
consolidated financial statements, results of operations or liquidity resulting
from the adoption of this interpretation.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". This
Statement amends Statement 133 for decisions made (1) as part of the Derivatives
Implementation Group process that effectively required amendments to Statement
133, (2) in connection with other Board projects dealing with financial
instruments, and (3) in connection with implementation issues raised in relation
to the application of the definition of a derivative, in particular, the meaning
of an initial net investment that is smaller than would be required for other
types of contracts that would be expected to have a similar response to changes
in market factors, the meaning of underlying, and the characteristics of a
derivative that contains financing components. The adoption of this statement
did not have a material impact to the Company's financial position or results of
operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. Some of the provisions of this Statement
are consistent with the current definition of liabilities in FASB Concepts
Statement No. 6, Elements of Financial Statements. The remaining provisions of
this Statement are consistent with the Board's proposal to revise that
definition to encompass certain obligations that a reporting entity can or must
settle by issuing its own equity shares, depending on the nature of the
relationship established between the holder and the issuer. While the Board
still plans to revise that definition through an amendment to Concepts Statement
6, the Board decided to defer issuing that amendment until it has concluded its
deliberations on the next phase of this project. That next phase will deal with
certain compound financial instruments including puttable shares, convertible
bonds, and dual-indexed financial instruments. The adoption of this statement
did not have a material impact to the Company's financial position or results of
operations.
2. BUSINESS COMBINATION
On September 8, Print Data entered into a Share Exchange and Reorganization
Agreement with Atlantic and Mr. Chung-Lun Yang ("Mr. Yang), the then sole
beneficial stockholder of Atlantic. Under the terms of the
- 9 -
agreement, Print Data issued 22,380,000 of its shares to Mr. Chung-Lun Yang and
2,620,000 of its shares to certain financial advisors to Atlantic in exchange
for 100% of the issued and outstanding shares of Atlantic's capital stock. The
Company recorded an expense of $2,753,620 related to the issuance of 2,620,000
shares of its common stock to these advisors, which was classified as merger
cost in the accompanying condensed consolidated statements of operations for the
three months and nine months ended September 30, 2003.
The share exchange agreement closed and became effective on September 30, 2003.
Upon the completion of this transaction, Atlantic became the wholly-owned
subsidiary of Print Data, and became the owner of approximately 80% of Print
Data's issued and outstanding shares of common stock. In addition, Print Data's
directors and officers resigned and were replaced by directors and officers of
Atlantic. For accounting purposes, the acquisition was accounted for as a
reverse-acquisition, whereby Atlantic was deemed to have acquired Print Data.
Because the acquisition was accounted for as a purchase of Print Data, the
historical financial statements of Atlantic became the historical financial
statements of Print Data after this transaction. The accompanying condensed
consolidated financial statements as September 30, 2003 include the operating
results of Atlantic up to September 30, 2003, the closing date of the
acquisition. In accounting for this transaction:
o Atlantic is deemed to be the purchaser and surviving company for accounting
purposes. Accordingly, due to the acquisition, its net assets will be
included in the balance sheet at their historical book values and the
results of operations of Atlantic will be presented for the comparative
prior periods.
o Control of the net assets and operations of Print Data was acquired
effective September 30, 2003. The Company will account for this transaction
as a purchase of the assets and liabilities of Print Data. The historical
cost of the net assets assumed was $0.
In connection with this transaction, Print Data entered into a Conveyance
Agreement on September 30, 2003 with New Print Data Corp. ("NewCo"). Under the
terms of this agreement, effective September 30, 2003, Print Data conveyed its
historic operations of providing supplies used in a computer or office
environment to NewCo, by assigning all of the assets and liabilities related to
such operations to NewCo which accepted the assignment and assumed all such
liabilities in exchange for 999,999 shares of common stock of NewCo.
On October 1, 2003, Print Data entered into a Securities Purchase Agreement with
the holders of the Company's Series A Preferred Stock. Under the terms of this
agreement, the Company sold its 1,000,000 shares of NewCo common stock in
exchange for the cancellation of the issued and outstanding 500,400 shares of
Print Data's Series A Preferred Stock (representing 100% of the Company's issued
and outstanding preferred stock previously held by three preferred
stockholders). This transaction was reflected in the accompanying condensed
consolidated balance sheet as of September 30, 2003 as if the transaction took
place on September 30, 2003.
