UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 2-94704-NY
INTELLIQUIS INTERNATIONAL, INC.
(Formerly Leesburg Land and Mining, Inc.)
(Exact name of Registrant as specified in its charter)
NEVADA 87-0630562
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
352 WEST 12300 SOUTH #300 DRAPER, UTAH 84020
(Address and zip code of principal executive offices)
Registrant's telephone number, including area code: (801) 990-2600
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 for the past 90 days.
[ X ] YES [ ] NO
As of May 17, 1999 the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $29,541,889
As of May 17, 1999 the number of shares outstanding of the Registrant's Common
Stock was 39,205,233.
Intelliquis International Inc. and Subsidiary
Form 10QSB
For the Quarterly Period Ended March 31, 1999
Table of Contents
Part I. Financial Information Page
Item 1. Financial Statements
a) Condensed Balance Sheets
as of March 31, 1999 and December 31, 1998 3
b) Condensed Statements of Operations
for the three months ended March 31, 1999 and 1998 4
c) Condensed Statements of Cash Flows
for the three months ended March 31, 1999 and 1998 5
d) Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis 10
Part II. Other Information 13
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 5. Other Information 13
Signatures 14
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Balance Sheets
(Unaudited)
ASSETS
March 31, December 31,
1999 1998
Current assets
Cash $ 438,288 $23,074
Accounts receivable (Note 2) 1,386,551 619,966
Inventory (Note 2) 137,101 130,517
Prepaid expenses 10,010 6,838
Deposits 7,700 500
1,979,650 780,895
Property, Plant & Equipment (Note 2) 86,664 54,297
Other assets
Certificate of deposit (Note 2) 40,703 40,351
Intangibles (Note 2) 7,800 8,328
Total Assets $2,114,817 $883,871
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 737,344 $502,973
Short term notes (Note 3) 79,500 104,500
Short term notes - related party (Note 4) 5,000 85,000
821,844 692,473
Stockholders' Equity
Preferred Stock, 5,000,000 shares authorized,
par value $.001, no shares outstanding - -
Common Stock, 50,000,000 shares authorized,
$.001 par, 39,205,233 and 37,759,233
shares issued and outstanding, respectively 39,205 37,759
Retained earnings 220,973 21,398
Additional paid in capital 1,192,795 132,241
Treasury Stock (Note 6) (160,000) -
1,292,973 191,398
Total Liabilities and Stockholders' Equity $2,114,817 $ 883,871
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Statements of Operations
For the three months ended
March 31, 1999 and 1998
(Unaudited)
1999 1998
Sales $ 1,220,274 $191,038
Cost of Sales 503,690 49,149
Gross Margin 716,584 141,889
Expenses:
Sales & Marketing 118,316 30,448
General & Administrative 266,544 52,058
Total Expenses 384,860 82,506
Operating Income (Loss) 331,724 59,383
Other Income (Expense) (4,470) -
Net Income (Loss) before Taxes 327,254 59,383
Taxes (Note 1) 127,679 -
Net Income (Note 6) $199,575 $59,383
Net Income Per Share (Note 6) $ .006 $ -
Total average shares outstanding 35,177,754 -
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Statements of Cash Flows
For the three months ended
March 31, 1999 and 1998
(Unaudited)
1999 1998
Cash Flows form Operating
Activities:
Net loss (loss) $199,575 $59,383
Non Cash Flow Items:
Depreciation & Amortization 4,911 1,738
Increase (decrease) in
Accounts receivable (766,585) (173,865)
Inventory (6,584) (8,017)
Prepaids & deposits (10,372) (3,995)
Accounts payable & accrued expenses 234,371 76,088
Net Cash Flows used in
Operating Activities (344,684) (48,668)
Cash Flows from Investing Activities:
Cash from private placement of stock 1,062,000 -
Purchase of treasury stock (160,000) -
Net Cash Flows from
Investing Activities 902,000 -
Cash Flows from Financing
Activities:
Purchase of fixed assets (36,749) (3,442)
Purchase of intangibles & other assets (353) -
Proceeds from short-term debt - 5,000
Cash used to pay-off short-term debt (105,000) -
Net Cash Flows used in Financing Activities (142,102) 1,558
Net increase (decrease) in cash 415,214 (47,110)
Cash, beginning of year 23,074 52,455
Cash, end of year $438,288 $5,345
Supplemental Cash Flow Information
Cash Paid for:
Taxes $ - $ -
Interest $ 6,578 $ -
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Notes to The Financial Statements
March 31, 1999
NOTE 1 - Background and History
Intelliquis International, Inc. (the Company) (formerly Leesburg Land and
Mining, Inc.) was created on June 21,1983 in the State of Colorado. The
Company was involved in mining activities until approximately 1987, when it
ceased all activities and began disposing of its assets. It has not had
any business activity since that time. The Company changed it's name in
December 1998.
