UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999
[ ] 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
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ X ]
Revenue for the year ended December 31, 1999: $ 7,457,568
As of March 31, 2000 the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $10,394,214.
As of March 31, 2000 the number of shares outstanding of the Registrant's
Common Stock was 3310,462,420.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Intelliquis International, Inc. ("the Company" or "Intelliquis") seeks to
become a leading republisher, marketer and supporter of Year 2000 utility,
productivity and communication software products for the computer software
retail market. The Company was incorporated as Leesburg Land and Mining Inc.,
in June 1983 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, a Utah Limited Liability Company, 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 Utah in December 1997, as a 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 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 approximately $9 million in sales to
date.
The Company has licensed and released a total of six software titles through
the end of 1999 namely, INTELLIFIX 2000 (formerly FIX2000), TOTALFAX, WEB
SITE TRAFFIC BUILDER, CREDIT BUILDER, SPEED 98, AND CYBER SURVEILLANCE. 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 (TotalFax, 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 Meter. Mass Mailer is a bulk e-mail message
program that allows users to broadcast e-mails to multiple contact lists. Web
Site Traffic Meter allows Webmasters to track and monitor traffic patterns to
and within their Internet sites. The Company plans to offer Web Site Traffic
Meter as a stand-alone product and include the product with Web Site Traffic
Builder in a suite of Internet products. The Company has licensed and released
a total of five software titles namely, INTELLIFIX2000 (FORMERLY FIX2000),
TOTALFAX, WEBSITE TRAFFIC BUILDER, CREDIT BUILDER, AND SPEED98. In the last
quarter of 1997, the Company republished and released the first three titles
(NetFax, Speed98 and Credit Builder). In the first quarter of 1998,
Intelliquis released another two titles (TotalFax and Fix2000). Intelliquis'
most recent title (Website Traffic Builder) was released in August 1998. With
the availability of new and quality titles to license, the Company intends to
release new titles on a regular basis in 1999 and beyond.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's headquarters are located at 352 West 12300 South, Suite 300,
Draper, Utah 84020. The main telephone number of the Company is (801)
990-2600. The Company has a three year lease of 3,900 square feet of office
space and 5,638 square feet of warehouse space. The Company performs its own
warehousing and fulfillment of all its products.
ITEM 3. LEGAL PROCEEDINGS
1. ON THE PLANET, INC. V. INTELLIQUIS INTERNATIONAL, INC., ET AL. On
May 6, 1999, On The Planet, Inc. ("OTP"), filed an action against the Company
in the United States District Court for the District of Utah, entitled On The
Planet v. Intelliquis International, Inc., Civil No. 2:99CV324K. The claims
purportedly arise out of a Software Rights Agreement under which the Company
granted OTP "an exclusive license for direct sales along with a nonexclusive
license for all other sales including but not limited to retail sales" for
certain Y2K fix software identified therein. OTP asserts that the Company
violated that Agreement by engaging in direct sales or giving third parties a
license to engage in direct sales of the Y2K fix software and other related
products. OTP asserts claims of copyright infringement, breach of contract
and fraud. In addition to injunctive relief, OTP is seeking unspecified
damages including profits lost through the direct sales of the Y2K fix
software, as well as attorneys' fees and punitive damages. In response to the
lawsuit filed by OTP, the Company has denied the claims filed against it and
has filed counterclaims seeking rescission of the Software Rights Agreement
and asserting breach of contract of that Agreement. The Company has also
filed additional claims against OTP and its principal, Ernest Hemple, arising
from conduct that the Company believes to constitute defamation and
interference with contract. OTP has filed a motion to enforce a purported
settlement agreement by which, among other things, the Company would pay
certain sums to OTP and would cause certain shares of stock in the Company to be
delivered to OTP. That motion is pending. In addition, OTP has filed a
second amended complaint by which (a) claims for copyright infringement are
alleged against Bernard Yaw and Mark Tippets (officers of the company) and
against six entities which had contracted with the Company in
aspects of the distribution and/or sale of certain Y2K fix software, and (b) a
claim has been alleged for damages for breach of the purported settlement
agreement. The Company has filed a motion to dismiss the second
amended complaint. The company intends to defend against the settlement
enforcement motion and the action and to prosecute its counterclaims. 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.
2. BLAIR BARRETT CLAIMS. Blair Barrett, a former officer of the Company,
has made two categories of demands upon the Company: (1) a demand for
delivery of stock certificates representing 5,336,496 shares in the Company,
and (2) a demand for payment of back wages and benefits purportedly owing as a
result of the allegedly wrongful termination of his employment in June 1999.
In response to the first demand, the Company has delivered certificates
representing the demanded shares to Mr. Barrett. With respect to the second
demand, the Company denies that termination was improper and denies that he is
owed any sum. No lawsuit or arbitration demand has been filed respecting Mr.
Barrett's wrongful termination claims. There can be no assurance that no
lawsuit will be filed or that no arbitration demand will be made, and in the
event that a lawsuit is filed or an arbitration proceeding is instituted,
there can be no assurance of the outcome of the litigation or arbitration
proceeding.
3. 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.
