-----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, L6XhOiAMBCuqIFteIKffKWmwDLuRHSks0xAmqqzWsgopIO6D9UxtWBNmzHSgBes6 2fEXC3JcFCB5b442UM/E6Q== 0001013993-01-500060.txt : 20020410 0001013993-01-500060.hdr.sgml : 20020410 ACCESSION NUMBER: 0001013993-01-500060 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 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: 1789400 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 iti0901q.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: September 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 November 12, 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, September 30, 2001 1 Statements of Operations (Unaudited) for the three and nine month periods ended September 30, 2001 and 2000 2-3 Statements of Cash Flows (Unaudited) for the nine months ended September 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 September 30, 2001 (unaudited) ASSETS Current Assets Cash and cash equivalents $ 471,111 Accounts receivable 571,674 Inventory 570,292 Deferred tax asset 53,479 Prepaid expenses 70,958 ------- Total current assets 1,737,514 Property & Equipment Contract equipment 7,217,662 Equipment - non-contract, office, furniture and improvements 78,293 --------- 7,295,955 Less: Accumulated depreciation 5,822,813 --------- 1,473,142 Other Assets Patents, net of accumulated amortization 84,391 Deferred tax asset 60,690 Due from related parties 30,298 Other non-current assets 2,419 --------- Total assets $ 3,388,454 ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 495,837 Income taxes payable 30,689 Accrued expenses and reserves 131,777 Note payable 370,328 Due to related party 11,151 --------- Total current liabilities 1,039,782 Other Liabilities Long-term debt, net of current portion 308,488 Accrued loss reserve, net of current portion 181,591 Due to related party - long term 126,851 --------- 616,930 --------- 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 577,192 --------- 1,731,742 --------- Total liabilities and stockholders' equity $ 3,388,454 ========= The accompanying notes are an integral part of the financial statements. 1 Intellectual Technology, Inc. STATEMENTS OF OPERATIONS (unaudited) For the quarter ended September 30, ---------------------- 2001 2000 ------------ ------------- REVENUES Sales, net $ 1,366,796 $ 1,726,123 COST OF REVENUES Depreciation and amortization 141,484 79,115 Material costs 371,298 297,526 Maintenance and other 390,150 295,769 ------------ ------------- Total cost of revenues 902,932 672,410 ------------ ------------- Gross profit 463,864 1,053,713 OPERATING EXPENSES Selling, general and administrative 295,287 267,193 Research and development 22,123 91,590 Depreciation and amortization 18,875 47,921 ------------ ------------- Total operating expenses 336,285 406,704 ------------ ------------- Income from operations 127,579 647,009 OTHER INCOME (EXPENSE) Interest income 4,079 11,838 Interest expense (20,734) (42,282) ------------ ------------- Net income before income taxes 110,924 616,565 Income tax expense 43,586 221,122 ------------ ------------- NET INCOME 67,338 395,443 Retained earnings (Accumulated deficit) Balance, beginning of period 509,854 56,558 ------------ ------------- Balance, end of period $ 577,192 $ 452,001 ============ ============= INCOME PER SHARE - BASIC $ 0.01 $ 0.04 ============ ============= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC 10,000,000 10,000,000 ============ ============= The accompanying notes are an integral part of the financial statements. 2 Intellectual Technology, Inc. STATEMENTS OF OPERATIONS (unaudited) For the nine months ended September 30, ---------------------- 2001 2000 ------------ ------------- REVENUES Sales, net $ 4,041,292 $ 5,465,131 COST OF REVENUES Depreciation and amortization 323,140 928,319 Material costs 1,057,245 1,033,989 Maintenance and other 860,020 844,322 ------------ ------------- Total cost of revenues 2,240,405 2,806,630 ------------ ------------- Gross profit 1,800,887 2,658,501 OPERATING EXPENSES Selling, general and administrative 882,183 875,697 Research and development 84,102 178,792 Depreciation and amortization 56,150 238,742 ------------ ------------- Total operating expenses 1,022,435 1,293,231 ------------ ------------- Income from operations 778,452 1,365,270 OTHER INCOME (EXPENSE) Interest income 16,322 26,652 Interest expense (63,208) (170,771) ------------ ------------- Net income before income taxes 731,566 1,221,151 Income tax expense 285,493 444,887 ------------ ------------- NET INCOME 446,073 776,264 Retained earnings (Accumulated deficit) Balance, beginning of period 131,119 (324,263) ------------ ------------- Balance, end of period $ 577,192 $ 452,001 ============ ============= INCOME PER SHARE - BASIC $ 0.04 $ 0.08 ============ ============= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC 10,000,000 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 nine months ended September 30, ---------------------- 2001 2000 ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES $ 844,820 $ 2,023,159 CASH FLOWS FROM INVESTING ACTIVITIES Investment in pending patents (3,230) - Purchase of non-contract equipment (6,974) (9,675) Investment in contract costs and equipment (932,201) (308,599) ------------ ------------- Net cash flows from investing activities (942,405) (318,274) CASH FLOWS FROM FINANCING ACTIVITES New borrowings 200,000 - Repayment by related party 8,774 - Debt repayments (124,553) (1,262,856) Redemption of common stock (31,800) - ------------ ------------- Net cash flows from financing activities 52,421 (1,262,856) ------------ ------------- NET INCREASE IN CASH (45,164) 442,029 CASH AND CASH EQUIVALENTS, beginning of period 516,275 505,723 ------------ ------------- CASH AND CASH EQUIVALENTS, end of period $ 471,111 $ 947,752 ============ ============= 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. ITI refers to the materials used in the