Intellectual Technology Inc – ‘10-K’ for 12/31/97

As of:  Wednesday, 4/15/98   ·   For:  12/31/97   ·   Accession #:  1013993-98-11   ·   File #:  0-29138

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Annual Report   —   Form 10-K
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Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                         38    144K 
 2: EX-27       Financial Data Schedule (Pre-XBRL)                     1      6K 

10-K   —   Annual Report
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U.S. SECURITIES AND EXCHANGE COMMISSION     
Washington, D.C. 20549

 FORM 10-KSB

X ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE            
 SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 1997       

 _____ TRANSITION REPORT PURSUANT TO SECTION 13 or
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-29138 

 INTELLECTUAL TECHNOLOGY, INC.
 (Name of Small Business Issuer as specified in its charter)

Delaware                                    84-1130227
(State or Other Jurisdiction of           (I.R.S. Employer I.D. No.)            
Incorportion or Organization)                                                 

10639 Roselle Street, Suite B, San Diego, California 92121
 (Address of Principal Executive Offices) (Zip Code)

(619) 552-0001
Registrant's Telephone Number, including Area Code

Securities registered under Section 12(b) of the Exchange Act:
None

Securities registered under Section 12(g) of the Exchange Act:
 Common Stock, $.00001 par value
Class A Common Stock Purchase Warrants
Class B Common Stock Purchase Warrants

Check whether the Registrant: (1) filed all reports required to be              
filed by Section 13 or 15(d) of the Exchange Act during the past 12             
months(or for such shorter period that the Registrant was required to           
file such reports) and (2)has been subject to such filing requirements          
for the past 90 days. Yes X No ___.                                             

Check if there is no disclosure of delinquent filers in response to             
Item 405 of Regulation S-B contained in this form, and no disclosures           
will be contained, to the best of the 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             

The Registrant's revenues for the fiscal year ended December 31, 1997           
were $3,011,370.                                                                

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The aggregate market value of the voting stock held by non-affiliates           
of the Registrant as of April 13, 1998 was $2,510,480.  For purposes of         
this computation, it has been assumed that the shares beneficially held         
by directors and officers of Registrant were "held by affiliates;" this         
assumption is not to be deemed to be an admission by such persons that          
they are affiliates of Registrant.                                              

As of April 13, 1998, the Registrant had outstanding 10,000,000 shares          
of Common Stock.                                                                

 DOCUMENTS INCORPORATED BY REFERENCE

Specified exhibits listed in Part III of this report are incorporated           
by reference to the Registrant's Registration Statement No. 33-33092-D,         
effective April 17, 1990, or to Registrant's Report on Form 8-K dated           
March 27, 1997.                                                                 

Transitional Small Business Disclosure Format: Yes ___ No X   

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PART I
ITEM 1.   BUSINESS.                                                             

Historical Development                                                          

Image Technology, Inc., a Nevada corporation based in San Diego,                
California  ("ITI Nevada") was formed on April 23, 1992 to engage in            
the design, manufacture and sale of systems for the automated                   
preparation and dispensing of motor vehicle registration forms and              
license plate decals.  On March 12, 1997, the shareholders of ITI               
Nevada, in a transaction accounted for as a reverse acquisition,                
exchanged all of the outstanding common stock of ITI Nevada for                 
450,000,000 shares of the common stock of Bridgestone Corp., a Delaware         
corporation.  As a result of this transaction, ITI Nevada shareholders          
acquired collectively a 90% interest in Bridgestone Corp., and ITI              
Nevada became a wholly-owned subsidiary of Bridgestone Corp.                    
Bridgestone Corp., which was formed on December 1, 1989, for the                
purpose of seeking out and acquiring a business opportunity, had                
completed a public offering of common stock and warrants on October 29,         
1990, realizing net proceeds of $80,341.  In April of 1997, Bridgestone         
Corp. changed its name to Intellectual Technology, Inc. and effected a          
1 for 50 reverse stock split.  References in this report to the Company         
and to ITI are references to Intellectual Technology, Inc., a Delaware          
corporation, and its predecessor and wholly owned subsidiary, ITI               
Nevada, on a consolidated basis.                                                

Industry and Company Background                                                 

Vehicle registration services are operated by all 50 states, the                
District of Columbia, and many foreign governmental authorities.                
Governments use vehicle registration as a means of generating revenues          
and to provide an orderly method of regulating the ownership and                
transfer of motor vehicles.  Management of the Company believes that            
traditional methods of motor vehicle registration have resulted in              
delays experienced by members of the public, significant personnel and          
facility costs, the waste of preprinted materials and a generally               
inefficient disbursement process, as well as significant losses                 
occasioned by fraud and theft.  Based upon discussion with law                  
enforcement officials, the Company believes that losses attributable to         
these problems are in the hundreds of millions of dollars.                      

As early as 1987, ITI's founders envisioned streamlining the                    
distribution of motor vehicle registrations through the development of          
an automated, self-service registration printing and dispensing device.         
From 1987 through 1991, the founders of ITI engaged in market research          
and product development.  Two patents resulting from these activities           
were assigned by their inventors to American Registration Systems,              
Inc., an Indiana corporation ("ARS").  See "Certain Relationships and           
Related Transactions."  In 1992, ITI was formed to continue this                
process and commercialize the concepts that had been developed.  One of         
the patents was acquired by ITI Nevada through the enforcement of a             
pledge agreement, and in October 1995, the remaining patent was                 
assigned by ARS to ITI Nevada.  ARS subsequently assigned its interest          
in both patents to Intellectual Technology, Inc. in October 1995.               

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The ITI 2101A and Related Print Media                                           

The result of the efforts of ITI and its founders is the ITI 2101A              
printing system, which allows for the real time, on-site creation of            
vehicle registration forms and license decals on blank stock, including         
the imprinting of the vehicle license plate number on the decal.  The           
Company believes that this on demand printing capability will allow             
Departments of Motor Vehicles to substantially  reduce fraud and theft,         
increase revenue collection, and reduce personnel, inventory, and               
facility costs as a consequence of increased efficiencies.  The ITI             
2101A is designed to operate both as a stand alone unit in a printer            
server environment within a Department of Motor Vehicles ("DMV") office         
and as a self-service terminal which can be placed in locations remote          
from DMV offices.  Both versions include user interface hardware and            
software and an operator panel to assist maintenance personnel while            
they load media, make print adjustments, and perform routine servicing.         

The Company believes that the ITI 2101A resolves the problems described         
above in "Industry and Company Background," in that it prints a vehicle         
registration with an applied decal on blank stock, thereby eliminating          
the need to dispose of preprinted stock at year end.  Additionally, the         
ITI 2101A is designed to satisfy the security demands of Departments of         
Motor Vehicles in that it applies the vehicle license plate number to           
the decal, thus causing the decal to become significantly less valuable         
to thieves.  The ITI 2101A is also equipped with a software system              
which accounts for all transactions effected through the printer, which         
significantly reduces the likelihood of DMV employee fraud or theft.            
Finally, when combined with the automated teller technology of NCR              
Corporation ("NCR"), the ITI 2101A is capable of acting as a self               
service terminal for motor vehicle registrations which can be                   
established in locations remote from DMV offices, thereby reducing              
personnel and facilities costs.                                                 

In the early 1990's, ITI worked with 3M Corporation of St. Paul,                
Minnesota ("3M") to develop a specially coated validation sheeting to           
be used in the printing of decals in real time at the point of issue.           
ITI's goal was to provide a validation decal which accepted thermally           
transferred printing and required no clear coating to meet industry             
standards for durability.  This product was developed, and, by a letter         
dated January 24, 1995, 3M acknowledged that ITI would be 3M's                  
exclusive distributor for the product.  This exclusivity extends only           
to the product developed for ITI's system.  Although 3M has on-going            
programs the objective of which are to develop other products for the           
validation sticker market, it has expressed its intent to limit its             
development of other distinct validation sheeting products to those             
which will not interfere with the exclusive validation sheeting                 
distribution plan of the Company.  This exclusivity permits the Company         
to serve as the sole source of the media in situations where a DMV              
might elect to purchase the ITI 2101A, rather than leasing it based on          
a per transaction pricing structure.                                            

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Marketing and Sales                                                             

The primary market for the Company's printing systems and services              
consists of the Department of Motor Vehicles in each of the 50 U.S.             
states.  The Company believes that the decision-making authority to             
purchase the Company's products is vested as to any Department, in a            
limited number of administrative personnel.  Accordingly, the persons           
to be contacted by the Company in making sales presentations and                
proposals are to be determined on a narrowly focused, strategic basis.          