4. INTELLIQUIS INTERNATIONAL V. JEFF BOONMEE AND BI-COM LINK. By this action,
pending as Civil No. 990912546 in the Third Judicial District Court in and
for Salt Lake County, State of Utah, the Company seeks recovery of excess
payments made under a royalty agreement with a software and hardware
designer. A counterclaim has been filed for $517,819 in unpaid royalties
allegedly owing under the parties' agreement. No discovery has been
conducted in the case to date. The parties and their counsel have engaged
in settlement negotiations although no settlement agreement has been
reached. There can be no assurance that this action will result in a
settlement agreement between the parties, and in the event that a
settlement agreement is not reached, there can be no assurance that the
litigation will result in a recovery by the Company.
5. 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.
6. CLAIM OF ENVIROCON STRATEGIC MANAGEMENT CONSULTING GROUP, INC. In
December 1999, this alleged consulting group made demand against the Company
for $100,000 for consulting services allegedly rendered. On December 29,
1999, the Company denied theclaim by letter. The Company is not aware of any
further action taken by the consulting group for the fee allegedly owed,
but the Company cannot guarantee that no further action will be taken.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
PART II
ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the OTC Electronic Bulletin
Board under the symbol INTQ since February 5, 1999. Prior to February 5,
1999, there was no known public trading in the Company's Common Stock. In
April 1999, the Company completed aforward stock split of one for three
shares through a stock dividend.
The following table reflects the high and low bid prices of the Company's
Common Stock as reported by the OTC Electronic Bulletin Board from February
5, 1999 to March 31, 2000 (post stock split). Such prices are inter-dealer
quotations without retail mark-ups, mark-downs or commissions, and may
not represent actual transactions.
HIGH LOW
1998 CALENDAR PERIOD:
1st Quarter N/A N/A
2nd Quarter N/A N/A
3rd Quarter N/A N/A
4th Quarter N/A N/A
1999 CALENDAR PERIOD:
1st Quarter 5 1/12
2nd Quarter 6 1/4 2 3/4
3rd Quarter 5 2 1/8
4th Quarter 2 13/16 9/16
2000 CALENDAR PERIOD:
1st Quarter (through
March 31, 2000) 2 7/8 1/2
As of March 28, 2000, there were 1118 stockholders of record.
The Company does not presently pay cash dividends on its Common Stock and
anticipates that, for the foreseeable future, no cash dividends will be paid
on its Common Stock.
ITEM 6. 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 Iinternational
markets. The software products are being marketed through traditional
software distribution channels and the Internet's World Wide Web. Since the
release of the Compay's first software title in November 1997, the Company
has grossed approximately $9 million in sales to date. The Company is
currently building distribution and financing capabilities worldwide.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $1,795,777 and $132,126 for fiscal
1999 and 1998, respectively. The Company's increase in cash used in
operating activities is primarily attributable to the increase in sales on
account and an increase in inventory on hand. The increase in inventory and
accounts payable is due to the purchase of ISA cards. Although the ISA
cards were initially programmed with a Y2K fix, the Company has developed a
data recovery program that can be programmed on the ISA card. Although the
Company anticipates that the existing inventory of cards will be sold during
the next two years, the ISA card inventory was written down by 50%
($820,507) in anticipation of additional costs to program and market the
product.
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 may be needed to fund new
software programs that are currently being developed and the Company's
expanding market development plans. In addition, the Company is continuing
to expand into international markets including Canada, Europe and Latin
America. However, the Company anticipates that the increase in sales for
its web-site related software programs will provide necessary funds to
maintain the current sales growth.
Following the December 31, 1998 year-end, the Company completed a private
placement of $1,000,000. The Company completed a private placement of
$1,062,000 (1,815,000 shares) in first quarter 1999 and a private placement
of $2,000,000 (2,000 shares of 6% Series A Preferred Stock and a warrant to
purchase 100,000 shares of Common Stock) in fourth quarter 1999.
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 10% and 1% of sales during fiscal 1999 and 1998,
respectively.
The Company's sales increased $5,996,373 (410%) from $1,461,195 for fiscal
1998 to $7,457,568 for fiscal 1999. The Company's increase in sales is due
to sales of the Y2K software programs and increased market penetration with
TotalFax and Website Traffic Builder software programs. In addition, the
Company released three two newtitles (Total Fax, Fix 2000 and Website
Traffic BuilderCredit Builde r Deluxe and Cyber Surveillance) in fiscal 1998
1999 while expanding its' distribution channels. The Company released
2 new software programs (Web-site Traffic Meter and Mass Mailer) during the
first four 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. Cost of sales
includes cost of goods sold, royalties paid to developers and the costs
for maintaining technical support. The cost of sales totaled
$3,759,056 for fiscal 1999 and constituted 50% of total sales as compared to
$355,613 or 24% of total sales for fiscal 1998. The majority of the
increase is due to the Company's cost of ISA Cards. The Company wrote-off
50% ($820,507) of the ISA card inventory due to the reconfiguration and
marketing of the cards. The Company anticipates the cost of sales will be
approximately 40% of sales for the year 2000.
The total sales and marketing for fiscal 1999 amounted to $1,442,675 while
fiscal 1998 amounted to $596,125. The increase of $846,550 in sales and
marketing expenses is primarily due to the Company's aggressive marketing of
its' products through a number of major retailers. A large portion of the
marketing expense is determined by sales volume. Also, the Company expanded
their sales department during 1999 by hiring a number of salespeople to meet
the demand of sales.
