-----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, Ir5+bYI8NH+UbBNWD80Ks50bvK/gkOetFmbUs6bRd+WqZZ4zr+LjtXfeluy8Ha+J 2w/XVZ3xCZaUbHkkY+XNRg== 0001013993-99-000060.txt : 19990817 0001013993-99-000060.hdr.sgml : 19990817 ACCESSION NUMBER: 0001013993-99-000060 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTELLECTUAL TECHNOLOGY INC CENTRAL INDEX KEY: 0000859914 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 841130227 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-29138 FILM NUMBER: 99691831 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 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, 1999 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 13, 1999, 10,000,001 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, 1999 3 Statements of Operations and Accumulated Deficit (Unaudited) for the three and six month periods ended June 30, 1999 and 1998 4 Statements of Cash Flows (Unaudited) for the six month period ended June 30, 1999 and 1998 5 Notes to financial statements 6 Item 2 Management's Discussion and Analysis or Plan of Operations 7-9 PART II. OTHER INFORMATION 10 Signatures 11 2 Intellectual Technology, Inc. BALANCE SHEET June 30, 1999 (Unaudited) ASSETS Current Assets Cash and cash equivalents $709,793 Accounts receivable 672,430 Inventory 332,823 Loans to stockholders 15,600 Prepaid expenses 25,516 ---------- Total current assets 1,756,162 Property & Equipment Contract equipment 5,750,307 Equipment - non-contract, office, furniture and improvements 107,571 ---------- 5,857,878 Less: Accumulated depreciation 3,981,291 ---------- 1,876,587 Other Assets Patents and organization costs, net of accumulated amortization of $959,331 3,323,866 Deposits 7,051 ---------- Total assets $6,963,666 ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $165,805 Accrued expenses 366,252 Notes payable 1,644,558 Notes payable - related party 10,692 Due to related party 4,000,000 Accrued interest payable 726,488 ---------- Total current liabilities 6,913,795 Other Liabilities Long-term debt, net of current portion 1,428,273 ---------- 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, 10,000,001 shares issued and outstanding 100 Additional paid-in capital 1,186,250 Accumulated deficit (2,564,752) ---------- (1,378,402) ---------- $6,963,666 ========== The accompanying notes are an integral part of the financial statements. 3 Intellectual Technology, Inc. STATEMENTS OF LOSS AND ACCUMULATED DEFICIT (Unaudited) For the quarter For the six months ended June 30, ended June 30, ------------------ ------------------ 1999 1998 1999 1998 ------------------ ------------------ REVENUES Sales $1,714,234 $1,467,638 $3,511,089 $3,197,347 COST OF REVENUES Depreciation and amortization 557,370 536,560 1,165,406 1,193,572 Material costs 280,113 131,749 532,608 287,613 Maintenance and other cost of sales 199,078 139,717 384,100 293,151 ---------- ---------- ---------- ---------- Total cost of revenues 1,036,561 808,026 2,082,114 1,774,336 ---------- ---------- ---------- ---------- Gross profit 677,673 659,612 1,428,975 1,423,011 OPERATING EXPENSES Selling, general & administrative 358,342 308,215 659,495 606,211 Research & development 17,089 73,212 134,353 131,741 Depreciation and amortization 75,842 76,424 151,993 161,722 ---------- ---------- ---------- ---------- 451,273 457,851 945,841 899,674 ---------- ---------- ---------- ---------- Income from operations 226,400 201,761 483,134 523,337 OTHER INCOME (EXPENSE) Interest income 1,579 1,457 1,820 2,471 Interest expense (169,198) (210,554) (374,411) (433,629) ---------- ---------- ---------- ---------- Income before income taxes 58,781 (7,336) 110,543 92,179 Income tax expense - - - - ---------- ---------- ---------- ---------- NET INCOME 58,781 (7,336) 110,543 92,179 Accumulated deficit Balance, beginning of period (2,623,533) (2,435,264) (2,675,295) (2,534,779) ---------- ---------- ---------- ---------- Balance, end of period $(2,564,752) $(2,442,600) $(2,564,752) $(2,442,600) ========== ========== ========== ========== Income per share - basic $ 0.01 $ (0.00) $ 0.01 $ 0.01 ========== ========== ========== ========== Wtd. average shares outstanding 10,000,001 10,000,001 10,000,001 10,000,001 ========== ========== ========== ========== The accompanying notes are an integral part of the financial statements. 4 Intellectual Technology, Inc. STATEMENTS OF CASH FLOWS (Unaudited) For the three months ended June 30, --------------------------- 1999 1998 --------------------------- CASH FLOWS FROM OPERATING ACTIVITIES $ 719,576 $1,172,584 CASH FLOWS FROM INVESTING ACTIVITIES Investment in patents and other intangibles - (3,460) Purchase of non-contract equipment (12,632) (2,504) Investment in contract costs and equipment (405,711) (338,011) ----------- ----------- Net cash used by investing activities (418,343) (343,975) CASH FLOWS FROM FINANCING ACTIVITIES New borrowings 1,295,935 250,000 Debt repayments (970,132) (1,297,361) Loan fees (102,000) - ----------- ----------- Net cash provided (used) by financing activities 223,803 (1,047,361) ----------- ----------- NET INCREASE (DECREASE) IN CASH 525,036 (218,752) CASH AND CASH EQUIVALENTS, beginning of period 184,757 404,240 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 709,793 $ 185,488 =========== =========== The accompanying notes are an integral part of the financial statements. 