<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 2O549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark one)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000 or
-------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 000-30-543
I.T. TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
Delaware 98-0200077
------------------------------ -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
34-36 Punt Road Windsor Melbourne Victoria, 3181 Australia
----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
011 (613)9533-7800
------------------
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 the past 90 days.
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. There were 16,500,000
outstanding shares of Common Stock as of September 11, 2000.
<PAGE> 2
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
CONSOLIDATED BALANCE SHEETS F-1
CONSOLIDATED STATEMENTS OF OPERATIONS F-2
CONSOLIDATED STATEMENT OF CASH FLOWS F-3
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-4 - F-12
</TABLE>
<PAGE> 3
I.T. TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31,1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 302,711 $ 2,179,998
Prepaid expenses 13,223 -
----------- -----------
315,934 2,179,998
PROPERTY AND EQUIPMENT, net 639,164 649,021
INVESTMENT IN STAMPVILLE.COM INC 1,811,144 2,323,922
INVESTMENT IN VIDEO DOME 150,000 -
DEFERRED OFFERING COSTS 495,422 33,682
----------- -----------
Total assets $ 3,411,664 $ 5,186,623
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 27,112 $ 28,001
Note payable due to Ledger Technologies Pty Ltd 300,000 -
Accrued expenses 47,346 40,331
Payable due to Stampville.Com Inc 446,438 1,425,508
----------- -----------
Total current liabilities 820,896 1,493,840
PAYABLE TO STAMPVILLE.COM INC.-less current portion 316,874 584,369
NOTE PAYABLE 421,330 455,848
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Preferred stock, par value $.001; authorized 25,000,000
shares, no shares issued and outstanding -- --
Common stock, par value $.001; authorized 100,000,000
shares issued and outstanding 16,500,000 share respectively 16,500 16,500
Additional paid-in capital 3,055,509 3,055,509
Deficit accumulated during the development stage (1,219,445) (419,443)
----------- -----------
1,852,564 2,652,566
----------- -----------
$ 3,411,664 $ 5,186,623
=========== ===========
</TABLE>
The accompanying condensed notes are an integral
part of these consolidated financial statements.
F-1
<PAGE> 4
I.T. TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS ENDED SIX MONTHS ENDED FEBRUARY 2,
JUNE 30, JUNE 30, 1999 (INCEPTION)
---------------------------- ----------------------------- THROUGH
2000 1999 2000 1999 JUNE 30, 2000
------------ ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Income and (expenses)
Foreign currency
transaction gain $ 11,568 $ 13,298 $ 35,564 $ 13,298 $ 52,597
Other income 4,416 - 4,416 - 4,416
Interest, net (120,885) - (112,583) - (103,409)
Legal and professional
fees (16,284) (54,343) (59,982) (54,343) (185,669)
Salaries (75,152) - (105,975) - (172,593)
Travel and entertainment (16,761) (3,177) (22,503) (3,177) (56,178)
Equity in loss of
Stampville.Com Inc. (246,089) - (512,778) - (698,733)
Other expense (5,057) (663) (26,161) (663) (59,876)
------------ ------------ ------------ ------------ ------------
NET LOSS $ (464,244) $ (44,885) $ (800,002) $ (44,885) $ (1,219,445)
============ ============ ============ ============ ============
Basic and diluted loss per common share $ (0.03) $ (0.00) $ (0.05) $ (0.00)
============ ============ ============ ============
Weighted-average shares outstanding 16,500,000 12,150,000 16,500,000 12,150,000
============ ============ ============ ============
</TABLE>
The accompanying condensed notes are an integral
part of these consolidated financial statements.
F-2
<PAGE> 5
I.T. TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS ENDED FEBRUARY 2,
JUNE 30, 1999 (INCEPTION)
---------------------------- THROUGH
2000 1999 JUNE 30, 2000
----------- ----------- ---------------
<S> <C> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Net loss $ (800,002) $ (44,885) $(1,219,445)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities
Depreciation and amortization 18,142 65 32,994
Amortization of debt discount 109,685 - 109,685
Equity in losses of Stampville.Com Inc. 512,778 - 698,733
Increase in prepaid expenses (13,223) - (13,223)
Increase in accounts payable (889) 41,048 27,112
Increase in accrued expenses 7,015 - 47,346
Nonmonetary compensation - 7,500 7,500
----------- ----------- -----------
Net cash (used in) provided by operating
activities (166,494) 3,728 (309,298)
----------- ----------- -----------
Cash flows from investing activities:
Payment to Stampville.Com Inc. (1,000,000) (100,000) (1,500,000)
Investment in Video Dome (150,000) - (150,000)
Purchase of property plant & equipment (8,285) (2,157) (216,310)
----------- ----------- -----------
Net cash used in investing activities (1,158,285) (102,157) (1,866,310)
----------- ----------- -----------
Cash flows from financing activities:
Payments to Stampville (356,250) - (356,250)
Proceeds from issuance of common stock - 392,790 3,064,509
Proceeds from Note payable -- Ledger Technologies 300,000 - 300,000
Increase in deferred offering costs (461,740) - (495,422)
----------- ----------- -----------
Net cash (used in) provided by
financing activities (517,990) 392,790 2,512,837
----------- ----------- -----------
Effect of exchange rate changes on note payable (34,518) - (34,518)
----------- ----------- -----------
Net (decrease) increase in cash (1,877,287) 294,361 302,711
Cash at beginning of period 2,179,998 - -
----------- ----------- -----------
Cash at end of period $ 302,711 $ 294,361 $ 302,711
=========== =========== ===========
Supplemental disclosures of noncash investing activities:
Property acquired by issuance of note payable $ - $ - $ 455,848
=========== =========== ===========
Investment in Stampville.Com Inc,
acquired through a liability $ - $ - $ 2,009,877
=========== =========== ===========
Issuance of Common Stock for Services $ - $ - $ 7,500
=========== =========== ===========
</TABLE>
The accompanying condensed notes are an integral
part of these consolidated financial statements.
