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 SEPTEMBER 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 000-12139
INTELLIQUIS INTERNATIONAL, 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
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 September 30, 2000 the number of shares outstanding of the Registrant's
Common Stock was 34,845,475.
Transitional Small Business Disclosure Format - (check one): [ ] YES
[ X ] NO
Intelliquis International Inc. and Subsidiary
Form 10QSB
For the Quarterly Period Ended September 30, 2000
Table of Contents
Part I. Financial Information Page
Item 1. Financial Statements
a) Condensed Balance Sheets as of September 30, 2000 and
December 31, 1999 3
b) Condensed Statements of Operations for the three and
nine months ended September 30, 2000 and 1999 4
c) Condensed Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999 5
d) Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis 13
Part II. Other Information 16
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
ASSETS
September 30, December 31,
2000 1999
(Unaudited) (Audited)
Current assets
Cash (Note 2 and 11) $ 20,580 $264,395
Accounts receivable-trade (Note 2) 3,028,727 4,123,507
Accounts receivable-employee (Note 2) 120,423 56,632
Note Receivable (Note 4) 118,337 598,220
Inventory (Note 2) 609,179 551,845
Prepaid expenses 324,889 31,660
Deposits 10,200 7,700
4,232,345 5,633,959
Property, Plant &
Equipment (Note 2) 127,260 147,350
Other assets
Certificate of deposit (Note 2) 43,881 42,256
Intangibles (Note 2) 229,100 6,213
Inventory - Long Term (Note 2) 400,000 400,000
Total Assets $5,032,586 $6,229,778
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 910,227 $3,115,869
Short term notes (Note 3) 2,014,892 275,853
Litigation settlement payable (Note 5 & 9) 138,335 -
Accrued dividends payable 111,782 22,028
3,175,236 3,413,750
Commitments and Contingencies (Note 9)
Stockholders' Equity
Preferred Stock, 5,000,000 shares authorized,
par value $.001, 1,500 shares outstanding 2 2
Common Stock, 50,000,000 shares authorized,
$.001 par 34,845,475 and 33,970,475 shares
issued and outstanding 34,845 33,462
Additional paid in capital 3,283,136 2,835,672
Retained earnings (deficit) (1,460,633) (53,108)
1,857,350 2,816,028
Total Liabilities and Stockholders' Equity $5,032,586 6,229,778
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
Sales $ 314,826 $3,047,603 $1,284,484 $6,467,014
Cost of Sales 110,351 1,558,358 309,899 3,214,038
Gross Margin 204,475 1,489,245 974,585 3,252,976
Expenses:
Sales & Marketing 405,317 531,834 835,604 926,830
General &
Administrative 73,143 361,894 544,241 1,100,526
Total Expenses 478,460 893,728 1,379,845 2,027,356
Operating
Income (Loss) (273,985) 595,517 (405,260) 1,225,620
Other Income (Expense)
Interest Expense (89,959) (59,154) (142,406 (68,749)
Interest Income 4,070 874 24,546 5,782
Bad Debt (150,000) (60,000) (286,730) (60,000)
(235,889) (118,280) (404,590) (122,967)
Net Income
(Loss)
before Taxes (509,874) 477,237 (809,850) 1,102,653
Income Tax
Expense
(Note 2) - 186,358 - 430,185
Net Income
(Loss) $ (509,874) $ 290,879 $ (809,850 672,468
Loss on
Litigation - - 507,921 -
Preferred Dividends 29,918 - 89,754 -
29,918 - 597,675 -
Net Income (Loss)
Attributable
to Common Stock $ (539,792) $ 290,879 $ (1,407,525) $ 672,468
Net Income
(Loss) Per Share $ (.015) $ .009 $ (.041) $ .020
Total average
shares
outstanding 34,845,475 33,462,420 34,377,780 33,925,794
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
2000 1999
Cash Flows from Operating
Activities:
Net income ($1,407,525 ) $672,468
Non Cash Flow Items:
Depreciation & Amortization 48,462 23,827
Increase (decrease) in
Accounts receivable 1,030,989 (3,828,584 )
Inventory (57,334) (243,022 )
Prepaid expenses & deposits
(295,739 ) (18,940)
Accounts payable & accrued expenses (1,977,553 2,350,007
Net Cash Flows used in
Operating Activities (2,658,700 ) (1,044,244 )
Cash Flows from Investing Activities:
Stock Purchase - (160,000)
Cash from private placement of stock - 1,212,000