3. EARNINGS (LOSS) PER COMMON SHARE
In accordance with SFAS No. 128, "Earnings Per Share," the basic earnings (loss)
per common share is calculated by dividing net income (loss) available to common
stockholders less preferred dividends by the weighted average number of common
shares outstanding. Diluted earnings (loss) per common share is computed
similarly to basic earnings (loss) per common share, except that the denominator
is increased to include the number of additional common shares that would have
been outstanding if the potential common shares had been issued and if the
additional common shares were not anti-dilutive. For the three months and nine
months ended September 30, 2003 and 2002, the Company did not have any stock
equivalents outstanding; therefore, the basic earnings (loss) per share was the
same as the diluted earnings (loss) per share. For the three months and nine
months ended September 30, 2003 and 2002, Atlantic was not a publicly-traded
entity. Therefore, basic earnings (loss) per
- 10 -
common share and diluted earnings (loss) per common share presented for the
three months and nine months ended September 30, 2003 and 2002, are presented
pro-forma only.
4. RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH MR. YANG
As of September 30, 2003, the Company had an outstanding payable to Mr. Yang,
the President and Chairman of the Board of Directors of the Company, totaling
$1,389,525. As of December 31, 2002, the Company had an outstanding receivable
from Mr. Yang totaling $483,745. These advances bear no interest and are payable
on demand.
For the nine months ended September 30, 2003 and 2002, the Company recorded
$693,693 and $693,693, respectively, and paid $69,231 and $69,231, respectively,
to Mr. Yang as compensation to him. The respective unpaid amounts offset the due
(from) to related party as of September 30, 2003 and December 31, 2002.
During the nine months ended September 30, 2003, the Company declared a dividend
of $512,821 payable to the sole shareholder at the time, which increased
outstanding balance of due to related party as of September 30, 2003.
During the nine months ended September 30, 2003 and 2002, the Company paid rent
of $40,385 each period for Mr. Yang's personal residency as fringe benefits to
him.
TRANSACTIONS WITH CLASSIC ELECTRONICS LTD.
During the nine months ended September 30, 2003 and 2002, the Company sold
$11,128,158 and $6,403,525, respectively, to Classic Electronic Ltd.
("Classic"). During the three months ended September 30, 2003 and 2002, the
Company sold $5,877,632 and $3,040,756, respectively, to Classic. Outstanding
accounts receivable totaled $10,375,506 and $5,243,626, respectively, as of
September 30, 2003 and December 31, 2002. The Company has not experienced any
bad debt from this customer in the past. Pursuant to a written personal
guarantee agreement, Mr. Yang personally guarantees all the outstanding accounts
receivable from Classic up to $10 million of accounts receivable.
During the nine months ended September 30, 2003 and 2002, the Company purchased
$2,708,768 and $0, respectively, from Classic, which offset the outstanding
accounts receivable from Classic. During the three months ended September 30,
2003 and 2002, the Company purchased $771,699 and $0, respectively, from
Classic. As of September 30, 2003 and December 31, 2002, the Company had net
outstanding accounts receivable from Classic totaling $7,666,738 and $5,243,626,
respectively.
Effective September 30, 2003, Mr. Ben Wong, a director and shareholder of
Classic, was elected as a director of Print Data.
TRANSACTIONS WITH ACL TECHNOLOGY PTE LTD.
During the nine months ended September 30, 2003 and 2002, the Company sold
$95,830 and $604,253, respectively, to ACL Technology Pte Ltd. ("ACLT"). During
the three months ended September 30, 2003 and 2002, the Company sold $95,830 and
$484,224, respectively, to ACLT. Outstanding accounts receivable totaled $45,533
and $0, respectively, as of September 30, 2003 and December 31, 2002. The
Company has not experienced any bad debt from this customer in the past.
During the nine months ended September 30, 2003 and 2002, the Company purchased
$52,948 and $0 respectively, from ACLT, which offset the outstanding accounts
receivable from ACLT. During the three months ended September 30, 2003 and 2002,
the Company purchased $50,298 and $0 respectively, from ACLT. As of
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September 30, 2003 and December 31, 2002, the Company had net outstanding
accounts receivable from ACLT totaling $45,533 and $0 respectively.
Mr. Yang and Mr. Ben Wong are directors and shareholders of ACLT. Effective
September 30, 2003, Mr. Yang and Mr. Ben Wong were elected as directors of Print
Data.