The Company believes that the historical relationships between key              
senior management and the State Motor Vehicle administrators and the            
limited number of competitors in this market permit the Company to              
approach the vehicle registration and renewal market with significant           
efficiencies.  Consequently, the Company plans to market its products           
and services through its in-house marketing and sales staff which               
consists of three senior sales and marketing employees.                         

As new accounts with additional states are established, however, the            
Company intends to supplement its sales staff to provide an expanded            
and ongoing range of contacts with each customer or client DMV.  The            
purpose of this expanded sales coverage will be to allow developments           
in the Company's product line to be brought to the attention of each            
client DMV in a timely fashion and to promote customer satisfaction and         
loyalty.                                                                        

The Company solicits interest in its products primarily through direct          
contact with DMV officials and attendance at industry conferences.  The         
initial marketing package consists of brochures and color photographs,          
which are supplemented with an explanation of the product's evolution           
and a videotaped demonstration of its performance.  References of DMV           
officials of states where the Company has installed its products are            
supplied, along with an offer to demonstrate the products.                      

Once a state has accepted the concept of the real time, on-site                 
printing of motor vehicle registrations and license decals, it must             
then decide whether to acquire the ITI 2101A in the form of self-               
service terminals or as stand alone units operated by DMV personnel, or         
both.  Indiana has chosen to acquire both types of units.  Maryland             
utilizes self-service terminals only.  The Company also offers its              
customers the opportunity to acquire the ITI 2101A through leases using         
a transaction-based pricing mechanism, in which the Company is paid an          
amount which varies over time based upon the number of transactions for         
which the printer is used.                                                      

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Contracts                                                                       

In August 1996, ITI entered into an Equipment Lease, Support and                
Maintenance Agreement (the "Indiana Contract") with the Indiana Bureau          
of Motor Vehicles Commission (the "BMVC").  The Indiana Contract became         
effective by its terms on November 1, 1996, and provides for the BMVC           
to lease from ITI both self-service terminals and stand alone printers.         
It required ITI to install an initial group of 11 self-service                  
terminals and 100 stand alone printers in locations designated by the           
BMVC.  Subsequently, the BMVC authorized the installation of an                 
additional 25 self service terminals and 195 additional stand alone             
printers.                                                                       

The installation of all of the stand alone printers was completed in            
November of 1997.  Currently, there are 14 self service terminals               
installed with the remaining 22 scheduled for installation by the               
fourth quarter of 1998.  Effective January 1, 1998, ITI equipment will          
process all of the approximately 5.7 million annual registration and            
renewal transactions in Indiana.                                                

The Indiana Contract may be terminated only in the event of a breach by         
either party which has not been cured after 60 days written notice or           
if the Director of the Indiana State Budget Agency makes a written              
determination that funds are not appropriated or otherwise available to         
support the continuation or performance of the agreement.  The pricing          
of the Indiana Contract is on a per transaction basis, with the Company         
receiving an amount per transaction between $1.22 and $.85, with the            
amount per transaction generally decreasing as additional blocks of             
printers and self service terminals were leased but increasing with the         
passage of time.  Additionally, after installation of all of the                
blocks, the BMVC, at its option, may lease additional terminals or              
printers. Each such additional lease would result in an increase in the         
per transaction fee for each installed terminal or printer.                     

The term of the Indiana Contract is for a period of three years,                
subject to an option to renew on the part of the BMVC for an                    
additional, fourth year. The Indiana Contract provides that title to            
the leased equipment and risk of its loss will remain with the Company.         
Shipping and delivery costs were paid by the Company.  Following                
delivery and installation of a printer or terminal and the Company's            
certification that it has been successfully installed and is ready for          
use, the BMVC is required to inspect the equipment and accept or reject         
it.  All equipment installed pursuant to the Indiana Contract through           
the date of this Report has been accepted by the BMVC.  The equipment           
may be rejected only if it fails to conform to the requirements of the          
agreement, including, but not limited to, the specifications of the             
Request for Proposal upon which the Indiana Contract is based.  The             
Company is required to keep the leased equipment in good operating              
condition and provide support and maintenance services.  Also, the              
Company is required to provide periodic maintenance as specified in its         
response to the BMVC Request for Proposal as well as remedial                   
maintenance which satisfies response times set forth in the Company's           
response to the BMVC Request for Proposal.  Generally, service and              
replacement parts are to be provided without charge to the BMVC.                

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To assist it in performing its obligations under the Indiana Contract,          
effective as of August 1, 1996, ITI entered into a Subcontractor                
Agreement with NCR (the "NCR Agreement"), which generally requires the          
Company to provide the printers, printing media, facilities management,         
printer installation, customer billing, and self-service terminal               
provisioning aspects of the Indiana Contract, while NCR is responsible          
for providing the self service terminals, program management, software          
development, software maintenance, hardware maintenance, and self-              
service terminal installation.  The NCR Agreement requires NCR to               
provide both remedial and preventative maintenance services with                
respect to the self service terminals.                                          

The Maryland Department of Motor Vehicles contracted with NCR for the           
purchase of 11 self service terminals for the State of Maryland.  ITI           
supplied NCR with the printing systems necessary for the issuance of            
registrations and decals from the self service terminals.  As part of           
ITI's agreement with NCR in Maryland, all of the media (blank                   
registration paper and decals) used by the state must be purchased from         
ITI.                                                                            

ITI is negotiating with NCR to provide additional self service                  
terminals to Maryland and directly with Maryland to lease ITI's over            
the counter, stand alone printing system.                                       

Manufacturing and Supply                                                        

The Company does not manufacture its products and instead uses vendors          
to manufacture and supply all components and subassemblies of the ITI           
2101A, to perform final assembly of its product, and to provide the             
printing media used by the ITI 2101A.  The custom printing unit used            
for all existing ITI printing systems were manufactured by Zebra                
Technologies, Inc., of Vernon Hills, Illinois.  The custom printers             
produced by Zebra Technologies are modified by Contract Manufacturing           
Integration ("CMI") of Poway, California, which functions as a complete         
manufacturing facility for the Company and provides various services,           
including without limitation final assembly, firmware integration,              
final testing, and quality control.  CMI is responsible for employing           
the necessary manufacturing personnel.  The decal used by the ITI 2101A         
is produced exclusively for the Company by 3M Corporation of St. Paul,          
Minnesota. The paper materials on which the registrations are supplied          
by NCR (see "Business - The ITI 2101A and Related Print Media").  The           
Company has identified alternative vendor sources for all materials and         
assemblies used in its products other than the 3M printing media.  The          
Company believes the use of vendors for its manufacturing process has           
allowed it to limit the size of its fixed overhead and to respond               
quickly to the volatility of its market which consists of a relatively          
small number of significant customers who order products at irregular           
intervals.                                                                      

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Competition                                                                     

The Company believes that it has a strong competitive position for the          
sale of its self service terminals, printing systems and related media          
supplies.  Although the market is relatively young, ITI has established         
a reputation for providing quality products.  ITI's innovative,                 
successful solutions give it a significant lead over its competitors.           
None of ITI's competitors offer a solution incorporating both self              
service and real-time, over the counter or mail room applications.              

The Company cannot guarantee that a better capitizated competitor will          
not develop a competitive product.  The Company's proprietary                   
technology and leading position in the market, however, make it                 
unlikely that a larger company would choose to devote the time and              
resources to develop the technology on its own.                                 

