-----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, Ke+Bcpqa1MZrN2umVtHqhQiSQ6ntoOjufOTOqvaBdd6GSDdUtmBJ4Q6VDjlnqaR6 22Ti+KnOFZ8vmF/M4NbGqA== 0001013993-02-000048.txt : 20020520 0001013993-02-000048.hdr.sgml : 20020520 20020520151926 ACCESSION NUMBER: 0001013993-02-000048 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020520 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: 02657566 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 iti0302q.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: March 31, 2002 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 ) 1040 Joshua Way, Vista, CA 92083-7807 (Address of principal executive offices) (760) 599-8080 (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 11, 2002, 9,842,680 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, 2002 1 Statements of Operations and Accumulated Deficit (Unaudited) for the three month periods ended March 31, 2002 and 2001 2 Statements of Cash Flows (Unaudited) for the three month periods ended March 31, 2002 and 2001 3 Notes to financial statements 4 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 5-7 PART II. OTHER INFORMATION 8 Signatures 9 Intellectual Technology, Inc. Balance Sheet March 31, 2002 (unaudited) ASSETS Current Assets Cash and cash equivalents $ 376,860 Accounts receivable 1,211,148 Inventory 554,832 Prepaid expenses 69,057 Deferred income tax benefits 14,294 ------- Total current assets 2,226,191 Property & Equipment Contract costs and equipment 7,267,875 Non-contract equipment-office & warehouse equipment, furniture and vehicles 78,626 --------- 7,354,640 Less: accumulated depreciation 6,101,580 --------- 1,253,060 Other Assets Patents, tracemark and loan fee, net of accumulated amortization of $726,150 47,214 Deferred tax benefits, net of current portion 16,245 Due from related party, net of allowance for doubtful account of $31,887 - Deposits 9,221 --------- Total assets $ 3,551,931 ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 517,848 Accrued expenses and interest 74,506 Income taxes payable 66,556 Accrued loss reserve 22,000 Bank lines of credit 389,600 Current portion of long-term debt 179,379 Due to related party 11,522 --------- Total current liabilities 1,261,411 Other Liabilities Long-term debt, net of current portion 216,477 Accrued loss reserve, net of current portion 26,047 Due to related party - long term 120,995 --------- 363,519 --------- 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 772,451 --------- 1,927,001 --------- Total liabilities and stockholders' equity $ 3,551,931 ========= The accompanying notes are an integral part of the financial statements. 1 Intellectual Technology, Inc. STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT (unaudited) For the three months ended March 31, ---------------------- 2002 2001 ------------ ------------- REVENUES Registration decals income $ 1,619,028 $ 1,336,207 Other revenue 380,985 76,550 ------------ ------------- Total revenues 2,000,013 1,412,757 COST OF REVENUES Materials 459,668 306,603 Cost of other revenue 266,837 48,920 Depreciation and amortization- contract costs 186,355 72,836 Maintenance 271,895 230,738 Provision (credit) for contract losses (1,953) (8,407) Other contract expenses 1,830 - Insurance 7,317 3,652 Property and sales taxes 9,426 300 ------------ ------------- Total cost of revenues 1,201,375 654,642 ------------ ------------- Gross profit 798,638 758,115 OPERATING EXPENSES Depreciation 2,937 3,059 Amortization of patent 15,405 15,405 Selling, general and administrative 381,895 290,004 Research and development 53,658 44,663 ------------ ------------- Total operating expenses 453,895 353,131 ------------ ------------- Income from operations 344,743 404,984 OTHER INCOME (EXPENSE) Interest income 1,657 6,122 Interest expense (23,234) (20,788) ------------ ------------- Net income before income taxes 323,166 390,318 Income taxes (122,100) (152,900) ------------ ------------- NET INCOME 201,066 237,418 Retained earnings - beginning of period 571,385 131,119 ------------ ------------- Retained earnings - end of period $ 772,451 $ 368,537 ============ ============= INCOME PER SHARE - BASIC $ 0.02 $ 0.02 ============ ============= INCOME PER SHARE - DILUTED $ 0.02 $ 0.02 ============ ============= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC 9,842,680 9,923,711 ============ ============= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED 9,842,680 10,053,211 ============ ============= The accompanying notes are an integral part of the financial statements. 2 Intellectual Technology, Inc. STATEMENTS OF CASH FLOWS (Unaudited) For the three months ended March 31, ---------------------- 2002 2001 ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES $ 115,756 $ 209,369 CASH FLOWS FROM INVESTING ACTIVITIES Investment in trademark (437) - Increase in deposits (4,700) - Purchase of non-contract equipment (11,754) (1,671) Investment in contract costs and equipment (58,257) (205,685) ------------ ------------- Net cash flows from investing activities (75,148) (207,356) CASH FLOWS FROM FINANCING ACTIVITES Repayment by related party - 8,774 New borrowings 175,000 - Debt repayments (44,782) (40,296) Redemption of common stock - (31,800) ------------ ------------- Net cash flows from financing activities 130,218 (63,322) ------------ ------------- NET INCREASE (DECREASE) IN CASH 170,826 (61,309) CASH AND CASH EQUIVALENTS, beginning of period 206,034 515,275 ------------ ------------- CASH AND CASH EQUIVALENTS, end of period $ 376,860 $ 454,966 ============ ============= The accompanying notes are an integral part of the financial statements. 3 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, 2001. 