Also in December 1998, the Company created and later merged with a
Nevada subsidiary.
Intelliquis, LLC was created in 1997 as a corporation and later
reorganized as a limited liability company in the State of Utah. Intelliquis
was organized for the purpose of licensing and marketing computer software to
wholesale and private label customers.
Intelliquis International, Inc. acquired all of the outstanding units of
Intelliquis LLC effective December 31, 1998.
The acquisition is accounted for as a "reverse acquisition" where the
parent corporation is taken over by the owners of the subsidiary. All
activity of the financial reports is that of the subsidiary operation.
NOTE 2 - Significant Accounting Policies
Cash and Cash Equivalents The Company considers all short term, highly
liquid investments that are readily convertible to known amounts as cash
equivalents.
Intangible Assets Intangible assets consist of contract design work and
goodwill. Both intangibles are being amortized over 60 months on the straight
line method. Amortization expense for 1997 was $133 and $2115 for 1998.
Amortization expense for the first quarter of 1999 was $528 and $528 for the
same period of 1998.
Use of Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period. In these financial statements, assets, liabilities and earnings
involve extensive reliance on management's estimates. Actual results could
differ from those estimates.
Income Taxes The Company adopted Statement of Financial Standards No. 109
"Accounting for Income taxes" in the fiscal year ended December 31, 1998 and
was applied retroactively.
Statement of Financial Accounting Standards No. 109 " Accounting for
Income Taxes" requires an asset and liability approach for financial accounting
and reporting for income tax purposes. This statement recognizes (a) the
amount of taxes payable or refundable for the current year and (b) deferred
tax liabilities and assets for future tax consequences of events that have
been recognized in the financial statements or tax returns.
Deferred income taxes result from temporary differences in the
recognition of accounting transactions for tax and financial reporting purposes.
There were no temporary differences at December 31, 1998 and earlier years;
accordingly, no deferred tax liabilities have been recognized for all years.
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Notes to The Financial Statements
March 31, 1999
NOTE 2 - Significant Accounting Policies (continued)
The Company has cumulative net operating loss carryforwards of over
$4,000,000 at December 31, 1998. No effect has been shown in the financial
statements for the net operating loss carryforwards as the likelihood of future
tax benefit from such net operating loss carryforwards is highly improbable.
Accordingly, the potential tax benefits of the net operating loss
carryforwards, estimated based upon current tax rates at December 31, 1998
have been offset by valuation reserves of the same amount.
The subsidiary operation was a limited liability company (LLC) in 1997
and 1998. LLC's report their earnings on a partnership tax return and no tax
liability accrued at the company level. Taxable income is allocated to its
individual members and tax paid by each member.
The federal income tax provision is $111,316 and $0 for the first quarter
of 1999 and 1998, respectively. The state tax provision is $16,373 and $0
for the first quarter of 1999 and 1998, respectively.
Inventory consists of finished goods (assembled and unassembled computer
software) that is valued at lower of cost (FIFO) or market.
Certificate of Deposit The Company holds a Certificate of Deposit as
partial security for a short term loan at the Company's bank (see Note 3).
The certificate matures on September 10, 1999. Interest is stated at 4.91%.
Fixed Assets
Fixed assets consist of the following:
March 31, December 31,
1999 1998
Computer Equipment & Software $69,442 $ 32,886
Office Equipment & Furniture 34,742 34,549
104,184 67,435
Less: Accumulated Depreciation (17,520) (13,138)
$ 86,664 $ 54,297
Computer equipment and software is being depreciated on the straight line
method over three to five years. Office equipment is being depreciated on the
straight line method over five years. Depreciation expense is $4,497 and
$8,641 for 1997 and 1998, respectively. For the first quarter the
depreciation expense is $4,911 and $1,210 for 1999 and 1998, respectively.