Stock issued for public relations services
199,375 -
Stock issued for services 10,813 -
Stock issued for litigation settlement 209,688 -
Stock issued for payment of debt 213,198 -
Cost of stock registration (184,227 -
Net Cash Flows from
Investing Activities 448,847 1,052,000
Cash Flows from Financing Activities:
Note receivable 479,883 -
Purchase of fixed assets (251,259 ) (132,568 )
Purchase of intangibles & other assets (1,625 ) (1,652 )
Proceeds from short-term debt 1,739,039 257,096
Cash used to pay-off short-term debt - (108,000)
Net Cash Flows used in Financing Activities 1,966,038 14,876
Net increase (decrease) in cash (243,815 ) 22,632
Cash, beginning of year 264,395 23,074
Cash, end of period $ 20,580 $45,706
Supplemental Cash Flow Information
Cash Paid for:
Taxes $- $-
Interest $ 53,090 $ 12,509
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Notes to The Financial Statements
September 30, 2000
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 its name in December
1998 to its current name.
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 ownership
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 within 3 months 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 was $2,115 for 1999. The Company's
amortization expense for the third quarter of 2000 and 1999 was $12,450 and
$529, respectively. The Company's amortization expense for the first nine
months of 2000 and 1999 was $15,557 and $1,586, respectively.
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
applied it 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 taxconsequences of events that have been
recognized in the financial statements or tax returns.
The federal income tax provision is $0 and $162,472 for the third quarter of
2000 and 1999, respectively. The state tax provision is $0 and $23,886 for
the third quarter of 2000 and 1999, respectively. The federal income tax
provision is $0 and $375,052 for the first nine months of 2000 and 1999,
respectively. The state tax provision is $0 and $55,133 for the first nine
months of 2000 and 1999, respectively.
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Notes to The Financial Statements
September 30, 2000
NOTE 2 - Significant Accounting Policies (continued)
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 periods.
The Company has cumulative net operating loss carry forwards of more than
$4,000,000 at December 31, 1998. No effect has been shown in the financial
statements for the net operating loss carry forwards as the likelihood of
future tax benefit from such net operating loss carry forwards is highly
improbable. Accordingly, the potential tax benefits of the net operating
loss carry forwards, 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.
Inventory consists of finished goods (assembled and unassembled computer
software) valued at lower of cost (FIFO) or market. During 1999, the Company
purchased a large number of ISA cards into inventory that were programmed
with Y2K compliance software for use in its Intellifix 2000 Software Package,
a rapidly moving software package prior to the beginning of the year 2000. The
purchase resulted in an oversupply of the ISA cards at year-end that cannot
be returned to the supplier. The Company negotiated a reduction in the
royalty due on each card sold from $5.50 to $1.00 for each card sold in the
future. This reduction in royalty payment makes it economically feasible to
reprogram the ISA cards with new software at a cost estimated at $35,367.
Management believes the newly programmed cards will be a slower moving
inventory item and that it may take up to two years to sell the oversupply of
cards. As a result, management has elected to write down the value of the
cards carried in its inventory at year-end by $820,507, or, approximately
50% of the original value. The cards have a $2.50-3.00 per card salvage value,
or $530,500 to $636,600. Failure of the Company to sell the re-programmed ISA
cards could result in an additional inventory write-down of $250,000-$300,000.
