-----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, ULm2U63GvQi9AltK/eGnCuer2u0p7wQpAsj+tGUJwuSESoveZhcRqUf5yOD9ptsz WtUk0lqiFyAxuY7Rreldaw== 0001013993-99-000051.txt : 19990520 0001013993-99-000051.hdr.sgml : 19990520 ACCESSION NUMBER: 0001013993-99-000051 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990519 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: 99630208 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: March 31, 1999 Commission file number: 33-33092-D INTELLECTUAL TECHNOLOGY, INC. (Exact name of small business issuer as specified in its charter) Delaware 84-1130227 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1945 Camino Vida Roble, Suite O, Carlsbad, California 92008 (Address of principal executive offices) (760) 929-9789 (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 May 1, 1999, 10,000,001 shares of common stock, par value $0.00001 per share, were outstanding. Transitional Small Business Disclosure Format (check one): Yes --- No -X- INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheet, March 31, 1999 3 Statements of Operations and Accumulated Deficit (Unaudited) for the three months ended March 31, 1999 and 1998 4 Statements of Cash Flows (Unaudited) for the three months ended March 31, 1999 and 1998 5 Notes to financial statements 6 Item 2. Management's Discussion and Analysis or Plan of Operations 7-9 PART II. OTHER INFORMATION 10 Signatures 11 2 Intellectual Technology, Inc. BALANCE SHEET March 31, 1999 (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 59,941 Accounts receivable 1,336,716 Inventory 446,702 Prepaid expenses 43,037 ---------- Total current assets 1,886,396 PROPERTY AND EQUIPMENT Contract equipment 5,699,641 Equipment - non contract, office, furniture and improvements 101,516 ---------- 5,801,157 Accumulated depreciation 3,418,040 ---------- Total property and equipment 2,383,117 OTHER ASSETS Patents and organization costs, net of accumulated amortization of $959,331 3,408,652 Deposits 7,051 ---------- Total other assets 3,415,703 ---------- TOTAL ASSETS $ 7,685,216 ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 843,987 Accrued expenses 346,359 Notes payable 2,006,452 Notes payable - related parties 105,200 Due to related party 4,000,000 Accrued interest payable 648,250 ---------- Total current liabilities 7,950,248 OTHER LIABILITIES Long term debt (net of current portion) 1,172,151 STOCKHOLDERS' EQUITY Preferred stock, $0.00001 par value; 10,000,000 shares authorized; no shares issued and outstanding - Common stock, $0.00001 par value; 20,000,000 shares authorized; 10,000,001 shares issued and outstanding 100 Additional paid-in capital 1,186,250 Accumulated deficit (2,623,533) ---------- Total stockholders' equity (1,437,183) ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,685,216 ========== The accompanying notes are an integral part of the financial statements. 3 Intellectual Technology, Inc. STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT (Unaudited) For the three months ended March 31, ---------------------- 1999 1998 ------------ ------------- REVENUES Sales, net $ 1,796,855 $ 1,729,709 COST OF REVENUES Depreciation and amortization 608,036 657,012 Material costs 252,495 155,865 Maintenance and other cost of sales 185,022 153,433 ------------ ------------- Total cost of revenues 1,045,553 966,310 ------------ ------------- Gross profit 751,302 763,399 OPERATING EXPENSES Selling, general and administrative 301,153 297,997 Research and development 117,264 58,529 Depreciation and amortization 76,151 85,297 ------------ ------------- Total operating expenses 494,568 441,823 ------------ ------------- Income from operations 256,734 321,576 OTHER INCOME (EXPENSE) Interest income 241 1,014 Interest expense (205,213) (223,075) ------------ ------------- Net income before income taxes 51,762 99,515 Income taxes - - ------------ ------------- NET INCOME 51,762 99,515 Accumulated deficit Balance, beginning of period (2,675,295) (2,534,779) ------------ ------------- Balance, end of period $ (2,623,533) $ (2,435,264) ============ ============= INCOME PER SHARE - BASIC $ 0.01 $ 0.01 ============ ============= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 10,000,001 10,000,001 ============ ============= The accompanying notes are an integral part of the financial statements. 4 Intellectual Technology, Inc. STATEMENTS OF CASH FLOWS (Unaudited) For the three months ended March 31, ---------------------- 1999 1998 ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES $ (187,237) $ 969,170 CASH FLOWS FROM INVESTING ACTIVITIES Investment in patents and other intangibles - (1,260) Purchase of non-contract equipment (6,617) (1,880) Investment in contract costs and equipment (355,045) (304,560) ------------ ------------- Net cash used by investing activities (361,662) (307,700) CASH FLOWS FROM FINANCING ACTIVITES New borrowings 974,630 - Debt repayments (448,547) (654,562) Loan fees (102,000) - ------------ ------------- Net cash provided (used) by financing activities 424,083 (654,562) ------------ ------------- NET INCREASE (DECREASE) IN CASH (124,816) 6,908 CASH AND CASH EQUIVALENTS, beginning of period 184,757 404,240 ------------ ------------- CASH AND CASH EQUIVALENTS, end of period $ 59,941 $ 411,148 ============ ============= The accompanying notes are an integral part of the financial statements. 