U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Amendment No. 1)
(Mark One)
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 2000
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _____________ to ______________.
Commission File Number 0-027073
INTRACO SYSTEMS, INC.
---------------------------------------
(Exact name of small business issuer as
specified in its charter)
Nevada 87-0381511
--------------------------------------- ----------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
3998 FAU Boulevard, Suite 210
Boca Raton, FL 33431
-------------------------------------------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code: (561) 367-0600
--------------
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 [ ]
State the number of shares outstanding of each of the Issuer's classes
of common equity, as of the latest practical date: At November 13, 2000, there
were outstanding 17,386,250 shares of Common Stock, $.01 par value per share.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
TABLE OF CONTENTS
PAGE
PART I
Item 1. Financial Statements:
Condensed Balance Sheet as of September 30, 2000 (Unaudited)........1
Condensed Statements of Operations for the Three and Nine
Months ended September 30, 2000 and 1999 (Unaudited)...........3
Condensed Statements of Cash Flows for the Nine Months ended
September 30, 2000 and 1999 (Unaudited)........................4
Notes to Condensed Financial Statements.............................5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..........................................7
PART II
Item 1. Legal Proceedings..................................................12
Item 2. Changes In Securities and Use of Proceeds..........................12
Item 3. Defaults Upon Senior Securities....................................12
Item 4. Submission of Matters to a Vote of Security Holders................12
Item 5. Other Information..................................................12
Item 6. Exhibits and Reports on Form 8-K...................................12
Signatures...................................................................14
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTRACO SYSTEMS, INC.
CONDENSED BALANCE SHEET
SEPTEMBER 30, 2000
(UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $1,316,780
Accounts receivable, net 785,624
Inventory 56,197
Prepaid expenses 81,779
----------
Total current assets 2,240,380
----------
Property and equipment, net 1,026,794
Other assets:
Due from related party 6,907
Goodwill, net 80,596
Deposits 18,184
License agreement, net 18,667
----------
Total other assets 124,354
----------
Total assets $3,391,528
==========
See accompanying notes to condensed financial statements.
1
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<TABLE>
<CAPTION>
INTRACO SYSTEMS, INC.
CONDENSED BALANCE SHEET
SEPTEMBER 30, 2000
(UNAUDITED)
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current liabilities:
Accounts payable $ 416,363
Deferred revenue 143,030
Accrued expenses 227,799
Customer deposits 31,458
Capital lease payable 9,830
Stock issuance cost payable 254,840
-----------
Total current liabilities 1,083,320
-----------
Capital lease payable 23,885
-----------
Stockholders' equity:
Series A convertible redeemable preferred stock, $0.001 par
value, 2,500,000 shares authorized and 396,500 shares issued
and outstanding, 7%
cumulative, with a $1.00 per share preference value 397
Series B convertible redeemable preferred stock,
$0.001 par value, 1,700,000 shares authorized and 972,400
shares issued and outstanding, with a $1.00 per share
preference value and $.997 for subscriptions
over $100,000 972
Common stock, $0.001 par value, 100,000,000 shares
authorized, 17,386,250 shares issued and outstanding 17,386
Additional paid-in capital 7,290,741
Accumulated deficit (5,052,173)
Outstanding stock options 27,000
-----------
Total stockholders' equity 2,284,323
-----------
Total liabilities and stockholders' equity $ 3,391,528
===========
</TABLE>
See accompanying notes to condensed financial statements.