Patents                                                                         

The ITI 2101A is based in part on technologies which are proprietary to         
the Company and covered by two patents owned by ITI.  The first patent,         
which was issued in 1990 (the "1990  Patent), covers an automatic fee           
collecting and receipt dispensing system particularly designed for              
vehicle registration transactions, including a customer interface for           
displaying information and receiving customer input and fee payments            
and a dispenser assembly for storing forms having preprinted areas and          
blank areas for receiving information specific to a transaction, a              
printer for printing information, and a dispensing device for the               
delivery of printed forms to customers.  The second patent, which was           
issued in 1994 (the "1994 Patent"), covers an automatic form dispensing         
system for a variety of transactions which has a housing with an                
operator interface and form dispensing assembly and a roll of blank             
form stock and two rolls of carrier web containing blank stickers               
retained thereon by a pressure sensitive adhesive.  The Company has             
filed for analogous patent protection in Canada, the United Kingdom,            
France, Germany, and Mexico. United States patents are valid for a              
period of 17 years from the date of issue.  No assurance can be given           
that the Company's patents will be enforceable or provide the Company           
with meaningful protection from competitors.  Even if a competitor's            
product infringed upon patents owned by the Company, enforcement of the         
Company's rights under the patents in an infringement action would be           
costly and would require the Company to divert funds and resources from         
other uses.  Furthermore, there can be no assurance that the Company            
would be successful in enforcing such rights.  The Company has patent           
protection insurance in place to offset legal costs associated with any         
potential patent infringements or challenges.                                   

The 1994 Patent was acquired by ITI from ARS in a transaction which             
originally required ITI to pay ARS $4,000,000 for the 1994 Patent by            
May 1997 (see "Business Industry and Company Background" and "Certain           
Relationships and Related Transactions").  The due date of that payment         
obligation has been extended to May 1, 1999.  If the Company is unable          
to pay this amount when it comes due and consequently loses control of          
the 1994 patent, such loss would have a material and adverse affect             
upon the business of the Company.                                               

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Employees                                                                       

The Company has fourteen full-time employees, of whom three are in              
executive or administrative positions, two are in engineering, and two          
are in sales positions.  None of the Company's employees are currently          
represented by a union, and the Company believes that its relations             
with its employees are good.                                                    

ITEM 2.   PROPERTIES                                                            

The Company occupies approximately 3,800 sq. ft. of office space in San         
Diego, California.  The space is subject to a five year lease expiring          
in the year 2001.  The Company currently pays monthly rent of                   
approximately $1,900 for this space.  The Company's Vice President of           
Sales and Marketing shares a suite of offices in Dayton, Ohio as to             
which the Company bears its share of nominal expenses.  The Company             
also leases approximately 1,875 square feet of office/warehouse space           
in Carmel, Indiana.  The lease is for two years at a cost of $1,054.69          
per month in year one, $1,107.81 per month in year two.  The Company            
believes that these facilities are adequate to meet its anticipated             
needs for the foreseeable future.                                               

ITEM 3.   LEGAL PROCEEDINGS                                                     

The Company is not currently the subject of or party to any legal,              
proceeding.                                                                     

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                   

No matters were submitted to a vote of security holders during the              
fourth quarter of the fiscal year ended December 31, 1997.                      

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 PART II

ITEM 5.   MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED                     
STOCKHOLDER MATTERS                                         

Prior to the first quarter of 1998, there was no active market for the          
Company's securities, with transfers occurring on an infrequent and             
sporadic basis.  The common stock of the Company commenced trading in           
the over the counter market in September 1996.  The following table             
sets forth, for the periods indicated, the range of high and low bid            
quotations for the Company's common stock as reported by a market               
maker in the Company's securities.  The prices reflected in the                 
following table have been adjusted to reflect the 1 for 50 reverse              
stock split in the Company's common stock which occurred in April 1997.         

Quarter Ended                 High Bid      Low Bid   

September 30, 1996                 $0.01         $0.01      
December 31, 1996                  $0.01         $0.01      
March 31, 1997                     $  -          $  -       
June 30, 1997                      $  -          $  -       
September 30, 1997                 $3.00         $1.125     
December 31, 1997                  $2.1875       $1.00      
March 31, 1998                     $2.25         $1.125     

The quotations which appear above reflect inter-dealer prices,                  
without retail mark-up, mark-down or commission.                                

The Company has not paid any dividends on its common stock, and the             
Board of Directors of the Company presently intends to retain earnings,         
if any, for use in the Company's operations and to finance expansion of         
its business.  The declaration and payment of dividends in the future,          
of which there can be no assurance, will be determined by the Board of          
Directors in light of conditions then existing, including the Company's         
earnings, financial condition, capital requirements and other factors.          

As of January 13, 1998, the Company had approximately 60 shareholders           
of record, which does not include shareholders whose shares are held in         
street or nominee names.                                                        

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ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS                                  

Certain statements contained in this report, including statements               
concerning the Company's future cash and financing requirements, and            
other statements contained herein regarding matters that are not                
historical facts, are forward looking statements; actual results may            
differ materially from those anticipated.                                       

Plan of Operations                                                              

The Company designs, manufactures and leases systems for the automated          
preparation and dispensing of motor vehicle registration forms and              
license plate decals.                                                           

Effective November 1, 1996, the Company commenced its lease contract            
with the State of Indiana.  Prior to that date, the Company was engaged         
principally in research and development of its products and generated           
only limited operating revenues.  During 1997, the Company's focus was          
upon:                                                                           

Completing the installation of the self service terminals required in           
the initial phase of the Indiana Contract,                                      

Installation of all stand alone printers called for in the Indiana              
contract,                                                                       

Expanding the Company's sales and marketing staff and increasing its            
marketing efforts,                                                              

Seeking agreements for the lease of its products to additional                  
jurisdictions.                                                                  

In the coming twelve months, the Company will focus its efforts on:             

Completing the installation of the remaining self service terminals in          
Indiana,                                                                        

Expanding the Company's sales and marketing staff and increasing its            
marketing efforts                                                               

Seeking agreements for the lease of its products to additional                  
jurisdictions                                                                   

Obtaining the equity capital necessary to complete its performance of           
its initial contracts and to repay the investment notes issued by it as         
part of its initial capitalization and to pay off debt associated with          
patent acquisition.                                                             

Initiating the development of new opportunities in related areas.               

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Liquidity and Capital Resources                                                 

During 1997, the Company's principal source of capital was from                 
borrowings from third party investors, augmented by internally                  
generated cash flows.  In 1998, the Company anticipates positive cash           
flows from operations.  The following is a summary of the company's             
cash flows from operating, investing and financing activities:                  

                         Year ended December 31,
                           1997           1996

Operating Activities           $  (891,524)  $ 1,244,939          
Investing Activities           $(1,634,188)  $(2,742,001)         
Financing Activities           $ 2,924,344   $ 1,499,764          

Net increase in cash           $   398,632   $     2,702          

Operating cash flows are primarily derived from the per transaction fee         
earned from the Company's contract with the State of Indiana, which             
extends for three years, with a one-year renewal at the option of the           
State.  Although management anticipates that the State will exercise            
its renewal option, there can be no guarantee that such renewal will            
occur.  Likewise, the Indiana contract contains a provision whereby the         
contract may be terminated in the event that the State of Indiana fails         
to obtain budget approval for its automated vehicle registration                
program.  Such termination would have a material adverse effect on the          
Company and its operations.                                                     

In 1997, the Company experienced cash flow deficits during                      
installation, as the State was gradually automated with ITI equipment.          
As of December 31, 1997, all stand alone printers contracted for by             
Indiana had been installed and were operational.  The Company received          
revenue on approximately 2.4 million transactions in 1997, and                  
anticipates total revenue generating transactions in 1998 to be 5.8             
million.  Total actual transactions for the first year of this contract         
exceeded management projections.                                                

Since the inception of the Indiana contract, the Company has invested a         
total of $4,278,000 in equipment and lease-related costs.  To finance           
this investment, and to fund the repayment of bridge loans extended to          
the Company during its initial capitalization, the Company issued debt          
to third party investors totaling $4,968,000.  These notes are secured          
by the Indiana contract equipment, and a pledge of Indiana contract             
receivables.  The notes will be fully repaid by their terms in November 1999.   
The outstanding balance at December 31, 1997 was $4,443,229.                    
Debt service on the third party financing is $225,000 per month.                

The Company continues to seek equity financing to cure working capital          
deficiencies and to pay off $3,999,200 for the purchase of Company              
patents plus accrued interest ($213,000 at December 31, 1997).  These           
amounts plus additional accrued interest at 8% are due by May 1, 1999           
to a corporation which is 49% owned by a current officer of ITI.  The           
Company anticipates, in the event that funds are not available to               
retire this debt as of May 1, 1999, that the due date will be extended.         

