-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GfAJyg9+yaIq7/hmhWsEngNEmqWDVs/CmW5u6BNCijjVmYOQNuhymJSrvyfZ9pu3 ZdLWk9GaW9cv9C3ReLq/mA== 0001013993-97-000043.txt : 19970820 0001013993-97-000043.hdr.sgml : 19970820 ACCESSION NUMBER: 0001013993-97-000043 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970819 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTELLECTUAL TECHNOLOGY INC CENTRAL INDEX KEY: 0000859914 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 841130227 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-29138 FILM NUMBER: 97666544 BUSINESS ADDRESS: STREET 1: 10639 ROSELLE STREET STREET 2: SUITE B CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 619-552-00 MAIL ADDRESS: STREET 1: 303 EAST 17TH AVE STREET 2: STE 800 CITY: DENVER STATE: CO ZIP: 80203 FORMER COMPANY: FORMER CONFORMED NAME: BRIDGESTONE CORP DATE OF NAME CHANGE: 19930328 10QSB 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 1997 Commission file number: 0-29138 INTELLECTUAL TECHNOLOGY, INC. (Exact name of small business issuer as specified in its charter) Colorado 84-1130227 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 10639 Roselle Street Suite B San Diego, CA 92121 (Address of principal executive offices) (619) 552-0001 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes -X- No --- As of August 18, 1997, 1997, 10,000,000 shares of common stock, par value $0.0005 per share, were outstanding. Transitional Small Business Disclosure Format (check one): Yes --- No -X- INDEX Page Number PART I. FINANCIAL INFORMATION Item I. Financial Statements Balance Sheet, June 30, 1997 3 Statements of Operations and Accumulated Deficit (Unaudited) for the three and six month periods ended June 30, 1997 and 1996 4 Statements of Cash Flows (Unaudited) for the six months ended June 30, 1997 and 1996 5 Notes to financial statements 6-7 Item 2. Management's Discussion and Analysis or Plan of Operations 8-10 PART II. OTHER INFORMATION 11 Signatures 12 2 Intellectual Technology, Inc. BALANCE SHEET June 30, 1997 (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 162,109 Accounts receivable 222,797 Inventory 196,279 Prepaid consulting fees 69,767 ---------- Total current assets 650,952 PROPERTY AND EQUIPMENT Vehicle registration equipment 2,804,238 Office and administrative equipment 64,855 -------- 2,869,093 Accumulated depreciation 294,557 ------- Total fixed assets, net 2,574,536 OTHER ASSETS Patent, net of accumulated amortization 3,790,868 Organization costs, net 1,888 New Hampshire contract acquisition costs, net 63,714 Deferred loan fees 37,291 Deferred NCR contract fees, net 333,997 --------- Total other assets 4,227,758 --------- TOTAL ASSETS $ 7,453,246 ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 529,296 Accrued liabilities 158,273 Notes payable - related parties 191,209 Notes payable - other 1,076,625 Accrued interest 74,415 ----------- Total current liabilities 2,029,818 OTHER LIABILITIES Due to related party (net of discount) 3,998,400 Long-term debt 2,138,860 ----------- 6,137,260 STOCKHOLDERS' EQUITY Preferred stock, $0.00001 par value; 20,000,000 shares authorized; no shares issued and outstanding - Common stock, $0.0005 par value; 500,000,000 shares authorized; 10,000,000 shares issued and outstanding at March 31, 1997. 5,000 Additional paid-in capital 1,186,550 Accumulated deficit (1,905,382) --------- Total stockholders' equity (713,832) --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,453,246 ========= The accompanying notes are an integral part of the financial statements. 3 Intellectual Technology, Inc. STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT (Unaudited) For the quarter ended For the six months ended June 30, June 30, June 30, June 30, 1997 1996 1997 1996 --------- --------- ---------- -------- SALES Indiana Contract $ 498,926 $ - $ 1,005,663 $ - New Hampshire contract 74,878 - 148,269 - Maryland contract 174,443 - 207,311 - --------- -------- ---------- -------- Total Sales 748,247 - 1,361,243 - COST OF SALES Material cost 186,737 - 276,492 - Maintenance 36,444 - 82,008 - Depreciation and Amortization 170,973 - 344,373 - --------- -------- ---------- -------- Total cost of sales 394,154 - 702,873 - OPERATING EXPENSES Marketing 37,069 16,924 61,373 30,931 General & Administrative 214,388 56,516 325,605 92,564 Research & development 12,244 4,697 20,097 23,838 Rent 4,733 - 10,412 - Interest expense 177,447 55,805 315,808 110,798 Depreciation and Amortization 87,316 69,791 162,035 139,579 --------- -------- --------- -------- Total expenses 533,197 203,733 895,330 397,710 --------- -------- --------- -------- Loss from operations (179,104) (203,733) (236,960) (397,710) Income taxes 800 800 800 800 --------- -------- --------- -------- NET LOSS (179,904) (204,533) (237,760) (398,510) Accumulated deficit Balance, beginning of period (1,725,478) (895,587) (1,667,622) (701,610) --------- --------- --------- --------- Balance, end of period (1,905,382) (1,100,120) (1,905,382) (1,100,120) ========= ========= ========= ========= NET LOSS PER SHARE (0.02) (0.02) (0.02) (0.04) ========= ========= ========== ========= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 10,000,000 9,000,000 9,583,333 9,000,000 ========== ========= ========= =========