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) and
therefore is not currently available for use in operations The 6-60 month
certificate has interim rollover maturity dates. The certificate matures on
March 10, 2001. Interest is stated at 4.86%.
Fixed Assets The Company capitalizes purchases of long lived assets that are
expected to give benefit to the Company over the life of the asset. The
Company also capitalizes improvements and costs that increases the value
of or extend the life of the asset.
Fixed assets consist of the following:
September 30, December 31,
2000 1999
Computer Equipment & Software $ 142,105 $ 130,215
Office Equipment & Furniture 57,334 57,018
Leasehold Improvements 4,180 3,571
203,619 190,804
Less: Accumulated Depreciation (76,359) (43,454)
$127,260 $147,350
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Notes to The Financial Statements
September 30, 2000
NOTE 2 - Significant Accounting Policies (continued)
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 was $30,316 for
1999. For the third quarter the depreciatio expense is $11,112 and $11,106
for 2000 and 1999, respectively. For the first nine months the depreciation
expense is $32,905 and $22,242 for 2000 and 1999, 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 referred to here as the
"Company". All inter-company accounts and transactions have been eliminated.
Accounts Receivable Accounts Receivable are shown net of allowance for
returns of $269,055 and $411,446 and allowance for bad debt of $410,000 and
$210,000 for the first nine months ended September 30, 2000 and for
fiscal year 1999, respectively. Certain of the Company's distributors
including the largest distributor have the right
to return for credit, products purchased from the Company. The Company has a
ajor concentration in accounts receivable with one major distributor accounting
or 72% of all receivables at December 31, 1999. That distributor had paid 54%
of the balance at September 30, 2000. The distributor has taken
credits against the account totaling approximately $487,117 that management
believes are improper and is in the process of resolving with the
distributor. Accounts receivable balance includes $120,423 of employee
receivables (see Note 4).
NOTE 3 - Short Term Notes
The Company has acquired short term borrowing for working capital as follows:
September 30, December 31,
2000 1999
Note payable to a bank, secured by
$40,000 certificate of deposit, all
assets of the Company and personal
guarantees from certain officers of
the corporation, interest stated at 10.75%,
due November 10, 2000 $ 79,500 $ 79,500
Note payable to a lender; unsecured;
personal guarantees by two directors;
interest stated at 8% per 30 days;
due August, 1999 - 167,929
Note payable to a vendor; secured by
Inventory, interest stated at 8.50%,
due November, 2000 1,924,138 -
Note payable to a law firm; unsecured;
No stated interest 11,254 28,423
$2,014,892 $275,853
Interest expense for fiscal 1999 was $107,330. The interest expense for the
third quarter of 2000 is $89,959 and $59,154 for the same quarter in 1999.
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Notes to The Financial Statements
September 30, 2000
NOTE 4 - Related Party Transactions
The Company had accounts receivable owing from one officer/director at
September 30, 2000, as follows:
Mark Tippets, Vice President of Sales and Marketing/Director-
$120,000
On May 25, 1999, Bernard Yaw and Mark Tippets, two officers and directors of
the Company, issued on behalf of the Company, their personal guarantees to
allow the Company to secure a $200,861 loan advance from A-Vision Financial.
The loan advance had stated interest of 7% per 30-day period when not in
default with the stated rate accelerating to 8% per 30-day period from
inception if in default. The Company paid $150,000 on the loan advance
in 1999 and satisfied the remaining balance plus accrued interest ($212,009)
in April 2000, through the issuance of 250,000 shares of restricted common
stock (see Note 5-"Subsequent Events").
Messrs. Barrett and Tippets have also issued their personal guarantees
relating to a loan from First Utah Bank in the amount of $79,500.