Principles of Consolidation The Company consists of the parent
corporation, Intelliquis International, Inc., and its subsidiary, Intelliquis
LLC. The two companies together report as a consolidated group known as The
Company. All intercompany accounts and transactions have been eliminated.
Accounts Receivable Accounts Receivable is shown net of allowance for
returns of $236,000, $186,660 and $0 and allowance for bad debt of $150,000,
$150,000 and $0 for the quarter ended March 31, 1999, fiscal 1998 and fiscal
1997, respectively.
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Notes to The Financial Statements
March 31, 1999
NOTE 3 - Short Term Notes
The Company has acquired short term borrowing for working capital as
follows:
March 31, December 31,
1999 1998
Note payable to a bank, secured by
$40,000 certificate of deposit, all
assets of the Company and personal
guarantees from the corporation
officers, interest stated at 10%,
due March 10, 1999 $ 79,500 $ 79,500
Note payable to an individual, no
security, interest stated at 25%
payable in January 1999 - 25,000
$ 79,500 $ 104,500
The Company is currently renewing the note payable that was due March 10,
1999. The Company anticipates that the note will be renewed for an additional
six months.
Interest expense for fiscal 1998 was $3,584. The interest expense for the
first quarter of 1999 is $6,578.
NOTE 4 - Short Term Notes - Related Party
The Company has acquired short term financing from two officers of the
corporation. One loan was for $80,000 and was paid during the first quarter
of 1999. The other loan is for $5,000. This is a demand note with no interest
accruing.
NOTE 5 - Economic Dependency
The Company currently uses one major distributor for most of its sales.
That distributor accounted for 54% and 67% of all sales in the first quarter
of 1999 and fiscal 1998, respectively. The Company could recognize
significant declines in sales if the distributor or the Company chooses to
alter its current sales relationship.
NOTE 6 - Member Contributions/Common Stock Transactions
In 1997, the Company was organize as a Utah limited liability company
with $170,000 of member contributions for start up operations.
In 1998, the Company continued to operate as a limited liability company
until December 31, 1998 when Intelliquis International, Inc. acquired 100% of
the membership units in exchange for 32,511,600 shares of common stock.
Before the acquisition, the corporation had 5,247,633 shares outstanding
with no assets and no liabilities. In relation, net income per share or total
average shares outstanding are not indicated for the first quarter of 1998
because the company was operating as a limited liability company during
that time.
Private Placement During the first quarter of 1999, the Company
concluded a private placement offering of common stock. The amount raised
was $1,062,000 with 1,446,000 shares issued. Also, the Company repurchased
6,202,944 of the company shares for $160,000.
NOTE 7 - Subsequent Events
In 1999, the Company leased office space for a term of three years at
$4,000 per month. In addition, the Company has converted approximately 272 of
warehouse space to office space.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BACKGROUND
The Company seeks to become a leading republisher, marketer and supporter of
Year 2000, Internet utility, productivity and communication software products
for the computer software retail market. The Company was incorporated as
Leesburg Land and Mining Inc. in Colorado for the purpose of seeking out and
developing a business opportunity. Effective December 31, 1998, the Company
acquired all of the equity of Intelliquis LLC, which then became a wholly
owned subsidiary ("the Subsidiary") of the Company. During this same period
the Company changed its corporate domicile to Nevada and changed its name to
Intelliquis International, Inc. The Subsidiary was founded in August 1997 and
incorporated in December 1997, as a Utah Limited Liability Company. As a
result of the acquisition of the Subsidiary, the controlling shareholders of
the Subsidiary became controlling shareholders of the Company.
The Company (hereafter "the Company" may be used to include the activities
of its newly acquired Subsidiary) seeks to build a leadership position in this
market by first licensing fully tested software applications from independent
software developers and then developing or acquiring a family of software
applications. The Company's main emphasis lies in PC Utilities titles, but
will offer a selection of Reference, Productivity and Communication titles
both in the North American and International market. The software products
are being marketed through traditional software distribution channels and the
Internet's World Wide Web.