F-3
<PAGE> 6
I.T. Technology, Inc. and Subsidiaries
(a development stage enterprise)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - COMPANY BACKGROUND AND BUSINESS PLAN
I.T. Technology, Inc. (I.T. or the "Company") was incorporated on
February 2, 1999 to engage in businesses related to the internet,
e-commerce and technology ventures, directly and through the acquisition
of equity ownership in internet related and other technology companies.
I.T. has two wholly-owned subsidiaries, I.T. Technology Pty. Ltd., which
furthers its operations in Australia and Bickhams Capital, Inc.
(collectively referred to as the "Company").
The Company is in the development stage, and its efforts through June
30, 2000 have been principally devoted to organizational activities,
raising capital, acquiring equity interests in Stampville.Com Inc. and
VideoDome.com Networks, Inc and other development efforts. Management
anticipates incurring substantial additional losses as it pursues its
strategies. Additionally, the Company will require substantial capital
to fund further development and operations of Stampville.Com Inc. (See
Note F). The Company intends to meet its current anticipated capital
funding requirements principally through proceeds from the sale of up to
4.5 million of its shares of common stock in an Initial Public Offering
("IPO"). On August 4, 2000, the Company's registration statement filed
on Form SB-2 with the Securities and Exchange Commission covering the
offer and sale of these shares was declared effective. Prior to the
disbursement to the Company of any proceeds from the sale of shares in
the IPO, the Company must receive a minimum of $5 million of proceeds.
To date this minimum has not been reached. If the minimum is reached,
the Company expects that the proceeds of the IPO will be sufficient to
fund its activities and investments over the near term. There can be no
assurance that the Company will be able to complete the offering, or
make further investments in Stampville.Com Inc. to retain its 50.1
percent interest. Until such time as the Company raises at least the
Minimum proceeds in the IPO, it will rely on loans from affiliates, at
their discretion, and/or debt or equity financings through private
placements from third parties to finance its operations.
NOTE B - UNAUDITED CONSOLIDATED QUARTERLY FINANCIAL STATEMENTS
The consolidated financial data as of and for the six months and the
three months ended June 30, 2000 included in the accompanying financial
statements have been derived from our unaudited financial statements,
pursuant to the rules and regulations of the Securities and Exchange
Commission ("the Commission"). Certain information and footnote
disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations,
F-4
<PAGE> 7
I.T. Technology, Inc. and Subsidiaries
(a development stage enterprise)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
although the Company believes that the disclosures are adequate to make
the information presented not misleading. These interim financial
statements should be read in conjunction with the financial statements
and notes thereto included in the Company's amendment No.7 to Form SB-2
Registration Statement dated August 4, 2000 for the year ended December
31, 1999. In the opinion of management, the unaudited financial
statements and condensed notes have been prepared on the same basis as
the audited financial statements and include all adjustments, consisting
of normal recurring adjustments, necessary for a fair presentation of
the financial position and the results of operations as of such date and
for such period. The results for the six month and the three month
periods ended June 30, 2000 are not necessarily indicative of the
results to be expected for the entire year or the remaining quarters of
2000.
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Principles of Consolidation
The consolidated financial statements include the accounts of I.T. and
its wholly-owned subsidiary. All material intercompany accounts and
transactions have been eliminated.
2. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. Property and Equipment
Property and equipment are stated at cost. Depreciation is provided for
using the straight-line method of accounting over the estimated useful
lives ranging from 5 to 25 years.
4. Investment in Stampville.Com Inc.
The investment in Stampville.Com Inc. consists of a 50.1 percent equity
interest and is accounted for using the equity method because of the
remaining contingent payment of $5,000,000. If this payment is not
completed, the Company's interest will be reduced. (Note F).
F-5
<PAGE> 8
I.T. Technology, Inc. and Subsidiaries
(a development stage enterprise)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Income Taxes
Deferred income taxes are recorded using enacted tax laws and rates for
the years in which the taxes are expected to be paid. Deferred income
taxes are provided for when there is a temporary difference in recording
such items for financial reporting and income tax reporting. The
temporary differences that give rise to deferred tax assets primarily
are depreciation and accrual to cash adjustments which were reduced by a
like amount because of the uncertainty that the deferred tax assets will
not be realized.
6. Foreign Currency
The functional currency of the subsidiary, which has no ongoing revenue
producing operations and is entirely dependent on the Company for its
financing, is considered to be the U.S. dollar. Transaction gains and
losses arise primarily from cash maintained in an Australian bank and a
note payable that will be settled in Australian dollars. Accordingly,
transaction gains and losses are included in the determination of net
loss for the period.
7. Deferred Offering Costs
Deferring offering costs include expenses incurred in connection with
the Company's registration statement on Form SB-2, which was declared
effective on August 4, 2000. These costs will be charged against
stockholders' equity upon successful completion of the respective
offering. If the offering is not consummated, the deferred offering
costs will be charged to expense.
