================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT ISSUED UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the three months ended March 31, 2000 Commission file Number 0-027073
INTRACO SYSTEMS, INC.
---------------------
(Exact name of registrant as specified in its charter)
Nevada 87-0381511
- ------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation)
3998 Fau Blvd., Suite 210, Boca Raton, Florida 33431
----------------------------------------------------
(Address of principal executive offices)
(561) 367-0600
--------------
Registrant's telephone number, including area code:
-----------------------------------------------------
(Former name or address if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all documents
and reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or 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 [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
On April 30, 2000, the Registrant had outstanding 16,325,469 shares of
common stock, $.001 par value.
================================================================================
<PAGE>
INTRACO SYSTEMS, INC.
INDEX TO THE FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
PAGE
NUMBER
--------
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED BALANCE SHEET -
AS OF MARCH 31, 2000 3
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS -
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 4
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS -
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 5
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 6
----
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7-9
----
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 9
ITEM 2. CHANGES IN SECURITIES 9
ITEM 3. DEFAULTS FROM SENIOR SECURITIES 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
ITEM 5. OTHER INFORMATION 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
----
SIGNATURES 10
----
2
<PAGE>
INTRACO SYSTEMS, INC.
BALANCE SHEET AS OF MARCH 31, 2000 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
Current Assets
<S> <C>
Cash $ 3,964,128
Accounts Receivable, net 556,403
Inventory 20,090
Prepaid Expenses 167,284
-----------
Total Current Assets $ 4,707,905
-----------
Property & Equipment, Net $ 341,765
Other Assets:
Due from shareholder 2,800
Goodwill 82,261
Deposits 15,064
License Agreement, net 44,000
-----------
Total Other Assets $ 144,125
-----------
Total Assets $ 5,193,795
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 191,961
Deferred revenue 286,707
Accrued expenses 147,458
Customer deposits 1,500
Capital lease payable 40,637
Note payable 12,379
Stock issuance cost payable 254,840
-----------
Total current liabilities $ 935,482
===========
Stockholders' Equity:
Series A convertible redeemable preferred stock,
$0.001 par value, 2,500,000 shares authorized and
767,400 shares issued and outstanding, 7% $ 767
Series B convertible redeemable preferred stock,
$0.001 par value, 1,700,000 shares authorized and 989,000 shares issued
and outstanding, with a $1.00 per share preference value and $.997 for
subscriptions over $100,000 989
-----------
Common stock, $.001 par value, 100,000,000 shares
authorized, 16,655,656 shares issued and outstanding 16,655
Additional paid-in capital 7,225,921
Subscription receivable (446,300)
Accumulated deficit (2,566,719)
Outstanding stock options 27,000
-----------
Total stockholders' equity 4,258,313
-----------
Total liabilities and stockholders' equity $ 5,193,795
===========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
INTRACO SYSTEMS, INC.
STATEMENT OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,2000 MARCH 31,1999
(UNAUDITED) (UNAUDITED)
Revenues:
Systems/Networks $ 1,269,496 $ 520,908
Service Contracts 218,368 244,064
------------ ------------
Total Revenues $ 1,487,864 $ 764,972
============ ============
Cost of Revenues:
Systems/Networks $ 1,077,419 $ 450,045
Service Contracts 97,739 117,061
Total Cost of Revenues $ 1,175,158 $ 567,106
============ ============
Gross Profit $ 312,706 $ 197,866
General and Administrative 798,249 367,682
------------ ------------
Profit (Loss) From Operations $ (485,543) $ (169,816)
Interest Income 8,576 112
Interest Expense (8,238) (7,948)
Other Income 2,788 --
------------ ------------
Loss Before Income Taxes $ (482,417) $ (177,652)
============ ============
Provision (benefit) for Income Taxes -- --
------------ ------------
Net Loss $ (482,417) $ (177,652)
============ ============
Net Loss Per Share (Basic and Diluted) $ (0.04) $ (0.02)
============ ============
Weighted Average Number of Shares
Outstanding and to be Issued $ 13,745,374 $ 9,665,200
============ ============
See accompanying notes to condensed financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
INTRACO SYSTEMS, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS
ENDED MARCH 31,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (482,417) $ (177,652)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 24,130 4,801
Changes in assets and liabilities
(Increase) decrease in:
Inventory (3,412) (12,329)
Accounts receivable (20,981) (33,947)
Prepaid expenses (80,889) 19,876
Due from related parties -- 124,243
Increase (decrease) in:
Accounts payable (833,991) 197,436
Deferred revenue 121,213 (69,835)
Customer deposits (2,400) (172,195)
Accrued expenses 147,459 33,191
----------- -----------
Net cash used by operating activities $(1,131,288) $ (86,411)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (125,457) (145)
Investment in intangibles (50,000) --
----------- -----------
Net cash used by investing activities
(175,457) (145)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of stock, net 5,267,695 299,422
Dividends paid (34,861) (1,063)
Repayment of long-term debt (113,686) (52,861)
----------- -----------
Net cash provided by financing activities 5,119,148 245,498
----------- -----------
Net increase in cash 3,812,403 158,942
Cash at beginning of period 151,725 32,245
----------- -----------
Cash at end of period $ 3,964,128 $ 191,187
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 8,238 $ 7,948
=========== ===========
Non-cash transactions affecting financing activities:
Common stock issued for note $ -- $ 866,300
=========== ===========
Accrued stock issuance cost $ 254,840 $ --
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE>
INTRACO SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required for complete financial statements.