The accompanying notes are an integral part of the financial statements. 4 Intellectual Technology, Inc. STATEMENTS OF CASH FLOWS (Unaudited) For the six months ended June 30, 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES $ (936,713) $(110,704) CASH FLOWS FROM INVESTING ACTIVITIES Investment in patent costs (8,812) (472) Investment in non-contract equipment (4,129) - Investment in vehicle registration equipment, software, and installation (486,428) - -------- ------- Net cash used by investing activities (499,369) (472) CASH FLOWS FROM FINANCING ACTIVITIES Capital contributions 8,200 108,360 New borrowings 3,614,190 - Repayment of debt (586,812) - Repayment of related party debt (1,376,495) - Loan fees paid (66,500) - --------- ------- Net cash provided by financing activities 1,592,583 108,360 --------- ------- NET INCREASE IN CASH AND CASH EQUIVALENTS 156,501 108,360 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,608 2,906 -------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 162,109 $ 90 ========= ======= The accompanying notes are an integral part of the financial statements. 5 Intellectual Technology, Inc. NOTES TO FINANCIAL STATEMENTS June 30, 1997 (Unaudited) 1. Significant accounting policies A complete summary of significant accounting policies may be found in the Company's audited financial statements for the year ended December 31, 1996 which were filed as part of the Company's Form 8-K dated March 12, 1997, and its subsequent amendments. The accompanying financial statements should be read in connection with these reports. Operations Intellectual Technology, Inc. ("the Company") is engaged in the design, manufacture, leasing and sale of equipment supporting the automated preparation and dispensing of motor vehicle registration forms and license plate decals. Revenue Recognition It is the Company's policy to recognize revenue as is appropriate under the terms of its contracts with its customers. The majority of the Company's revenues are currently derived from an equipment lease contract with the State of Indiana. Revenues for this contract are recognized on a per transaction basis as they are billed. Support costs, which are billed up front early in the lease period by subcontractors, are deferred, and are being charged to operations over the term of the support contract. Maintenance costs are expensed as incurred. Vehicle Registration Equipment Direct costs of the manufacture and installation of vehicle registration equipment have been capitalized and are being charged to operations over a four year period which represents the duration of the Indiana contract, plus extension provision. Also included in the financial statement caption Vehicle Registration Equipment are costs which qualify for deferral under SFAS No. 13 - Accounting for Leases. Specifically, these initial contract startup costs include direct costs to establish the terms and conditions of the contract. 2. Management's representation of interim financial information The accompanying financial statements have been prepared by Intellectual Technology, Inc. without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These financial statements include all of the adjustments which, in the opinion of management, are necessary to a fair presentation of financial position and results of operations. All such adjustments are of a normal and recurring nature. 6 Intellectual Technology, Inc. NOTES TO FINANCIAL STATEMENTS June 30, 1997 (Unaudited) 3. Refinancing of certain short term debt instruments During the second quarter of 1997, ITI secured financing of $2,506,190, in the form of a 13.053% note payable in monthly installments of $100,000 through November, 1997, and $138,487 through November, 1999. Proceeds from this debt issuance were used to retire $1,998,100 in outstanding short term liabilities, including $1,260,000 which was owed to related parties. The remaining proceeds, which totaled approximately $508,000, were used for working capital purposes. 4. Development stage activities Since its inception in 1992, ITI Nevada has been engaged in the research, development, design and promotion of its products. Until November 1, 1996, the Company was a development stage enterprise as defined in SFAS No. 7, having generated virtually no operating revenues from such activities. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS Certain statements contained in this report, including statements concerning the Company's future cash and financing requirements, and other statements contained herein regarding matters that are not historical facts, are forward looking statements; actual results may differ materially from those anticipated in the forward looking statements. PLAN OF OPERATIONS Since its inception in 1992 until the first quarter of 1997, the Company has been in the development stage and has been engaged primarily in the design, development and promotion of systems for the automated preparation and dispensing of motor vehicle registration forms. Effective November 1, 1996, ITI Nevada entered into an Equipment Lease, Support and Maintenance Agreement ("the Indiana Contract") with the Indiana Bureau of Motor Vehicles Commission (the "BMVC") which provides for the BMVC to lease from ITI both self-service terminals and stand alone printers. ITI is required to install an initial group of 11 self-service terminals and 96 stand-alone printers. The equipment contained in this initial group is projected to produce a total of 1.4 million vehicle registration transactions annually. The BMVC has also committed to lease an additional 25 self-service terminals and 195 stand alone printers, which equipment is to be installed by ITI by November 1, 1997. The Indiana contract is priced on a per-transaction basis with the Company receiving between $0.885 and $1.22 per transaction. The contract extends for a period of three years, subject to an option to renew on the part of the BMVC for an additional year. To assist it in performing its obligations under the Indiana Contract, ITI Nevada entered into a Subcontractor agreement with NCR ("the NCR Agreement") wherein the Company will provide the printers, printing media, facilities management, printer installation, billing and self-service terminal provisioning aspects of the Indiana Contract. As part of this contract, the Company is requiring NCR to provide the self service terminals, program management, software development, maintenance, and self-service terminal installation ("NCR Services"). The