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
(unaudited)
<S> <C> <C>
Land $ 150,000 $ 150,000
Building 451,630 451,630
Office equipment 70,528 62,243
--------- ---------
672,158 663,873
Less accumulated depreciation (32,994) (14,852)
--------- ---------
$ 639,164 $ 649,021
========= =========
</TABLE>
F-6
<PAGE> 9
I.T. Technology, Inc. and Subsidiaries
(a development stage enterprise)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE E - CAPITALIZATION
1. Preferred Stock
The Company has authorized the issuance of 25,000,000 shares of
preferred stock, par value $.001 per share. The Board of Directors of
the Company has the right to create one or more series of preferred
stock and to determine the rights, preferences and privileges of any
such series.
2. Common Stock
The Company issued 4,000,000 shares of common stock to the founders
through controlled companies at a purchase price of $0.005 per share
(aggregate of $20,000).
The Company issued 10,000,000 shares of common stock to various
companies that are affiliates of certain officers of the Company at
purchase prices between $0.05 and $0.125 per share (aggregate of
$631,250), excluding offering costs of $27,120.
On October 26, 1999, the Company issued 2,500,000 shares of common stock
to Instanz Nominees Pty. Ltd., a related party, at a purchase price of
$1.00 per share, excluding offering costs of $59,531.
NOTE F - INVESTMENT IN STAMPVILLE.COM INC.
Pursuant to the terms of a Stock Purchase Agreement dated June 18, 1999,
the Company acquired a 6% equity interest in the common stock of
Stampville.Com Inc., an unrelated party, and had an option to acquire
additional shares representing up to 19% (for a total of 25%) of
Stampville.Com Inc. common stock at its sole discretion in various
amounts up to an aggregate of $5,000,000 over the next three years.
Stampville.Com Inc. is newly formed (April 14, 1999) to engage in the
business of selling collectible stamps and other memorabilia on the
Internet and on a wholesale basis to chain stores and small businesses,
and on a retail basis to the general public. Stampville.Com Inc. is a
development stage enterprise and its activities through June 30, 2000
have been principally devoted to organizational and development
activities and the initial launch of its website.
F-7
<PAGE> 10
I.T. Technology, Inc. and Subsidiaries
(a development stage enterprise)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On December 8, 1999, the Stock Purchase Agreement was amended to
accelerate the payment terms contained in the original Stock Purchase
Agreement, which would allow the Company to own an immediate 50.1
percent of Stampville.Com Inc.'s common stock. The amended agreement
included payments terms as follows:
1. Cash payment of $500,000.
2. Cash payment of $1,000,000 payable within 60 days from the date of
the amended agreement.
3. Eight equal quarterly installments of $156,250 ($1,250,000) payable
commencing upon the execution of the amended agreement. The installment
payable was discounted $240,123, using a discount rate of 20%. The first
quarterly payment was made on May 8, 2000, with further subsequent
advanced quarterly payments aggregating to $ 200,000 made during the
quarter ending June 30, 2000. The discount is being amortized over the
term of the payable using the effective interest method.
4. The Company agrees to use commercially reasonable efforts to make a
further payment, or otherwise cause a party or parties designated by the
Company to invest an additional $5,000,000 in Stampville.Com Inc. The
additional payment is payable no later than twelve (12) months from the
date of the amended agreement; or alternatively within 30 days following
the closing of the Company's IPO that raises a minimum amount of
$10,000,000.
If the Company fails to make or have made the further payment of
$5,000,000 (as noted in point 4 above), its ownership percentage would
be reduced to the lessor of (a) 27.5% of Stampville's Common Stock or
(b) the total invested by the Company pursuant to the purchase agreement
divided by $100,000.
F-8
<PAGE> 11
I.T. Technology, Inc. and Subsidiaries
(a development stage enterprise)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following summarizes the investment in Stampville.Com, Inc.:
<TABLE>
<CAPTION>
<S> <C>
Cash payment of $250,000 (paid under original agreement) $ 250,000
Cash payment of $250,000 (paid prior to December 31, 1999) 250,000
Cash payment of $1,000,000 (paid on or about February 14, 2000) 1,000,000
Installment payable, less discount of $240,123 1,009,877
-----------
Total Contribution 2,509,877
Equity in losses in Stampville.Com Inc. for the period ended December 31, 1999 (185,955)
-----------
Balance as at December 31, 1999 2,323,922
Equity in losses in Stampville.Com Inc. for the 6 months ended
June 30, 2000 (unaudited) (512,778)
-----------
Balance as at June 30, 2000 (unaudited) $ 1,811,144
===========
</TABLE>
In connection with the amended Stock Purchase Agreement, the Company
granted to individuals nominated by the current shareholders of
Stampville.Com Inc., other than the Company, options to purchase
1,600,000 shares of the Company's common stock at an exercise price
equal to $1.25 per share. Upon completion of the additional $5,000,000
payment mentioned above, the options become exercisable commencing two
years from the date of grant in increments of 20 percent per annum.
In addition, the Company has entered into a shareholders agreement with
Stampville.Com Inc. and its shareholders that, among other things,
restricts the ability of the shareholders of Stampville.Com Inc. to
transfer their interests; provides that at least one board of director
of Stampville.Com Inc. be designated by the Company and requires that
the Company-designated director approve of certain significant corporate
transactions; and provides that at least one of the executive officers
of Stampville.Com Inc. be an individual selected by the Company and that
the Company representative have the right to approve certain corporate
transactions. The Company's right to any preferential board and
management representation will terminate at the earlier of the
cancellation of the Stock Purchase Agreement or on June 18, 2002.