2
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INTRACO SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenues:
Systems/networks $ 1,156,616 $ 209,726 $ 3,860,396 $ 1,597,149
Service contracts 108,318 114,030 496,887 426,078
------------ ------------ ------------ ------------
Total revenues 1,264,934 323,756 4,357,283 2,023,227
------------ ------------ ------------ ------------
Cost of revenues:
Systems/networks 1,155,623 178,864 3,327,462 1,201,129
Service contracts 87,191 38,855 299,762 246,346
------------ ------------ ------------ ------------
Total cost of revenues 1,242,814 217,719 3,627,224 1,447,475
------------ ------------ ------------ ------------
Gross profit 22,120 106,037 730,059 575,752
General and administrative 1,612,139 619,841 3,775,593 1,381,038
------------ ------------ ------------ ------------
Loss from operations (1,590,019) (513,804) (3,045,534) (805,286)
------------ ------------ ------------ ------------
Interest income 53,937 8,487 82,568 27,647
Interest expense (636) (12,753) (14,312) (31,094)
Other income 5,074 -- 9,408 --
------------ ------------ ------------ ------------
Loss before income taxes (1,531,644) (518,070) (2,967,870) (808,733)
Provision (benefit) for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net loss $ (1,531,644) $ (518,070) $ (2,976,870) $ (808,733)
============ ============ ============ ============
Net loss per share (basic and diluted) (0.09) (0.04) (0.18) (0.07)
============ ============ ============ ============
Weighted average number of shares
outstanding and to be issued 17,191,684 11,830,739 16,124,235 11,830,739
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
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INTRACO SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
--------------------------------------------------------------------------------
For the nine months
ended September 30,
---------------------------
2000 1999
----------- ------------
Cash flows from operating activities:
Net loss $(2,967,870) $ (808,733)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 134,765 17,308
Issuance of common stock for services 401,336 --
Changes in assets and liabilities
(Increase) decrease in:
Inventory (39,519) 35,899
Accounts receivable (250,202) (136,075)
Interest receivable -- (25,208)
Note receivable - related party -- 74,963
Prepaid expenses 4,616 81,024
Due from related party (6,907) 46,480
Due from shareholder --
Security deposits (3,120) (4,245)
Increase (decrease) in:
Accounts payable (609,589) 444,076
Deferred revenue (22,464) (24,917)
Customer deposits 27,558 (152,173)
Accrued expenses 227,799 43,656
----------- -----------
Net cash (used) by operating activities $(3,103,596) $ (407,945)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (894,123) (97,118)
Purchase of license agreement (50,000) --
----------- -----------
Net cash (used) by investing activities (944,123) (97,118)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of stock, net 5,369,869 957,517
Dividends paid (26,907) (1,092)
Repayment of long-term debt (130,188) (196,351)
Costs associated with recapitalization -- (283,153)
----------- -----------
Net cash provided by financing activities 5,212,774 476,921
----------- -----------
Net increase in cash 1,165,055 (28,142)
Cash at beginning of period 151,725 32,245
----------- -----------
Cash at end of period $ 1,316,780 $ 4,103
=========== ===========
See accompanying notes to condensed financial statements.
4
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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 310 of Regulation S-B. 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. Such
adjustments consist of normal recurring accruals and other adjustments.
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 nine months ended September 30, 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:
SEPTEMBER 30,
2000
-----------
Leasehold improvements $ 57,908
Equipment 1,190,236
Furniture and fixtures 22,260
-----------
Total property and equipment 1,270,404
Less: accumulated depreciation (243,610)
-----------
Property and equipment, net $ 1,026,794
===========
Depreciation expense for the nine months ended September 30, 2000 was $101,243.
NOTE 3 - STOCKHOLDERS' EQUITY
In April 1999, CTE, an inactive public company, 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. The exchange ratio of common shares was one-for-one. The estimated fair
market value of the net assets acquired was $1,005. 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 approximately 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 approximately 3,475,000 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. The warrants were issued to the
outside investors and considered a cost of raising capital, and the discount of
$.50 per warrant or $15,000, for the 30,000 warrants has been included in
addtional paid-in capital.
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INTRACO SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
================================================================================
NOTE 3 - STOCKHOLDERS' EQUITY, continued
During the nine months ended September 30, 2000, Intraco issued 50,000 shares of
restricted common stock as settlement of an employment contract. The 50,000
shares issued for services were valued at the fair market value of Intraco's
common stock on the date of issuance or $1.97 per share, the quoted market price
on the close of the prior day. The $98,400 has been included in current year
general and administrative expense.