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Results of Operations                                                           

During 1997, 82% of the Company's revenues were generated from the              
Indiana contract.  Other sources of revenue include revenue from the            
sale of printers and printer media to the State of Maryland, and                
transaction fees earned from the State of New Hampshire under the               
Company's automated drivers' license contract with that state.                  
Projected revenues from these other sources are expected to remain the          
same in 1998.                                                                   

The Company's cost of sales includes amortization of Indiana and New            
Hampshire contract costs, periodic costs for the Company's maintenance          
crew, vehicles, and office/warehouse facility in Indiana, costs of              
printing media sold or supplied under the various contracts, and costs          
of equipment sold to Maryland.                                                  

Gross profit as a percentage of revenues was 42% in 1997 vs. 20% in             
1996.  Future profit margins are anticipated to equal or exceed 1997            
levels.                                                                         

Operating expenses were up 92% in 1997 over 1996 levels.  This change           
is primarily due to increases in payroll and related costs, and                 
consulting and legal costs related to public company compliance with            
regulatory requirements.                                                        

Effect of Inflation and Foreign Currency Exchange                               

The Company has not experienced material unfavorable effects on its             
results of operations as a result of foreign currency fluctuations or           
domestic inflation.                                                             

Year 2000 Issue                                                                 

The Company's management does not believe that theCompany will be               
materially adversely affected by the computer software Y2K issue.               

ITEM 7.   FINANCIAL STATEMENTS.                                                 

The financial statements set forth in pages F-1 to F-12 of this report          
are incorporated herein by reference.                                           

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ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND       
FINANCIAL DISCLOSURE                                        

The Company's principal independent auditors did not resign or decline          
to stand for reelection, nor were they dismissed during the Company's           
two most recent fiscal years.  The Company's financial statements for           
the year ended December 31, 1997 were audited by Comiskey & Company             
P.C., which had been the auditor for the registrant, Intellectual               
Technologies, Inc. (formerly known as Bridgestone Corp.), prior to the          
reverse acquisition of Image Technologies, Inc.                                 

The financial statements of Image Technologies Inc. as of and for the           
year ended December 31, 1996, which have been presented in comparative          
form with the current year consolidated financial statements, were              
audited by Charles W. Butman, C.P.A.  There have been no disagreements          
between Image Technologies, Inc. and Charles W. Butman C.P.A. on                
matters of accounting and financial disclosure.                                 

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PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL                
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT                      

Identification of Directors, Executive Officers, and Significant                
Employees                                                                       

The directors and executive officers of the Company, their ages, and            
their positions held in the Company are as follows:                             

Name              Age                Position                       

Christ M. Rousseff       78     Chairman and Chief Executive Officer            

Nicholas Litchin         71     Vice Chairman                                   

Walter G. Fuller         57     President and Director                          

Janice L. Welch          57     Secretary/Treasurer and Director                

John F. Grim             42  Vice President Sales/Marketing and                 
    Director

Family Relationships                                                            

Mr. Rousseff is the father of Ms. Welch.  No other family relationships         
exist between any directors or executive officers.                              

Business Experience                                                             

The following is a brief account of the business experience during at           
least the past five years of each director and executive officer,               
including his or her principal occupation and employment during that            
period, and the name and principal business of the organization in              
which such occupation and employment were carried out.                          

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Christ M. Rousseff is the Chairman of the Board and Chief Executive             
Officer of the Company, positions which he has held since March 12,             
1997 and the formation of ITI in April 1992, respectively.  From 1987           
to 1992 he was the President of American Registration Systems, Inc.,            
an Indiana corporation.  From 1990 to 1992, he was the President of             
Advanced Identification Management Systems, Inc., a California                  
corporation involved in the production of photographic driver's                 
licenses for the State of New Hampshire.  From 1985 to 1987, Mr.                
Rousseff was a consultant to Polaroid Corporation.  From 1957 to                
1970, Mr. Rousseff was the Chairman and Chief Executive Officer of              
DEK Processes, Inc., an Indiana corporation engaged in the production           
of photographic  driver's licenses.  In 1970, DEK was sold                      
to Scott and Fetzer, a New York Stock Exchange Company, and Mr.                 
Rousseff remained the President of DEK until 1977, at which time he             
repurchased DEK from Scott and Fetzer.  He was the Chief Executive              
Officer of DEK until 1982, when that company was sold to Mohawk Data            
Sciences, for which he consulted until 1984.  In 1967 Mr. Rousseff              
founded the Industry Advisory Support Committee, a private industry             
group formed to assist and advise Departments of Motor Vehicles.  He            
was the Chairman of that Committee from 1967 to 1977.                           

Nicholas Litchin is the Vice Chairman of the Board of Directors of the          
Company, positions which he has held since March 12, 1997 and the               
formation of ITI in April 1992, respectively.  From 1988 through 1992           
Mr. Litchin was in retirement.  Prior to that time from 1980 to 1989,           
Mr. Litchin was the President of Mercer Beverage Company of St. Henry,          
Ohio, an Ohio corporation engaged in beverage distribution.  From 1973          
to 1987, he was the Chairman of ABC Distributing Company of Defiance,           
Ohio, an Ohio corporation engaged in the distribution of beer, wine and         
soft drinks.  From 1982 to 1991 Mr. Litchin was a Vice President of WMCR        
corporation of Altena, Michigan, an owner/operator of 53 KFC outlets.           

Walter G. Fuller is the President and a Director of the Company                 
positions which he has held since March 12, 1997 and the formation              
of ITI in 1992, respectively.  He is also the President of M&S Steel            
Co., Inc., an Indiana corporation, which is a supplier of structural            
steel to the construction industry.                                             

Janice L. Welch is the Secretary/Treasurer and a Director of the                
Company.  She has held her position with the Company since March 12,            
1997 and with ITI since its formation on April 23, 1992.                        

John F. Grim is the Vice President - Sales and Marketing of the Company.        
He has held his position with the Company since March 12, 1997 and with ITI     
since October 1, 1995.  Prior to this employment Mr. Grim worked for NCR        
Corporation for over fourteen years in various sales, marketing, and            
management capacities related to networking products and the Public Sector      
industry.  Prior to departing NCR Mr. Grim was the head of NCR's Public         
Sector worldwide marketing organization.  Mr. Grim is also a Director of the    
Company.                                                                        

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Involvement in Certain Legal Proceedings                                        

No officer director, significant employee, promoter or control person           
of the Company has been involved in any event of the type described in          
Item 401(d) of Regulation SB during the past five years.                        

Compliance with Section 16(a) of the Exchange Act                               

Not applicable                                                                  

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ITEM 10.  EXECUTIVE COMPENSATION                                                

Summary Compensation Table                                                      

The following table sets forth information regarding compensation paid          
to the Company's CEO and the other executive officers of the Company            
who received in excess of $100,000 of salary and bonus from the Company         
during the year ended December 31, 1997:                                        

                                       Long Term
         Annual Compensation         Compensation Awards

                        Restricted
                                    Stock   Options  Other
Name and Position   Year    Salary     Bonus   Awards  & Sar's  Comp.           

Christ M. Rousseff  1995      $-0-       $-0-     $-0-     $-0-  $-0-           
CEO, Chairman of    1996      $-0-       $-0-     $-0-     $-0-  $-0-           
the Board           1997      $-0-       $-0-     $-0-     $-0-  $-0-           

John F. Grim        1995      $25,000    $-0-     $-0-     $-0-  $-0-           
VP Marketing        1996     $125,000    $-0-     $-0-     $-0-  $-0-           
and Director        1997     $125,000    $-0-     $-0-     $-0-  $-0-           

Compensation of Directors                                                       

The Company has adopted a policy of paying non-employee directors $250          
per meeting plus expenses.                                                      

Employment Agreements                                                           

Mr. Grim has entered into an agreement with the Company to serve as its         
Vice President Sales/Marketing.  This agreement became effective on             
October 1, 1995 and has a term of two years.  It provides for monthly           
compensation of $8,333 and an annual bonus of $25,000.                          

Termination of Employment and Change of Control Arrangements                    

None.                                                                 

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ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT        

As of April 14, 1998, other than certain of its officers and directors,         
no person was known by the Company to own or control beneficially more          
than five percent of its outstanding voting stock.  The table below             
sets forth the total number of shares of the Company's outstanding              
voting stock owned by each director and officer of the Company and of           
all officers and directors as a group.  The amounts set forth below             
reflect the 1 for 50 reverse stock split, which occurred in April 1997.         