5 Intellectual Technology, Inc. NOTES TO FINANCIAL STATEMENTS March 31, 1999 (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. These financial statements should be read in conjunction with the audited financial statements at December 31, 1998. 2. Significant first quarter financing - --------------------------------------- In the first quarter of 1999, the Company refinanced $1,956,000 in installment debt previously maturing in November of 1999, plus interest and loan fees through December of 2000 at a rate of 9.35%. The new debt is secured by leased equipment and calls for monthly installments of $134,695. In the first quarter of 1999, the Company incurred $230,000 in additional equipment financing at 9.5% through June of 1999. This amount is expected to be refinanced on a long term basis. 3. Commitments and Contingencies - --------------------------------- Proposed Rescission of ARS Purchase and Sale Agreement On January 27, 1999, the Company filed a complaint with the Superior Court of the State of California for the County of San Diego case number 727654 against American Registration Systems, Inc. ("ARS") and co-defendants, thereby recording a complaint for rescission of a 1995 Purchase and Sale Agreement between the Company and ARS. The suit challenges the validity of certain material representations made by ARS and its affiliates at the time of the Company's entering into the Purchase and Sale Agreement, and asserts that such agreement was void or voidable due to a variety of defects. To date ARS has filed no response to the complaint. The Purchase and Sale Agreement which the Company seeks to rescind provides that the Company shall pay to ARS or its assigns $4,000,000, plus a $0.01 per transaction royalty. Judgement in favor of the Company would result in the cancellation of approximately $4,700,000 of currently outstanding indebtedness. 6 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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. Background ITI is a provider of real-time printing systems specifically designed for use by state departments of motor vehicles. These systems generate vehicle registrations and license plate decals as needed, eliminating the need to inventory and control such forms and decals. ITI's revenues are earned (i) on a per-transaction basis for equipment leased to states, (ii) from the sale of printers and components to other venders within the industry, and (iii) from the sale of media and supplies to these vendors. ITI also earns revenue from the sale of drivers license photos. Results of Operations The Company's revenues through March 31, 1999 have been generated from: (1) lease of printers and self service terminals for the automated preparation and dispensing of motor vehicle registration forms and license plate decals; and (2) lease of printer equipment for the automated preparation and dispensing of drivers' licenses. Contract revenues increased from $1,729 thousand to $1,797 thousand. Gross profit decreased from $763 thousand to $751 thousand. Cost of revenues, as a percentage of sales increased from 56% to 58%, primarily due to increases in materials and maintenance required to support the Company's contracts. The Company anticipates that present profit margins will be maintained for the remainder of fiscal 1999. Selling, general and administrative expenses for the three months ended March 31 increased from $298,000 in 1998 to $301,000 in 1999. Although this increase is negligible, the Company expects that these expenses will increase for the remainder of the year due to anticipated increases in personnel and related costs. Research and development cost increased from $59,000 in 1998 to $117,000 in 1999 as a result of development of new products. The Company expects to spend another $200,000 in research and development costs for the remainder of the calendar year. The Company will engage in research and development of additional applications of its products in related areas. 