-----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, AzRFKhWdq/zPyWGV7wk5n6+J6tr8cHYpW/CRtBs2lEHgxVRo1gzUlumT6kNwJu5L nCgJWnrRSZgxn4eqArizuA== 0001013993-97-000059.txt : 19971117 0001013993-97-000059.hdr.sgml : 19971117 ACCESSION NUMBER: 0001013993-97-000059 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: SEC FILE NUMBER: 000-29138 FILM NUMBER: 97721715 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: September 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 November 14, 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, September 30, 1997 3 Statements of Operations and Accumulated Deficit (Unaudited) for the three and nine month periods ended September 30, 1997 and 1996 4 Statements of Cash Flows (Unaudited) for the nine months ended September 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 September 30, 1997 (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 286,668 Accounts receivable 359,296 Inventory 115,900 Prepaid expenses 58,891 ---------- Total current assets 820,755 PROPERTY AND EQUIPMENT Vehicle registration equipment 3,727,618 Office and administrative equipment 68,740 -------- 3,796,358 Accumulated depreciation (602,160) ------- Total fixed assets, net 3,194,198 OTHER ASSETS Patents, net 3,723,219 Organization costs, net 1,831 New Hampshire contract acquisition costs, net 43,030 Deferred loan fees 14,917 Deferred NCR contract costs, net 305,525 --------- Total other assets 4,088,522 --------- TOTAL ASSETS $ 8,103,475 ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 743,308 Accrued liabilities 229,980 Note payable 1,512,092 Notes payable - related parties 132,476 Accrued interest payable 174,735 ----------- Total current liabilities 2,792,591 OTHER LIABILITIES Due to related party (net of discount) 3,999,200 Long-term debt 2,286,826 ----------- Total long-term liabilities 6,286,026 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 (2,166,692) --------- Total stockholders' equity (975,142) --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,103,475 ========= 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 nine months ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 1997 1996 1997 1996 --------- --------- ---------- -------- SALES Indiana Contract $ 863,603 $ - $ 1,869,266 $ - New Hampshire contract 78,854 - 227,123 - Maryland contract 17,300 - 224,611 - --------- -------- ---------- -------- Total Sales 959,757 - 2,321,000 - COST OF SALES Material cost 194,433 - 470,925 - Maintenance 64,959 - 146,867 - Depreciation and Amortization 352,568 - 696,941 - --------- -------- ---------- -------- Total cost of sales 611,960 - 1,314,833 - OPERATING EXPENSES Marketing 61,508 41,816 122,881 72,747 General & Administrative 226,944 63,447 562,961 156,011 Research & development 9,045 5,248 29,142 29,086 Interest expense 223,271 56,629 539,079 167,427 Depreciation and Amortization 88,339 70,007 250,374 209,316 --------- -------- --------- -------- Total expenses 609,104 237,147 1,504,437 634,857 --------- -------- --------- -------- Loss from operations (261,310) (237,147) (498,270) (634,857) Income taxes - - 800 800 --------- -------- --------- -------- NET LOSS (261,310) (237,147) (499,070) (635,657) Accumulated deficit Balance, beginning of period (1,905,382) (1,100,120) (1,667,622) (701,610) --------- --------- --------- --------- Balance, end of period (2,166,692) (1,337,267) (2,166,692) (1,337,267) ========= ========= ========= ========= NET LOSS PER SHARE (0.03) (0.03) (0.05) (0.07) ========= ========= ========== ========= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 10,000,000 9,000,000 9,743,590 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 nine months ended September 30, 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES $ (406,449) $ (274,161) CASH FLOWS FROM INVESTING ACTIVITIES Investment in patents and other assets (12,752) (2,893) Investment in non-contract equipment (8,014) (2,094) Investment in vehicle registration equipment, software, and installation (1,409,808) (2,615,527) --------- --------- Net cash used by investing activities (1,430,574) (2,620,514) CASH FLOWS FROM FINANCING ACTIVITIES Capital contributions 8,200 252,684 Short term payables subsequently refinanced - 2,516,355 New borrowings 4,396,076 200,000 Repayment of debt (785,265) - Repayment of related party debt (1,434,428) (7,787) Loan fees paid (66,500) - --------- ------- Net cash provided by financing activities 2,118,083 2,961,252 --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 281,060 66,577 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,608 2,906 ---------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 286,668 $ 69,483 ========= ======= The accompanying notes are an integral part of the financial statements 5 Intellectual Technology, Inc. NOTES TO FINANCIAL STATEMENTS September 30, 1997 (Unaudited) 1. 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. 2. 