Stampville.Com Inc.'s continuance is dependent on its ability to obtain
funds from the Company pursuant to the Stock Purchase Agreement and its
continued agreement with
F-9
<PAGE> 12
I.T. Technology, Inc. and Subsidiaries
(a development stage enterprise)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
IGPC. There can be no assurance that the Company or Stampville.Com Inc.
will obtain the financing to develop or to sustain the operations of
Stampville.Com Inc.
Stampville.Com Inc. entered into an agreement dated December 1, 1999,
with the Inter-Governmental Philatelic Corporation (IGPC), of which the
president is a related party to certain officers of Stampville.Com Inc.,
whereby IGPC will provide stamp sheets as well as additional services,
including website content, to Stampville.Com Inc.
The agreement with IGPC has a term of three years with an automatic
renewal to extend for an additional two years, unless terminated at the
end of the initial term by either party. In addition, IGPC extended a
line of credit not to exceed $2,000,000 to Stampville.Com Inc. for the
purchase and shipping of stamps from IGPC. Amounts outstanding under the
credit line are payable within 120 days from the date of such credit.
Should Stampville.Com Inc. not be able to renew its contract with IGPC
on favorable terms, or require a change in stamp providers, this could
cause significant service disruptions, which may have an adverse affect
on the Company. Stampville is presently pursuing business relationships
with various other worldwide philatelic dealers.
The Company has entered into a consulting agreement with an individual,
who is affiliated with the Company who has provided services to the
Company in connection with its investment in Stampville.Com Inc.
Pursuant to the agreement, the Company issued 150,000 shares of its
common stock to the individual. As a result, the Company recorded
compensation expense of $7,500. The Company will issue up to an
additional 350,000 shares of Common Stock if it raises at least
$10,000,000 through an initial public offering or invests additional
funds in Stampville.Com, Inc. in an amount such that it retains a
minimum of no less than a 25% equity interest in Stampville.Com, Inc.
Pursuant to an amended agreement, the individual is further entitled to
payments of 1% of cash distributions (i.e. initial public offering or
sale) made to Stampville's shareholders.
NOTE G - INVESTMENT IN VIDEODOME.COM NETWORKS INC.
On March 24, 2000, the Company entered into an option agreement to
acquire up to a 50.1% equity interest in VideoDome.Com Networks, Inc.
(VideoDome). On April 10, 2000, the Company invested an initial $150,000
for a 5% equity interest in VideoDome. The Company has the option to
acquire an additional 5% for $150,000 (see Note K) and the remaining
40.1% equity interest for approximately $5,000,000 upon completion of
due diligence,
F-10
<PAGE> 13
I.T. Technology, Inc. and Subsidiaries
(a development stage enterprise)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
receipt from VideoDome of audited financial statements, and the raising
of sufficient funds to complete the potential investment in VideoDome.
Management is under no obligation to either continue or discontinue the
Videodome acquisition. Management believes that given the significant
level of uncertainty, the consummation of the proposed acquisition is
currently not probable.
NOTE H - NOTES PAYABLE
Long-term debt at June 30, 2000 consists of:
(i) A loan to purchase property on 34-36 Punt Road in Melbourne
Australia, collateralized by the building and bearing interest at
a rate of 7.25% per annum. The loan requires monthly payments of
interest with the principal balance due in July 2001. The loan is
guaranteed by a shareholder of the Company. Pursuant to the terms
of the purchase agreement, title to the property will transfer
when the principal balance is paid in full.
(ii) Note payable to Ledger Technologies Pty. Ltd., a related party.
Ledger Technologies Pty. Ltd. has committed to loan the Company
up to $500,000 to fund its working capital needs, including
potential quarterly payments to Stampville. The loan bears
interest at the rate of ten percent (10%) per annum and is
payable in equivalent Australian dollars.
NOTES PAYABLE CONSISTS OF THE FOLLOWING AS OF:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
Property loan - 34-36 Punt Road Melbourne
Australia $421,330 $455,848
Loan from affiliate - Ledger Technologies _
Pty. Ltd 300,000
-------- --------
$721,330 $455,848
======== ========
</TABLE>
F-11
<PAGE> 14
I.T. Technology, Inc. and Subsidiaries
(a development stage enterprise)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE I - STOCK OPTION PLAN
In January 2000, the Company's board of directors authorized the
issuance of up to 1,650,000 shares of common stock in connection with
the Company's 2000 Stock Option Plan). The 2000 Stock Option Plan will
become effective in connection with the registration statement filed on
February 14, 2000. The Company intends to grant options under the Stock
Option Plan to officers, directors, employees and consultants of the
Company and its subsidiaries. The Company has not granted any options
under the 2000 Stock Option Plan.
NOTE J - CONSULTING AGREEMENT WITH PETTY CONSULTING, INC.
On January 17, 2000, the Company entered into a one-year Consulting
Agreement with Petty Consulting, Inc. pursuant to which Robert Petty
agreed to provide consulting services with annual compensation payable
to his consulting corporation in the amount of $12,000, to be paid in
accordance with the Company's general compensation practices. Stampville
has also entered into a one-year Consulting Agreement with Petty
Consulting, Inc. pursuant to which Robert Petty agreed to provide
consulting services.