As the Company continues to increase in sales, sales and marketing expense
will continue to decrease and constitute approximately 17% of sales.
General and administrative expenses increased $889,724 during fiscal 1999 over
fiscal 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. However,
general and administrative costs as a percentage of sales decreased
from 29% to 18%. The Company believes that general and administrative
expenses will decrease as operations become more efficient and should be 15%
of sales.
The Company had a net loss of $74,505 for fiscal 1999 compared to net
income of $75,921 for fiscal 1998. The primary reason for the net loss was
the write-off of $820,507 of the ISA card inventory. The write-off of the
cards was made in anticipation of additional costs to program and market the
new ISA card program. The Company plans to return to profitability for the
year 2000 by managing cost of sales to achieve an increased profit margin.
For 2000, the Company is expected to continue with its overseas growth in
its current product lines. The Company established sales/fulfillment centers
in Ireland and Malaysia to handle sales in Europe and the Far East. The
Company has also signed agreements with a number of international
distributors. As of the date of this report the Company has released two
new products (Mass Mailer and Website Traffic Meter) and plans to release at
least one new product each quarter. The Company does not anticipate any
production and/or sales facilities and personnel limitations to fulfill its
goals for 1999 2000 and beyond. The Company is also expanding its sales
potential and presence by selling its products directly to consumers over the
internetInternet, thus eliminating a significant overhead of wholesale and
retail marketing through existing channels.
ITEM 7. FINANCIAL STATEMENTS
(a)(1) The following financial statements of the Company and its
subsidiaries have been filed as part of this report (see Item 8 "Financial
Statements and Supplementary Data"):
Independent Auditors' Report
Balance Sheets as of December 31, 1999.
Statements of Operations for the years ended December 31, 1999 and December
31, 1998.
Statement of Stockholders' Equity for the period from January 1, 1997 to
December 31, 1999.
Statement of Cash Flows for the years ended December 31, 1999 and December
31, 1998.
Notes to Financial Statements.
(2) Schedules are omitted because of the absence of conditions
under which they are required or because the required information is given in
the financial statements or notes thereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Gordon, Hughes, & Banks, LLP, CPAs was previously the principle
accountant for Intelliquis International, Inc. In January 1999, the Board of
Directors approved the engagement of the firm of Crouch, Bierwolf & Chisholm
to replace Gordon, Hughes, & Banks, LLP, CPAs who declined to stand for
reelection as the Certifying Accountants for the Company.
In connection with the audit of the previous fiscal year ended December 31,
1997, there were no disagreements with Gordon, Hughes, & Banks, LLP, CPAs on
any matter of accounting principle or practices, financial statement
disclosure, or auditing scope or procedures, which disagreements; if not
resolved to their satisfaction, would have caused them to make reference in
connection with their opinion to subject matter of the disagreement. Said firm
has not advised the registrant of any reportable events.
The accountant's report of May 12, 1998 on the financial statements of
Intelliquis International,Inc. as of December 31, 1997 and for the year ended
did not contain any adverse opinion or disclaimer of opinion, nor were they
qualified as to uncertainty, audit scope, or accounting principles.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is furnished with respect to the Company's Board of
Directors and executive officers. There are no family relationship between or
among any of the Company's directors or executive officers.
DIRECTORS AND EXECUTIVE OFFICERS
The Company's management team consists of experienced professionals in the
area of software licensing, marketing, sales, operation and financial
strategies. The Company presently has a total of twenty- nine full-time
and part-time contract workers as needs arise. In addition, there are
contractual relationships with third party distribution companies and Asian
and European partners to assist in software distribution and marketing.
Messrs. Bernard Yaw, Blair Barrett, Mark Tippets and Say Thean Lim
are the majority shareholders of the Company at this moment. Other directors
will be added in the future.
The Board of Directors and executive officers of the Company as of date of
this report are as follows:
Age
Name (1999) Position with the Company
Bernard Yaw 39 Director, President and CEO
Dave Jones 36 Chief Financial Officer
Mark Tippets 47 Director, Vice President of Sales
and Marketing
Say Thean Lim 38 Director, Director of Business
Development
Blair Barrett 45 Director, Vice President of Operation
Douglas D. Cole 43 Director
Following is a discussion of the business background of each director,
President and executive officer. Messrs. Bernard Yaw, Dave Jones, Blair
Barrett and Mark Tippets are full-time employees of the Company. Other
directors shall devote only such time as may be necessary to the Company's
business and affairs.
Bernard Yaw, was appointed to be Director, President and CEO of the Company
since the acquisition of Intelliquis LLC ("the Subsidiary"). Mr. Yaw served
as Manager of the Subsidiary since its inception in December 1997. He joined
the Subsidiary as Vice President of Strategic Business in May 1998 in charge of
International, Internet sales and Investment. Prior to joining the Company,
Mr. Yaw served as President and Director of IN2 Technologies, Inc., a
developer of Internet Form Publishing software. Mr. Yaw also served as
President of Handwriting Imaging Systems Corp.; a company and developer of a
hand print recognition and document imaging software. In 1987, Mr. Yaw
founded the Goleta branch of Teltron Computer Systems, an early importer and
manufacturer of IBM PC compatible computers and system integrators located in
the bi-county area of Santa Barbara and Ventura, California. Mr. Yaw
graduated from Oral Roberts University in Tulsa, Oklahoma with a Bachelor of
Science degree in Computer Science in 1985.