In June 1999, Intelliquis International, Inc. began negotiations to acquire
Direct Media Communications, Inc. through the issuance of common stock and
funding of the company. The Company funded $90,000 between June 1999 and
November 1999, when a $500,000 wire transfer was made to substantially fund
Direct Media Communications, Inc. In December 1999, the transaction was
negated. Subsequent to the cancellation of the transaction, and with Direct
Media Communications, Inc. owing $590,000 to Intelliquis International, Inc., a
director of Intelliquis International, Inc., through an affiliate in Malaysia
concluded a similar transaction with Direct Media Communications, Inc.
Subsequent to the Company's year-end, Direct Media Communications has
repaid $500,000 of the advances made to it by Intelliquis International, Inc.
leaving a principal balance of $90,000 plus accrued interest of $11,461 as of
the Company's year-end (see Note 5-"Subsequent Events").
NOTE 5 - Subsequent Events
As a settlement in the On the Planet litigation, the Court ordered Intelliquis
to pay $202,000 to On the Planet plus issue 260,000 shares to On the Planet or
as directed by OTP's counsel. All of the shares have been paid and the
cash portion of the award was reduced by agreement and paid.
The Preferred Stock carries preferences in liquidation and dissolution and
prohibits the payment of dividends to common shareholders until all accrued
dividends in the Preferred Stock are paid. The Securities Purchase
Agreement also contained a warrant allowing ROBI to purchase up to 100,000
common shares and a conditional warrant allowing ROBI to purchase another
3,000 shares of the Company's 6% Convertible Series A Preferred Stock and
another warrant to purchase another 150,000 shares of common stock.
Dividends accruing on the Preferred Stock are payable in cash or registered
common shares at the Company's option. The conversion price for
the Series A Preferred Stock is linked to the future market price of the
common stock. As a result, the conversion price will change as the price for
the common shares changes in the marketplace. Therefore, the number of common
shares to which the Preferred Shares will convert cannot be determined until
the date of conversion.
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Notes to The Financial Statements
September 30, 2000
NOTE 5 - Subsequent Events (continued)
The Securities Purchase Agreement required the Company to file a Registration
Statement within 30 days of the agreement with the Securities and Exchange
Commission to register the underlying shares with the Registration
Statement to be declared effective within 180 days of the agreement. An
application for a stock listing on the NASDAQ Small-cap Market was to be
filed within 45 days of the date of the agreement. Failure of the Company to
perform some of these conditions could result in significant penalties to the
Company. Under certain conditions, the Company can require the exercise of the
Conditional Warrant that would result in an additional $3,000,000 of
equity into the Company. Management does not expect this to occur.
NOTE 7 During the quarter ended June 30, 2000, 305,000 common shares were
issued as partial settlements of pending litigations, 30,000 common shares
were issued to individuals for their services in the procurement of financing
for the Company and 2,136,000 common shares were issued for public/investor
relations services.
The Company currently has outstanding warrants that allow for the purchase of
up to 60,000 shares of common stock as follows:
Patrick Lucci 10,000 Warrants*
Doug Cole 25,000 Warrants*
Say Lim 25,000 Warrants*
Pricing of warrant will be determined when option plan is completed.
NOTE 8 The Company has entered into Executive Employment Agreements with
Bernard Yaw, President, CEO and Director and Mark Tippets, Vice President of
Sales and Marketing and Director. The agreements, which became effective on
February 3, 1999, are for a period of two years. The agreements
provide for compensation to the two parties to be set by the board of
directors, reimbursement for expenses, termination for cause, fiduciary
responsibility to protect confidential information, indemnification to the
fullest extent permitted by the Nevada Corporation Statutes, a non-compete
agreement for one year following the party's departure from the Company and
the Company's right of first refusal to purchase equity owned by the parties.
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Notes to The Financial Statements
September 30, 2000
NOTE 9 William L. Rosonbeck v. Staples and Intelliquis International, Inc.