4 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. Until 1996, ITI was principally engaged in research and development of its products and generated only limited operating revenues. In August 1996, ITI entered into an Equipment Lease, Support and Maintenance Agreement with the State of Indiana to supply the equipment and media (materials used in the preparation of vehicle registration forms) to process the State's vehicle registrations. The term of the Indiana Contract was for a period of three years with a one-year renewal option through October 2000 that was exercised. In May 2000, the Indiana contract was extended through October 31, 2002. In the fourth quarter of 1998, the Company entered into a five-year Agreement (effective April 1, 1999) with the State of South Dakota to implement ITI's printing system. Commencing on April 1, 1999, ITI supplied the equipment and media to process 100% of the annual vehicle and boat registrations in South Dakota. Effective January 1, 2001, the Company entered into a Subcontractor Agreement with a contractor for the State of Louisiana Department of Public Safety and Corrections Office of Motor Vehicles. In June 2001, ITI supplied the equipment and media to begin production of 100% of the mail-in vehicle registrations in Louisiana. In September 2001, ITI supplied the equipment and media to begin production of these registrations issued at the State's branch locations. For the three months ended March 31, 2002, 86% of total revenues were derived from the above contracts and agreements. In March 2002, the Company signed a contract, effective through June 30, 2003, with the State of New Hampshire to produce "Safe Boating Certificate Cards". The State reserves the right to extend this contract each year for up to an additional four years and can also terminate the contract for any reason by giving thirty days written notice. The gross revenue from this contract is expected to be $65,000 in the first contract year and $32,000 annually thereafter. No revenue is expected from this contract until the third quarter of 2002. In April 2002, the Company signed a contract with the State of Ohio to supply the equipment and media to issue mail-in vehicle registrations. The gross revenue from this contract is expected to be between $500,000 and $700,000 annually. No revenue is expected from this contract until the third quarter of 2002. Results of Operations For ease in presenting the financial data, figures have been rounded to the nearest thousand. For the three months ended March 31, 2002, contract revenues increased from $1,412,000, to $2,000,000, an increase of $588,000 or 42%. This increase in revenue is primarily due to revenue from an additional contract and other revenue from the sale of equipment to other contractors. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Gross profit for the three-month comparisons increased from $758,000 in 2001 (54% of sales) to $798,000 (40% of sales) in 2002 as a result of the aforementioned revenue increases. The gross profit percentage decreased due to lower profit margins from new business as well as higher depreciation allowances due to increased changes in capital cost estimates. The Company expects profit margins to continue to decline due to the competitive bid environment, fixed contract prices and unanticipated costs. Operating expenses increased $101,000 or 29% from $353,000 for the three months ended March 31, 2001, to $454,000 in 2002. This is primarily due to: (1) Increase in payroll of $43,000 due the hiring of additional personnel and changes in cost allocations of the payroll of existing personnel from R&D to product demonstration, (2) Increased use of outside consultants for the evaluation of new business and demonstration of the Company's products ($40,000); and (3) Increase in research and development ($9,000.) Research and development expenses for the three months ended March 31, 2002 and 2001 were $54,000 (2.7% of sales) and $45,000 (3.2% of sales), respectively. The Company will continue to engage in research and development of additional applications of its products in related areas and new product development. The Company expects future operating expenses to increase due to relocation of the Company's corporation headquarters to a larger facility, continued use of outside consultants, planned efforts to redesign the Company's products and expand research and development in new products. Interest expense increased from $21,000 in 2001 to $23,000 in 2002, as the lower interest costs due to the pay down of contract cost financing was more than offset by the use of bank credit lines and the related loan costs thereof. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Liquidity and Capital Resources During the quarter ended March 31, 2002, the Company borrowed $175,000 under a $300,0000 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 in December 2002. The Company had available a $400,000 line-of-credit with a bank secured by accounts receivable, equipment and general intangibles. The line bears interest a Prime plus two percent (with a minimum interest rate of 7%) and requires interest only payments through June 2002, at which time, any unpaid balance will convert to a three year installment loan. On May 15th, the Company utilized these credit lines to prepay the remaining balance of contract cost financing in the amount of $379,000. The Company's remaining debt service consists of a patent purchase payment of $5,000 per quarter through March 2011. The Company expects to spend $250,000 on contract costs and equipment in the next two quarters for existing contracts which will be funded from internally generated cash flows and, if necessary, by borrowings 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: Three months ended March 31, (Rounded) 2002 2001 Operating activities $ 116,000 $ 209,000 Investing activities (75,000) (207,000) Financing activities 130,000 (63,000) -------- --------- Net effect on cash $ 171,000 $ (61,000) ======== ========= Cash flows provided by operations decreased from $209,000 in 2001 to $116,000, a decrease of $93,000 due primarily to net increases in accounts receivable. This was partially offset by an increase in net income before depreciation of $66,000. Cash flows used in investing activities decreased from $207,000 in 2001 to $75,000 in 2002 due to the installation phase of the Louisiana contract in 2001. Net cash of $63,000 was used in financing activities in 2001 and $45,000 in 2002 to pay existing debt service. In 2002, the Company borrowed $175,000 on its line of credit. 7 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 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: May 17, 2002 9 -----END PRIVACY-ENHANCED MESSAGE-----