Dave Jones, has served as Chief Financial Officer for the Company since the
acquisition of the Subsidiary. Mr. Jones has served as CFO of the Subsidiary
since November 1998 and is responsible for all the accounting functions and
financial planning of the Company. Prior to joining the Subsidiary, Mr.
Jones served as Chief Financial Officer of RC Management Corporation d.b.a.
Video III since 1993. From 1990 to 1993, he served as Assistant Controller at
Rocky Mountain Helicopters and an accountant at Deloitte and Touche from
1989-1990. Mr. Jones received his License for Certified Public Accountancy
in the Stateof Utah since 1991. He graduated from Brigham Young University
with a Bachelor of Science degree in Accounting in 1989.
Mark Tippets, was appointed as Director and Vice President of Marketing and
Sales of the Company since the acquisition of Intelliquis LLC. He has served
as Vice-President of Marketing and Business Development of the Subsidiary,
since its inception in December 1997. Prior to joining the Company, Mr.
Tippets has been associated with the computer industry for seven years.
Starting with Gazelle Systems as a customer service representative, Mark
worked his way into dealer sales. After a year, Mark was promoted to a
managerial position with the company's OEM and Government Sales. During his
final year at Gazelle in 1993, Mr. Tippets' work accounted for half of the
Company's sales. Mr. Tippets then started a company called Channel
Marketing in late 1993. Channel Marketing is a marketer and distributor
representative firm representing many computer hardware and software
companies. Channel's list of clients includes AIWA America and CyberMedia,
just to name a few. Mark graduated from Brigham Young University with a
Bachelor of Arts degree in Psychology and a minor in Accounting.
Say Thean Lim was appointed as member of the Board of Directors since its
acquisition of the Subsidiary. Mr. Lim, through his holding company Statmart
USA, was the initial start-up investor of the Subsidiary since its inception.
He joined the Subsidiary as a Manager in August 1998. Mr. Lim has been an
entrepreneur and business consultant since 1996 with strategic investments in
technology based companies in semiconductor, precision machining, multimedia
and software development, e-commerce, industrial and virtual training
industries in Malaysia and the United States of America. Some of the
Malaysian companies are in the process of obtaining listings on the Kuala
Lumpur Stock Exchange (KLSE) and the Malaysian Exchange of Securities
Dealing and Automated Quotation (MESDAQ). One of the multimedia development
companies is in the process of securing a Multimedia Super Corridor (MSC)
status in Malaysia. From 1984-1991, Mr. Lim worked in various capacities at a
semiconductor manufacturing plant in Penang, Malaysia. He started as an
Industrial Engineer and was eventually promoted to Operations Manager. From
1992-1995, he was the CEO of Unico Technology Sdn. Bhd., a PC manufacturing
and exporting company with approximately 1,500 employees and an annual
turnover of RM 500 million. Mr. Lim received a Bachelor of Applied Science
in Computers, Industrial and Electrical Engineering degree and a Bachelor of
Engineering in Industrial Engineering degree from the Technical University,
Nova Scotia, Canada in 1984.
Blair Barrett was appointed as Director and Vice President of Operations of
the Company since the acquisition of the Subsidiary. He served as Manager and
President of the Subsidiary from its inception to January 1999. Mr. Barrett
has approximately 17 years of experience in sales and marketing with computer
hardware, software and high-tech companies. He has served as sales manager
with FORA Inc. a venture capital funded start-up hardware company. He also
helped manage a real estate VAR startup. Mr. Barret graduated from Brigham
Young University with a Bachelor of Science degree in Finance in 1980.
Douglas Cole was appointed as Director of the Company since February 1999.
For the past twenty-two years, Mr. Cole has worked in the information
technology industry, with a focus on sales and marketing. He has
successfully completed numerous acquisitions and strategic partnerships with
various companies. He is currently a Director and Chairman of NetAmerica,
Inc., a Delaware company currently listed in the OTC Bulletin Board (under the
symbol of "NAMI"). NetAmerica is a company engaged in the business of
aggregating and offering dial-up and dedicated Internet communication service
access throughout the United States and international centers. Mr. Cole is
also a current member of the Board of Directors of VR1, a privately-held
Boulder, Colorado company engaged in the business of Internet multi-player
games, and RedFish Telemetrix, a privately-held Irvine, California company
engaged in the business of long-distance optimization hardware. He has served
as the President and CEO of PolarCap, Inc., a privately held California
company. From 1995-1996 Mr. Cole served as President and CEO of Starpress Inc.
Starpress was acquired by Great Bear Technology Company, a publicly held
California company, where Mr. Cole was also the President and CEO from
1992-1996. From 1985-1991 he served as President, CEO and Executive Vice
President of Insight Development Corporation, a company engaged in the
business of network printing utilities for Hewlett Packard. From 1977-1978 he
served as Vice President of Sales and Marketing of The David Jamison Carlyle
Corporation. Mr. Cole graduated from the University of California, Berkeley,
in 1978 with a Bachelor of Arts degree in Social Science.
ITEM 10. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
No executive officer was paid or accrued cash compensation, in the form of
salaries, in excess of $100,000 for the year ended December 31, 19981999.