Since the release of the Company's first software title in November 1997, the
Company has grossed less than $3 million in sales to date. The Company is
currently building distribution and financing capabilities worldwide, with
particular emphasis in Southeast Asia.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $344,684 and $48,668 for the three
months ended March 31, 1999 and 1998, respectively. The Company's operating
cash flows have been insufficient to satisfy growing cash needs without the
help of a private placement offering of $1,062,000 (1,446,000 shares) during
the first quarter of 1999.
Liquidity is a significant concern for the Company until it can generate
adequate cash flows from operations, which are primarily dependent on the
development, marketing and distribution of the Company's products. Management
believes that continued financing from private investors through the
issuance of Common Stock must be obtained in order to meet the Company's
expected growth and capital needs for the coming year.
The Company is now looking to raise equity financing of $5,000,000 to
$10,000,000 to provide additional working capital to meet the Company's growth
plans. With the additional infusion of capital and the existing receivables,
the Company is planning to build extra inventory, hire additional staff, meet
its budgeted marketing efforts and acquire other products or businesses.
RESULTS OF OPERATIONS
The Company derives revenue from software products, which are republished by
Intelliquis. The Company sells its products in North America primarily
through retailers and distributors. The Company's international sales
represented less than 1% and 0% of sales during the first quarter of 1999 and
1998, respectively.
The Company's sales increased $1,029,236 from $191,038 for the first quarter
of 1998 to $1,220,174 for the same period in 1999. The Company's increase in
sales and increases in other items from operations are due primarily to the
increasing retail and direct sales channels. In addition, the Company had
three more products in its sales production than existed during the first
quarter of 1998.
Cost of sales includes cost of goods sold, royalties paid to developers and
the costs for maintaining technical support. The cost of sales totaled
$503,690 for the three months ended March 31, 1999 and constituted 41% of
total sales as compared to $49,149 or 26% of total sales for the same period
in 1998. The change in the percent of sales is primarily due to an increase in
royalty fees and cost of production for the titles being produced during the
first quarter of 1999. Cost of the TOTALFAX program increased due to a
promotion that includes a modem with the purchase of each product. The
Company anticipates that cost of sales as a percentage of sales will be near
40% for the next quarter and should decrease to approximately 38% for the
last two quarters of the year.
The total sales and marketing for the first quarter of 1999 amounted to
$118,316 while the same period in 1998 amounted to $30,448. The increase of
$87,868 in sales and marketing expenses is primarily due to the Company's
aggressive marketing of its' products through a number of major retailers.
However, sales and marketing expense as a percentage of sales decreased from
16% and 10% for the three months ended March 31, 1998 and 1999, respectively.
The Company expects sales and marketing expense to be approach 13% for the next
quarter and to end the year at about 12%.
General and administrative expenses increased $215,014 during the first three
months ended March 31, 1999 over the same period in 1998. The increase in
costs can be attributed to the continued growth of the Company. The growth of
the Company has made it necessary to hire more employees and to lease
additional office and warehouse space. Although general and administrative
costs have increased the costs as a percentage of sales has decreased 5% to
22% from 27% for the first quarter of 1999 and 1998, respectively. The
Company expects general and administrative costs as a percent of sales to
continue to decrease for the rest of the year.
For the rest of 1999, the Company is expected to continue its strong growth by
realizing overseas growth in its current product lines. The Company has
already exceeded 1998 sales in the first four months of 1999 and is expected
to experience additional growth in its sales of its IntelliFix 2000 product as
the year 2000 approaches and the Y2K problem becomes more prominent. The
Company has also established sales/fulfillment centers in Ireland and
Malaysia to handle sales in Europe and the Far East. International sales are
expected to be approximately 30% of total volume for 1999.
The Company is currently planning to use the proceeds of the private
placements for expanding its marketing budget and setting aside funds for
acquisition of subsidiaries for an expansion and diversification of its
products and/or other services to carry its revenue beyond 1999.
The Company currently does not anticipate any production and/or sales
facilities and personnel limitations to fulfill its goals for 1999 and beyond.
The Company is also expanding its sales potential and presence by selling its
products directly to consumers over the internet, thus eliminating a
significant overhead of wholesale and retail marketing through existing
channels.
PART II
OTHER INFORMATION
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
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Intelliquis International, Inc.
By: Bernard Yaw
/s/ Bernard Yaw
Dated: May 17, 1999
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