-----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, MkyTLhhrgdDOhlq85SKrb95IjlAIQeVCfkWwXZMcfv1+XFQb+imtpB9QxLFTIYkQ jI/APKoel9OpGNBMmQZCaw== 0001013993-02-000090.txt : 20021114 0001013993-02-000090.hdr.sgml : 20021114 20021113175109 ACCESSION NUMBER: 0001013993-02-000090 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 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: 02821259 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 iti0902q.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, 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 November 13, 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, September 30, 2002 1 Statements of Operations and Retained Earnings (Unaudited) for the three month and nine month periods ended September 30, 2002 and 2001 2 Statements of Cash Flows (Unaudited) for the nine month periods ended September 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 Item 3. Controls and Procedures 8 PART II. OTHER INFORMATION 9 Signatures 10 Certifications 11-12 Intellectual Technology, Inc. FINANCIAL STATEMENTS September 30, 2002 Intellectual Technology, Inc. BALANCE SHEET September 30, 2002 (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 556,672 Accounts receivable 766,125 Inventory 809,204 Prepaid expenses 73,158 Deferred income tax benefits 6,500 ----------- Total current assets 2,211,659 Property and Equipment Contract costs and equipment 7,431,252 Non-contract equipment - office and warehouse equipment, furniture and vehicles 101,971 ----------- 7,533,223 Less: accumulated depreciation 6,412,333 ----------- 1,120,890 Other Assets Patents, trademark and loan fee, net of accumulated amortization of $713,545 21,379 Deferred income tax benefits, net of current portion 16,039 Due from related party, net of allowance for doubtful account of $31,887 - Deposits 6,435 ----------- Total assets $ 3,376,402 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 380,700 Accrued expenses and interest 62,869 Income taxes payable 187,759 Accrued loss reserve 22,000 Current portion of long-term debt 126,569 Due to related party 11,906 ----------- Total current liabilities 791,803 Other Liabilities Long-term debt, net of current portion 243,303 Accrued loss reserve, net of current portion 18,972 Due to related party - long term 114,944 ----------- 377,219 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 1,052,830 ----------- 2,207,380 ----------- Total liabilities and stockholders' equity $ 3,376,402 =========== 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 nine months ended September 30, ended September 30, ----------------------- ----------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ----------- REVENUES Registration decals income $ 1,725,240 $ 1,366,796 $ 4,955,696 $ 3,910,115 Other revenue - - 380,985 131,177 ----------- ----------- ----------- ----------- Total revenues 1,725,240 1,366,796 5,336,681 4,041,292 COST OF REVENUES Materials 494,480 371,298 1,423,271 972,578 Cost of other revenue - - 266,837 84,667 Depreciation and amortization - contract costs 110,143 141,484 489,725 323,140 Maintenance 318,016 275,620 970,429 716,839 Adjustment to contract losses previously recognized (2,280) (15,979) (9,028) (32,409) Other contract expenses 1,592 99,426 22,062 136,067 Insurance 2,188 4,620 13,115 12,460 Property and sales taxes 14,489 26,463 34,536 27,063 ----------- ----------- ----------- ----------- Total cost of revenues 938,628 902,932 3,210,947 2,240,405 ----------- ----------- ----------- ----------- Gross profit 786,612 463,864 2,125,734 1,800,887 OPERATING EXPENSES Depreciation 3,977 3,470 10,320 9,935 Amortization of patent 2,202 15,405 33,012 46,215 Selling, general and administrative expenses 341,055 295,287 1,095,935 882,183 Research and development 22,997 22,123 149,706 84,102 ----------- ----------- ----------- ----------- Total operating expenses 370,231 336,285 1,288,973 1,022,435 ----------- ----------- ----------- ----------- Income from operations 416,381 127,579 836,761 778,452 OTHER INCOME (EXPENSE) Interest income 1,936, 4,079 5,084 16,322 Interest expense (11,310) (20,734) (71,471) (63,208) ----------- ----------- ----------- ----------- Net income before income taxes 407,007 110,924 770,374 731,566 Income taxes 158,703 43,586 288,929 285,493 ----------- ----------- ----------- ----------- NET INCOME 248,304 67,338 481,445 446,073 Retained earnings, beginning of period 804,526 509,854 571,385 131,119 ----------- ----------- ----------- ----------- Retained earnings, end of period $ 1,052,830 $ 577,192 $ 1,052,830 $ 577,192 =========== =========== =========== =========== Income per share: (Basic and diluted) $ 0.03 $ 0.01 $ 0.05 $ 0.04 =========== =========== =========== =========== Wtd. average number of shares outstanding 9,842,680 9,842,680 9,842,680 9,869,353 =========== =========== =========== =========== The accompanying notes are an integral part of the financial statements. 2 Intellectual Technology, Inc. STATEMENTS OF CASH FLOWS (Unaudited) For the nine months ended September 30, --------------------------------- 2002 2001 ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES $ 894,176 $ 844,820 CASH FLOWS FROM INVESTING ACTIVITIES Investment in trademark (1,997) (3,230) Increase in deposits (1,914) - Purchase of non-contract equipment (26,960) (6,974) Investment in contract costs and equipment (221,634) (932,201) ---------- ----------- Net cash flows from investing activities (252,505) (942,405) CASH FLOWS FROM FINANCING ACTIVITIES Repayment by related party - 8,774 New borrowings 400,000 200,000 Debt repayments (691,033) (124,553) Redemption of common stock - (31,800) ---------- ----------- Net cash flows from financing activities (291,033) 52,421 ---------- ----------- NET INCREASE (DECREASE) IN CASH 350,638 (45,164) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 206,034 516,275 ---------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 556,672 $ 471,111 ========== =========== The accompanying notes are an integral part of the financial statements. 