-----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, AgOLq9WwX+06HOu8SBqShaxHFquEKcTFxS11vA4X2E1cfEJ2mr34bDd6LA0C7Kki t2reGjgLST2gywEIAG/x8A== 0001013993-02-000055.txt : 20020814 0001013993-02-000055.hdr.sgml : 20020814 20020814124211 ACCESSION NUMBER: 0001013993-02-000055 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 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: 02733331 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 iti0602q.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, 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 August 12, 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 1. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheet, June 30, 2002 1 Statements of Operations and Retained Earnings (Unaudited) for the three month and six month periods ended June 30, 2002 and 2001 2 Statements of Cash Flows (Unaudited) for the six month periods ended June 30, 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. FINANCIAL STATEMENTS June 30, 2002 Intellectual Technology, Inc. BALANCE SHEET June 30, 2002 (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 162,014 Accounts receivable 874,055 Inventory 679,396 Prepaid expenses 78,289 Deferred income tax benefits 6,974 ----------- Total current assets 1,800,728 Property and Equipment Contract costs and equipment 7,402,167 Non-contract equipment - office and warehouse equipment, furniture and vehicles 97,745 ----------- 7,499,912 Less: accumulated depreciation 6,298,213 ----------- 1,201,699 Other Assets Patents, trademark and loan fee, net of accumulated amortization of $711,343 22,413 Deferred income tax benefits, net of current portion 14,465 Due from related party, net of allowance for doubtful account of $31,887 - Deposits 6,435 ----------- Total assets $ 3,045,740 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 426,919 Accrued expenses and interest 48,873 Income taxes payable 37,914 Accrued loss reserve 22,000 Current portion of long-term debt 124,380 Due to related party 11,713 ----------- Total current liabilities 671,799 Other Liabilities Long-term debt, net of current portion 275,620 Accrued loss reserve, net of current portion 21,251 Due to related party - long term 117,994 ----------- 414,865 Stockholders' Equity Preferred stock, $0.00001 par value, 1,000,000 shares authorized, no shares issued or outstanding - Common stock, $0.00001 par value, 20,000,000 shares authorized, 9,842,680 shares issued and outstanding 98 Additional paid-in capital 1,154,452 Retained earnings 804,526 ----------- 1,959,076 ----------- Total liabilities and stockholders' equity $ 3,045,740 =========== The accompanying notes are an integral part of the financial statements. 1 Intellectual Technology, Inc. STATEMENTS OF OPERATIONS AND RETAINED EARNINGS For the three months For the six months ended June 30, ended June 30, ----------------------- ----------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ----------- REVENUES Registration decals income $ 1,611,428 $ 1,261,704 $ 3,505,491 $ 2,597,911 Other revenue - 35 105,950 76,585 ----------- ----------- ----------- ----------- Total revenues 1,611,428 1,261,739 3,611,441 2,674,496 COST OF REVENUES Materials 469,123 330,423 1,120,828 639,247 Cost of other revenue - - 74,800 46,700 Depreciation and amortization - contract costs 193,227 108,820 379,582 181,656 Maintenance 373,446 216,219 652,414 466,926 Adjustment to contract losses previously recognized (4,796) (8,023) (6,749) (16,430) Other contract expenses 18,640 36,642 20,470 36,642 Insurance 3,610 4,188 10,927 7,840 Property and sales taxes 10,621 300 20,047 600 ----------- ----------- ----------- ----------- Total cost of revenues 1,063,871 688,569 2,272,319 1,363,181 ----------- ----------- ----------- ----------- Gross profit 547,557 573,170 1,339,122 1,311,315 OPERATING EXPENSES Depreciation 3,406 3,059 6,343 6,465 Amortization of patent 15,405 15,405 30,810 30,810 Selling, general and administrative expenses 380,057 264,153 754,880 561,188 Research and development 73,051 44,663 126,708 61,979 ----------- ----------- ----------- ----------- Total operating expenses 471,919 327,280 918,741 660,442 ----------- ----------- ----------- ----------- Income from operations 75,638 245,890 420,381 650,873 OTHER INCOME (EXPENSE) Interest income 1,491 6,120 3,148 12,243 Interest expense (36,928) (21,686) (60,162) (42,474) ----------- ----------- ----------- ----------- Net income before income taxes 40,201 230,324 363,367 620,642 Income taxes 8,126 89,007 130,226 241,907 ----------- ----------- ----------- ----------- NET INCOME 32,075 141,317 233,141 378,735 Retained earnings, beginning of period 772,451 368,537 571,385 131,119 ----------- ----------- ----------- ----------- Retained earnings, end of period $ 804,526 $ 509,854 $ 804,526 $ 509,854 =========== =========== =========== =========== Income per share: (Basic and diluted) $ 0.00 $ 0.01 $ 0.02 $ 0.04 =========== =========== =========== =========== Wtd. average number of shares outstanding 9,842,680 9,923,711 9,842,680 9,923.711 =========== =========== =========== =========== The accompanying notes are an integral part of the financial statements. 