This Case No. 00CVI00202 was filed as a small claims complaint in the Xenia,
Ohio Xenia Municipal Court on February 17, 2000, seeking damages of $1,290.31
arising out of personal computer problems which purportedly resulted from
use of Y2K software distributed by the Company. Due to the costs to defend
the case in Xenia, Ohio, the Company does not plan to appear. If the claim is
reduced to judgment in Ohio and enforcement action is taken in Utah, the
Company plans to contest the matter on jurisdiction ground. No opinion has
been expressed on the outcome of the matter.
Doren Rosenthal DBA RRosenthal Engineering v. Intelliquis International, Inc.
and Intelliquis LLC
By this action, pending as Civil No. 991124 in the Superior Court in the State
of California, County of San Luis Obispo, plaintiff alleges that he developed
and produced a computer program which operated as a Y2K fix for hardware with
year 2000 complications, that he licensed his repair software to
the Company for the purpose of distribution at the retail level, and that he
has not been paid the royalties to which he was entitled under the license
and parties' agreement. He asserts claims for breach of contract,
misappropriation of trade secrets, breach of the covenant of good faith and
fair dealing, unjust enrichment, and unfair competition. The action seeks
general damages in the amount of $5 million, punitive damages in an unstated
amount and injunctive relief. No opinion has been expressed as to the
ultimate outcome of the action.
In addition to filed litigation actions by or against the Company, the
following claims have also been made against the Company:
NOTE 10 The Company leases approximately 3,900 square feet of office space
under a lease that expires on March 31, 2002 and approximately 5,638 square
feet of warehouse space under a lease that expires on March 31, 2002.
NOTE 11 Cash at December 31, 1999; the Company had deposited funds that
exceeded the FDIC insured limits of $100,000. The amount of cash subject to
this potential loss at December 31, 1999 was $27,136.
The Company currently uses one major distributor for most of its sales. That
distributor accounted for approximately 64% of all sales in 1999. This
distributor accounts for over 70% of the Company's accounts receivable. The
Company could recognize significant declines in sales if the distributor or
the Company chooses to alter its current sales relationship.
The Company's Intellifix 2000 and Fix 2000 Pro Y2K software products accounted
for 81.87% of sales for 1999. With the beginning of 2000 and the lapse of the
potential problems associated therewith, the Company could experience
significant declines in sales if the Company fails to diversify its
product line through the introduction of new software products. The Company is
in the process of transcending from licensing software products for
distribution to developing their own software products.
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 conducting mining
operations. 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
organized 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 seeks to build a leadership position in this market by first
licensing fully tested software applications from independent software
developers andthen 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.
Since the release of the Company's first software title in November 1997, the
Company has grossed approximately $9 million in sales to date.
The Company has licensed and released a total of eight software titles through
the end of the first ten months of 2000 namely, INTELLIFIX 2000 (formerly
FIX2000), TOTAL FAX, WEB SITE TRAFFIC BUILDER, CREDIT BUILDER, SPEED 98,
CYBER SURVEILLANCE, WEB SITE TRAFFIC ANALYZER, AND MASS MAILER. In the last
quarter of 1997, the Company republished and released its first three
titles (NetFax, Speed98 and Credit Builder). During 1998, Intelliquis released
another three titles (Total Fax, Fix2000, and Web Site Traffic Builder). In
1999, the Company revamped Credit Builder and launched it as Credit Builder
Deluxe. Intelliquis also released Cyber Surveillance during fourth quarter
1999. With the availability of new and quality titles to license,
the Company intends to release new titles on a regular basis in 2000 and beyond.
Intelliquis announced the launch of two new titles at the beginning of 2000,
Mass Mailer and Web Site Traffic Analyzer. Mass Mailer is a bulk e-mail message
program that allows users to broadcast e-mails to multiple contact lists. Web
Site Traffic Analyzer allows Webmasters to track and monitor traffic patterns
to and within their Internet sites. The Company plans to offer Web Site Traffic
Analyzer as a stand-alone product and include the product with Web Site Traffic
Builder in a suite of Internet products called Web Works.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $2,658,700 and $1,244,044 for the nine
months ended September 30, 2000 and 1999, respectively. The increase in cash
used in operating activities is primarily attributable to the operating losses
incurred, reclassification of a large account payable to a note payable and
prepayment of marketing expenses for fiscal year 2000.