3 Intellectual Technology, Inc. NOTES TO FINANCIAL STATEMENTS September 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. 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 an initial period of three years with extensions through October 2002. In October 2002, the Indiana contract was extended through October 31, 2004. 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 nine months ended September 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, 2007, with the State of New Hampshire to produce "Safe Boating Certificate Cards." The State reserves the right to terminate the contract for any reason by giving thirty days written notice. The gross revenue from this contract is expected to be $32,000 annually and was $27,000 for the quarter ended September 30, 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 and was $105,000 for the quarter ended September 30, 2002. 5 Item 2 - 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 nine months ended September 30th, contract revenues increased from $4,041,000 in 2001, to $5,337,000 in 2002, an increase of $1,296,000 or 32%. This increase in revenue is primarily due to the Louisiana contract achieving full transaction volume in 2002, revenue from additional contracts and other revenue from the sale of printer equipment to other contractors. Gross profit for the nine months ended September 30, 2001 and 2002 were $1,801,000 (45% of sales) and $2,126,000 (32% 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 does not expect profit margins from current contracts to continue to decline. Operating expenses increased $267,000 or 26% from $1,022,000 for the nine months ended September 30, 2001, to $1,289,000 in 2002. This is primarily due to: (1) Increase in payroll of $76,000 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 ($93,000); and (3) Increase in research and development ($66,000). Research and development expenses for the nine months ended September 30, 2002 and 2001 were $150,000 (2.8% of sales) and $84,000 (2.1% 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 continue to increase, in comparison with 2001, due to relocation of the Company's corporation headquarters to a larger facility, upgrade of the Company's computer system, continued use of outside consultants, increased demonstration of the Company's products and planned efforts to redesign the Company's products and expand research and development in new products. Interest expense increased from $63,000 in 2001 to $71,000 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 Item 2 - 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 September 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 September 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. At this time, the Company expects no significant investment in Contract costs and equipment in the next quarter. The following is a summary of the Company's cash flows from operating, investing, and financing activities: Nine months ended September 30, (Rounded) 2002 2001 ---------- ----------- Operating activities $ 894,000 $ 845,000 Investing activities (252,000) (942,000) Financing activities (291,000) 52,000 ---------- ----------- Net effect on cash $ 351,000 $ (45,000) =========== =========== Cash flows provided by operations decreased from $845,000 in 2001 to $894,000 in 2002, an increase of $49,000 due primarily to an increase in net income before depreciation of $251,000. This was partially offset by variations in accounts receivable, inventories and accounts payable (net decrease in cash of $73,000) and the redemption of a certificate of deposit in 2001 (which increased cash by $129,000 in 2001). Cash flows used in investing activities decreased from $942,000 in 2001 to $253,000 in 2002 due to the installation phase of the Louisiana contract in 2001. Net cash of $52,000 was provided by financing activities in 2001 primarily due to additional borrowing of $200,000 less debt repayment of $125,000. Net cash used in financing activities was $291,000 in 2002 of which $215,000 was used to payoff the Company's line of credit and the remainder to pay down long-term debt. In 2002, the Company borrowed $400,000 on its line of credit and converted it to permanent financing as mentioned above. 7 Item 3. - CONTROLS AND PROCEDURES The Company's Chief Executive Officer, also acting as Chief Financial Officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended) as of November 12, 2002, (the "Evaluation Date"), has concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures were effective to ensure the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. There were no significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to the Evaluation Date. 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 99.1 Certification of Chief Executive Officer and Chief Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (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 13, 2002 9 Certifications I, Craig Litchin, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Intellectual Technology, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. I have disclosed, based on my most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 /s/ Craig Litchin Principal Executive Officer Principal Financial Officer EX-99 3 iti_exh991.txt Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Intellectual Technology, Inc. (the "Company") on Form 10-QSB for the period ending September 30, 2002, (the "Report"), I, Craig Litchin, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1) The Report fully complies with the requirement of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and 2) The information contained in the Report fairly presents, in all material respects, the Company's financial position and results of operations. /s/ Craig Litchin - ----------------------- Chief Executive Officer and Chief Financial Officer November 13, 2002 -----END PRIVACY-ENHANCED MESSAGE-----