preparation of the vehicle forms and decals as "media". Until 1996, ITI was principally engaged in research and development of its products and generated only limited operating revenues. In November 1996, the Company entered into a three-year lease agreement with the State of Indiana, to provide printer equipment and self-service terminals for production of the State's vehicle registrations. This contract has been extended through October 2002. The self-service terminals (SST's) are fully automated and do not require State personnel to be present during the renewal process. Some of these SST's are located in shopping malls. ITI has also developed Customer Convenience Centers for use in the motor vehicle offices, which allow for automated transactions, but are attended by a State employee. ITI is presently negotiating for the sale or lease of this equipment. In March 1999, ITI entered into a five-year contract with South Dakota to supply printer equipment, equipment and software maintenance and media on a per transaction basis. During the quarter ended March 31, 2001, ITI entered into a subcontractor agreement as part of a contract with the State of Louisiana to provide printer equipment, software and equipment maintenance, and media to produce the State's motor vehicle registrations. Results of Operations For ease in presenting the financial data, figures have been rounded to the nearest thousand. For the nine months ended September 30, 2001, contract revenues decreased from $5,465,000, to $4,041,000, a decrease of $1,424,000 or 26%. This decrease in revenue is due primarily to a transaction price decrease in a contract. 6 Item 2. (cont.) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Gross profit for the nine month comparisons decreased from $2,659,000 in 2000 (48.6% of sales) to $1,801,000 (44.6% of sales) in 2001 as a result of the aforementioned price decrease. The gross profit percentage also decreased due to the low transaction volume and initial non-recurring costs experienced during the installation stage of the Louisiana contract. Operating expenses decreased $271,000 or 21% from $1,293,000 for the nine months ended September 30, 2000, to $1,022,000 in 2001. This is primarily due to: (1) Depreciation and amortization decreased $183,000 for the nine months ended September 30, due to re-evaluation of the remaining useful lives of the Company's patents; and (2) Research and development expenses for the nine months ended September 30, 2001 and 2000 were $84,000 (2.1% of sales) and $179,000 (3.2% of sales), a decrease of $95,000. This decrease from last year reflects the redirection of efforts of existing employees from research and development to product refinements and modifications of equipment for existing 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 $171,000 in 2000 to $63,000 in 2001, a decrease of $108,000, reflecting the pay down of equipment financing. 7 Item 2. (cont.) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Liquidity and Capital Resources During the year ended December 31, 2000, the Company was 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. For the nine months ended September 30, 2001, the Company has used cash flows from operations to fund the investment in contract costs and equipment. During the quarter ended September 30, 2001, the Company borrowed $200,000 under a revolving credit line, which bears interest at the prime rate plus 2%. The loan is secured by all of the Company's assets and is due April 25, 2002. 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. In the next twelve months, the Company expects to spend $210,000 on contract costs and equipment and to fund its debt and capital requirements from internally generated cash flows. However, due to seasonal business cycles and the Polaroid matter mentioned below, the Company may experience temporary cash shortages. The Company anticipates that lenders with whom the Company has established relationships can finance these cash shortages. The following is a summary of the Company's cash flows from operating, investing, and financing activities: Nine months ended September 30, (Rounded) 2001 2000 Operating activities $ 845,000 $ 2,023,000 Investing activities (942,000) (318,000) Financing activities 52,000 (1,263,000) Net effect on cash $ (45,000) $ 442,000 Cash flows provided by operations decreased from $2,023,000 in 2000 to $845,000, a decrease of $1,178,000 due primarily to a decrease in net income before depreciation of $1,150,000. Cash flows used in investing activities increased from $318,000 in 2000 to $942,000 in 2001 primarily due to a new contract. Net cash used in financing activities decreased from $1,263,000 as a result of the 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. The Company supplies motor vehicle registrations and license plate decals as a subcontractor for Polaroid Corporation ("Polaroid"). On October 11, 2001, Polaroid filed for protection from creditors under Chapter 11, in the Federal Bankruptcy Court. Polaroid filed a motion requesting court approval for the sale of substantially all of the assets of their "I.D." business to PIDS Holdings, Inc. or a qualified higher bidder at an auction. The successful bidder may assume certain executory contracts, including the subcontractor agreement with ITI. The hearing on this cure motion is scheduled for December 3, 2001. ITI is hopeful that the proposed asset sale will cure any defaults under its subcontractor agreement. As of September 30, 2001, the accompanying financial statements include billed and accrued accounts receivable in the amount of $106,802. No provision has been made in the accompanying financial statements for potential losses that may occur under this subcontract. 8 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) Exhibits None (b) Reports on Form 8-K None 9 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: November 14, 2001 -----END PRIVACY-ENHANCED MESSAGE-----