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. With the
forecasted sales for the next quarter and existing receivables, the Company is
planning to meet its obligations.
Accounts receivable is still rather high; however, the Company is
attempting to resolve a discrepancy with its major distributor that will result
in decreasing accounts receivable by approximately $500 thousand. Although
the Company does not anticipate any problems related to accounts receivable
collections, it is currently taking measures to assure collection on all
amounts outstanding. In addition, the Company continues to record an
allowance for possible returns and bad debt.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2000 and 1999
The Company derives revenue from the sale of software products, which it
licences from developers and resells. The Company sells its products in North
America and internationally primarily through retailers and distributors. The
Company's international sales represented less than 16% and 6% of sales
during the third quarter of 2000 and 1999, respectively. The Company's
sales decreased $2,732,777 from $3,047,603 for the third quarter of 1999 to
$314,826 for the same period in 2000. The Company's decrease in
sales is primarily due to the decrease in sales of the IntelliFix 2000
products. The Company expects sales to increase for the rest of the fiscal
year due to the release of new products and new versions of existing products.
The Company released 2 new software programs (Web-site Traffic Analyzer and
Mass Mailer) during the first nine months of 2000. The Company believes that
sales for its current programs will continue to increase through-out the year.
In addition, the Company is planning to release at least one new software
program each quarter. The Company is partnering with another entity to
develop a program that will be installed on the ISA cards currently in
inventory. The Company believes that sales of the ISA card product will
completely deplete the current inventory of the cards.
Cost of sales includes cost of goods sold, royalties paid to developers and
the costs for maintaining technical support. The cost of sales totaled
$110,351 for the three months ended September 30, 2000 and constituted 35% of
total sales as compared to $1,558,358 and 51% of total sales for the same
period in 1999. The change in the percent of sales is due to decreases in
royalty fees and per unit cost of production for the current products being
sold. During the third quarter of 1999 cost of goods sold were higher than
normal due to the cost of sales for the ISA cards. During the third quarter
of 2000 the Company had taken additional measures to reduce royalties and
production labor. The Company anticipates that cost of sales will approach
20% of sales for the fiscal year 2000.
The total sales and marketing for the third quarter of 2000 amounted to $405,317
while the same period in 1999 amounted to $531,834. Sales and marketing
expense as a percentage of sales were 129% and 17% for the three months ended
September 30, 2000 and 1999, respectively. The increase in percent of sales
is due to the decrease in sales and a substantial increase in marketing
programs. The Company was involved in numerous marketing programs that will
be of benefit for the entire year. As sales continue to increase; sales and
marketing as a percentage of sales will decrease. The Company expects sales
and marketing expense to be approximately 52% for the fiscal year 2000.
General and administrative expenses totaled $73,143 and $361,894 for the three
months ended September 30, 2000 and 1999, respectively. The decrease in costs
can be attributed to cutbacks in payroll due to the decrease in sales. General
and administrative costs have increased as a percentage of sales to 23% from
12% for the three months ended September 30, 2000 and 1999, respectively.
However, the increase is more attributable to decrease in sales than an
increase in general and administrative expenses. The Company anticipates
general and administrative expenses as a percentage of sales to approximate
30% for the fiscal year 2000.
The Company settled on two lawsuits during the second quarter of
2000. The settlements resulted in a loss of $507,921. The Company does not
anticipate any further claims or litigation will result with material effect
on the Company's financial position, results of operations or cash flows.
For the fiscal year 2000, the Company expects to continue to grow by realizing
overseas growth in its current product lines and the demand for the new
products released in April. In relation, the Company anticipates to have
income from operations for the remaining quarter. The income will be a result
of increased sales due to new products and revisions. In addition, the Company
is exploring other products that could be release during the fourth quarter
which could dramatically increase sales.