In the opinion of management, all adjustments necessary for a fair presentation
of the results for the interim periods presented have been included.
These results have been determined on the basis of generally accepted accounting
principles and practices applied consistently with those used in the preparation
of the Company's Annual Financial Statements for the year ended December 31,
1999. Operating results for the three months ended March 31, 2000, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.
It is recommended that the accompanying condensed financial statements be read
in conjunction with the financial statements and notes thereto included
elsewhere in this filing.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
March 31, 2000
--------------
Leasehold Improvements $ 51,971
Equipment 427,507
Furniture and fixtures 22,260
------------
Total Property and Equipment 501,738
Less: accumulated depreciation (159,973)
------------
Property and equipment, net $ 341,765
============
Depreciation expense for the three months ended March 31, 2000 was $16,746.
NOTE 3 - STOCKHOLDERS' EQUITY
In March 1999, the Company sold 866,300 shares of $0.001 par value common stock
to an investment company at $1.00 per share. At March 31, 2000, the Company
holds an interest-bearing note of $446,300 from the investment company.
In April 1999, CTE, a public shell, acquired all of the outstanding common stock
of the Company. For accounting purposes, the acquisition has been treated as an
acquisition of CTE by the Company and as a recapitalization of the company. As a
result of the recapitalization, the Company is now authorized to issue
100,000,000 shares of common stock.
In March 2000, the Company sold 160,000 shares of $0.001 par value common stock
to an investor at a cost of $1.25 per share with 30,000 warrants exercisable at
$0.75 per warrant. The Company sold 3,474,667 units for $1.50 per unit; each
unit consists of one share of common stock and one warrant exercisable at $1.50
per warrant. Fees associated with the offerings consisted of cash, warrants, and
common stock.
6
<PAGE>
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The following discussion regarding the Company and its business and
operations contains "forward-looking statements" within the meaning of Private
Securities Litigation Reform Act 1995. These statements consist of any statement
other than a recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may," "expect," "anticipate," "estimate" or
"continue" or the negative thereof or other variations thereon or comparable
terminology. The reader is cautioned that all forward-looking statements are
necessarily speculative and there are certain risks and uncertainties that could
cause actual events or results to differ materially from those referred to in
such forward looking statements, including no history of profitable operations,
competition, risks related to acquisitions, difficulties in managing growth,
dependence on key personnel and other factors discussed under "Factors That May
Affect Future Results" in the Company's Form 10-KSB. The Company does not have a
policy of updating or revising forward-looking statements and thus it should not
be assumed that silence by management over time means that actual events are
bearing out as estimated in such forward looking statements.
The following discussion and analysis should be read in conjunction
with the financial statements appearing as Item 1 to this Report. These
financial statements reflect the operations of Intraco Systems, Inc. for the
three months ended March 31, 2000 and 1999.