During the nine months ended September 30, 2000, Intraco issued 198,560 shares
of restricted common stock as payment of fees and issued 95,115 shares of
restricted common stock to one employee and five former employees in connection
with the exercise of stock options. The 198,560 shares issued for services were
valued at the fair market value of Intraco's common stock at the date of
issuance or $1.53 per share, the quoted market price on the close of the prior
day. The $302,936 has been included in current year general and administrative
expense.
During the nine months ended September 30, 2000, preferred stock holders
converted 388,000 shares of preferred stock to common stock.
NOTE 4 - LICENSE AGREEMENT
The Company obtained a software license agreement in March of 2000 and it is
being amortized over 1 year, using the straight-line method. The Company
assesses whether its intangible assets are impaired as required by SFAS No. 21,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" based on an evaluation of undiscounted projected cash flows
through the remaining amortization period. If impairment exists, the amount of
such impairment is calculated on the estimated fair value of the assets.
6
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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 Intraco Systems, Inc. (the
"Company" or "Intraco") and its business and operations contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 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 or other variations thereof 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, dependence on key personnel and other factors discussed under the
section titled "Management's Discussion and Analysis or Plan of Operations --
Factors That May Affect Future Results" in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999. 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
occurring 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 the Company for the nine months
and three months ended September 30, 2000 and 1999.
GENERAL
Intraco is an information technology service provider. Its products
and services include computer hardware, computer networks, speech recognition
products and services, and voice-activated products and services. Intraco is in
the process of attempting to shift its business focus from direct sales of
computer hardware and computer networks to be installed on customer premises to
providing speech recognition and voice command products delivered from Intraco
data centers for recurring monthly fees. This manner of providing products and
services from a remote location for a recurring service charge is referred to as
being an "application service provider."
At present, Intraco has established two data centers, one in New York
City and another in Boca Raton, Florida. Both of these data centers are equipped
to deliver Intraco's new services. Intraco's current speech and voice services
include a speech recognition telephone "operator" that answers incoming
telephone calls and directs them to the appropriate extension by responding to
the caller's voice request and a voice-activated telephone dialing system that
places outgoing calls. Intraco has begun signing contracts with customers for
the sale of some of these new services and for the testing of others.
Management believes Intraco's competitive advantage lies in its
ability to combine its in-house expertise with leading speech recognition
technologies available from third parties, including voice browsers and natural
language engines, to create comprehensive packages of technology and voice
services for a variety of businesses. Management believes the major market for
these services is small- to medium-sized businesses and branch offices of larger
companies. Intraco's primary sales channel for these new products will be
through telecommunications companies with only a relatively small portion of its
sales coming from direct sales from its own sales force. At present, Intraco is
testing the "operator" and the voice-activated dialer with a client that is
assessing its services. Intraco expects test results to be available during the
first quarter of 2001.
By January 31, 2001, Intraco will require additional funding to pay
its current operating expenses as well as to continue selling, marketing,
testing and installation of its new products. Intraco's operating expenses total
approximately $350,000 per month. The total funds it will need will depend on
both the length of time it takes to raise the funds as well as the rate at which
Intraco's new products gain acceptance in the marketplace. Management believes
that the faster Intraco can generate revenues from its new products, the more
operating profit will become available to offset some of Intraco's cash
requirements for its operations. Intraco has only recently started to generate
limited
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revenues from these new products, however, and there can be no assurance it will
be able to generate sufficient revenues from these new products in order to fund
all or a part of its operating expenses. Intraco is also unable to estimate when
sufficient revenues may be generated by sales of its new products. Therefore,
Intraco is actively seeking a capital infusion of approximately $5 million,
which it believes will provide substantially all of the funding needed to meet
its operating expenses and its product development and testing cash needs, while
Intraco develops additional sales channels so as to increase its sales to
profitable levels. There can be no assurances that Intraco will be able to
increase Intraco's sales to profitable levels.
Management is in the process of identifying potential private
investors for a private equity investment and a private debt offering. The
specific terms of any investment have not yet been negotiated with the potential
investors. Intraco may also obtain funds through the exercise of certain
outstanding warrants. There can be no assurances, however, that it will be able
to complete any offerings or that any warrant holders will exercise their
warrants. As of the date of this report, the trading price of Intraco's common
stock is below the exercise prices of its outstanding warrants. If Intraco is
not able to raise the required capital, then it will reduce operations, seek a
potential acquirer and/or discontinue operations.