For the three months ended September 30, 2000, the Company reported an
operating loss of $273,895, compared to operating income of $595,517 in the
corresponding period in 1999.
Nine Months Ended September 30, 2000 and 1999
The Company's sales amounted to $1,284,484 for the first nine months of 2000
which is a decrease of $5,182,530 from $6,467,014 for the same period in
1999. The Company's decrease in sales is primarily due to the decrease in
sales of the IntelliFix 2000 products and the late release of the Company's
new products. The Company expects sales to increase for the rest of the
fiscal year due to the release of new products and new versions of
existing products.
Cost of sales includes cost of goods sold, royalties paid to developers and
the costs for maintaining technical support. The cost of sales totaled
$309,899 for the nine months ended September 30, 2000 and constituted 24% of
total sales as compared to $3,214,038 and 50% of total sales for the same
period in 1999. The change in the percent of sales is due to decreases in
royalty fees and per unit cost of production for the current products being
sold. During the first nine months of 1999 cost of goods sold were higher
than normal due to the cost of sales for the ISA cards. During the first nine
months of 2000 the Company had taken additional measures to reduce royalties
and production labor. The Company anticipates that cost of sales will approach
20% of sales for the fiscal year 2000.
The total sales and marketing for the first nine months of 2000 amounted to
$835,604 while the same period in 1999 amounted to $926,830. Sales and
marketing expense as a percentage of sales were 65% and 14% for the nine
months ended September 30, 2000 and 1999, respectively. The increase in
percent of sales is due to the decrease in sales. Also, the Company
was involved in numerous marketing programs that will be of benefit for the
entire year. While sales continue to increase sales and marketing as a
percentage of sales will decrease. The Company expects sales and marketing
expense to be approximately 52% for the fiscal year 2000.
General and administrative expenses totaled $544,241 and $1,100,526 for the nine
months ended September 30, 2000 and 1999, respectively. The decrease in costs
can be attributed to cutbacks in payroll associated with the Y2K products.
General and administrative costs have increased as a percentage of sales to
42% from 17% for the nine months ended September 30, 2000 and 1999,
respectively. However, the increase is more attributable to decrease in
sales than an increase in general and administrative expenses.
The Company anticipates general and administrative expenses as a percentage
of sales to approximate 30% for the fiscal year 2000.
The Company settled on two lawsuits during the second quarter of
2000. The settlements resulted in a loss of $507,921. The Company does not
anticipate any further claims or litigation will result with material effect
on the Company's financial position, results of operations or cash flows.
For the fiscal year 2000, the Company expects to continue to grow by realizing
overseas growth in its current product lines and the demand for the new
products released in April. In relation, the Company anticipates to have
income from operations for the remaining quarter. The income will be a result
of increased sales throughout the year due to new products and revisions and
a reduction in production costs and overhead. In addition, the Company is
exploring other products that could be release during the fourth quarter which
could dramatically increase sales.
For the nine months ended September 30, 2000, the Company reported an
operating loss of $405,260, compared to operating income of $1,225,620 in the
corresponding period in 1999.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR PROVISION" OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
When used in this report, the words "believe," "plan," "anticipates,"
"expects" and similar expressions are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended.
Such statements are subject to certain risks and uncertainties, including
those discussed below, that could cause actual results to differ materially
from those stated. All of these forward-looking statements are based on
estimates and assumptions made by management of the Company, which although
believed to be reasonable, areinherently uncertain and difficult to predict.