                    Number of Shares
Name and Address of                       Owned Beneficially                    
Beneficial Owner         Title of Class   and of Record      % of Class         

Janice L. Welch(1)     Common Stock        4,194,960            41.9%           
10639 Roselle Street                                                            
Suite B                                                                         
San Diego, CA 92121                                                             

Walter G. Fuller       Common Stock        2,999,880            30.0%           
10639 Roselle Street                                                            
Suite B                                                                         
San Diego, CA 92121                                                             

Nicholas Litchin (2)   Common Stock        1,294,920            12.9%           
10639 Roselle Street                                                            
Suite B                                                                         
San Diego, CA 92121                                                             

John F. Grim           Common Stock          180,000             1.8%           
10639 Roselle Street                                                            
Suite B                                                                         
San Diego, CA 92121                                                             

Christ M. Rousseff (3) Common Stock          574,920             9.7%           
10639 Roselle Street                                                            
Suite B                                                                         
San Diego, CA 92121                                                             

All Officers and                                                                
Directors as a Group                                                            
(5 persons)           Common Stock         8,669,760          87.4%           

(1) Includes 3,494,920 shares held of record by Ms. Welch as the              
Trustee of the J&S Trust.                                             

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(2) Includes 214,920 shares held of record by L&R Realty, an Indiana          
general partnership, of which Mr. Litchin is a partner, 699,840       
shares held of record by the Litchin Family Partnership, of which     
Mr. Litchin is a general partner, and 360,000 shares held of          
record by Mercer Beverage Co., an Ohio corporation, of which Mr.      
Litchin is the President, and of which Mrs. Litchin is a principal    
shareholder.  Mr. Litchin disclaims beneficial ownership of these     
shares.                                                               

(3) Consists of 214,920 shares held of record by L&R Realty, of which         
Mr. Rousseff, is a partner, and 360,000 shares, held of record by     
Mercer Beverage Co. of which Mr. Rousseff's wife is a principal       
shareholder. Mr. Rousseff disclaims beneficial ownership of such      
shares.                                                               

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ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                        

On October 31, 1995, ITI and American Registration Systems, Inc.                
("ARS"), and Indiana corporation 49% owned by the CEO of ITI, entered           
into a Purchase and Sale Agreement with regard to the 1994 Patent.  In          
consideration of the transfer of the 1994 Patent, ITI agreed to pay to          
ARS the sum of $4,000,000 before May 1, 1997 and to assume ARS's                
royalty obligation to Mr. Rousseff of $0.01 per transaction effected            
through any device incorporating the subject matter of the 1994 Patent.         
Failure by ITI to pay the purchase consideration would constitute an            
event of default, which, under the contract would entitle ARS to                
terminate ITI's rights to the 1994 Patent.  On March 11, 1997, this             
Agreement was amended to provide that ITI will have no payment                  
obligation to ARS until May 1, 1999.                                            

The Company from time to time has obtained temporary financing from its         
directors and officers.  A total of $600,000 was borrowed in 1996, and          
such amount was repaid in 1997 along with 12% interest.                         

During 1997, the Company obtained temporary financing from shareholders         
or parties related to shareholders.  The Company borrowed a total of            
$125,325 through December 31, 1997.                                             

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ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K                                      

(a) Financial Statements                                                        

The following Financial Statements are filed as part of this report:            

Report of Independent Certificate Public Accountants                        

Balance Sheets - December 31, 1997 and 1996                                 

Statements of Loss for the years ended December 31, 1997 and 1996           

Statements of Stockholders' Equity (Deficit) for the years ended            
December 31, 1997 and 1996                                                  

Statements of Cash Flows for the years ended December 31, 1997 and          
1996                                                                        

Notes to Financial Statements                                               

(b)  Reports on Form 8-K:                                                       

None.                                                                           

(c)  Exhibits                                                                   

3.1(a)    Certificate of Incorporation (1).                                     

3.1(b)    Amendment to Certificate of Incorporation (2).                        

3.2       Bylaws 4(i). Specimen Stock Certificate(1).                           

4.2       Specimen Class A Warrant Certificate (1).                             

Specimen Class B Warrant Certificate (1).                   

10.1 Purchase and Sale Agreement,  dated October 31, 1995, by and             
between American Registration Systems, Inc. and Image Technology,   
Inc. (3)                                                            

10.2      Addendum to Purchase and Sale Agreement dated as of March           
11, 1997. (3)                                             

10.3      Equipment Lease, Support and Maintenance Agreement,                 
  effective November 1, 1996, by and between Indiana Bureau of
Motor Vehicles Commission and Image Technology, Inc. (3)  

10.4      Subcontractor Agreement, effective as of August 1, 1996, by           
and between NCR Corporation and Image Technology, Inc. (3)  

10.5      Employment Agreement between Intellectual Technology and John         
F. Grim. (3)                                                

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21.       Subsidiaries of Registrant. (3)                                       

(1)  Incorporated by reference to Registrant's Registration Statement         
No. 33-33092-D, effective April 17, 1990.                           

(2)  Incorporated by reference to Registrant's Registration on Form           
8-K(A), filed April 10, 1997.                                       

(3)  Incorporated by reference to Registrant's Form 10KSB for the year ended    
December 31, 1996                                                     

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SIGNATURES  

Pursuant to the requirements of Section 13 or 15(d) of the Exchange             
Act, the Registrant has caused this report to be signed on its behalf           
by the undersigned, thereunto duly authorized.                                  

                                 INTELLECTUAL TECHNOLOGY, INC.

                                By: /s/ Christ M. Rousseff
                          ----------------------------------
                                  Christ M. Rousseff, Chairman
                           Date:  April 15, 1998

In accordance with the Exchange Act, this report has been signed below          
by the following persons on behalf of the registrant and in the                 
capacities and on the dates indicated.                                          

Signature                     Title                              Date           

By:/s/Christ M. Rousseff  Chairman and Chief Executive   April 15, 1998         
Christ M. Rousseff        Officer (Principal Executive                          
Officer)                    

By:/s/Janice L. Welch     Secretary/Treasurer and        April 15, 1998         
Janice L. Welch           Director                                              
(Principal Financial Officer) 

By:/s/Nicholas Litchin    Director                       April 15, 1998         
Nicholas Litchin                                                                

By:/s/Walter G. Fuller    Director                       April 15, 1998         
Walter G. Fuller                                                                

By:/s/John F. Grim        Director                       April 15, 1998         
John F. Grim                                                                    

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Index to Financial Statements                                                   

INTELLECTUAL TECHNOLOGY, INC.                                                   

Report of Comiskey & Company P.C. Independent                                   
Certified Public Accountants                                      F-1(a)        

Report of Charles W. Butman, Independent Certified                              
Public Accountant                                                 F-1(b)        

Balance Sheet                                                 F-2 and F-3       

Statements of Operations                                          F-4           

Statements of Cash Flows                                          F-5           

Statements of Stockholders' Equity                                F-6           

Notes to Financial Statements                                F-7 through F-12   

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                              

We have audited the accompanying balance sheet of                               
Intellectual Technology, Inc. as of December 31, 1997, and                      
the related statements of Loss and Accumulated Deficit, Cash                    
Flows, and Stockholders' Equity for the year then                               
ended.  These financial statements are the responsibility of                    
the Company's management.  Our responsibility is to express                     
an opinion on these financial statements based on our audit.                    
The financial statements of Image Technology, Inc., the                         
predecessor of Intellectual Technology, Inc., for the year                      
ended December 31, 1996, were audited by other auditors,                        
whose report dated May 23, 1997 expressed an unqualified                        
opinion on those financial statements.                                          

We conducted our audit in accordance with generally accepted                    
auditing standards.  Those standards require that we plan                       
and perform the audit 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.  We believe our audit provides a reasonable                         
basis for our opinion.                                                          

In our opinion, the financial statements referred to above                      
present fairly, in all material respects, the financial                         
position of Intellectual Technology Inc. as of December 31,                     
1997, and the results of its operations, cash flows and                         
changes in stockholders' equity for the year then ended in                      
conformity with generally accepted accounting principles.                       