RESULTS OF OPERATIONS
GENERAL
Intraco is an integrator of advanced speech recognition technologies
and believes it is well positioned to remain a leading provider of voice enabled
solutions. Intraco's competitive advantage lies in its unique ability to combine
extensive in-house expertise with leading speech recognition technologies (i.e.
voice browsers, natural language engines) to create first-to-market,
comprehensive commercial solutions. Intraco plans to deliver these high value,
high margin, advanced technology solutions to small- and mid-sized businesses
such as websites/e-commerce companies and catalog-based retailers and larger
businesses such as telecommunications companies. Ultimately, these solutions
will voice enable a wide range of applications such as websites e-commerce,
catalog ordering, auctioning, paging, e-mail and unified messaging.
Intraco is currently seeking to execute an aggressive growth strategy
which includes both internal (product, sales and marketing expansion) and
external (mergers and acquisitions) strategies. Intraco is currently seeking to
acquire companies in the Telecommunications, Internet Development and Network
Systems Integration areas. Additionally, Intraco, through relationships it has
established with Motorola, Unisys and Phonetic Systems, will incorporate new
products and technologies into its product offering including phone access to
Internet websites and voice recognition driven auto-attendant products.
7
<PAGE>
Intraco was incorporated in Florida in March 1990. In April 1999,
Intraco completed an exchange agreement with Custom Touch Electronics, Inc.
("CTE"), a Nevada corporation with no material operations whose common stock
traded on the OTC Bulletin Board, pursuant to which all outstanding shares of
Intraco capital stock were exchanged for 10,531,500 CTE shares. The prior
shareholders and promoters of CTE hold 2,429,489 shares and the Intraco
shareholders at the time of the exchange hold 10,531,500 shares. As a result,
Intraco Systems became a wholly-owned subsidiary of CTE and CTE changed its name
to Intraco Systems, Inc. All references in this document to "Intraco" refer to
the Nevada parent and the Florida subsidiary.
RESULTS OF OPERATIONS
Revenues. Revenues increased 94.5% from $764,972 for the three months
ended March 31, 1999 to $1,487,864 for the three months ended March 31, 2000.
This increase was primarily due to a $748,588 increase in systems/networks
revenues offset by a decrease of $25,696 in service contract revenues. Systems
network revenues accounted for approximately 85% of revenues in the 2000 period
compared to 68% in the 1999 period.
Cost of revenues. Cost of revenues increased 107.2% to $1,175,158 for
the three months ended March 31, 2000 as compared to $567,106 for three months
ended March 31, 1999. Cost of systems were $1,077,419 or 84.9% of systems
revenues for the three months ended March 31, 2000, compared to $450,045 or
86.4% of systems revenue for the corresponding period in 1999. Cost of service
contracts were $97,739 or 44.8% of service contract revenue for the three months
ended March 31, 2000, compared to $117,061 or 48.0% for the corresponding period
in 1999. Intraco continues to be impacted by the margin pressure on hardware
being experienced throughout the industry. Intraco expects this situation to
improve as a greater proportion of sales comes from the newer product offerings.
These include computer telephony, speech recognition, application service
provider (ASP) and others. Although there can be no assurance that this strategy
will prove successful, management believes it is necessary for Intraco's long
term viability.
Selling, general and administrative. Selling, general and
administrative expenses for the three months ended March 31, 2000 were $798,249
compared to $367,862 for the three months ended March 31, 1999, an increase of
$430,567 or 117%. Of the dollar increase, $284,680 represented increased payroll
costs in connection with the hiring of additional personnel to prepare Intraco
to enter new markets and to deliver the new products and services, $23,957
primarily represented increased professional fees, and $39,082 represented
increased insurance costs. The remaining increase was attributable to additional
selling, general and administrative expenses.
Interest income. Interest income, net of interest expense, increased by
$8,173 to $338 for the three months ended March 31, 2000 as compared to net
interest expense of $7,836 for the three months ended March 31, 1999.
Net loss. As a result of the foregoing, Intraco reported a net loss of
$482,417 for the three months ended March 31, 2000 compared to a net loss of
$177,652 for the three months ended March 31, 1999, an increase of $304,765.
LIQUIDITY AND CAPITAL RESOURCES
Intraco has incurred significant losses and has substantial negative
cash flow from operations. Intraco's independent auditors have included a
footnote in their annual report for the year ended December 31, 1999, which
expresses concern about Intraco's ability to continue as a going concern unless
sales increase and/or additional investment capital is raised. Intraco expects
8
<PAGE>
significant operating losses to continue at least during the first half of 2000.