There can be no assurance that the benefits or results anticipated in these
forward-looking statements will be achieved. The following important
factors, among others, could cause the Company's to no experience the results
contemplated in this report, or otherwise cause the Company's results of
operations to be adversely affected in the future: (i) the Company's reliance
on the sale of few products; (ii) the Company's dependence on the ability
of its distribution channels to market the Company's products;
(iii) the Company's dependence on one major distributor for retail sales; (iv)
the Company's reliance on its Y2K software for a majority of revenues; (v) the
uncertainty of the potential impact of the Year 2000 on computer systems;
(vi) continued or increased competitive pressures from existing competitors
and new entrants; (vii) unanticipated costs related to the Company's growth
and operating strategies; (viii) loss of key members of management; (ix)
deterioration of general economic conditions; (x) loss of customers or
customer acceptance of Company products; (xi) unanticipated problems or
"bugs" in the Company's software products; and (xii) the outcome of any
litigation the Company may be involved in. Stockholders, potential investors
and other readers are urged to consider these factors carefully in evaluating
the forward-looking statements and are cautioned not to place undo reliance on
such forward-looking statements. Many such factors are beyond the control of
the Company. The forward-looking statements made herein are only made as of the
date of the Form 10-QSB and the Company undertakes no obligation to publicly
update such forward-looking statements to reflect subsequent events or
circumstances.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1. WILLIAM L. ROSENBECK V. INTELLIQUIS INTERNATIONAL. On February 17, 2000,
William L. Rosenbeck filed a small claims complaint in the Xenia Municipal
Court, Xenia, Ohio, styled William L. Rosenbeck v. Staples and Intelliquis
International, Case No. 00CV100202. By this action, Rosenbeck seeks damages
of $1,290.31 arising out of personal computer problems which purportedly
resulted from use of Y2K software. Because the cost to defend the action in
Xenia, Ohio, substantially exceeds the potential exposure, the Company has
elected not to appear; however, if the claim is reduced to judgment in Ohio
and results in enforcement action in Utah, the company intends to contest the
matter on jurisdictional grounds. There can be no assurance of the ultimate
outcome of this matter.
2. ROSENTHAL ENGINEERING V. INTELLIQUIS. This case was brought by Doren
Rosenthal d/b/a Rosenthal Engineering ("Rosenthal") against the Company, based
on claims made by Rosenthal that stem from an alleged breach of a licensing
agreement. The case includes claims for breach of contract, misappropriation
of trade secrets, and others.
Rosenthal is a software programmer that developed computer programs designed
to fix Year 2000 bugs in software programs. Rosenthal alleges that he entered
into a licensing agreement with Intelliquis, whereby Intelliquis licensed
Rosenthal's software program and included it in the Company's own Year 2000
fix, and whereby Intelliquis did not pay certain royalties owed to Rosenthal,
and also that Intelliquis made unauthorized use of Rosenthal's program.
Rosenthal has filed a lawsuit in the Superior Court for the State of
California based on the contract and related claims, and is seeking damages in
an unspecified amount. Rosenthal has also threatened to file a lawsuit in
Federal Court based on claims related to intellectual property. Outside of
the litigation, Rosenthal has stated that he is seeking in excess
of $1,000,000.
Intelliquis denies all of the allegations made by Rosenthal in the case, and
has filed a Demurrer (the state court equivalent of a motion to dismiss) to
the complaint. Intelliquis has taken the position that any royalties owed, if
any, are of a nominal amount, and were properly withheld
as a reserve due to potential returns of the Rosenthal product as a result of
product defects. Intelliquis also denies that it engaged in any
misappropriation of trade secrets, or any of the other acts alleged.
Intelliquis intends to defend the present and threatened actions of Rosenthal.
This matter is in its early stages, and the outcome is uncertain. There can be
no assurance that Intelliquis will be successful in its defense of the case,
and in the event that Intelliquis is unsuccessful, the amount of potential
damages that may be awarded is also uncertain.
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
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. Description
27 Financial Data Schedule
No reports on Form 8-K were filed by the Company during the quarter ended
March 31, 2000.
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: /s/ ______________________
Bernard Yaw, President and Duly
Authorized Officer of the Registrant
Dated: November 14, 2000