Denver, Colorado                                                                
January 28, 1998                                                                

COMISKEY & COMPANY                                                              
PROFESSIONAL CORPORATION                                                        

      F-1(a)

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INDEPENDENT AUDITOR'S REPORT                                                    

I have audited the accompanying balance sheet of Image                          
Technology, Inc. (a Nevada corporation) as of December 31,                      
1996, and the related statements of income and retained                         
earnings (deficit) and cash flows for the year then                             
ended.  These financial statements are the responsibility of                    
the Company's management.  My responsibility is to express                      
an opinion on these financial statements based on my audit.                     

I conducted my audit in accordance with generally accepted                      
auditing standards.  Those standards require that I plan                        
and perform the audit 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.  I believe my audit provides a reasonable                           
basis for my opinion.                                                           

In my opinion, the financial statements referred to above                       
present fairly, in all material respects, the financial                         
position of Image Technology Inc. as of December 31, 1996,                      
and the results of its operations and its cash flows for the                    
year then ended in conformity with generally accepted accounting                
principles.                                                                     

Charles W. Butman                                                               
Certified Public Accountant                                                     
San Marcos, CA                                                                  

May 23, 1997                                                                    

      F-1(b)

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INTELLECTUAL TECHNOLOGY, INC.                                                   
Balance Sheet                                                                   
December 31, 1997                                                               

ASSETS                                                                          

Current Assets                                                                  

Cash and equivalents (including savings of $361,000)      $ 404,240       
Accounts receivable (net of uncollectible                                 
allowance of $0)                                          317,538     
Inventories                                                 120,148       
Employee advances                                            15,500       
Restricted cash                                              21,202       
Prepaid expenses                                             31,464       
                                                  ----------
Total current assets                                       910,092      

Property and Equipment                                                          
Contract equipment                                        4,277,346       
Equipment - non contract                                     58,121       
Office equipment, furniture and improvements                 20,084       
                                                 -----------
                                                   4,355,551
Less accumulated depreciation                              828,887      
                                                 -----------
Total property and equipment                                 3,526,664          

Intangibles and Other Assets                                                    

Patents, net of accumulated amortization of $607,000     3,657,117      
New Hampshire contract costs, net of amortization of                    
$107,000                                                16,075  
Deposits                                                    81,548      
Organization costs, net of amortization of $400              1,669      
                                                ------------
Total other assets                                   3,756,409  
                                                ------------
TOTAL ASSETS                                              $8,193,165        
                                                  ==========

F-2 

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LIABILITIES AND STOCKHOLDERS' EQUITY                                            

Current liabilities                                                             

Accounts payable                                          $400,502      
Accrued expenses                                               247,072  
Notes payable related parties                              125,325      
Notes payable other                                         59,000      
Current portion of long term debt                        2,156,192      
Accrued interest payable                                   268,466      
                                                   ---------
Total current liabilities                             3,256,557   

Other liabilities                                                               

Long term debt (net of current portion)                  2,287,037      
Due to related party                                     3,998,000      
                                                   ---------
Total other liabilities                               6,285,037   

Stockholders' equity                                                            
Preferred stock, $0.00001 par value, 10,000,000 shares                  
authorized,no shares issued or outstanding                     -    
Common stock, $0.00001 par value, 20,000,000 shares                     
authorized, 10,000,000 shares issued and outstanding         100    
Additional paid in capital                                 1,186,250    
Accumulated deficit                                     (2,534,779)     
                                                  ----------
Total stockholders' equity                            (1,348,429)   
                                                  ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY            8,193,165   
                                                  ==========
The accompanying notes are an integral part of the financial statements.        

F-3         

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INTELLECTUAL TECHNOLOGY, INC.                                                   
Statements of Loss                                                              
For the years ended December 31, 1997 and 1996                                  

                                                 1997               1996
Revenues                                                                        
Leasing fees, registration equipment         $2,472,032     $22,550     
Leasing fees, drivers' license equipment        298,927      48,672     
Sales, registration equipment and media         240,411           -     
                                        ----------     -------
Total revenues                                  3,011,370      71,222       

Cost of Revenues                                                                
Materials                                       609,211      25,093     
Maintenance                                     314,293      10,732     
Depreciation and amortization                   789,355      21,362     
Insurance                                        12,604           -     
Taxes                                             9,250           -     
Royalties                                        24,442           -     
                                       -----------     -------
Total Cost of Revenues                    1,759,155      57,187 
                                       -----------     -------
Gross Profit                              1,252,215      14,035 

Operating Expenses:                                                             
Selling                                         133,668     113,701     
General and Administrative                      884,933     268,854     
Research and Development                         32,220      34,936     
Patent Amortization                             281,430     279,201     
Depreciation                                     22,043       3,876     
                                       -----------    --------
Total operating expenses                  1,354,294     700,568 
                                       -----------    --------
Loss from operations                       (102,079)   (686,533)  

Non-operating income and expense                                                
Interest income                                 (4,841)          -      
Interest expense, including amortization of                             
loan fees                                    769,919     279,479    
                                     -----------    --------
Total non-operating expense                 765,078     279,479   
                                       -----------    --------
Net loss before income taxes             (867,157)   (966,012)

Income taxes                                   -           -
                                       -----------    --------
Net loss                                $(867,157)  $(966,012)
                                     ===========    ========
Loss per share - basic                     $(0.09)     $(0.11)
                                       ===========    ========
Weighted average number of shares outstanding       9,791,667   9,000,000       
                                        =========   ==========
The accompanying notes are an integral part of the financial statements.        

F-4         

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INTELLECTUAL TECHNOLOGY, INC.                                                   
Statements of Cash Flows                                                        
For the years ended December 31, 1997 and 1996                                  

                                              1997        1996

Cash Flows from Operating Activities                                            
Net Loss                                    $(867,157)   $(966,012)     
Adjustments to reconcile net loss to net                              
cash flows from operating activities:                               
Depreciation and amortization          1,192,026      59,266  
Increase/Decrease in:                                         
  Accounts receivable                   (268,427)     (49,111)
  Inventory                              (52,262)     (67,886)
  Prepaid expenses                       (19,521)      (7,651)
 Notes receivable / Employee advances   (15,100)       6,382
 Restricted cash                        (21,202)           -
 Deposits and other assets               15,518            -
 Accounts payable                    (1,245,653)   1,643,658
 Accrued expenses and interest          390,254        6,293
                                        ---------    ---------
Net cash provided (used) by operations      (891,524)   1,244,939     

Cash flows from investing activities                                            
Investment in patents and other intangibles    17,582        3,056      
Purchase of non-contract equipment             71,479       60,726      
Investment in contract costs and equipment  1,545,127    2,678,219      
                                      ---------    ---------
Net cash used by investing activities      1,634,188    2,742,001     

Cash flows from financing activities                                            
Additional paid in capital                     53,000      295,553      
New borrowings                              7,296,398    1,254,211      
Debt repayments                            (4,425,054)           -      
Loan costs                                          -      (50,000)     
                                      ---------    ---------
Net cash provided by financing activities  2,924,344    1,499,764     

Net increase in cash                       398,632        2,702   
                                      ---------    ---------
Cash and equivalents, beginning of year             5,608        2,906          
                                      ---------    ---------
Cash and equivalents, end of year                $404,240       $5,608          
                                       =========    ========

The accompanying notes are an integral part of the financial statements.        

F-5       

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INTELLECTUAL TECHNOLOGY, INC.                                                   
Statement of Stockholders' Equity                                               
For the years ended December 31, 1997 and 1996                                  

                                                        [Enlarge/Download Table]
                                                                                     
             Preferred Stock  Common Stock      Additional              Total        
             Number of        Number of         Paid In    Accumulated  Stockholders 
Description   Shares   Amount Shares   Amount   Capital    Deficit      Equity       

Balance,                                                                             
January 1, 1996  -       $ -   25,000   $2,500    $835,297   $(701,610)     $136,187 

Adjustment                                                                           
to give effect                                                                       
to the                                                                               
recapitalization                                                                     
of Image                                                                             
Technology, Inc. -         -  8,975,000  (2,410)     2,410           -             - 

Balance,                                                                             
January 1, 1996,                                                                     
as restated      -         -  9,000,000      90    837,707    (701,610)      136,187 

Contribution to                                                                      
capital          -         -          -       -    295,553            -      295,553 

Net loss                                                       (966,012)    (966,012)

Balance December                                                                     
31, 1996         -        -   9,000,000      90  1,133,260   (1,667,622)    (534,272)

Stock issued in                                                                      
business combination                                                                 
with Bridgestone Corp.                                                               
March 12, 1997   -        -   1,000,000      10     49,990            -       50,000 

Contribution to                                                                      
capital          -        -           -       -      3,000            -        3,000 

Net loss         -        -           -       -          -      (867,157)   (867,157)

Balance,                                                                             
December 31,                                                                         
1997            -         -  10,000,000    $100  $1,186,250  $(2,534,779)$(1,348,429)

The accompanying notes are an integral part of the financial statements.        