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 subsequent amendments. The accompanying financial statements should be read in connection with these reports. Development Stage Activities Since its inception in 1992 until the fourth quarter of 1996, the Company as in the development stage and had been engaged primarily in the design, development and promotion of systems for the automated preparation and dispensing of motor vehicle registration forms. The Company had no revenue until December 1996. Operations Intellectual Technology, Inc. ("the Company") is engaged in the design, manufacture, leasing and sale of equipment that automates the preparation and dispensing of motor vehicle registration forms and license plate decals through self service terminals (SST's) and stand alone printers ("printers"). This printer produces a registration with a decal in real time utilizing a thermal ribbon. Effective November 1, 1996, ITI 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 SST's and printers. ITI is to install a total of 36 SST's and 291 printers. All of this equipment will be owned by ITI. Revenue Recognition The Indiana contract is priced on a per transaction basis with the Company receiving between $0.85 and $1.22 for each registration. This fee includes equipment lease and maintenance, media and management support. The contract extends for the three year period ending October 31, 1999, subject to an option to renew on the part of the BMVC for an additional year on the same terms and conditions. Billings are on an actual transaction basis, with no specified minimum transaction volume. The Indiana contract contains a Funding Cancellation Clause which provides that the BMVC's obligations under the contract will cease in the event that state funds are not appropriated or otherwise available. Billings under the Indiana Contract are prepared monthly by about the 15th of the following month under net 30 terms. The BMVC has been paying within these terms. The Company is unaware of any factors that may adversely affect the timing of payments from the BMVC. There is relatively little uncertainty about future transaction levels as the demographics of the State of Indiana were considered when pricing the contract. Once all of the printers are in place, they will be the sole source of motor vehicle registrations and renewals in the State of Indiana. ITI also receives revenue from the lease of other equipment to the State of New Hampshire for the dispensing of drivers' licenses. This contract expires on March 31, 1998, subject to renewal. ITI also receives revenue from the sale of printers and printer media to NCR in connection with NCR's contract with the State of Maryland to provide SST's for motor vehicle registration renewals. 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 containws herein regarding matters that are not historical facts, are forward looking statements; actual results may differ materially from those anticipated. Capitalized Contract Costs Capitalized costs of the Indiana contract include the manufactured cost of the printers, freight and installation charges. ITI entered into a subcontractor agreement with NCR ("the NCR Agreement") for the initial stage of the Indiana Contract wherein the Company is responsible for the printers, printing media (tag stock, thermal ribbon and decals), facilities management, printer installation, billing and self-service terminal provisioning aspects of the Indiana Contract. NCR is to provide the self-service terminals and installation thereof, software development, hardware and software maintenance and program management through October 31, 1999. The Company will pay NCR approximately $1,800,000 for its participation in the initial phase of the Indiana Contract (consisting of NCR subcontractor services to 11 SST's and 96 printers. The Company will be billed separately for NCR services with respect to the additional 25 SST's and 195 printers requested by the BMVC. The Company estimates that the capitalized contract cost will total $5.8 million. Of this total, $550,000 in program management provided by NCR and $670,000 in installation costs are being depreciated on a per transaction basis based upon management's estimated transaction volume from November 1, 1996 through October 31, 1999 (the contract end date). The remaining contract cost representing the hardware and software are being depreciated on a per transaction basis based upon management's estimated transaction volume from November 1, 1996 through October 31, 2000 (the option year). The Company has no reason to believe that the BMVC will not exercise its option to renew for the fourth year. There can be no guarantee, however, that technological advances between now and October 31, 1999 will not occur and effectively render the Indiana equipment obsolete. In the event that ITI determines that the marketability of its equipment has become impaired due to obsolescence, it will be necessary for the Company to seek out alternative markets for its equipment, or sustain a loss from this obsolescence. Management is currently unaware of any developments in the industry which would indicate that the Company's technology may become obsolete within the next four years. Of the 5.8% million in contract costs to be depreciated, all but $1.4 million will be depreciated by the end of the lease term without extensions. The cost to re-engineer the equipment for use in another jurisdiction is estimated at $.5 million. In considering the propriety of a four year life, management estimates that the fair market value of the equipment will approximate the book value at the end of three years. Non Capitalized Contract Costs Non capitalized contract costs include media, contract management, equipment maintenance and network costs all of which are charged to operations as incurred. 