Company will pay NCR approximately $1,800,000 for its participation in the initial phase of the Indiana contract (consisting of NCR services to 11 self-service terminals and 96 stand alone printers). The Company will be billed separately for NCR services with respect to the additional 25 terminals and 195 printers requested by the BMVC. As of June 30, 1997, a total of two self service terminals and 130 stand alone printers had been installed and were operational. For the remainder of the calendar year, the Company will be concentrating on the completion of its installation of the remaining printers and terminals called for under the Indiana contract. The Company has also entered into an agreement to sell the State of Maryland a total of 11 stand alone printers, 11 kiosks, and associated media products similar to those provided under lease to the state of Indiana. The Company continues to pursue agreements for the sale or lease of its products with other jurisdictions. The Company may engage in research and development of additional applications of its products in related areas such as driver records, voter registrations, tax payments, electronic benefit vouchers, driver's license extensions and similar areas. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATION (continued) The Company currently has 8 full time employees and one part time employee, of which four are in administration, two in marketing, and three in operations. The company may further expand its marketing and operating personnel in 1997. LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of liquidity are borrowings from third party investors, and internally generated cash flows. The Company currently derives a substantial portion of its operating cash flow from receipts from the Indiana contract. The BMVC is billed monthly based on the number of transactions processed by the leased equipment for the preceding month. Bills are payable under standard 30 day terms. The Company also receives revenue from a smaller contract with the state of New Hampshirefor drivers license photographic equipment, which is billed and payable monthly on a per transaction basis, and from sales of vehicle registration equipment and media to the State of Maryland. Current assets decreased $6,000 from March 31, 1997 to June 30, 1997. This small decline reflects a reduction in accounts receivable of $245,000, an increase in inventory of $85,000 and an increase in cash of $155,000. The Company's investment in vehicle registration equipment increased $269,000 during the second quarter of 1997. During the second quarter of 1997, the Company refinanced certain short term obligations and trade payables. Accounts payable decreased by $800,000, while outstanding short term notes payable showed a net decline of $1,250,000, including $1,163,000 which was paid to retire related party indebtedness. The Company incurred a total of $2,506,000 in long term financing, which will be repayable with interest of 13.053% in monthly installments of ranging from $100,000 to $138,487 through November, 1999. In total, the Company's current liabilities decreased from $4,000,000 at March 31, 1997 to $2,100,000 at June 30, 1997 as a result of this refinancing. The Company continues to exhibit a working capital deficit, which totals $1,379,000 at June 30, 1997. The company plans to reduce this deficit by securing additional financing, and through the application of positive operating cash flows. The long-term amount due to a related party increased from $3,980,000 to $3,998,000 at June 30, 1997. This reflects the remaining amortization of the discount associated with this debt, as well as a small payment which reduced the face amount of this obligation from $4,000,000. During the second quarter, the agreement governing repayment of this obligation was amended to provide for a due date of May, 1998. During the second quarter, the Company realized gross profit of $354,000, or 47.3% as compared with $304,000 (49.6%) for the previous quarter. The total dollar increase reflects a $140,000 increase in billings to the state of Maryland, which is offset by a $97,000 increase in materials cost, and a small decline in maintenance costs. The number of transactions on the Indiana contract, and the resulting revenues, declined slightly from the first quarter's amounts. Total transactions for the year to date period June 30, 1997, as well as gross profit levels, continue to meet management's expectations for the first year of the Indiana contract. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATION (continued) For the quarter ended June 30, 1997, the Company's selling, general and administrative expenses increased to $251,000 from $136,000 from the first quarter. This increase is primarly due to increased payroll costs for the addition of a sales and operations person to service the Indiana contract and the addition of a monthly management fee to one of the Company's directors. It also includes a $24,000 increase in marketing costs which is reflective of the Company's efforts to obtain contracts with additional states. 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K "(a) Exhibit 27 - Financial Data Schedule, filed herewith electronically" (b) Reports on Form 8-K None 11 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: August 19, 1997 INTELLECTUAL TECHNOLOGY, INC. BY: /S/ Janice L. Welch Secretary/Treasurer/Principal Financial Officer 12 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND STATEMENTS OF LOSS AND ACCUMULATED DEFICIT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10QSB FOR THE QUARTER ENDED JUNE 30, 1997. 3-MOS DEC-31-1997 JUN-30-1997 162109 0 222797 0 196279 650952 2869093 (294557) 7453246 2029818 6137260 0 0 5000 (718832) 7453246 748247 748247 394154 533197 000 0 0 (179104) 800 (179904) 0 0 0 (179904) (.02) (.02)
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