-----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, GWneYLefUMk272rAn5BARWIe5eTn8RnNS7uNTEWrOiJF9y+hloJ94EqOeOJHRFu8 V9uR5mUX+uFxoJ74MdJs5w== 0001013993-01-500039.txt : 20010815 0001013993-01-500039.hdr.sgml : 20010815 ACCESSION NUMBER: 0001013993-01-500039 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTELLECTUAL TECHNOLOGY INC CENTRAL INDEX KEY: 0000859914 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER TERMINALS [3575] 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: 1712877 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 iti0601q.txt 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, 2001 Commission file number: 0-29138 INTELLECTUAL TECHNOLOGY, INC. (Exact name of small business issuer as specified in its charter) Delaware 84-1130227 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization ) 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 August 7, 2001, 9,842,681 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, June 30, 2001 1 Statements of Operations (Unaudited) for the three and six month periods ended June 30, 2001 and 2000 2-3 Statements of Cash Flows (Unaudited) for the six months ended June 30, 2001 and 2000 4 Notes to financial statements 5 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 6-7 PART II. OTHER INFORMATION 8 Signatures 9 Intellectual Technology, Inc. Balance Sheet June 30, 2001 (unaudited) ASSETS Current Assets Cash and cash equivalents $ 673,227 Accounts receivable 450,925 Inventory 463,055 Deferred tax asset 64,500 Prepaid expenses 83,833 ------- Total current assets 1,735,540 Property & Equipment Contract equipment 7,087,204 Equipment - non-contract, office, furniture and improvements 79,208 --------- 7,168,412 Less: Accumulated depreciation 5,676,703 --------- 1,487,709 Other Assets Patents, net of accumulated amortization 102,115 Deferred tax asset 65,469 Due from related parties 30,298 Other non-current assets 2,419 --------- Total assets $ 3,423,550 ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 681,684 Income taxes payable 65,689 Accrued expenses and reserves 154,813 Note payable 165,975 Due to related party 10,970 --------- Total current liabilities 1,079,131 Other Liabilities Long-term debt, net of current portion 352,738 Accrued loss reserve, net of current portion 197,570 Due to related party - long term 129,707 --------- 680,015 --------- Stockholders' Equity Preferred stock, $0.00001 par value, 10,000,000 shares authorized, no shares issued or outstanding - Common stock, $0.00001 par value, 20,000,000 shares authorized, 9,842,681 shares issued and outstanding 98 Additional paid-in capital 1,154,452 Retained earnings 509,854 --------- 1,664,604 --------- Total liabilities and stockholders' equity $ 3,423,550 ========= The accompanying notes are an integral part of the financial statements. 1 Intellectual Technology, Inc. STATEMENTS OF OPERATIONS (unaudited) For the quarter ended June 30, ---------------------- 2001 2000 ------------ ------------- REVENUES Sales, net $ 1,261,739 $ 1,796,648 COST OF REVENUES Depreciation and amortization 108,820 391,442 Material costs 330,423 387,805 Maintenance and other 249,326 279,566 ------------ ------------- Total cost of revenues 688,569 1,058,813 ------------ ------------- Gross profit 573,170 737,835 OPERATING EXPENSES Selling, general and administrative 291,154 310,357 Research and development 17,315 54,332 Depreciation and amortization 18,811 80,597 ------------ ------------- Total operating expenses 327,280 445,286 ------------ ------------- Income from operations 245,890 292,549 OTHER INCOME (EXPENSE) Interest income 6,120 8,709 Interest expense (21,686) (57,451) ------------ ------------- Net income before income taxes 230,324 243,807 Income tax expense 89,007 85,242 ------------ ------------- NET INCOME 141,317 158,565 Retained earnings (Accumulated deficit) Balance, beginning of period 368,537 (102,007) ------------ ------------- Balance, end of period $ 509,854 $ 56,558 ============ ============= INCOME PER SHARE - BASIC $ 0.01 $ 0.02 ============ ============= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC 9,923,711 10,000,000 ============ ============= The accompanying notes are an integral part of the financial statements. 