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. Liquidity and Capital Resources The Company's principal sources of capital are borrowings from third party investors, and internally generated cash flows. Operating cash flows are primarily derived from the per transaction fee earned from the Company's contract with the State of Indiana. In this the initial year of the Indiana contract, the Company experienced cash flow deficits during installation, as the State was gradually automated with ITI equipment. As of the end of the third quarter of 1997, 273 of 291 stand alone printers had been installed and were operational. The majority of motor vehicle registrations in the State of Indiana are concentrated within the first 10 months of the calendar year. Consequently, ITI's cash flows for the fourth quarter are expected to be negative. However, total actual transactions for the first year of this contract continue to exceed management projections. For the quarter ended September 30, 1997: (1) the Company's investment in vehicle registration equipment and installation costs was $923,000, of which, $782,000 was financed by secured third party financing at 13.045%, repayable through November 1999; (2) Repayment of this third party financing totaled $198,000; (3) Repayment of related party financing totaled $58,000; and (4) Cash flows from operating activities were $530,000. The third quarter 1997 was the first quarter in the Company's history that positive cash flows were generated from operations. Since the beginning of 1997, the Company has invested a total of $1.4 million in vehicle registration equipment to support the Indiana contract. It has incurred new borrowings of approximately $4.4 million, with which it repaid outstanding debt to related parties of $1.4 million, and debt owed to unrelated parties of $785,000. Approximately $406,000 was used in support of operating activities. As a result, cash increased $281,000 during the nine month period ended September 30, 1997. The Company anticipates that it will spend another $1,700,000 in capital outlays to complete the installation of the equipment called for in the Indiana contract. The Company has received a commitment from a third party lender to finance the balance of the capital contract costs and this lender may finance part of the maintenance and media costs of the contract. Debt service on the third party financing is $100,000 per month which increases to $138,000 per month in December 1997. The Company continues to seek equity financing to cure working capital deficiencies and to pay off $3,999,200 for the purchase of Company patents plus accrued interest ($133,000 at September 30, 1997). These amounts plus additional accrued interest at 8% is due by May 1, 1998 to a corporation which is 49% owned by a current officer of ITI. The Company anticipates, in the event that funds are not available to retire this debt as of May 1, 1998, that the due date will be extended. Results of Operations For the nine months ended September 30, 1997, over 80% of the Company's revenues were generated from the Indiana contract. As of September 30, 1997, a total of 273 printers and 5 SST's had been installed and were operational. For the remainder of the calendar year, ITI will be concentrating on the completion of its installation of the remaining 18 printers and 31 SST's. The Company has also presented proposals to various other states for the lease of the Company's printer equipment. ITI has received orders from NCR for the State of Maryland for another 17 printers and continues to sell media to NCR for use by the State of Maryland. The contract with the State of New Hampshire expires in March 1998. Revenue and gross profit from this contract for the nine months ended September 30 1997 were $227,000 for $33,000, respectively. The Company has received a request by the State of New Hampshire to renew this contract for an additional year. As of September 1, 1997, the Company terminated the portion of the subcontractor agreement with NCR that called for NCR to provide maintenance services for the printer equipment in Indiana. The Company has brought the maintenance function in house and has hired employees, leased vehicles and has leased an office/warehouse facility in Indiana. In the opinion of management, no adverse effect will result from this event. During the quarter ended September 30, 1997 and in accordance with the contract provisions relating to the contractual matrix for the number of printers ordered and when they were ordered, the fee per transaction that ITI receives from the State of Indiana decreased from $1.22 to $.885. This had the effect of decreasing profit margins. For the quarter ended September 30, 1997: (1) ITI had a gross profit from the Indiana contract of $324,000 on sales of $863,000 compared to $264,000 and $499,000, respectively, for the previous quarter; (2) ITI had a gross profit from the State of Maryland of $13,000 on sales of $17,000 compared to $72,000 and $174,000, respectively, for the previous quarter; (3) Overall gross profit was $348,000 on sales of $960,000 compared to $354,000 and $748,000, respectively, for the previous quarter. Of $1,314,833 in cost of sales incurred since January 1, 1997, $611,960 was incurred during the third quarter. This primarily attributable to increased depreciation expense, which is charged to operations on a per transaction basis. Third quarter transactions represented 52% of all 1997 transactions. 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: November 14, 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 SEPTEMBER 30, 1997. 9-MOS DEC-31-1997 SEP-30-1997 286668 0 359296 0 115900 820755 3796358 (602160) 8103475 2792591 6286026 0 0 5000 (980142) 8103475 2321000 2321000 1314833 2719270 0 0 539079 (498270) 800 (499070) 0 0 0 (499070) (0.05) (0.05)
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