Under the consulting agreement, the Company granted stock options to
acquire up to 1,450,000 shares of common stock at an exercise price
ranging from $1 to $2. The stock options vest upon reaching certain
market capitalization objectives or selling equity securities of one or
more of the Company's subsidiaries in an initial public offering or
through a third-party sale.
The stock option term is the lesser of (i) two years from the vesting
date, (ii) five years from the date of the consulting agreement, or
(iii) 30 days after the termination of Robert Petty's employment or
consulting arrangement for the Company.
NOTE K - SUBSEQUENT EVENTS
As of August 28, 2000, the loan agreement with Ledger Technologies Pty.
Ltd., was increased to $775,000 and an additional $475,000 was borrowed
under the note.
On July 27, 2000, the Company borrowed $150,000 from Instanz Nominees
Pty. Ltd., a related party. These loans bear interest at the rate of ten
percent (10%) per annum and the loan from Ledger Technologies Pty. Ltd.
is payable in equivalent Australian dollars.
Subsequent to June 30, 2000, the Company made additional payments to
Stampville of approximately $475,000 and also invested an additional
amount of $150,000 in Videodome to acquire a further 5% equity interest.
F-12
<PAGE> 15
CAUTIONARY SAFE HARBOR STATEMENT UNDER THE UNITED STATES PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.
Certain information contained in this Form 10-Q is forward looking information
within the meaning of the Private Securities Litigation Act of 1995 (the "Act")
which became law in December 1995. In order to obtain the benefits of the "safe
harbor" provisions of the act for any such forwarding looking statements, the
Company wishes to caution investors and prospective investors about significant
factors which among others have affected the Company's actual results and are in
the future likely to affect the Company's actual results and cause them to
differ materially from those expressed in any such forward looking statements.
This Form 10-Q report contains forward looking statements relating to future
financial results. Actual results may differ as a result of factors over which
the Company has no control including: the availability of financing, the success
of Stampville's operations, competition, technological advances and slower than
anticipated completion of research and development projects.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW AND PLAN OF OPERATIONS
The company was formed in February 1999 and is in the early stage of
development. We are engaged in Internet, e-commerce and other technology
businesses. We expect to add value to operating companies by providing active
and ongoing management infrastructure, support, funding, and expertise. Our goal
is to identify entities that have high growth potential and can benefit from the
commercial and financial expertise of our personnel. We assist in the
development and recruitment of key management to support accelerated financial
and operational growth and enhanced efficiency. Our practice is to emphasize
relationships in which our resources can enhance the creative and technological
skills of our partners.
We do not have any meaningful revenues, and will not generate any
meaningful revenues until after we implement our strategic plan and attract and
retain a significant number of e-commerce and related businesses. We do not
anticipate generating any meaningful revenue for at least several months, if at
all. Accordingly, a comparison of the quarter ended June 30, 2000 to the
corresponding period in 1999 is not meaningful.
Depending upon the level of our business activity and the timing and
availability of financing proceeds, including a portion of the proceeds from the
sale of up to 4.5 million shares of common stock in our Initial Public Offering
(the "IPO"), if we raise the minimum required amount of $5,000,000 to consummate
the offering, we anticipate hiring several additional employees over the next
twelve months to market our services to potential businesses and develop the
infrastructure of Stampville and potentially VideoDome. Beyond the development
of Stampville and potential further investments in VideoDome, we are continually
reviewing and considering e-commerce and other related enterprises and ventures,
but have not made any commitments at this stage. At this time, there are no
plans, proposals, arrangements or understandings for the acquisition of other
companies.
Subject to the availability of financing, Stampville's business plans
contemplate a continuance of development of a portal community Web site for the
collectable postage stamp community that will service a wide range of areas
surrounding the stamp market and possibly other areas of interest, which may
include coins and sports memorabilia. These plans also contemplate expansion
beyond hobbyists and collectors to the art, entertainment and other targeted
specialty markets and to develop a wholesale distribution channel for sale of
its products as well.
We have generated losses from our inception and anticipate that we will
continue to incur significant losses until, at the earliest, we generate
sufficient revenues to offset the substantial up-front expenditures and
operating costs associated with establishing, attracting and retaining a
significant business base. Since our inception through June 30, 2000 our
cumulative net losses were $ 1,219,445. There can be no assurance that we will
be able to attract
<PAGE> 16
and retain a sufficient number of e-commerce businesses to generate meaningful
revenues or achieve profitable operations.
Quarter ended June 30, 2000
During the quarter ending June 30, 2000, we made payments to Stampville
of $356,250 and continued the expansion of Stampville's developmental
activities, including the launch of several new micro-sites. Through June 30,
2000, we invested $1,856,250 in Stampville. In particular we established
business infrastructure, launched the web site and continued development of our
database of stamp information involving scanning and data entry on each stamp.
We also continued with the development of Stampville's Web site during the
quarter expending approximately $94,000 in technology.