Intraco was incorporated in Florida in March 1990. In April 1999, it
completed a share exchange with Custom Touch Electronics, Inc., a Nevada
corporation with no material operations whose common stock traded on the OTC
Bulletin Board. Pursuant to the share exchange, all of the outstanding shares of
Intraco capital stock were exchanged for 10,531,500 Custom Touch shares.
Thereafter, Custom Touch changed its name to Intraco Systems, Inc.
RESULTS OF OPERATION
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999.
REVENUES. Revenues increased $2,334,056, or 115%, to $4,357,283 for
the nine months ended September 30, 2000 from $2,023,227 for the nine months
ended September 30, 1999. This increase was due to two major factors. One factor
was an unusually large systems/networks sale of $1,079,045 to a single customer
(Insci-Statements.com Corp), and the second factor was an increase in the sales
and marketing staff to 16 people for the nine months ended September 30, 2000
from six people for the corresponding period in 1999. Although Intraco is
attempting to shift its business focus away from its systems/networks products
and service contracts, management anticipates that its systems/networks revenues
will continue to constitute a significant portion of Intraco's revenues in the
future.
COST OF REVENUES. Cost of revenues increased 149.2% to $3,627,224 for
the nine months ended September 30, 2000 from $1,447,475 for the nine months
ended September 30, 1999. This increase reflects Intraco's increased sales and
also increased competition, which limits Intraco's ability to mark-up the
hardware and software sold. Cost of systems/networks revenues totaled
$3,327,462, or 86.2%, of systems/networks revenues for the nine months ended
September 30, 2000, compared to $1,201,129, or 75.2%, of systems/networks
revenues for the corresponding period in 1999. Cost of service contracts were
$299,762, or 60.3%, of service contract revenues for the nine months ended
September 30, 2000, compared to $246,346, or 57.8%, for the corresponding period
in 1999. The cost of service contracts has increased as a result of higher labor
charges for services Intraco contracts out.
The overall gross profit margins for the nine months ended September
30, 2000 and 1999 were 17% and 29%, respectively. The profit margins on
Intraco's systems/networks products and service contracts continue to erode due
to increased competition, which limits Intraco's ability to mark-up the hardware
and software it sells, and increased labor costs. The profit margins have,
therefore, been below management's targets of 35% on systems/networks products
and service contracts and 50% on new products. As a result, management is
directing more resources toward developing products and services with higher
profit margins. Management currently believes its voice-activated products can
be sold at higher margins. As a greater portion of total revenues begins to be
derived from newer product offerings such as the voice-activated auto attendant
and telephone dialer, management expects the overall margins to improve. As of
September 30, 2000, the Company was testing its new products but had not made
any sales of these products; therefore, Intraco's operating results do not yet
reflect any changes in operating strategy. There can be no assurances that this
strategy will prove successful.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the nine months ended September 30, 2000 were
$3,775,593, compared to $1,381,038 for the nine months ended September 30, 1999,
an increase of $2,394,555 or 173.4%. Of the dollar increase, $1,506,429
represented increased payroll and commission costs in connection with the hiring
of nine additional engineers, ten additional sales and marketing staff, and two
additional administrative personnel to begin developing new products and
services, entering new markets and continuing to sell existing products; $74,700
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represented recruiting fees in connection with the hiring of sales and
engineering personnel; $79,820 represented increased professional fees; $114,126
represented increased public relations costs in connection with engaging a
public relations firm; $56,197 represented increased advertising expenses;
$95,868 represented increased directors and officers, health and workmen's
compensation insurance costs; $117,457 reflects increased levels of depreciation
and amortization due to capital investments; $63,327 represented increased
network service charges for the new data centers; and $98,400 represented a
one-time charge for the settlement of an employment contract. The remaining
increase was attributable to other additional selling, general and
administrative expenses.