2 Intellectual Technology, Inc. STATEMENTS OF OPERATIONS (unaudited) For the six months ended June 30, ---------------------- 2001 2000 ------------ ------------- REVENUES Sales, net $ 2,674,496 $ 3,739,008 COST OF REVENUES Depreciation and amortization 181,656 849,204 Material costs 685,946 736,463 Maintenance and other 495,579 548,553 ------------ ------------- Total cost of revenues 1,363,181 2,134,220 ------------ ------------- Gross profit 1,311,315 1,604,788 OPERATING EXPENSES Selling, general and administrative 561,188 608,452 Research and development 61,979 87,204 Depreciation and amortization 37,275 190,821 ------------ ------------- Total operating expenses 660,442 886,477 ------------ ------------- Income from operations 650,873 718,311 OTHER INCOME (EXPENSE) Interest income 12,243 14,814 Interest expense (42,474) (128,489) ------------ ------------- Net income before income taxes 620,642 604,636 Income tax expense 241,907 223,815 ------------ ------------- NET INCOME 378,735 380,821 Retained earnings (Accumulated deficit) Balance, beginning of period 131,119 (324,263) ------------ ------------- Balance, end of period $ 509,854 $ 56,558 ============ ============= INCOME PER SHARE - BASIC $ 0.04 $ 0.04 ============ ============= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC 9,923,711 10,000,000 ============ ============= The accompanying notes are an integral part of the financial statements. 3 Intellectual Technology, Inc. STATEMENTS OF CASH FLOWS (Unaudited) For the six months ended June 30, ---------------------- 2001 2000 ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES $ 1,074,408 $ 1,130,260 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of non-contract equipment (5,070) (3,840) Investment in contract costs and equipment (807,379) (266,363) ------------ ------------- Net cash flows from investing activities (812,449) (270,203) CASH FLOWS FROM FINANCING ACTIVITES Repayment by related party 8,774 - Debt repayments (81,981) (835,665) Redemption of common stock (31,800) - ------------ ------------- Net cash flows from financing activities (105,007) (835,665) ------------ ------------- NET INCREASE IN CASH 156,952 24,392 CASH AND CASH EQUIVALENTS, beginning of period 516,275 505,723 ------------ ------------- CASH AND CASH EQUIVALENTS, end of period $ 673,227 $ 530,115 ============ ============= The accompanying notes are an integral part of the financial statements. 4 Intellectual Technology, Inc. NOTES TO FINANCIAL STATEMENTS (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, as 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, 2000. 5 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. Plan of Operations and Background The Company (ITI) designs, manufactures, and leases systems for the automated preparation and dispensing of motor vehicle registration forms and license plate decals. Revenue is earned through per transaction billings which include the media, equipment maintenance and software updates and also through outright sales of equipment and supplies. ITI contracts directly with States and indirectly though subcontract arrangements with third parties. ITI markets basic printing systems for use by Motor Vehicle Department personnel, fully automated self-service terminals, and newly developed Customer Convenience Centers for use in the motor vehicle offices, which allow for automated transactions, but are partially attended by a State employee. Results of Operations For ease in presenting the financial data, figures have been rounded to the nearest thousand. For the six months ended June 30, 2001, contract revenues decreased from $3,739,000 for the six months ended June 30, 2001, to $2,674,000, a decrease of $1,065,000 or 28.5%. This decrease in revenue is due primarily to scheduled transaction price decreases. Gross profit for the six month comparisons decreased from $1,605,000 in 2000 (42.9% of sales) to $1,311,000 (49% of sales) in 2001 as a result of the aforementioned price decrease. The gross profit percentage increased due to the effect of the price decrease in the contract being offset, on a percentage basis by: (1) decreased contract depreciation due to changes in the contract equipment life; and, (2) lower maintenance costs due to lower software support costs. Operating expenses decreased 25.5% from $886,000 for the six months ended June 30, 2000, to $660,000 in 2001, a decrease of $226,000. Selling, general and administrative expenses decreased from $608,000 to $561,000, a decrease of $47,000 or 7.7% primarily due to lower payroll resulting from an employee termination and the death of two employees (-$191,000) partially offset by (1) lower research and development payroll