5. BANK FACILITIES
Pursuant to a debenture deed dated April 20, 2001, Atlantic, a wholly-owned
subsidiary of the Company, put its assets as collateral to a bank group in Hong
Kong comprised of Dah Sing Bank Limited, The Hong Kong and Shanghai Banking
Corporation Limited and Overseas Trust Bank Limited for all current and future
borrowings from the bank group by Atlantic. In addition to the above first
priority security over all assets of the Company, the banking facilities granted
are also secured by:
1. a HKD53,550,000 (approximately US$6,865,385) personal guarantee given
by Mr. Yang to the above bank group;
2. a security interest in a residential property located in Hong Kong
owned by an independent third party together with a joint and several
guarantee given by Mr. Yang and an ex-director of the Company; and
3. a personal guarantee given by Mr. Yang for unlimited amount together
with a key man insurance of Mr. Yang for $1,000,000 denoting Dah Sing
Bank Limited as beneficiary.
As of September 30, 2003, the Company's general banking facilities were subject
to interest rates of 0.5% to 1.0% above the Best Lending Rate (currently at 5.0%
per annum) prevailing in Hong Kong.
6. ECONOMIC DEPENDENCE
The Company's distribution operations are dependent on the availability of an
adequate supply of electronic components under the "Samsung" brand name which
have historically been principally supplied to the Company by Samsung
Electronics H.K. Co., Ltd. ("Samsung HK"), a subsidiary of Samsung Electronics
Co., Ltd., a Korean public company. Samsung supplied approximately 86% and 89%
of materials to the Company for the nine months ended September 30, 2003 and
2002 respectively. However, there is no written supply contract between the
Company and Samsung HK and, accordingly, there is no assurance that Samsung HK
will continue to supply sufficient electronic components to the Company on terms
and prices acceptable to the Company or in volumes sufficient to meet the
Company's current and anticipated demand, nor can assurance be given that the
Company would be able to secure sufficient products from other third party
supplier(s) on acceptable terms.
In addition, the Company's operations and business viability is to a large
extent dependent on the provision of management services and financial support
by Mr. Yang. See notes 4 and 5 to the financial statements for details of the
service arrangement between the Company and Mr. Yang and Mr. Yang's support of
the Company's banking facilities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS AND OTHER PORTIONS OF THIS REPORT CONTAIN FORWARD-LOOKING
INFORMATION THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED BY THE FORWARD-LOOKING
INFORMATION. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, AVAILABILITY AND COST OF FINANCIAL RESOURCES, PRODUCT DEMAND, MARKET
ACCEPTANCE AND OTHER FACTORS DISCUSSED IN THIS REPORT UNDER THE HEADING "RISK
FACTORS." IN THE RECENT FILED FORM 8-K.
- 12 -
OVERVIEW
CORPORATE BACKGROUND
The Company, through its wholly-owned subsidiary Atlantic, is engaged primarily
in the business of distribution of memory products under the "Samsung" brandname
which principally comprise DRAM and Graphic RAM, FLASH, SRAM and MASK ROM for
the Hong Kong and Southern China markets.
As of September 30, 2003, Atlantic had more than 90 active customers in
Hong Kong and Southern China.
For the nine months ended September 30, 2003, Atlantic's largest 5
customers accounted for 28.1% of Atlantic's sales. As of September 30, 2003,
Atlantic had working capital of $952,370 and an accumulated deficit of
$2,680,973 after declaration and payment of dividend of $512,821 to its then
sole beneficial shareholder before the reverse acquisition by Print Data Corp.
Atlantic generated sales of $52,460,543 for the nine months ended September 30,
2003 and recorded net loss of $1,788,461. In addition, during the nine months
ended September 30, 2003, net cash used for operating activities amounted to
$504,888.
Atlantic is in the mature stage of operations. As a result, the relationships
between sales, cost of sales, and operating expenses reflected in the financial
information included in this document to a large extent represent future
expected financial relationships. Much of the cost of sales and operating
expenses reflected in the Company's financial statements are recurring in
nature.
ACCOUNTING PRINCIPLES; ANTICIPATED EFFECT OF GROWTH
Below is a brief description of basic accounting principles which the
Company has adopted in determining its recognition of sales and expenses, as
well as a brief description of the effects that the management believe that its
anticipated growth will have on the Company's sales and expenses in the future
12 months.