There were no cash bonus plans in effect at December 31, 19981999. The
Company does not maintain or contribute to any pension or retirement plan in
which the directors or executive officers of the Company are participants or
are entitled to receive benefits, but the Board of Directors may recommend one
or more programs for adoption in the future.
It is the Company's intention to pay Directors, who are not also officers, a
cash compensation of up to $1,000 for each meeting, plus reimbursement of
reasonable expenses, (total amount not to exceed $1,500 per quarter per
director) for serving on the Board of Directors or its committees.
The Company intends to grant options to purchase Common Stock of the Company
to senior officers, directors and employees of the Company. The purpose of
the options is to attract and retain the services of key employees or directors.
The Company reimburses Bernard Yaw for flight travel in connection with
business duties. In addition, the Company intends to pay the premiums on
group insurance in which executive officers may participate and reimburse
officers for certain other expenses (including entertainment, meals and
parking), a small portion of which may relate to personal expenses or use.
The Company believes that these items or related costs, if paid, are not
excessive or unusual, but rather are ordinary and necessary business
expenses. The aggregate amount of these personal expenses, which cannot be
precisely ascertained, is not expected to exceed 10% of the cash compensation
received by any executive officer or 10% of the aggregate cash compensation
reported for the group.
The Company has signed non-competing employment agreements with Messrs.
Bernard Yaw, and Mark Tippets and Blair Barrett (jointly known as "Officers").
Pursuant to the employment agreement, Messrs. Yaw, and Tippets and Barrett
will be paid a monthly employment salary to be negotiated between the Company
and the Officers. The term of the agreement is for a period of two years.
The Company may terminate the employment at any time for cause. In the event
of a termination or upon leaving the employment of the Company, the Officers
may not engage in any employment which is in direct competition with the
Company for one year after the termination or leave of employment. In
addition, the Company has the right to first refusal to purchase any or all of
the shares owned by Officers that were acquired directly from the Company.
The following table summarizes the compensation paid the named executive
officers during the 1998 1999 fiscal year.
Name of Officers Compensation of Officers Any Benefits to Officers
Bernard Yaw,
President &CEO $ 61,000.00 Travel Expenses, Apartment Rental
All directors and
officers as a group
( 3 persons) $ 169,000.00
EMPLOYMENT AGREEMENTS AND OTHER COMPENSATION ARRANGEMENTS
The Company currently has employment agreements with all officers of the
Company including a non- compete clause after termination or resignation.
COMPENSATION OF NON-EMPLOYEE DIRECTORS
There is currently no compensation paid to non-employment directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of April 13, 1999, with respect
to the number of shares of the Company's Common Stock beneficially owned by
the directors and officers of the Company, by all officers and directors of
the Company as a group, and by each shareholder known by the Company to be
the beneficial owner of more than 5% of the outstanding Common Stock of the
Company, the only class of voting securities outstanding. Unless otherwise
specified, each individual has sole voting and investment power with respect to
the shares beneficially owned.
Name and Address Shares
of Beneficial Owner Position Beneficially Owned
Say Thean Lim Director 10,433,808 28.70%
1 Lebuhraya Scott
Penang 10350
West Malaysia
Bernard Yaw Director, President/CEO 4,536,856 12.48%
100 Orr Road
Alameda, CA 94502
Mark Tippets Director, Vice President 4,886,496 13.44%
876 South 725 West
Orem UT 84058
Blair Barrett Director, Vice President 1,778,832 16.86%
2871 East Morningside
Drive
Salt Lake City UT
84124
Douglas Cole Director -0- -0-
Moraga CA
Dave Jones CFO 134,288 0.37%
68 East 1450 North
Orem UT 84057
Blair Barrett 4,986,496 13.72%
2871 East Morningside Dr
Salt Lake City, UT 84124
Western Financial
Communication, Inc 1,846,000 5.08%
4596 Miller Ave 3rd FL
Mill Valley, CA 94941
Officers and Directors
As a Group (4 persons) 19,991,448 54.99%
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than executive compensation, during the reported year the Registrant did
not enter into any transactions with management which are to be reported
under this Item.
ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K
(A) Exhibits
EXHIBIT
NO. DESCRIPTION
23.01 Consent of Crouch, Bierwolf & Chisholm
27.01 Financial Data Schedule
(b) The Registrant filed no current reports on Form 8-K during the last
quarter of the fiscal year ended December 31, 19981999.
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: April 14May 3, 1999, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons of behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Bernard Yaw President and Director
(Principal Executive and
Financial Officer) May 3, 1999 14, 2000
/s/ Mark Tippets Vice President Marketing April 14, 2000May 3, 1999
/s/ Blair Barrett Vice President Operations May 3, 1999
/s/ Dave Jones Chief Financial Officer April 14, 2000May 3, 1999
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountant
Financial Statements:
Balance Sheet - December 31, 1999.
Statements of Operations - For the years ended December 31, 1999 and December
31, 1998.
Statement of Stockholders' Equity - For the period from January 1, 1997 to
December 31, 1999.
Statement of Cash Flows - For the years ended December 31, 1999 and December
31, 1998.
Notes to Financial Statements
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Intelliquis International, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Intelliquis
International, Inc. (a Nevada corporation) and subsidiary, as of December 31,
1999 and 1998 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Intelliquis International, Inc. and subsidiary as of December 31, 1999 and
1998 and the results of its operations and cash flows for the years then ended
in conformity with generally accepted accounting principles.