in 2001 versus 2000 ($37,000), (2) raises to existing personnel ($10,000), increased expense of a managing Board of Directors ($26,000), new hires ($39,000); and (2) increased general and administrative expenses in several areas ($32,000 or 14%). Depreciation and amortization decreased from $191,000 for the six months ended June 30, 2001 to $37,000 in 2000, a decrease of $154,000 due to re-evaluation of the remaining useful lives of the Company's patents and equipment. Research and development expenses for the six months ended June 30, 2001 and 2000 were $62,000 and $87,000, respectively, representing 2.3% of sales for both periods. This decrease from last year reflects the redirection of efforts of existing employees from research and development to product applications for new and potential contracts. The Company will continue to engage in research and development of additional applications of its products in related areas and new product development. Interest expense decreased from $128,000 in 2000 to $42,000 in 2001, a decrease of $86,000, reflecting the pay down of equipment financing. 6 Item 2. (cont.) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Liquidity and Capital Resources During the last two fiscal years, the Company has been able to use cash flow from operations to substantially reduce long term debt. Certain equipment financing with a monthly payment of $134,695 was fully paid off in December 2000. The Company's remaining debt service consists of contract financing with a monthly payment of $17,680 ($212,000) per year) through April 2004 and a patent purchase payment of $5,000 per quarter ($20,000 per year) through March 2011. For the remainder of 2001, the Company expects to spend another $50,000 on contract equipment for contracts in effect as of December 31, 2000 and expects to pay its debt and capital equipment obligations from internally generated cash flows. In connection with its expanding contract base, the Company expects to incur additional capital expenditures of $200,000 for the remainder of 2001, which will be funded from both internal cash flows and external financing from lenders with whom the Company has established relationships. The following is a summary of the Company's cash flows from operating, investing, and financing activities: Six months ended June 30, (rounded) 2001 2000 Operating Activities $1,074,000 $ 1,130,000 Investing Activities (812,000) (270,000) Financing Activities (105,000) (836,000) Net effect on cash $ 157,000 $ 24,000 Cash flows provided by operations decreased from $1,130,000 in 2000 to $1,074,000, a decrease of $56,000 due to lower net profit before depreciation and non-cash adjustments of $1,006,000 offset by a decreases in working capital components of $950,000 from 2000. The major changes in working capital components were: (1) a reduction in accounts receivable compared to last year due to timing of collections and lower revenues - -$279,000; (2) Certificate of deposits not renewed this year-$144,000; and (3) Increases in accounts payable due to contract costs and equipment purchases for a new State contract in the process of being financed by long term debt. The increase in Cash flows used in investing activities increased from $270,000 in 2000 to $812,000 in 2001 primarily due to: (1) continued installation and replacement of equipment for existing contracts ($194,000); and (2) New contract costs and equipment ($630,000). Net cash used in financing activities decreased from $836,000 in 2000 to $105,000 in 2000 due to payoff of significant debt service in December 2000. Under the Company's current financing arrangement, certain contract receivables have been assigned to the note holder. The amount of monthly cash flows from a contract is remitted net to the Company after debt service is satisfied. 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities During the June 30, 2001 fiscal quarter, incentive stock options to purchase 150,000 common shares were granted as part of an employment agreement. The Options were granted under the Company's 2000 Stock Option Plan at a price equal to 110% of the trading market price on the grant date. Vesting occurs equally over a three year period. 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) Exhibits None (b) Reports on Form 8-K None 8 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/ Craig Litchin Principal Financial Officer Date: August 13, 2001 -----END PRIVACY-ENHANCED MESSAGE-----