On April 10, 2000, we exercised the initial tranche to purchase 5% of the equity
interest in VideoDome through the payment of $150,000, through our wholly-owned
subsidiary, Bickhams Capital, Inc., pursuant to our agreement from March 24,
2000, granting us an option to acquire up to a 50.1% equity interest in
VideoDome.Com Networks, Inc., a provider of streaming video services on the
Internet to consumer and corporate clients. Our option to purchase up to a 50.1%
equity interest in VideoDome is exercisable in three tranches. After the second
quarter, on July 28, 2000 we exercised the second tranche to purchase an
additional 5% of the equity interest in VideoDome through the payment of an
additional $150,000. Our exercise of the final tranche for 40.1% of the equity
interest in VideoDome for $5,000,000 is contingent upon completion to our
satisfaction of complete due diligence regarding VideoDome which must be
exercised on or before October 31, 2000, receipt from VideoDome of audited
financial statements, and our acquisition of sufficient funds to complete this
investment in VideoDome. Other factors which will enter into the Company's
ultimate investment in VideoDome will be our intended investment in Stampville,
financing our other operations and/or other potential investments. We are under
no obligation to exercise the options to purchase the VideoDome interest.
Therefore, we can offer no guarantee that our potential acquisition of a
majority interest in VideoDome will be realized.
As a result of these activities, we incurred a net loss of $464,244
during this period. As we were only incorporated on February 2, 1999 and had
only made our initial investment in Stampville toward the end of the second
quarter last year, on June 18, 1999, our activities during the second quarter of
1999 were essentially limited to that of assisting in the establishment of
Stampville and preparing to raise capital.
On June 6, 2000, Ledger Technologies Pty. Ltd. committed to loan us up
to $500,000 to fund our working capital needs, including potential quarterly
payments in Stampville. As of June 30, 2000, Ledger Technologies lent us
$300,000, $50,000 of which was used to fund our working capital needs and
$150,000 of which was remitted to Stampville on June 14, 2000. A further
$100,000 of these loan proceeds was remitted to Stampville on July 3, 2000. The
loan bears interest at the rate of ten percent (10%) per year and the amount is
due in equivalent Australian dollars. Ledger Technologies is one of our
stockholders. Lisa Mochkin, a director of Ledger Technologies, is the wife of
Levi Mochkin, our Chief Executive Officer and director.
Fiscal Year ended December 31, 1999
During 1999 our principal activities consisted of initial formation
activities, the assembly of our current management team, the raising of capital
through private placements and our location of and acquiring interests in our
initial acquisition target, Stampville.Com Inc. Prior to December 31, 1999, we
issued 16,500,000 shares of common stock to various entities that are affiliates
of certain officers and/or directors of the company and received cash proceeds
of $3,151,250 and services of $7,500. In mid-1999, we signed an agreement with
Stampville.Com Inc., a newly-formed company. Stampville is being developed to
become a global center for stamp products and services and potentially other
collectibles such as coins and sports memorabilia. We have assisted the founders
of Stampville in developing this enterprise, recruiting key management and
implementing systems to advance its development and launch its main web site. In
December 1999, Stampville became a 50.1% owned subsidiary of ours. Pursuant to
the terms of our agreement with Stampville, as amended, our 50.1% interest may
be reduced in the event we do not complete our funding of up to $7,750,000 in
Stampville. Our ownership interest in Stampville may also be reduced in the
event we arrange for third party financing in lieu of our direct investment in
Stampville. For the period from February 2, 1999, our date of inception, to
December 31, 1999, we incurred a net loss of $419,443.
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
Our primary capital requirements have been to fund our initial
investment in Stampville and VideoDome. Additional capital will be needed to
complete the purchase of Stampville, acquire an additional 40.1% equity interest
in VideoDome, if we so choose, and to pursue other business opportunities, as
well as to fund our working capital requirements, including legal and
professional expenses. To date, we have financed our capital requirements
through the issuance of equity securities, the issuance of long-term debt and
through loans from our affiliates. Until such time as we raise at least the
required minimum proceeds in the IPO, we will seek to obtain additional
financing through loans from our affiliates, at their discretion, and or debt or
equity financing (in private placements) to third parties to finance our
operations. At June 30, 2000, we had a working capital deficit of $504,962,
which deficit includes a $300,000 loan payable to Ledger Technologies Pty Ltd,
which the Lender and us agree will be paid after we receive additional financing
and at that time upon our mutual agreement. Accordingly, this loan may not be
paid in the next 12 months. At June 30, 2000, we had cash and cash equivalents
of $302,711.
In July 1999, we entered into an agreement to purchase a building in
exchange for cash and a note payable in Australian dollars which as of June 30,
2000 equaled to approximately $421,330 USD. Such indebtedness bears interest at
the rate of 7.25% per annum and is repayable in July 2001. In the event the
exchange rate of Australian dollars to U.S. dollars increases, the amount of
U.S. dollars required to settle this obligation, as well as any other
obligations we have in Australia to be paid in Australian dollars, will
increase.
The capital requirements relating to implementation of our business plan
will be significant. During the next twelve months, we intend to finance the
acquisition of a majority interest in Stampville for $5,418,750, possibly
increase our interest in VideoDome with an investment of up to $5,000,000,
finance or acquire interests in other Internet or e-commerce enterprises, and
meet our own working capital needs. Other than as described above, we have no
material commitments for capital expenditures.
We are dependent on the proceeds of the IPO or other financing in order
to fully implement our proposed plan of operation. Depending on how long it
takes for us to raise the minimum subscription, we may borrow additional funds
for our working capital requirements through loan transactions with parties
related to us, which may be repaid out of the proceeds of the offering or debt
or equity financing (through private placements to a limited number of highly
accredited investors) to third parties. There can be no assurance that the IPO
will achieve the minimum required subscription.