Salt Lake City, Utah
March 31, 2000
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Balance Sheets
ASSETS
December 31,
1999 1998
Current assets
Cash (Note 2 and 11) $264,395 $ 23,074
Accounts receivable-trade (Note 2) 4,123,507 619,966
Accounts receivable-employee (Note 2) 56,632 -
Notes Receivable (Note 3) 598,220 -
Inventory (Note 2) 551,845 130,517
Prepaid expenses 31,660 6,838
Deposits 7,700 500
5,633,959 780,895
Property, Plant & Equipment (Note 2) 147,350 54,297
Other assets
Certificate of deposit (Note 2) 42,256 40,351
Intangibles (Note 2) 6,213 8,328
Inventory 400,000 -
Total Assets $6,229,778 $883,871
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $3,115,869 $ 502,973
Short term notes (Note 3) 275,853 104,500
Short term notes - related party (Note 4) - 85,000
Accrued dividends payable 22,028 -
3,413,750 692,473
Contingencies (Note 9) - -
Stockholders' Equity
Preferred Stock, 5,000,000 shares authorized,
par value $.001, 2,000 shares outstanding 2 -
Common Stock, 50,000,000 shares authorized,
$.001 par, 33,462,420 shares issued and outstanding
33,462 12,586
Additional paid in capital 2,835,672 157,414
Retained earnings (deficit) (53,108) 21,398
2,816,028 191,398
Total Liabilities and Stockholders' Equity $6,229,778 $ 883,871
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the
Year Ended
December 31,
1999 1998
Sales $7,457,568 $1,461,196
Cost of Sales 3,759,506 355,613
Gross Margin 3,698,062 1,105,583
Expenses:
Sales & Marketing 1,442,675 596,125
General & Administrative 1,320,028 430,304
Total Expenses 2,762,852 1,026,429
Operating Income (Loss) 935,210 79,154
Other Income (Expense)
Interest Expense (125,694) (3,233)
Interest Income 18,364 -
Bad Debt (60,000) -
Inventory writedown (820,507) -
(987,837) (3,233)
Net Income (Loss) before Taxes (52,627) 75,921
Income Tax expense (Note 2) - -
Net Income (Loss) $(52,627) $75,921
Preferred Dividends 22,028 -
Net Income (Loss) Attributable to Common Stock (74,506 $75,921
Net Income (Loss) Per Share $ (.002) $.002
Total average shares outstanding 33,820,488 37,759,233
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Preferred Common Paid in Members' Retained
Shares Amount Shares Amount Capital Equity Deficit
Balance,
January 1,
1997 $- $- $- $- $- $ - $-
Members'
Equity - - - - - 170,000 -
Net loss - - - - - - (54,523)
Balance,
December
31, 1997 - - - - - 170,000 (54,523)
Issuance of common
stock for purchase of
Intelliquis,
Inc. - - 37,759, 23337, 759 132,241 (170,000)-
Net Income - - - -- - 75,921
Balance,
December 31,
1998 - - 37,759 23337,759 132,241- 21,398
Common stock
repurchase
(Note 4 &7) - - (6,202,944) (6,203) (153,797)--
Issuance of
common stock
in a private
placement
(Note 7) - - 1,815,000 1,815 1,060,185 - -
Issuance of
preferred
stock
(Note 6) 2,0002 - - 1,730,453 - -
Issuance of
common stock
to employees
(Note 7) - - 91,34491 66,590 - -
Fractional
common shares
canceled in
3 for 1 forward
stock split - - (213) - ---
Net Income
(loss) - - - - - (74,506)
Balance,
December 31,
1999 2,000 2 $33,462,420 $ 33,462 $2,835,672 $ (53,108)
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the
Year Ended
December 31,
1999 1998
Cash Flows form Operating
Activities:
Net loss (loss) $(74,506) $75,921
Non Cash Flow Items:
Depreciation & Amortization 30,316 10,756
Increase (decrease) in
Accounts receivable (3,560,173 ) (591,899 )
Inventory (821,328) (112,119 )
Prepaids & deposits (32,022) 915
Accounts payable & accrued expenses 2,635,134 484,300
Net Cash Flows used in
Operating Activities (1,822,579 ) (132,126 )
Cash Flows from Investing Activities:
Stock purchase (160,000) -
Cash from stock sales / LLC units
-
Stock issued for services 66,681 -
Purchase of certificates of deposits - (40,000)
Net Cash Flows used in
Investing Activities 2,699,136 (40,000)
Cash Flows from Financing
Activities:
Note receivable (598,220) -
Purchase of fixed assets (123,369) (46,404)
Purchase of intangibles & other assets
- (351)
Cash from short term debt 86,353 189,500
Net Cash Flows from Financing Activities (635,236 142,745
Net increase (decrease) in cash 241,321 (29,381)
Cash, beginning of year 23,074 52,455
Cash, end of year $264,395 $23,074
Supplemental Cash Flow Information
Cash Paid for:
Taxes $ - $ -
Interest
$ 107,330 $ 2,334
The accompanying notes are an integral part of these financial statements
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Notes to The Financial Statements
December 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 to Intelliquis International, Inc.
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 1998 was $2,115 and $2,115 for 1999.
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.