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (continued) Results of Operations (continued) Interest expense decreased from $223,000 in 1998 to $205,000 in 1999 reflecting the pay down of equipment financing. Net income of $52,000 for the three months ended March 31, 1999 represents a $47,000 decrease from 1998 income of $99,000. Liquidity and Capital Resources Cash flow used in operations was $187,000 for the three months ended March 31, 1999 versus $969,000 provided by operations in the three months ended March 31, 1998. Differences in the timing in the collection of receivables and the payment of payables accounted for the decrease. The Company has refinanced its equipment loans and extended the repayment period from November 1999 through December 2000. However, the Company from time to time has used its cash flow from operations after debt service to develop and purchase new printer equipment. Unless the Company secures other forms of debt or equity financing, its cash flows may not be sufficient to meet its operating expenses. Management believes that other sources of financing will be available especially if the Company secures contracts with other states. Significant current debt service is $135,000 per month at 9.35% interest through December 2000. And $530,000 in interim financing due June 1999, is expected to be refinanced through April 2004 at an installment amount of approximately $17,000 per month at 9.5% interest. 8 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (continued) Liquidity and Capital Resources (continued) Contingencies Reference is made to the proposed recissions of a patent purchase agreement discussed in Note 8 of the Notes to Financial Statements in the Company's Annual Report on Form 10-KSB, and recapped below. No material developments occurred since the filing of Form 10-KSB on April 14, 1999. Based upon amounts outstanding as of March 31, 1999, a favorable resolution of this matter will have the following effects (exclusive of settlement costs, if any) on the financial statements of the Company: Decrease in Other Assets 3,285,787 Decrease in Current Liabilities 4,718,470 Increase in Equity 1,432,683 Expenses included in these financial statements related to this matter which would be eliminated by a favorable resolution of this matter are as follows: March 31, 1999 March 31, 1998 Cost of Sales - royalty expense $ 19,541 $ 19,488 Interest expense 80,000 80,000 Amortization - patent 70,518 69,568 -------------- -------------- Total $ 170,059 $ 169,056 ============== ============== 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings On January 27, 1999, the Company filed a complaint with the Superior Court of the State of California for the County of San Diego case number 727654 against American Registration Systems, Inc. ("ARS") and co-defendents, thereby recording a complaint for rescission of a 1995 Purchase and Sale Agreement between the Company and ARS. The suit challenges the validity of certain material representations made by ARS and its affiliates at the time of the Company's entering into the Purchase and Sale Agreement, and asserts that such agreement was void or voidable due to a variety of defects. To date, ARS has filed no response to the complaint. The Purchase and Sale Agreement which the Company seeks to rescind provides that the Company shall pay to ARS or its assigns $4,000,000, plus a $0.01 per transaction royalty. Judgement in favor of the Company would result in the cancellation of approximately $4,700,000 of currently outstanding indebtedness. Item 5. Other Information Effect of Inflation and Foreign Currency Exchange The Company has not experienced material unfavorable effects on its results of operations as a result of foreign currency fluctuations or domestic inflation. Year 2000 Issue The Company's management has conducted an assessment of the impact of the Year 2000 issue on its products and operations. Management believes that all of the Company's products and internal operating systems are currently Year 2000 compliant. The Company is also in the process of ascertaining whether strategic vendor relationships will be affected by Y2K, and projects that this assessment will be complete in the third quarter of 1999. The Company has been unable to ascertain whether its governmental customers will be year 2000 compliant. In the event that one or more of the Company's customers experiences a computer system disruption caused by the year 2000 issue, the Company could experience significant loss of revenues until such time as Y2K remediation is accomplished by the customer. The Company will have no control over such remediation efforts or their duration. 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 10 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. INTELLECTUAL TECHNOLOGY, INC. By: /s/ Janice L. Welch ---------------------- Principal Financial Officer Date: May 18, 1999 11 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 MARCH 31, 1999. 3-MOS DEC-31-1999 MAR-31-1999 59,941 0 1,336,716 0 446,702 1,886,396 5,801,157 3,418,040 7,685,216 7,950,248 0 0 0 100 (1,437,283) 7,685,216 1,796,855 1,797,096 1,045,553 1,745,334 0 0 205,213 51,762 51,762 51,762 0 0 0 51,762 0.01 0.01
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