NET SALES
Sales from Samsung are recognized upon the transfer of legal title of the
electronic components to the customers. At September 30, 2003, Atlantic had more
than 90 active customers.
The quantities of memory products Atlantic sells will fluctuate with the changes
in demand from its customers and the prices set by Samsung for Atlantic to
charge its customers are expected to fluctuate as a result of the current
economic situation and its impact on the market. In the aftermath of SARS and
the US/Iraq War, Atlantic experienced increased demand for Samsung memory
products among personal and corporate users in the Hong Kong and Southern China
regions due to a recovery of their economies, in particular for the third
quarter of 2003. The Company believes that increased market demand in Hong Kong
and Southern China exceeds the planned production of most memory products
manufacturers in the world and has resulted in upward pressure in average
pricing of the memory products offered by Atlantic in these regions. Atlantic
expects this upward trend in average pricing of the available memory products in
these regions to continue over the next 12 months. Due to insufficient
allocation of memory products from Atlantic's principal supplier of Samsung
memory products, Samsung Electronics H.K. Co., Ltd. ("Samsung HK"), a
wholly-owned subsidiary of Samsung, during the three months ended September 30,
2003, Atlantic had to source certain Samsung memory products from other Samsung
memory products distributors rather than directly from Samsung HK. Fortunately
for the Company, Samsung memory products were available at competitive prices
due to memory product surpluses in other parts of the world. Such availability
enabled Atlantic to maintain approximately the same level of gross profit when
compared to that of the previous period, despite the regional shortage of
Samsung memory products available directly from Samsung HK.
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COST OF SALES
Cost of sales consists of costs of goods purchased from Atlantic's
principal supplier, Samsung HK, and purchases from other Samsung authorized
distributors. Many factors affect Atlantic's gross margin, including, but not
limited to, the volume of production orders placed on behalf of Atlantic's
customers, the competitiveness of the memory products industry and the
availability of cheaper Samsung memory products from overseas Samsung
distributors due to regional demand and supply situations. Nevertheless,
Atlantic's procurement operations are supported by Samsung HK, although there is
no written long-term supply agreement in place between Atlantic and Samsung HK.
OPERATING EXPENSES
The Company's operating expenses for the nine months ended September 30,
2003 and 2002 were comprised of sales and marketing and general and
administrative expenses only.
Sales and marketing expenses consisted primarily of external commissions
and internal commissions paid to internal sales personnel and costs associated
with advertising and marketing activities.
General and administrative expenses include all corporate and
administrative functions that serve to support the Company's current and future
operations and provide an infrastructure to support future growth. Major items
in this category include management and staff salaries, rent/leases,
professional services, and travel and entertainment. The Company expects these
expenses to increase as a result of increased legal and accounting fees
anticipated in connection with the Company's compliance with ongoing reporting
and accounting requirements of the Securities and Exchange Commission and as a
result of anticipated expansion by the Company of its business operations. Sales
and marketing expenses are expected to fluctuate as a percentage of sales due to
the addition of sales personnel and various marketing activities planned
throughout the year.
Merger cost includes the fair value of shares of the Company's common stock
issued to certain consultants and advisors related to the acquisition of
Atlantic. The fair value was determined based on the quoted market price per
share of the Company on the grant date.
Loss on disposal of property and equipment is related to disposal of the
Company's operating equipment during the normal course of business.
Interest expense, including finance charges, relates primarily to
Atlantic's short-term and long-term bank borrowings, which the Company intends
to reduce.
RESULTS OF OPERATIONS
The following table sets forth unaudited statements of operations data for
the nine months ended September 30, 2003 and 2002 and together with the
unaudited statements of operations data for the years ended December 31, 2002
and December 31, 2001 and should be read in conjunction with the "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and
the Company's financial statements and the related notes appearing elsewhere in
this document.