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Notes to The Financial Statements
December 31, 1999
NOTE 2
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, 1999 and earlier years; accordingly,
no deferred tax liabilities have been recognized for all years.
The Company has cumulative net operating loss carry-forwards of over
$4,000,000 at December 31, 1999. 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, 1999
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 the year, 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
s ecurity 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 but will ultimately mature on
the same date the note is due which is currently May 10, 2000. Interest on the
certificate is stated at 4.28%.
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Notes to The Financial Statements
December 31, 1999
NOTE 2
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
Fixed assets consist of the following:
December 31,
1999 1998
Computer Equipment & Software $ 130,215 $ 32,886
Office Equipment & Furniture 57,018 34,549
Leasehold Improvements 3,571 -
190,804 67,435
Less: Accumulated Depreciation (43,454) (13,138)
$147,350 $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 $8,641 and
$30,316 for 1998 and 1999 respectively.
Principles of Consolidation The Company consists of the parent corporation,
Intelliquis International, Inc. and subsidiary Intelliquis LLC. The two
companies together report as a consolidated group known as The
Company. All inter-company accounts and transactions have been eliminated.
Accounts Receivable Accounts Receivable is shown net of allowance for returns
of $186,660 and $411,446 and allowance for bad debt of $150,000 and $210,000
for 1998 and 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 major concentration in accounts
receivable with one major distributor accounting for 72% of all receivables at
December 31, 1999. That distributor had paid 34% of the balance at March 31,
2000. The distributor has taken credits against the account totaling
approximately $1,062,000 that management believes are improper and is
in the process of resolving with the distributor. Accounts receivable balance
includes $56,632 of employee receivables (see Note 4).
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Notes to The Financial Statements
December 31, 1999
NOTE 3 - Short Term Notes
The Company has acquired short term borrowing for working capital as
follows:
Note payable to a bank; secured by
$40,000 certificate of deposit, all
December 31,
Assets of the Company and personal
1999 1998
guarantees from the corporation's
officers; interest stated at 10.75%;
due May 10, 2000 $ 79,500 $ 79,500
Note payable to an individual; unsecured;
interest stated at 25%; due in January 1999 - 25,000
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 law firm; unsecured;
No stated interest 28,423 -
$ 275,853 $ 104,500
Interest expense was $3,584 and $107,330 for 1998 and 1999, respectively.
NOTE 4 - Related Party Transactions
The Company had accounts receivable owing from three officers/directors at
December 31, 1999, as follows:
Bernard Yaw, President and Chief Executive Officer/Director- $30,258
Mark Tippetts, Vice President of Sales and Marketing/Director- $15,000
Dave Jones, Chief Financial Officer- $ 140
On May 25, 1999, Bernard Yaw and Mark Tippetts, 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 if 250,000 shares of restricted common
stock (see Note 5-"Subsequent Events").
Messrs. Yaw and Tippets have also issued their personal guarantees
relating to a loanfrom First Utah Bank in the amount of $79,500.
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Notes to The Financial Statements
December 31, 1999
NOTE 4 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 principal balance of $90,000 plus accrued interest
of $8,219.96 as of the Company's year-end (see Note 5-"Subsequent Events").
In February 1999, the Company reacquired 6,202,944 shares of restricted
common stock at a cost of $160,000 from Say Thean Lim, a director of the
Company. Also, in February 1999, Mr. Lim purchased 450,000 shares of the
Company's common stock at a price of $0.67 per share.
In May 1998 and again in August 1998, Mr. Lim loaned $40,000 to the Company
for a total of $80,000. The loan did not bear interest and was fully repaid in
February 1999.
In April 1998, Mr. Yaw loaned $5,000 to the Company in an interest free
loan and repayable on demand. The Company repaid $4,000 of this loan in June
1999.
NOTE 5 - Subsequent Events
In April 2000, the Company satisfied the remaining principal and accrued
interest ($212,009) relating to a loan advance received from A-Vision
Financial in May 1999, by agreeing to the issuance of 250,000 shares of
restricted common stock (see Note 4-"Related Party Transactions").
During the first quarter of 2000, the Company received repayment of
$500,000 of a total of $590,000 plus accrued interest of $8,219.96 in
advances made to Direct Media Communications, Inc. during 1999 (see Note 4-
"Related Party Transactions").
On January 7, 2000, the Company canceled common stock certificate #3401
issued in the name of Direct Media Communications, Inc. for 1,500,000
restricted common shares. On March 27, 2000, the Company canceled common
stock certificate #3397 also issued in the name of Direct Media
Communications, Inc. for 1,500,000 restricted common shares. Both
certificates had been issued in anticipation of completing the Direct Media
Communications, Inc. acquisition.
On March 28, 2000, the Company reached a verbal agreement with Bi-Com to
reduce the royalty from $5.50 to $1.00 due on ISA cards sold making it
economically feasible to re-program the ISA cards held in inventory with new
software.
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Notes to The Financial Statements
December 31, 1999
NOTE 6
On October 25, 1999, the Company issued to ROBI Investors, LLC 2,000
shares of the Company's 6% Convertible Series A Preferred Stock with a stated
value of $1,000 per share and a $.001 par value per share. The Company
realized $1,730,455 after legal expense of $83,200, filing fees of $10,000,
travel expense of $1,880 and commissions and fees of $174,565. 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
arrant 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. 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
The Company issued 91,344 shares of restricted common stock valued at
$66,681 to employees during 1999. An additional 1,815,000 restricted common
shares were issued for $1,062,000 in a private placement during the first
quarter of the year. Of the sharesissued 360,000 restricted common shares
were issued to Bill Chipman for assistance in the financing arrangements for
the Company.