F-6       

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INTELLECTUAL TECHNOLOGY, INC.                                                   
NOTES TO FINANCIAL STATEMENTS                                                   
December 31, 1997 and 1996                                                      

1. Description of Business and Summary of Significant Accounting                
Policies                                                                        

Corporate History                                                               
Intellectual Technology, Inc. ("ITI", "the Company") was incorporated           
in the State of Delaware under the name Bridgestone Corp. on December           
1, 1989.  It was formed for the purpose of acquiring an operating               
company.  In October, 1990, Bridgestone completed an initial public             
offering of stock and warrants which resulted in the sale of 10,000,000         
units for approximately $80,000.  On March 12, 1997,  ITI entered into          
a stock transfer and exchange with Image Technology, Inc., a privately          
held corporation incorporated in Nevada in 1992 and headquartered in            
San Diego California.  As a result of this transaction, the                     
shareholders of the Nevada corporation acquired collectively a 90%              
interest in the ongoing entity and Image Technology Inc. became a               
wholly owned subsidiary of Intellectual Technology Inc.  The Company            
continues to operate under the name Intellectual Technology, Inc.               

Description of Business                                                         
ITI is engaged in the design, manufacture and sale or lease of                  
equipment for the automated preparation and dispensing of motor vehicle         
registration forms and license plate decals.  The Company's printing            
systems are currently installed in the states of Indiana and Maryland.          
The printing system is designed as a stand-alone unit, which is used as         
such in individual motor vehicle registration offices and mailrooms,            
and has also been incorporated into a self-service terminal ("SST")             
assembly.                                                                       

Effective November 1, 1996, the Company entered into a lease with the           
Indiana Bureau of Motor Vehicles Commission ("BMVC") to lease                   
approximately 291 printers and 36 SST's for a period of three years,            
with a renewal clause for an additional year.  The lease requires ITI to        
provide the equipment and media required to print the registrations             
and decals, and to support and maintain the equipment during the period         
of the contract.  ITI will receive an all-inclusive per transaction             
lease fee for these services.  As of December 31, 1997, all of the              
stand-alone printers and 11 self-service terminals had been installed.          

ITI printer systems were sold in Maryland on a subcontract basis for            
use in SST installations in that state.  ITI currently supplies the             
media for these printers.                                                       

The Company's printing system is based in part on proprietary                   
technologies which are covered by two patents currently owned by the            
Company.  All of the Company's equipment is manufactured by                     
subcontractors.                                                                 

The Company has also purchased the rights to a contract with the state          
of New Hampshire to provide driver's licenses.  These amounts are               
billed on a per transaction basis.  This contract expires January 31,           
1999.                                                                           

Significant Accounting Policies                                                 

Principles of consolidation                                                     
Unless otherwise indicated, all references to "the Company" in these            
financial statements are references to Intellectual Technology, Inc.            
and its wholly owned subsidiary, Image Technology, Inc.                         
Intercompany transactions have been eliminated in consolidation.                

F-7     

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INTELLECTUAL TECHNOLOGY, INC.                                                   
Notes to Financial Statements                                                   
December 31, 1997 and 1996                                                      

Cost recovery - equipment and contract costs                                    
Leased contract equipment costs have been capitalized, and include the          
manufactured cost of the printers and SST's, operating software,                
installation, freight, packaging, contract startup costs, and other             
costs incidental to making the equipment operational.                           

All costs are recovered in the ratio that transactions to date bear to          
total estimated transactions over the contract term.  For purposes of           
hardware and software costs, the Company is using the transactions              
expected over the period of the Indiana contract, plus the one year             
renewal, for a total of four years.  Installation and other costs which         
are directly associated with the state of Indiana project, are being            
depreciated using the projected number of transactions for the initial          
three year contract period only.                                                

The amount of cost recovery (depreciation) charged to operations in the         
current period is based on management's assumptions.  Significant               
additional transactions may occur throughout the remaining term of the          
contract.  Differences in actual results from those estimated by                
management could materially accelerate the rate of cost recovery                
charged to operations.                                                          

Material project management costs paid in advance have been deferred,           
and are being amortized on a per transaction basis based on the                 
expected transaction volume over the period of the project management           
contract.                                                                       

Repairs and maintenance                                                         
Maintenance costs are expensed as incurred.  All costs associated with          
maintenance contracts are being prorated over the period of the                 
maintenance contract.                                                           

Inventory                                                                       
Inventory consists of media (tag stock paper, ribbon, decals and                
laminates) used to produce the motor vehicle registration and driver            
license forms and decals.  Inventory is stated at the lower of cost or          
market on a first-in, first-out basis.                                          

Non-contract equipment                                                          
Cost of equipment used in operations has been capitalized and is                
depreciated using the declining balance method over useful lives of 3           
to 7 years.                                                                     

Intangibles                                                                     
Patent costs are capitalized, and are amortized over the remaining              
useful life of the patent, which is generally 17 years from issue.              

New Hampshire contract costs are amortized ratably over the remainder           
of the existing contract, which expires January 31, 1999.                       

Certain costs to obtain debt financing have been deferred and are               
amortized over the length of the loan using the straight line method.           

Research and Development                                                        
Research and development costs are expensed as incurred.                        

Cash and Equivalents                                                            
For purposes of the statement of cash flows, the Company considers              
highly liquid debt instruments purchased with an initial period of              
three months or less to be cash equivalents.                                    

F-8           

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INTELLECTUAL TECHNOLOGY, INC.                                                   
Notes to Financial Statements                                                   
December 31, 1997 and 1996                                                      

Significant Concentrations                                                      
In 1997 the Company derived 82% of its total revenue from its contract          
with the state of Indiana.  The Company uses a single vendor to supply          
its primary printer component, and one vendor to supply all media for           
the ITI printing system.  Although alternate vendors have been found to         
manufacture printer parts, no other vendor is available to produce              
certain of the printer media.                                                   

The company from time to time maintains cash balances in excess of FDIC         
insured limits.  The amount of such excess at December 31, 1997 was             
$261,000.                                                                       

Earnings per share                                                              
Basic earnings per share are computed using the weighted average number         
of shares outstanding.  Shares issued in the stock transfer and                 
exchange described in Note 7 are considered outstanding for all periods         
presented.  Diluted earnings per share have not been presented, since           
the effect of potentially dilutive securities is antidilutive.                  

Impact of Newly Issued Accounting Standards                                     
The Financial Accounting Standards Board has recently released                  
Statement of Financial Accounting Standards No. 130 - Reporting                 
Comprehensive Income, and Statement of Financial Accounting Standards           
No. 131 - Segment Reporting.  SFAS 130 requires companies to present            
comprehensive income (consisting primarily of net income items plus             
other direct equity charges and credits) and its components as part of          
the basic financial statements.  SFAS 131 supercedes SFAS No. 14, and           
requires disclosure of disaggregated information by operating segment.          
Both standards are effective for years beginning after December 15,             
1997.  The Company has not elected early adoption of either standard,           
and does not anticipate a material impact on operations as a result of          
its adoption of these standards in 1998.                                        

2. Presentation as a Going Concern                                              

The Company has experienced operating losses since its inception, and           
was in the development stage as defined by SFAS No. 7 until November            
1996.  It has a deficit in equity of $(1,348,429) at December 31, 1997,         
and its working capital is $(2,346,465).  These conditions are                  
primarily as a result of losses incurred in the startup phase and               
during the initial year of the Indiana contract, during which the               
Company operated at reduced revenues while the printer installations            
were accomplished.  In addition, the Company experienced additional             
costs related to its efforts to raise capital for the manufacture of            
the Indiana printers, and ultimately to obtain permanent financing,             
which was secured during the second quarter of 1997.                            