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For the Nine Months Ended For the Years Ended
September 30, December 31,
--------------------------- ---------------------------
(US$) (Unaudited) (US$)
2003 2002 2002 2001
----------- ----------- ----------- -----------
Net sales $52,460,543 $68,783,773 $88,731,311 $63,631,328
Cost of sales 49,039,746 65,419,355 84,647,677 60,445,706
Gross profit 3,420,797 3,364,418 4,083,634 3,185,622
Operating expenses:
Sales and marketing $279,189 $352,404 $436,268 $825,547
General and administrative 1,724,468 1,958,043 2,416,877 1,414,740
Merger cost 2,753,620 -- -- --
Total operating expenses 4,757,277 2,310,447 2,853,145 2,240,287
Income (loss) from operations (1,336,480) 1,053,971 1,230,489 945,335
Other income (expense):
Loss on disposal of property
and equipment (18,413) --
Interest expense (228,837) (302,525) (378,328) (501,878)
Total other income (expense) (247,250) (302,525) (378,328) (501,878)
Income taxes 204,731 120,231 70,450 --
Net income (loss) $(1,788,461) $631,215 $781,711 $443,457
UNAUDITED NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2002
NET SALES
Sales decreased by $16,323,230 or 23.7% from $68,783,773 in the nine months
ended September 30, 2002 to $52,460,543 in the nine months ended September 30,
2003. This decrease resulted primarily from the impact of the US/Iraq War and
SARS on the economies of Hong Kong and Southern China during the first and
second quarters of 2003.
COST OF SALES
Cost of sales decreased $16,379,609, or 25%, from $65,419,355 for the nine
months ended September 30, 2002 to $49,039,746 for the nine months ended
September 30, 2003. The decrease in cost of sales resulted from a decrease in
sales of Samsung's memory products and availability of cheaper Samsung memory
products from overseas Samsung distributors due to the regional demand and
supply situation. As a percentage of sales, cost of sales improved slightly from
95.1% of sales in the nine months ended September 30, 2002 to 93.5% of sales in
the nine months ended September 30, 2003.
GROSS PROFIT
Gross profit increased by $56,379 or 1.7%, from $3,364,418 for the nine months
ended September 30, 2002 to $3,420,797 for the nine months ended September 30,
2003. The increase in gross profit resulted primarily from improved gross margin
percentage from 4.9% of sales in the nine months ended September 30, 2002
compared to 6.5% of sales in the nine months ended September 30, 2003.
OPERATING EXPENSES
Sales and marketing expenses decreased by $73,215 or 20.8%, from $352,404
for the nine months ended September 30, 2002 to $279,189 for the nine months
ended September 30, 2003. This decrease was due to the
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decrease in sales resulting from the impact of the US/Iraq War and SARS during
the first and second quarters of 2003. As a percentage of sales, sales and
marketing expenses comprised 0.5% of sales for each of the nine-month periods
ended September 30, 2002 and September 30, 2003.
General and administrative expenses decreased $233,575 or 11.9% from
$1,958,043 in the nine months ended September 30, 2002 to $1,724,468 in the nine
months ended September 30, 2003. The decrease was principally attributable to
various cost control measures implemented, in particular a reduction in
personnel, in view of the impact to the general economies by the US/Iraq War and
SARS during the first and second quarters of 2003.
Merger cost of $2,753,620 represents the fair value of common stock issued
to consultants and advisors related to the acquisition of Atlantic, which took
place on September 30, 2003. No such cost was incurred during the nine months
ended September 30, 2002.
Loss from operations for the Company was $1,336,480 for the nine months
ended September 30, 2003 compared to an income of $1,053,971 for the nine months
ended September 30, 2002, a decrease of income or increase of loss by
$2,390,451. The increase of loss or decrease of income was primarily due to
merger cost of $2,753,620 incurred in September 2003 related to the acquisition
of Atlantic. Excluding the merger cost, income from operations increased
$363,169 or 34.5% to $1,417,140 for the nine months ended September 30, 2003,
compared to $1,053,971 for the nine months ended September 30, 2002. This
increase was the result of maintaining gross profits during the first 3 quarters
of 2003, offset by decreased sales, general and administrative expenses.
OTHER INCOME (EXPENSES)
Loss on disposal of property and equipment increased by $18,413, from $0 in
the nine months ended September 30, 2002 to $18,413 in the nine months ended
September 30, 2003, due to certain operating equipment being disposed during
2003 which were replaced with new purchases of equipment.
Interest expense decreased by $73,688, or 24.4%, from interest expense of
$302,525 in the nine months ended September 30, 2002, to $228,837 in the nine
months ended September 30, 2003. As a percentage of sales, interest expense
remained constant at approximately 0.4% in the nine-month period ended September
30, 2002 and September 30, 2003. In the nine months ended September 30, 2003,
interest expense related primarily to Atlantic's bank charges and interest
incurred from its short-term and long-term bank borrowings.