In April 1999, the Company effected a 3-for-1 forward stock split. All
information presented in the financial statements gives retroactive effects to
this stock split.
In February 1999, the Company reacquired 6,202,944 restricted common shares of
its stock from a director at a cost of $160,000.
The Company currently has outstanding warrants that allow for the purchase of
up to 160,000 shares of common stock as follows:
ROBI Investors, LLC 100,000 Warrants @ variable price (Note
6)
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.
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Notes to The Financial Statements
December 31, 1999
NOTE 8
The Company has entered into Executive Employment Agreements with Bernard
Yaw, President, CEO and Director and Mark Tippetts, 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
toprotect 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.
NOTE 9
On The Planet v. Intelliquis International, Inc.
On May 6, 1999, a legal action was commenced against the Company by On
the Planet, Inc. in the United States District Court for the District of Utah,
Central Division. The claims purportedly arise out of a software rights
agreement under which the Company granted On the Planet "an exclusive license
for direct sales along with a nonexclusive license for all other sales
including, but not limited to, retail sales" for certain year 2000 fix
software identified therein. On the Planet asserts that the Company violated
this agreement by engaging in direct sales or giving third parties a license to
engage in direct sales of the year 2000 fix software and other related
products and also asserts claims of copyright infringement, breach of
contract and fraud. In addition to injunctive relief, On the Planet is
seeking unspecified damages, including profits lost through the Company's
alleged direct sales of the year 2000 fix software, as well as attorneys'
fees and punitive damages. The Company has denied the claims filed against it
and has filed counterclaims seeking rescission of the software rights
agreement and asserting breach of contract of that agreement. The Company
has also filed additional claims against On the Planet and its principal,
Ernest Hemple, arising from conduct that the Company believes constitutes
defamation and interference with contract.
The Company intends to vigorously defend the action and pursue its
counterclaims. The outcome of the litigation is uncertain and cannot be
predicted at this time. Any adverse result could have a material adverse
affect on the business of the Company.
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.
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Notes to The Financial Statements
December 31, 1999
NOTE 9
Intelliquis International, Inc. v. Jeff Boonmee and Bi-Com Link
This action, pending as Civil No. 990912546 in the Third Judicial District
Court in and for Salt Lake County, State of Utah, seeks recovery of excess
payments made to Bi-Com Link under a royalty agreement. Bi-Com Link
counterclaimed for $517,819 in alleged unpaid royalties under the agreement.
No discovery has been conducted in the case. Rather, the parties and their
counsel have engaged in settlement negotiations and have been exchanging
draft settlement agreements. No opinion has been expressed as to the ultimate
outcome of the case or as to the ultimate collectibility of any judgment
obtained.
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 inthe 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:
Blair Barrett Claims
Blair Barrett, a former officer of the Company, has made two categories of
demands upon the Company; 1) a demand for delivery of stock certificates
representing 5,336,496 shares in the Company, and 2) a demand for payment of
back wages and benefits purportedly owing as a result of the allegedly
wrongful termination of his employment in June 1999. The Company has
delivered certificates representing the demanded shares but denies that
the termination was improper and that he is owed any back wages and benefits.
No lawsuit or arbitration has been filed by Mr. Barrett. No opinion has been
expressed concerning the likelihood that any action will be taken nor to the
ultimate outcome of any action if action is taken.
Envirocon Strategic Management Consulting Group, Inc.
In December 1999, this alleged consulting group made a $100,000 demand
against the Company for consulting services allegedly rendered. The Company
denied the claim byletter on December 29, 1999. No action has been taken by
this consulting group for the fee allegedly owed. No opinion has been
expressed as to the ultimate outcome of the matter.
INTELLIQUIS INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Notes to The Financial Statements
December 31, 1999
NOTE 9
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 67% of all sales in 1998 and
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 60.64% and 81.87% of sales for 1998 and 1999, respectively.
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.
We hereby consent to the use of our audit report of Intelliquis International,
Inc. dated March 31, 2000 for the year ended December 31, 1999 in the Form
10KSB Annual Report for the year 1999.
s/s Crouch, Bierwolf & Chisholm
Salt Lake City, UT
April 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> DEC-31-1999
<CASH> 264,395
<SECURITIES> 4,123,507
<RECEIVABLES> 56,632
<ALLOWANCES> 598,220
<INVENTORY> 551,845
<CURRENT-ASSETS> 5,633,959
<PP&E> 147,350
<DEPRECIATION> 6,231
<TOTAL-ASSETS> 6,229,778
<CURRENT-LIABILITIES> 6,229,778
<BONDS> 0
0
33,462
<COMMON> 2,835,672
<OTHER-SE> (53,108)
<TOTAL-LIABILITY-AND-EQUITY> 6,229,778
<SALES> 7,457,568
<TOTAL-REVENUES> 3,698,062
<CGS> 0
<TOTAL-COSTS> 1,442,675
<OTHER-EXPENSES> 2,762,852
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,820,488
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