5 Intellectual Technology, Inc. NOTES TO FINANCIAL STATEMENTS June 30, 1999 (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, 1998. 2. Significant second quarter financing During the second quarter of 1999, the Company incurred $286,000 in additional equipment financing at 9.5% through September of 1999. This amount is expected to be refinanced on a long term basis. 3. Commitments and Contingencies Proposed Rescission of ARS Purchase and Sale Agreement On January 27, 1999, the Company filed a complaint with the Superior Court of the State of California for the County of San Diego case number 727654 against American Registration Systems, Inc. ("ARS") and co-defendants, thereby recording a complaint for rescission of a 1995 Purchase and Sale Agreement between the Company and ARS. The suit challenges the validity of certain material representations made by ARS and its affiliates at the time of the Company's entering into the Purchase and Sale Agreement, and asserts that such agreement was void or voidable due to a variety of defects. To date, ARS has filed no response to the complaint. The Purchase and Sale Agreement which the Company seeks to rescind provides that the Company shall pay to ARS or its assigns $4,000,000, plus a $0.01 per transaction royalty. Judgement in favor of the Company would result in the cancellation of approximately $4,800,000 of currently outstanding indebtedness. 6 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. Background ITI is a provider of real-time printing systems specifically designed for use by state departments of motor vehicles. These systems generate vehicle registrations and license plate decals as needed, eliminating the need to inventory and control such forms and decals. ITI's revenues are earned (i) on a per-transaction basis for equipment leased to states, (ii) from the sale of printers and components to other venders within the industry, and (iii) from the sale of media and supplies to these vendors. ITI also earns revenue from the sale of drivers license photos. Results of Operations The Company's revenues through June 30, 1999 have been generated from: (1) lease of printers and self service terminals for the automated preparation and dispensing of motor vehicle registration forms and license plate decals; and (2) lease of printer equipment for the automated preparation and dispensing of drivers' licenses. For the quarter ended June 30, 1999, contract revenues increased to $1,714,234, a 17% increase over revenues of $1,467,638 earned during the second quarter of 1998. Likewise, six month revenues in 1999 totaled $3,511,089, an increase of 10% over $3,197,347 earned during the first six months of 1998. The increase was directly related to the number of transactions processed by the Company's equipment. The Company's gross profit margin declined to 40% in the current quarter from 45% in the second quarter of 1998. Gross profit was 41% for the first six months of 1999, as compared with 45% for the same period in 1998. The decline in gross margins is primarily due to increases in the cost of materials and maintenance required to support the Company's contracts. Operating expenses, totaling $451,273 for the current quarter, were down 1% from $457,851 incurred in the second quarter of 1998. A $50,000 increase in selling, general and administrative costs for the quarter was offset by a reduction in research and development expenditures of $56,000. For the six months ended June 30, 1999, operating expenses increased $46,000 over the same period in 1998, primarily due to increased personnel and related costs. 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (continued) Results of Operations (continued) Research and development cost decreased in the current quarter to $17,089 from $73,212 incurred in the second quarter of 1998. Cumulative year to date research and development expenditures totaled $134,353 at June 30, 1999 as compared with $131,741 for the first six months of 1998. The Company is committed to spend another $50,000 in research and development costs for the remainder of the calendar year, although this amount could substantially increase at the discretion of management. The Company will engage in research and development of additional applications of its products in related areas. Interest expense decreased to $374,411 for the first six months of 1999 from $433,629 for a corresponding period in 1998, reflecting the pay down of equipment financing. As a result of these changes, net income totaled $110,543 for the six months ended June 30, 1999, as compared with $92,179 for the same period in 1998, an increase of 20%. Liquidity and Capital Resources Cash flow provided by operations was $719,576 for the six months ended June 30, 1999 versus $1,172,584 provided by operations in the six months ended June 30, 1998. The decrease in cash flow is due primarily to an increased investment in inventory and receivables as a result of adding another state contract. The Company has refinanced its equipment loans and extended the repayment period from November 1999 through December 2000. However, the Company from time to time has used its cash flow from operations after debt service to develop and purchase new printer equipment. Unless the Company secures other forms of debt or equity financing, its cash flows may not be sufficient to meet its operating expenses. Management believes that other sources of financing will be available especially if the Company secures contracts with other states. Significant current debt service is $135,000 per month at 9.35% interest through December 2000. $765,000 in interim financing due September 1999 is expected to be refinanced through February, 2004 at an installment amount of approximately $17,000 per month at 9.5% interest. 8 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (continued) Liquidity and Capital Resources (continued) Contingencies Reference is made to the proposed recissions of a patent purchase agreement discussed in Note 8 of the Notes to Financial Statements in the Company's Annual Report on Form 10-KSB, and recapped below. No material developments occurred since the filing of Form 10-KSB on April 14, 1999. Based upon amounts outstanding as of June 30, 1999, a favorable resolution of this matter will have the following effects (exclusive of settlement costs, if any) on the financial statements of the Company: Decrease in Other Assets 3,216,219 Decrease in Current Liabilities 4,815,702 Increase in Equity 1,599,483 Expenses included in these financial statements related to this matter which would be eliminated by a favorable resolution of this matter are as follows: Six months June 30, Three months June 30, ------------------- --------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Cost of Sales - royalties $ 36,720 $ 35,900 $ 17,232 $ 16,359 Interest expense 160,000 160,000 80,000 80,000 Amortization - patent 139,136 139,136 69,568 69,568 --------- --------- --------- --------- Total $ 335,856 $ 335,036 $ 166,800 $ 165,927 ========= ========= ========= ========= 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings On January 27, 1999, the Company filed a complaint with the Superior Court of the State of California for the County of San Diego case number 727654 against American Registration Systems, Inc. ("ARS") and co-defendants, thereby recording a complaint for rescission of a 1995 Purchase and Sale Agreement between the Company and ARS. The suit challenges the validity of certain material representations made by ARS and its affiliates at the time of the Company's entering into the Purchase and Sale Agreement, and asserts that such agreement was void or voidable due to a variety of defects. The Purchase and Sale Agreement which the Company seeks to rescind provides that the Company shall pay to ARS or its assigns $4,000,000, plus a $0.01 per transaction royalty. Judgement in favor of the Company would result in the cancellation of approximately $4,800,000 of currently outstanding indebtedness. Item 5. Other Information Effect of Inflation and Foreign Currency Exchange The Company has not experienced material unfavorable effects on its results of operations as a result of foreign currency fluctuations or domestic inflation. Year 2000 Issue The Company's management has conducted an assessment of the impact of the Year 2000 issue on its products and operations. Management believes that all of the Company's products and internal operating systems are currently Year 2000 compliant. The Company is also in the process of ascertaining whether strategic vendor relationships will be affected by Y2K, and projects that this assessment will be complete in the third quarter of 1999. The Company has been unable to ascertain whether its governmental customers will be year 2000 compliant. In the event that one or more of the Company's customers experiences a computer system disruption caused by the year 2000 issue, the Company could experience significant loss of revenues until such time as Y2K remediation is accomplished by the customer. The Company will have no control over such remediation efforts or their duration. Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 27 - Financial Data Schedule, filed herewith electronically (b) Reports on Form 8-K None 10 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 13, 1999 11 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND STATEMENTS OF LOSS AND ACCUMULATED DEFICIT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10QSB FOR THE QUARTER ENDED JUNE 30, 1999. 3-MOS DEC-31-1999 JUN-30-1999 709,793 0 672,430 0 332,823 1,756,162 5,857,878 3,981,291 6,963,666 6,913,795 0 0 0 100 (1,378,502) 6,963,666 1,714,234 1,715,813 1,036,561 1,657,032 0 0 169,198 58,781 58,781 58,781 0 0 0 58,781 0.01 0.01
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