2 Intellectual Technology, Inc. STATEMENTS OF CASH FLOWS (Unaudited) For the six months ended June 30, --------------------------------- 2002 2001 ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES $ 432,054 $ 1,074,408 CASH FLOWS FROM INVESTING ACTIVITIES Investment in trademark (829) - Increase in deposits (1,914) - Purchase of non-contract equipment (22,734) (5,070) Investment in contract costs and equipment (192,549) (807,379) ---------- ----------- Net cash flows from investing activities (218,026) (812,449) CASH FLOWS FROM FINANCING ACTIVITIES Repayment by related party - 8,774 New borrowings 400,000 - Debt repayments (658,048) (81,981) Redemption of common stock - (31,800) ---------- ----------- Net cash flows from financing activities (258,048) (105,007) ---------- ----------- NET INCREASE (DECREASE) IN CASH (44,020) 156,952 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 206,034 516,275 ---------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 162,014 $ 673,227 ========== =========== The accompanying notes are an integral part of the financial statements. 3 Intellectual Technology, Inc. NOTES TO FINANCIAL STATEMENTS June 30, 2002 (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, 2001. 2. Long-term Debt -------------- On June 21, 2002, the Company converted a revolving line of credit with a bank totaling $400,000 to a 36-month term loan bearing interest at prime rate plus two percent (6.75% at June 30, 2002). This loan is secured by accounts receivable, equipment and general intangibles. 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 six months ended June 30, 2002, 92% 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 begin production of 100% of the 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. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Results of Operations For ease in presenting the financial data, figures have been rounded to the nearest thousand. For the six months ended June 30th, contract revenues increased from $2,674,000 in 2001, to $3,611,000 in 2002, an increase of $937,000 or 35%. This increase in revenue is primarily due to revenue from an additional contract and other revenue from the sale of printer equipment to other contractors. Gross profit for the six months ended June 30, 2001 and 2002 were $1,311,000 (49% of sales) and $1,339,000 (37% of sales), respectively. 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 $259,000 or 39% from $660,000 for the six months ended June 30, 2001, to $919,000 in 2002. This is primarily due to: (1) Increase in payroll of $57,000 due to the hiring of additional personnel and changes in cost allocations of the payroll of existing personnel from research and development to product demonstration and support, (2) Increased use of outside consultants for the evaluation of new business and demonstration of the Company's products and project coordination of new contracts ($90,000); and (3) Increase in the amount of $65,000 for research and development. Research and development expenses for the six months ended June 30, 2002 and 2001 were $127,000 (3.5% of sales) and $62,000 (2.3% 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, in comparison with 2001, 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 $43,000 in 2001 to $60,000 in 2002, as lower interest costs due to the pay down of contract cost financing were offset by the use of bank credit lines and the related loan costs thereof. In addition, the Company refinanced existing contract equipment loans at lower interest rates, but incurred a prepayment penalty and expensing of unamortized loan costs totaling, $21,000. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Liquidity and Capital Resources On May 15, 2002, the Company utilized a $400,000 line of credit with a bank to prepay the remaining balance of contract cost financing in the amount of $379,000. This line of credit was converted to a 36-month term loan with monthly payments of $12,370, including interest at Prime plus two percent (6.75% at June 30, 2002), through June 2005. This loan is secured by accounts receivable, equipment and general intangibles. The Company has available a $300,000 line of credit with a bank secured by accounts receivable, equipment and general intangibles. The Company has utilized this credit line at various times in 2002 to meet short-term borrowing needs. However, as of June 30, 2002, there was no outstanding balance. The line bears interest at Prime plus two percent (with a minimum interest rate of 7%) and is subject to renewal in December 2002. 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 a minimum of $85,000 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: Six months ended June 30, (Rounded) 2002 2001 ---------- ----------- Operating activities $ 432,000 $ 1,074,000 Investing activities (218,000) (812,000) Financing activities (258,000) (105,000) ---------- ----------- Net effect on cash $ (44,000) $ 157,000 =========== =========== Cash flows provided by operations decreased from $1,074,000 in 2001 to $432,000 in 2002, a decrease of $642,000 due primarily to variations in accounts receivable, inventories and accounts payable (net effect on cash of $567,000) and the redemption of a certificate of deposit in 2001 ($129,000). This was partially offset by an increase in net income before depreciation of $68,000. Cash flows used in investing activities decreased from $812,000 in 2001 to $218,000 in 2002 due to the installation phase of the Louisiana contract in 2001. Net cash of $105,000 was used in financing activities in 2001 and $258,000 in 2002 to pay existing debt service. In 2002, the Company borrowed $400,000 on its line of credit and converted it to permanent financing as mentioned above. 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: August 12, 2002 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: Principal Financial Officer Date: August 12, 2002 9 -----END PRIVACY-ENHANCED MESSAGE-----