The Company's net loss increased by $2,419,676 to $1,788,461 for the nine
months ended September 30, 2003 compared to an income of $631,215 for the nine
months ended September 30, 2002.
UNAUDITED THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THE THREE MONTHS
ENDED SEPTEMBER 30, 2002
NET SALES
Sales decreased by $1,846,146 or 8.3% from $22,146,679 in the three months
ended September 30, 2002 to $20,300,533 in the three months ended September 30,
2003. This decrease resulted primarily from the impact of SARS on the economies
of Hong Kong and Southern China.
COST OF SALES
Cost of sales decreased $2,557,768, or 12.1%, from $21,107,810 for the
three months ended September 30, 2002 to $18,550,042 for the three months ended
September 30, 2003. The decrease in cost of sales resulted from the availability
of Samsung memory products at lower prices from overseas Samsung distributors
than historically paid to Samsung HK due to the regional demand and supply
situation. As a percentage of sales, cost
- 16 -
of sales improved from 95.3% of sales in the three months ended September 30,
2002 to 91.4% of sales in the three months ended September 30, 2003.
GROSS PROFIT
Gross profit increased by $711,622 or 68.5%, from $1,038,869 for the three
months ended September 30, 2002 to $1,750,491 for the three months ended
September 30, 2003. The increase in gross profits resulted primarily from a
decrease in the cost of sales of the Company for the three months ended
September 30, 2003. The Company's gross profit improved from 4.7% of sales in
the three months ended September 30, 2002 compared to 8.6% of sales in the three
months ended September 30, 2003.
OPERATING EXPENSES
Sales and marketing expenses decreased by $104,713 or 85.4%, from $122,575
for the three months ended September 30, 2002 to $17,862 for the three months
ended September 30, 2003. This decrease was due to strong demand for memory
products during the third quarter of 2003 and the existence of a general
shortage of DRAM in the global market which enabled the Company to pay minimum
external commissions. As a percentage of sales, sales and marketing expenses
decreased to 0.1% of sales for the three months ended September 30, 2003 when
compared to 0.6% of sales for the three months ended September 30, 2002.
General and administrative expenses increased $257,320 or 35.5% from
$723,884 in the three months ended September 30, 2002 to $981,204 in the three
months ended September 30, 2003. The increase was principally attributable to
various professional costs associated with the transaction with Print Data Corp.
and increased salary and overhead expense associated with the employment of
additional personnel in June 2003 in view of a general economic recovery in Asia
and in anticipation of increased demand for Samsung memory products.
Merger cost of $2,753,620 represents the fair value of common stock issued
to consultants and advisors related to the acquisition of Atlantic, which took
place on September 30, 2003. No such cost was incurred during the three months
ended September 30, 2002.
Loss from operations for the Company was $2,002,195 for the three months
ended September 30, 2003 compared to an income of $192,410 for the three months
ended September 30, 2002, a decrease of income or increase of loss by
$2,194,605. The increase of loss or decrease of income was primarily due to
merger cost of $2,753,620 incurred in September 2003 related to the acquisition
of Atlantic. Excluding the merger cost, income from operations for the Company
increased $559,015 or 291% to $751,425 for the three months ended September 30,
2003, compared to $192,410 for the three months ended September 30, 2002. This
increase was the result of increase of gross profit during the third quarter of
2003.
OTHER INCOME (EXPENSES)
Loss on disposal of property and equipment increased by $18,413, from $0 in
the three months ended September 30, 2002 to $18,413 in the three months ended
September 30, 2003, due to certain operating equipment being disposed during
2003 which were replaced with new purchases of equipment.
Interest expense decreased by $64,483, or 61.3%, from interest expense of
$105,131 in the three months ended September 30, 2002, to $40,648 in the three
months ended September 30, 2003. As a percentage of sales, interest expense
reduced to 0.2% in the three months ended September 30, 2003 from 0.5% in the
three months ended September 30, 2002 due to a reduction by the Company of its
need to open and draw down on letters of credit to obtain goods from its
suppliers
The Company's net loss increased by $2,262,897 to $2,189,583 for the three
months ended September 30, 2003 compared to an income of $73,314 for the three
months ended September 30, 2002 due primarily to the
- 17 -
merger cost incurred in September 30, 2003 and increase in general and
administrative expenses which are partly offset by an increased gross margin.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity have historically been cash
provided by operations, bank lines of credit and credit terms from suppliers.