Under the Company's current financing arrangement, receivables from the         
Indiana contract have been assigned to the note holder.  The amount of          
monthly cash flow from this contract is remitted net to the company             
after debt service is satisfied.  Management projects that this                 
arrangement will continue to generate positive monthly cash flows for           
the remainder of the Indiana contract sufficient to support operations          
and the Company's sales effort.  It is not anticipated that significant         
additional financing will be necessary until the Company is successful          
in negotiating the sale or lease of contract equipment in other                 
jurisdictions.                                                                  

F-9           

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INTELLECTUAL TECHNOLOGY, INC.                                                   
Notes to Financial Statements                                                   
December 31, 1997 and 1996                                                      

3. Related Party Transactions                                                   

The Company is contractually obligated to pay a $0.01 per transaction           
royalty to a director, officer, and founder of the Company.  Amounts            
paid or payable were $24,442 and $ 185 for the years ended December 31,         
1997 and 1996.                                                                  

The Company is obligated under a purchase agreement with a company              
under common control with ITI in the amount of $3,998,000 which was             
incurred as part of the transfer of proprietary technology to the               
Company in the form of patent assignments.  This obligation was non-            
interest bearing until May 1, 1997, after which interest at 8% is               
accruing until May, 1999 when this obligation becomes due.  A total of          
$77,691 of imputed interest and $213,335 in accrued interest was                
incurred on this debt during the year ended December 31, 1997.                  

The Company from time to time has obtained temporary financing from its         
directors and officers.  A total of $600,000 was repaid at 12% interest         
in 1997.  Interest expense recognized in 1997 as payable to directors           
and officers totaled $32,351.  A loan fee of $50,000 was paid to an             
unrelated third party during 1997 in connection with this note.                 

The Company also obtained certain temporary financing from shareholders         
or parties related to shareholders.  The average interest rate on these         
obligations was 8%.  At December 31, 1997, principal amounts owed to            
shareholders totaled $125,325, and accrued interest was $26,417.  The           
amount of interest expense on these notes in 1997 totaled $19,792.              

The Company leases service vehicles from a company owned by a relative          
to a shareholder.  The lease calls for monthly payments of $2,233.              

4. Notes Payable and Long-Term Debt                                             

The Company is obligated under the following notes at December 31,              
1997:                                                                           
                              Short Term         Long Term

13.05% Installment notes,                                                       
secured by all printers, SSTs,                                                  
and miscellaneous equipment                                                     
leased to Indiana, and the                                                      
assignment of accounts receivable                                               
from the Indiana contract,                                                      
payable monthly in installments                                                 
of $223,600. Maturity                                                           
November 1999.                         $ 2,156,192         $ 2,287,037          

8% debt obligation payable to                                                   
related party, secured                                                          
by patents.  Interest and                                                       
principal due and payable                                                       
May 1, 1999.                                     -           3,998,000          

8% unsecured demand note                     5,000                   -          

15% unsecured note, due                                                         
June 15, 1997                               33,000                   -          

8% note, secured by savings,                                                    
due March 8, 1998                           21,000                   -          

8% unsecured demand notes                                                       
payable to related parties                 125,325                   -          

Total notes payable                    $ 2,340,517         $ 6,285,037          

  F-10

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INTELLECTUAL TECHNOLOGY, INC.                                                   
Notes to Financial Statements                                                   
December 31, 1997 and 1996                                                      

Scheduled note maturities debt over the next five years and in the              
aggregate are as follows:                                                       

For the year ended                                                  
December 31,                                                        

1998                                    2,340,517               
1999                                    6,285,037               
2000                                            -               
2001                                            -               
2002                                            -               

5. Leases                                                                       

The Company leases for its own use office space, vehicles and office            
equipment under non-cancelable operating leases expiring in the years           
1999 to 2001.  Rent expense for the years ended December 31, 1997 and           
1996 was $34,227 and $7,928, respectively.  Future minimum lease                
payments on non-cancelable operating leases over the next five years            
are as follows:                                                                 

For the year ended                                                  
December 31,                                                        

1998                                       64,308               
1999                                       61,462               
2000                                       51,162               
2001                                       23,736               
2002                                            -               

6. Income taxes                                                                 

The Company has federal net operating loss carryforwards totaling               
approximately $1.8 million which expire between 2010 and 2012.  These           
carryforwards were generated by Image Technology, Inc.  Net operating           
losses generated by Bridgestone Corp. are limited under Section 381 of          
the Internal Revenue Code, and the tax effect thereof has been                  
disregarded for financial reporting purposes. The following are the             
components of the Company's deferred tax assets and liabilities:                

                          1997            1996

Non-benefitted net operating loss                                       
Carryforwards                         612,000         246,000           
Valuation allowance                  (612,000)       (246,000)          
                           -------         -------
Total deferred tax assets                   -               -           
Deferred tax liabilities                    -               -           

    F-11

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INTELLECTUAL TECHNOLOGY, INC.                                                   
Notes to Financial Statements                                                   
December 31, 1997 and 1996                                                      

7. Stockholders' Equity                                                         

Preferred stock                                                                 
At December 31, 1997, the Company has authorized a total of 1,000,000           
preferred shares to be issued in series with rights and privileges to           
be determined by the Board of Directors.  No preferred shares are               
outstanding, nor have any series of preferred shares been designated.           

Common stock                                                                    
At December 31, 1997, a total of 20,000,000 shares of $0.00001 par              
value common stock were authorized, and 10,000,000 were issued and              
outstanding.                                                                    

Stock warrants                                                                  
The Company has outstanding warrants to purchase a total of 400,000             
shares of common stock, in the form of 200,000 Class A warrants                 
exercisable at $12.50 per share, and 200,000 Class B warrants at $12.50         
per share.  Both classes of warrants expire in April 1998.  The                 
warrants are subject to redemption by the Company upon 30 days written          
notice at a price of $0.00001 per warrant.  Such warrants may not be            
exercised by the warrant holders unless a current registration                  
statement is on file with the Securities and Exchange Commission.               

Stock transfer and exchange with Image Technology Inc.                          
On March 12, 1997, the Company entered into a stock transfer and                
exchange agreement with Image Technology, Inc.  The Company issued a            
total of 450,000,000 shares of its common stock to acquire 100% of the          
issued and outstanding common stock of Image Technology Inc.  As a              
result of the transaction, the shareholders of Image Technology Inc.            
emerged as holders of 90% of the common shares of the parent company,           
with the former Bridgestone shareholders retaining 10% of the                   
outstanding common shares.  The sole officer and directors of                   
Bridgestone resigned in favor of persons appointed by ITI.                      

The stock transfer and exchange agreement also provided that certain            
members of pre-acquisition management of Bridgestone Corp. be engaged           
as consultants to the company after the transaction.                            

As a direct result of the transaction, and effective March 12, 1997,            
the Company changed its name from Bridgestone Corp. to Intellectual             
Technology, Inc.  The Company also underwent a 1 for 50 reverse split           
of common shares, and reduced the number of authorized shares from              
500,000,000 common shares to 20,000,000 common shares, and 20,000,000           
preferred shares to 1,000,000.                                                  

The transaction has been accounted for as a recapitalization of the             
private company, Image Technology, Inc.  The accompanying financial             
statements include the operations of Image Technology, Inc. prior to            
the acquisition and the operations of Intellectual Technology, Inc. and         
Image Technology, Inc. on a consolidated basis subsequent to the                
transaction.                                                                    

F-12        

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K’ Filing		Date		First		Last			Other Filings
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Filed on:		4/15/98		24
		4/14/98		19
		4/13/98		2
		3/31/98		10					10QSB
		1/28/98		26
		1/13/98		10
		1/1/98		6
For Period End:		12/31/97		1		38			NT 10-K
		12/15/97		35
		9/30/97		10					10QSB
		6/30/97		10					10QSB
		5/23/97		26		27
		5/1/97		21		36
		4/10/97		23
		3/31/97		10					10QSB,  10QSB/A,  NT 10-Q
		3/27/97		2					8-K
		3/12/97		3		38			8-K
		3/11/97		21		22
		12/31/96		10		38			10KSB,  8-K/A,  NT 10-K
		11/1/96		6		33
		9/30/96		10					10-Q
		8/1/96		7		22
		1/1/96		32
		10/31/95		21		22
		10/1/95		16		18
		1/24/95		4
		4/23/92		3		16
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