In the event that our plans change, our assumptions change or prove to
be inaccurate, or the IPO fails to raise the minimum requirement or if the
proceeds received from the IPO otherwise prove to be insufficient to implement
our business plans, we would be required to seek additional financing sooner
than currently anticipated. There can be no assurance that the proceeds of the
IPO will be sufficient to permit us to implement our proposed business plan or
that any assumptions relating to the implementation of such plan will prove to
be accurate. To the extent that the proceeds received from the IPO are not
sufficient to enable us to generate meaningful revenues or achieve profitable
operations, the inability to obtain additional financing will have a material
adverse effect on us. There can be no assurance that any such financing will be
available to us on commercially reasonable terms, or at all.
RECENT DEVELOPMENTS
Subsequent to June 30, 2000, a number of developments occurred which
have had a significant impact on our business, operations and results,
principally the initial launch of Stampville's Website, as well as continued
developmental activities. We made additional payments in July and August, 2000
aggregating to $475,000 under our agreement with Stampville for a total
investment of $2,331,250 to date. Stampville has also continued its development
of its Web site and has launched additional micro-sites since the end of the
second quarter. Stampville now has a total of 16 micro-sites in operation.
Stampville has also reduced its workforce to 19 employees including consultants
as of August 25, 2000.
On July 28, 2000, we invested an additional $150,000 to exercise the
second tranche to purchase an additional 5% of the equity interest in VideoDome,
bringing our interest to 10%. Our exercise of the final tranche of
<PAGE> 18
$5,000,000 for an additional 40.1% equity interest in VideoDome due by October
31, 2000, is contingent upon completion to our satisfaction of complete due
diligence regarding VideoDome, receipt from VideoDome of audited financial
statements, and our acquisition through this offering or through other sources
of sufficient funds to complete the potential investment in VideoDome, to
complete our intended investment in Stampville and to finance our other
operations and/or other potential investments. We are under no obligation to
exercise the options to purchase the equity interest in VideoDome. Therefore, we
cannot state at this time whether our potential acquisition of a majority
interest in VideoDome will be realized.
As of August 28, 2000, Ledger Technologies Pty. Ltd. has loaned us a
total of $775,000 pursuant to the amended loan agreement. Ledger Technologies is
one of our stockholders. Lisa Mochkin, a director of Ledger Technologies, is the
wife of Levi Mochkin, our Chief Executive Officer and director.
In addition, on July 27, 2000, Instanz Nominees Pty. Ltd. lent us
$150,000 to supplement our working capital needs and additional payments to
Stampville through the month of August 2000. Instanz Nominees Pty. Ltd. is also
a stockholder and Helen Abeles, an affiliate of Instanz, is one of our
directors. These loans bear interest at the rate of ten percent (10%) per year
and the amount borrowed from Ledger Technologies Pty. Ltd. is due in equivalent
Australian dollars.
Pending receipt of the minimum required subscriptions in the IPO or
other financing, Henry Herzog has returned from New York to Australia and ceased
receiving compensation from the Company. At such time as the Company raises the
minimum subscriptions in the IPO or obtains alternative financing it currently
anticipates having Mr. Herzog or another senior executive of the Company return
to New York.
INFLATION
We have not been materially affected by inflation in the United States.
While we do not anticipate inflation affecting our operations, increases in
labor and supplies could impact our ability to compete.
YEAR 2000 COMPLIANCE AND COSTS
As has been widely reported, there has been worldwide concern that Year
2000 technology problems would materially and adversely impact a variety of
businesses and local, national and global economies. While relatively few
disruptions were reported on and after December 31, 1999, concerns remain that
there will be a delayed effect to computer users. As a newly formed entity, we
have acquired computer hardware and software which has been represented to us as
Year 2000 compliant, and we do not expect future expenses associated with
ongoing compliance to be material to our financial position or future results of
operations, although there can be no assurance that as a result of presently
unforeseen computer programming or future dealing with our vendors or other
parties difficulties will not arise.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement No. 133, as amended, "Accounting
for Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards requiring that all derivative instruments,
including certain derivative instruments embedded in other contracts, be
recorded in the balance sheet as either an asset or liability measured at its
fair value. This statement will become applicable to us in January 2001.
<PAGE> 19
CERTAIN ADDITIONAL CONSIDERATIONS
In addition to the factors discussed in the "Overview and Plan of Operations"
and other sections of this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" , the following additional factors may
affect the Company's future results:
WE HAVE NO OPERATING HISTORY AND THEREFORE WE CANNOT ENSURE THE SUCCESSFUL
OPERATION OF OUR PROPOSED BUSINESS OR THE EXECUTION OF OUR BUSINESS PLAN.
We are recently formed and we have no operating history. In addition, both
Stampville and VideoDome are also recently formed entities and have limited
operating histories. We do not know if we will be able to successfully operate
our proposed business, or that either Stampville or VideoDome will be able to
execute its business plan.
BECAUSE OF OUR DEPENDENCE ON THE NET PROCEEDS OF THE IPO, IN WHICH THERE IS
NO FIRM COMMITMENT BY ANY UNDERWRITER TO PURCHASE SHARES, AND BECAUSE THERE CAN
BE NO GUARANTEE THAT OTHER FUTURE FINANCING WILL BE AVAILABLE TO US, WE CANNOT
ENSURE THAT WE WILL BE ABLE TO OBTAIN THE CAPITAL NECESSARY TO IMPLEMENT OUR
PLAN OF OPERATION.