The Company's principal uses of cash have been for operations and working
capital. The Company anticipates these uses will continue to be its principal
uses of cash in the future. See Note 5 of the Notes to Financial Statements for
a description of the Company's banking arrangements.
The Company may require additional financing in order to reduce its short-term
and long-term debts and implement its business plan. The Company currently
anticipates a need of $3.0 million in additional financing to repay long-term
bank borrowings. In order to meet anticipated demand for Samsung's memory
products in the Southern China market over the next 12 months, the Company
anticipates an additional need of working capital of at least $2.0 million to
finance the cash flow required to finance the purchase of Samsung memory
products from Samsung HK one day in advance of the release of goods from Samsung
HK's warehouse before receiving payments from customers upon physical delivery
of such goods in Hong Kong which, in most instances, takes approximately two
days from the date of such delivery. In certain limited instances, customers of
Atlantic are permitted up to thirty (30) days to make payment for purchased
memory products. As the anticipated cash generated by the Company's operations
are insufficient to fund its growth requirements, it will need to obtain
additional funds. There can be no assurance that the Company will be able to
obtain the necessary additional capital on a timely basis or on acceptable
terms, if at all. The Company's business growth and prospects will be materially
and adversely affected if it is unable to obtain such funds. As a result of any
such financing, if it is an equity financing, the holders of the Company's
common stock may experience substantial dilution. In addition, as its results
may be negatively impacted and thus delayed as a result of political and
economic factors beyond the management's control, the Company's capital
requirements may increase.
The following factors, among others, could cause actual results to differ
from those expected caused by: pricing pressures in the industry; a downturn in
the economy in general or in the memory products sector; an unexpected decrease
in demand for Samsung's memory products; a decrease in its ability to attract
new customers; an increase in competition in the memory products market; and the
ability or inability of some of Atlantic's customers to obtain financing. These
factors or additional risks and uncertainties not known to Atlantic or that it
currently deems immaterial may impair business operations and may cause
Atlantic's actual results to differ materially from its historical operating
results.
Although Atlantic believes its expectations of future growth are
reasonable, it cannot guarantee future results, levels of activity, performance
or achievements. Atlantic is under no duty to update its expectation after the
date of this report to conform them to actual results or to make changes in its
expectations.
In the nine months ended September 30, 2003, net cash used for operating
activities was $504,888 while in the nine months ended September 30, 2002,
Atlantic generated net cash of $934,666 in operating activities, a decrease of
$1,439,554. This decrease was caused, in part, by an increase in accounts
payable of approximately $2.6 million in the nine months ended September 30,
2002 but there was only an increase in accounts payable of approximately $0.98
million in the nine months ended September 30, 2003.
An essential element of the Company's growth in the future, will be to
obtain adequate additional working capital to meet anticipated market demand
from PC users (business and personal) in the southern part of China.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Atlantic is exposed to market risk for changes in interest rates as its
bank borrowings accrue interest at floating rates of 0.5% to 1.0% over the Best
Lending Rate (currently at 5.0% per annum) prevailing in Hong
- 18 -
Kong. For the two years ended December 31, 2002 and 2001, Atlantic did not
generate any material interest income (expense) other than interest expense paid
by offset by a related party whose compensation was increased by such interest
income amount. Accordingly, Atlantic believes that changes in interest rates
will not have a material effect on its liquidity, financial condition or results
of operations.
IMPACT OF INFLATION
Atlantic believes that its results of operations are not significantly
impacted by moderate changes in inflation rates as it expects it will be able to
pass these costs by component price increases to its customers.
SEASONALITY
Atlantic has not experienced any material seasonality in sales fluctuations
over the past 2 years in the memory products markets.
ITEM 4. CONTROLS AND PROCEDURES
The Company has established disclosure controls and procedures to ensure
that material information relating to the Company, including Atlantic, is made
known to the officers who certify the Company's financial reports and to other
members of senior management and the Board of Directors.
(a) Based on their evaluation as of a date within 90 days of the filing
date of this Quarterly Report on Form 10-Q, our chief executive officer and
chief financial officer have concluded that our disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934 (the "Exchange Act")) are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
(b) There were no significant changes in internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation. Although there were no significant deficiencies or material
weaknesses, there were some areas where room for improvement was noted and
management has committed to improving in these areas. The Company has adopted
many of the formal and informal suggestions of our auditors, Stonefield
Josephson, Inc., and are implementing weekly and monthly checks to assure that
these disclosure controls and internal controls stay in place.