INTEREST INCOME. Interest income, net of interest expense, increased
by $71,703 to $68,256 for the nine months ended September 30, 2000 as compared
to net interest expense of $3,447 for the nine months ended September 30, 1999,
reflecting the interest earned on deposits and the repayment of long-term debt.
NET LOSS. As a result of the foregoing, Intraco reported a net loss of
$2,967,870 for the nine months ended September 30, 2000 compared to a net loss
of $808,733 for the nine months ended September 30, 1999, an increase of
$2,159,137.
ACCOUNTS RECEIVABLE. Accounts receivable increased $724,127 to
$791,681, or 1072%, for the period ended September 30, 2000 from $67,554 for the
period ended September 30,1999. This increase primarily reflected Intraco's
greater revenues from systems/networks sales in the first three quarters of 2000
as compared to the corresponding period in 1999, but also reflects an increase
in the average days outstanding of Intraco's accounts receivable. The average
number of days outstanding for the 2000 period was 41 and for the 1999 period
was eight. This increase represents a slowing of payments that management
believes was in response to general economic conditions. Management does not at
this time believe this represents a significant impairment in the collectibility
of these receivables, although management is monitoring this closely.
ACCOUNTS PAYABLE. Accounts payable decreased $ 360,189, or 46.3%, to
$416,363 for the period ended September 30, 2000 from $776,552 for the period
ended September 30, 1999. The decrease was due to the use of a portion of the
net proceeds from Intraco's private offering in March 2000 to pay down
outstanding trade payables. Intraco was able to reduce accounts payable to a
current status. As a result of prior credit issues, we are required to maintain
current payment terms with our vendors.
PROPERTY AND EQUIPMENT. Property and equipment increased $983,047, or
342%, to $1,270,404 for the period ended September 30, 2000 from $287,357 for
the period ended September 30, 1999. The increase was due to the investment in
additional equipment to support our new speech and telecommunication services.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1999
REVENUES. Revenues increased 291% to $1,264,934 for the three months
ended September 30, 2000 from $323,756 for the three months ended September 30,
1999. This increase was primarily due to an increase in the sales and marketing
staff to 16 people for the three months ended September 30, 2000 from six people
for the corresponding period in 1999. Although Intraco is attempting to shift
its business focus away from its systems/networks products and service
contracts, management anticipates that its systems/networks revenues will
continue to constitute a significant portion of Intraco's revenues in the
future.
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COST OF REVENUES. Cost of revenues increased 471% to $1,242,814 for
the three months ended September 30, 2000, from $217,719 for the three months
ended September 30, 1999. This increase reflects Intraco's increased sales and
also increased competition which limits Intraco's ability to mark-up the
hardware and software sold. In addition $117,000 of the dollar increase
represents an adjustment to inventory. The cost of revenues in the prior period
was understated by this adjustment. For the three months ended September 30,
2000 the cost of systems/networks were $1,155,623, or 99.9%, including the
inventory adjustment, and $1,038,623, or 89.8%, excluding the inventory
adjustment, of systems/networks revenue compared to $178,864, or 85.3%, of
systems/networks revenue for the corresponding period in 1999. Cost of service
contracts was $87,191, or 80.5%, of service contract revenue for the three
months ended September 30, 2000, compared to $38,855, or 34.1%, for the
corresponding period in 1999. The cost of service contracts has increased as a
result of higher labor charges for services Intraco contracts out.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended September 30, 2000 were
$1,612,139 compared to $619,841 for the three months ended September 30, 1999,
an increase of $992,298 or 160.1%. Of the dollar increase, $566,259 represented
increased payroll and commission costs in connection with the hiring of nine
additional engineers, ten additional sales and markeitng staff, and two
additional administrative personnel to begin developing new products and
services, entering new markets and continuing to sell existing products; $21,017
represented increased professional fees; $57,321 represented increased public
relations costs in connection with engaging a public relations firm; $64,522
reflects increased levels of depreciation and amortization due to capital
investments; $63,327 represented increased network charges for the new data
centers; and $98,400 represented a one-time charge for the settlement of an
employment contract. The remaining increase was attributable to other additional
selling, general and administrative expenses.