We have limited resources and we will be dependent on the net proceeds of the
IPO to implement our plan of operation, including the funding of our acquisition
of further interests in Stampville and Videodome, as well as other potential
investments and acquisitions in the United States and Australia. Unless we raise
at least $12,400,000 in the IPO, which includes $2,500,000 from the sale of
shares by a selling shareholder, we may not be able to fully finance our
business plans and Stampville may have to curtail aspects of its operations. If
we raise only the minimum amount required in the IPO and neither we nor
Stampville can obtain additional financing from other sources, Stampville would
reduce its workforce to three employees, limit its activities to establishing
and operating its web site, and curtail research and development activities,
cataloging efforts and expansion plans, and instead focus on the sale of stamps.
The shares in the IPO are being offered on a "best efforts, all or none" basis
in a minimum offering of 1,000,000 shares and an additional 4,000,000 shares on
a "best efforts basis." Therefore, because there is no commitment to purchase
all or any part of the shares we are offering, we cannot guarantee that the IPO
will raise sufficient capital to enable us to finance and implement our plan of
operation. Consequently, we may need to seek additional financing. Furthermore,
even if we raise the maximum amount of proceeds in the IPO, we may still need to
seek future additional financing if our assumptions prove inaccurate or if or
our capital requirements vary from those currently planned, or to further fund
potential ongoing operating expenses such as the enhancement of our services and
products, the development of strategic marketing alliances and/or the
acquisition of complementary businesses, technologies, content or products.
We cannot guarantee that we will be able to obtain any additional financing
or that such additional financing, if available, will be on terms and conditions
acceptable to us.
<PAGE> 20
OUR MANAGEMENT OWNS A MAJORITY OF OUR OUTSTANDING VOTING
SHARES AND WE RELY ON OUR MANAGEMENT FOR ALL BUSINESS DECISIONS.
Our management and affiliates of our management currently own all of our
outstanding stock and voting rights. Even if we sell the maximum number of
shares in the IPO, our management and their affiliates will still collectively
own approximately 75% of our outstanding shares. In addition, we rely on our
management to make all of our business decisions. Consequently, ownership of our
common stock will not necessarily give public shareholders the ability to
significantly influence the management of our operations.
Furthermore, we cannot guarantee that our board of directors and officers
will be able to operate or manage our business successfully or that we will be
able to achieve profitable operations. We would be seriously affected if our
management are unable to perform for any reason. We do not have key man or other
insurance to protect against the death or disability of our key executives. In
addition, our management and directors have limited prior experience in
operating Internet or e-commerce companies.
OUR BUSINESS MAY BE HARMED BECAUSE WE HAVE NOT COMPLETED THE FILING OF OUR
TRADEMARK AND PATENT APPLICATIONS AND WE DO NOT HAVE ANY REGISTERED COPYRIGHTS.
All of our and Stampville's software was acquired from third parties. Neither
we nor Stampville have registered copyrights on any software. We rely upon
confidentiality agreements signed by our employees. Stampville applied on August
13, 1999 with the United States Patent & Trademark Office for registration of
"Stampville.Com" and three designs, combined with words, letters and/or numbers
as trade and service marks. Stampville has received preliminary comments from
the United States Patent and Trademark Office regarding the application and is
in the process of responding to those comments. VideoDome has indicated that it
intends to file several patent claims addressing, among other things, scalable
video conversion processes, dynamic directories, cataloging and administration.
There is no guarantee that either Stampville or VideoDome will successfully
complete their respective trademark and patent applications. In the event
Stampville or VideoDome fails to complete their respective trademark or patent
applications, the companies may suffer the risk of having competing companies
making use of their respective marks and technology. In such a case, both
Stampville and VideoDome would lose the exclusive use of their respective marks
and technology, thereby losing a significant portion of their respective
business ground.
<PAGE> 21
PART II
Item 1. LEGAL PROCEEDINGS
Not Applicable
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on April 13,
2000.
The following nominees were elected as directors, each to hold
office for a one year term and until his or her successor is elected and
qualified, by the vote set forth below:
<TABLE>
<CAPTION>
NOMINEE FOR WITHHELD
----------------- ---------- ------------
<S> <C> <C>
Henry Herzog ....... 14,150,000 0
Jonathan Herzog .... 14,150,000 0
Anthony Davis ...... 14,150,000 0
Farrel Meltzer ..... 14,150,000 0
Helen Abeles ....... 14,150,000 0
Levi Mochkin ....... 14,150,000 0
</TABLE>
The proposal to approve the Company's 2000 Stock Option Plan was
approved by the vote set forth below:
FOR AGAINST ABSTAIN
---------- ------- -------
14,150,000 0 0
Item 5. OTHER INFORMATION
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports
The Company did not file any Report on Form 8-K during the three
months ended June 30, 2000.
(b) Exhibits
(i) Exhibit 1 - Amendment NO.2 to the Ledger Technologies Pty Ltd
Loan Agreement dated August 28, 2000.
<PAGE> 22
(FORM 10-QSB)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
I.T. TECHNOLOGY, INC.
Dated: September 13, 2000
By: /s/ Levi Mochkin
-------------------------------
Levi Mochkin
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Jonathan Herzog
-------------------------------
Jonathan Herzog
Director, Secretary and
Chief Financial Officer
(Principal Financial Officer)