PART II
ITEM 1. LEGAL PROCEEDINGS
As of the date of this Report on Form 10-QSB, the Company is a party to the
following material legal proceeding, the status of which has not materially
changed since the Company filed its Report on Form10- KSB for the year ending
December 31, 2002: Print Data Corp. v. Morse Financial, Inc., James A. Morse and
George A. Todt.
The Company is not aware of any other litigation or threatened litigation
of a material nature.
ITEM 2. CHANGE IN SECURITIES
The following transactions were issued without registration under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance upon the
exemptions from registration under Section 4(2) of the Securities Act and
Regulation D during the nine month period ended September 30, 2003.
- 19 -
On September 30, 2003 the Company issued 22,380,000 shares of its common stock
to Chung-Lun Yang pursuant to the Share Exchange and Reorganization Agreement
(the "AGREEMENT"), among the Company, Atlantic Components Limited, a Hong Kong
corporation ("ATLANTIC"), and Mr. Chung-Lun Yang, the sole beneficial
stockholder of Atlantic.
On September 30, 2003, the Company issued (i) 706,666 shares of its common stock
to Emerging Growth Partners, Inc., (ii) 956,667 shares of its common stock to
Orient Financial Services Limited, and (iii) 956,667 shares to Mr. Li Wing Kei,
in each case pursuant to the Agreement in compensation for advisory services
rendered in connection with the acquisition of Atlantic by the Company.
On October 1, 2003, the Company sold all of the issued and outstanding
capital stock of New Print Data Corp. to Jeffrey I. Green, Phyllis S. Green and
Joel Green, in consideration for their surrender to the Company of all of their
outstanding shares of Series A Preferred Stock, par value $0.001 per share, of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On November 3, 2003, the Board of Directors of the Company and stockholders
holding a majority of the outstanding shares of common stock of the Company
approved the change of the Company's name from Print Data Corp. to ACL
Semiconductors Inc. On November 12, 2003, the Company filed a Preliminary
Schedule 14C Information Statement with the Securities and Exchange Commission
relating to such name change. The name change will become effective on or about
December 16, 2003.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.14 Share Exchange and Reorganization Agreement, dated as of
September 8, 2003, among Print Data Corp., Atlantic Components
Limited and Mr. Chung-Lun Yang.*
10.15 Conveyance Agreement, dated as of September 30, 2003, between
Print Data Corp. and New Print Data Corp.*
10.16 Securities Purchase Agreement dated October 1, 2003 among Print
Data Corp, Jeffery Green, Phyllis Green and Joel Green.*
10.17 Sales Restriction Agreement dated September 30, 2003 between
Print Data Corp. and Phyllis Green.*
10.18 Sales Restriction Agreement dated September 30, 2003 between
Print Data Corp. and Jeffery Green.*
10.19 Distribution Agreement dated May 1, 1993 by and between Samsung
Electronics Co., Ltd. and Atlantic Components Limited.*
10.20 Renewal of Distributorship Agreement dated March 1, 2002 by and
between Samsung Electronics Co., Ltd. and Atlantic Components
Limited.*
- 20 -
30.1 Atlantic Components Limited Financial Unaudited Statements for
the years ended December 31, 2001 and December 31, 2002
(including Balance Sheets, Statement of Operations, Statement of
Cash Flows, Statement of Changes in Shareholders' Equity, and
Notes to Financial Statements).*
30.2 Atlantic Components Limited Unaudited Condensed Financial
Statements for the six months ended June 30, 2003 and the six
months ended June 30, 2002 (including Condensed Balance Sheet,
Condensed Statement of Operations, Condensed Statement of Cash
Flows and Condensed Statement of Changes in Shareholders'
Equity).*
99.1 Press Release dated October 1, 2003*
99.2 Press Release dated October 2, 2003*
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2 Certification by Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
* Incorporated by reference in the Form 8-K filed on October 16, 2003 with
the Securities and Exchange Commission.
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed during the nine months ended
September 30, 2003.
- 21 -
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.
PRINT DATA CORP.
Date: November 26, 2003 By: /s/ Chung-Lun Yang
-------------------------
Chung-Lun Yang
Chief Executive Officer
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