During the three months ended March 31, 2000, Intraco received approximately
$5.4 million from equity private placements and is currently offering preferred
stock to institutional investors in a private offering. Intraco will require
additional funding to cover current operations and the implementation of its
business plan. There can be no assurance that additional funds will be raised
through these offerings or otherwise.
At March 31, 2000, Intraco's current assets were $4,707,905 and current
liabilities were $935,482. There were no long term liabilities. Management is
aggressively seeking to raise additional investment capital, both for working
capital (current obligations) as well as to finance its growth and acquisition
strategy. Although there can be no assurance that management will be successful
in securing the needed capital, management is in discussion with potential
investors and is optimistic that additional funding will be available.
Intraco had $3,964,128 of cash on hand at March 31, 2000, compared to
$151,725 at December 31, 1999. Net cash used in operations for the three months
ended March 31, 2000, was $1,131,288. Of this, $833,991 was used to pay down
overdue trade payables and $113,686 to repay debt. The deficit was funded by the
sale of common stock.
Intraco intends to pursue expansion and acquisition plans, which may
include the opening of additional facilities, both domestically and
internationally, as well as the acquisition of additional facilities and/or
companies. The success and timing of any such plans and required capital
expenditures are unpredictable and Intraco has no current arrangements with
respect to any such acquisition. Funding for such plans could be a combination
of issuance of additional equity, additional borrowings and profits from
operations. Intraco cannot make any assurances that such funding would become
available for such plans. Also, because Intraco is operating at a loss, it will
need to secure additional funding to continue existing operations. No assurance
can be made that such funding will be forthcoming and if forthcoming, be
available at reasonable rates.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Banker's Leasing Association filed a suit against Intraco and Jack
Berger in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm
Beach County, Florida for breach of a Master Lease Agreement and personal
guaranty related to computer equipment, software and services leased by Intraco
for the amount of $71,608. Intraco filed a counterclaim based on Banker's
failure to provide services agreed to in the lease and breach of fiduciary duty.
Banker's has answered Intraco's counterclaim and has now filed suit against AIM
Solutions, Inc., as successor to Enterprises Solutions Group, Inc., the third
party responsible for setting up the computer equipment and software and
providing services. In its answer, AIM has denied Banker's allegations and has
raised affirmative defenses. Discovery has not yet commenced.
Item 2. CHANGES IN SECURITIES
During the three months ended March 31, 2000, Intraco sold 3,474,667
units for $4,805,799 net of cash fees to a total of 11 accredited investors.
Each unit consisted of one share of common stock and one warrant to purchase one
share of common stock at $1.50. The sale of the units was exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
4(2) thereof, as a transaction not involving a public offering.
During the three months ended March 31, 2000 Intraco sold 160,000
shares of restricted common stock for $200,000 to one accredited investor. The
sale was exempt from registration under the Securities Act of 1933, as amended,
9
<PAGE>
pursuant to Section 4(2) thereof, as a transaction not involving a public
offering.
During the three months ended March 31, 2000 Intraco issued 196,560
shares of restricted common stock as payment of fees.
Item 3. DEFAULTS FROM 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 required by Item 601 of Regulation S-B - none
(b) None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on behalf by the
undersigned thereunto duly authorized.
INTRACO SYSTEMS, INC.
Dated: May 11, 2000 By: /s/ JACK BERGER
------------------------------
Jack Berger President
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH UNAUDITED FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001075907
<NAME> INTRACO SYSTEMS, INC.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 3,964,128
<SECURITIES> 0
<RECEIVABLES> 556,403
<ALLOWANCES> 0
<INVENTORY> 20,090
<CURRENT-ASSETS> 4,707,905
<PP&E> 501,738
<DEPRECIATION> (159,973)
<TOTAL-ASSETS> 5,193,795
<CURRENT-LIABILITIES> 935,482
<BONDS> 0
0
1,756
<COMMON> 16,655
<OTHER-SE> 4,239,902
<TOTAL-LIABILITY-AND-EQUITY> 5,193,795
<SALES> 1,487,864
<TOTAL-REVENUES> 1,487,864
<CGS> 1,175,158
<TOTAL-COSTS> 1,973,407
<OTHER-EXPENSES> (2,788)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (338)
<INCOME-PRETAX> (482,417)
<INCOME-TAX> 0
<INCOME-CONTINUING> (482,417)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (482,417)
<EPS-BASIC> 0
<EPS-DILUTED> (.04)
</TABLE>