INTEREST INCOME. Interest income, net of interest expense, increased
by $57,567 to $53,301 for the three months ended September 30, 2000 as compared
to net interest expense of $4,266 for the three months ended September 30, 1999,
reflecting the interest earned on deposits and the repayment of long-term debt.
NET LOSS. As a result of the foregoing, Intraco reported a net loss of
$1,531,644 for the three months ended September 30, 2000, compared to a net loss
of $518,070 for the three months ended September 30, 1999, an increase of
$1,013,574.
LIQUIDITY AND CAPITAL RESOURCES
Intraco has incurred significant losses and has substantial negative
cash flow from operations. Intraco has included a footnote in its annual
financial statements 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
significant operating losses to continue at least during the first half of 2001.
Intraco received approximately $5.4 million from equity private placements
during the first half of 2000. Intraco will require additional funding to cover
current operations and the implementation of its business plan after January 31,
2001. Intraco is actively seeking additional financing, which may be either debt
or equity financing. There can be no assurance that any additional financing
will be raised or if raised, on favorable terms.
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At September 30, 2000, Intraco's current assets totaled $2,240,380 and
current liabilities totaled $1,083,320. Intraco had long-term liabilities of
$23,885 at September 30, 2000. Management is seeking to raise additional
investment capital, both for working capital 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.
Intraco had $1,316,780 in cash on hand at September 30, 2000, compared
to $151,725 at December 31, 1999. Operating activities for the nine months ended
September 30, 2000 used cash of $3,103,596 primarily due to an increase in
accounts receivable of $250,202 in support of increased revenues, the payment of
trade payables of $609,589 and the net loss of $2,967,870. Net cash used in
investing activities was $944,123, reflecting the purchase of fixed assets and a
licensing agreement. Financing activities provided cash in the amount of
$5,212,774 primarily due to issuance of capital stock of $5,369,869, which was
partially offset by repayment of $130,188 of long-term debt.
Because of delays Intraco has experienced in obtaining the additional
financing required, Intraco has suspended any plans for expansion through
acquisitions or otherwise. Accordingly, Intraco has no material commitments for
capital expenditures at the present time. Because Intraco is operating at a
loss, however, it must secure additional funding to continue its current
operations. No assurance can be made that such funding will be available and, if
available, that such funding will be available on terms acceptable to Intraco.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 29, 1999, Banker's Leasing Association ("Banker's") 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. ("AIM"), 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 AND USE OF PROCEEDS
In August 2000, Intraco issued 36,487 shares of restricted common
stock to two former employees upon the employees' exercise of stock options
granted to the employees under Intraco's stock option plan in connection with
their employment with Intraco. Intraco did not receive any proceeds from the
exercise of the options because the optionholders used the cashless exercise
method. The stock options were valued at an aggregate of $125,625. The shares
were issued pursuant to an exemption from registration under Sections 3(a)(9)
and 4(2) of the Securities Act. The individuals had access to the Company's
reports filed pursuant to the Exchange Act and a copy of the stock option plan
and were familiar with Intraco's operations and financial condition. Intraco did
not pay any fees or commissions in connection with these issuances.
From February 2000 to September 2000, Intraco issued 388,000 shares of
common stock to preferred shareholders who converted a like number of shares of
preferred stock. The shares were issued pursuant to an exemption from
registration under Section 3(a)(9) of the Securities Act.
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:
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EXHIBIT NO. DESCRIPTION OF EXHIBIT
------------------------- ---------------------------------------------------
27 Financial Data Schedule (SEC Use Only)
(b) Reports on Form 8-K:
Intraco did not file any current reports on Form 8-K for the quarter
ended September 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused Amendment No. 1 to this Report to be signed on
behalf by the undersigned thereunto duly authorized.
INTRACO SYSTEMS, INC.
Dated: January 17, 2001 By: /s/ WALT NAWROCKI
------------------------------------
Walt Nawrocki
Chief Executive Officer and Director
(Principal Executive Officer)
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