U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the transition period from _________ to _________
Commission File Number 1-13628
INTELLIGENT CONTROLS, INC.
Exact name of small business issuer as
specified in its charter)
Maine 01-0354107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
74 Industrial Park Road, Saco, Maine 04072
(Address of principal executive offices)
(207) 283-0156
(Issuer's telephone number)
Check whether the issuer (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
--- ---
There were 3,252,406 shares of Common Stock of the issuer outstanding as of
October 9, 1997.
Transitional Small Business Disclosure Format: Yes No X
--- ---
Page 1 of 11
Exhibit Index at page
PART I
ITEM 1. FINANCIAL STATEMENTS.
Unaudited financial statements of the Company appear beginning at page F-1
below, and are incorporated herein by reference. These financial statements
include all adjustments which, in the opinion of management, are necessary
in order to make the financial statements not misleading.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations For Nine Months Ended September 30, 1997
For the nine months ended September 30, 1997, sales grew 41% to
approximately $10.0 million compared to $7.1 million for the same period in
1996. Third quarter sales have continued the trend of the first two quarters
of 1997, increasing 36% to $3.8 million compared to $2.8 million for the
same period in 1996.
Petroleum segment sales continued their upward trend in the third quarter of
1997, increasing 42% to $3.4 million dollars compared to $2.4 million for
the same period in 1996. For the nine months ended September 30,1997,
Petroleum Segment sales are $8.8 million compared to $6.0 million for the
same period in 1996. A 47% increase over 1996. The quarterly and year-to-
date increases can be attributed to strong market conditions, improved
product quality and two of the three shipments under the Company's $1.8
million Chinese Petroleum contract.
Utility segment sales of approximately $1.1 million for the first nine
months of 1997 are relatively flat with the same period in 1996. The
Company's Optimizer circuit breaker monitor continues to be purchased by
utilities for evaluation. Utilities tend to go through twelve to eighteen
month evaluations on new concept products such as the Optimizer.
Gross margins for the first nine months were 41.6% compared to 44.3% for the
same period in 1996. However, gross margins continued to improve in the
third quarter of 1997, increasing to 44.5% compared to 40.0% for the same
period in 1996. Decreases in material prices through better purchasing,
increased production throughput and improved production efficiencies have
attributed to the improvement in margins in the third quarter. The lower
utility sales as a percent of total sales and the two shipments to Chinese
Petroleum, which has special pricing due to the size of the order, have
contributed to the lower margins for the first nine months of 1997 compared
to the same period in 1996.
For the first nine months of 1997 operating expenses declined to 34.1% of
sales compared to 47.2% of sales for the same nine month period in 1996.
Actual dollars have increased $54,000 due to higher commissions paid, which
is attributable to the higher sales. The continued improvement in gross
margins, lower operating expenses and increased sales have resulted in net
income of $336,500 or $.10 per share for the first nine months of 1997
compared to a loss of $203,300 or $(.06) per share for the first nine months
of 1996.
Liquidity and Capital Resources at September 30, 1997
As of September 30, 1997 the Company had $200,000 in cash and $2.7 million
available to be borrowed on its $3.5 million dollar working capital line of
credit. On April 16, 1997, the working capital line of credit was increased
to $3.5 million from $3.0 million. The current ratio has improved to 1.85
from 1.50 as of December 31, 1996 and for the same period the quick ratio
has improved to 1.00 from .50. The continued improvement in liquidity can be
attributable to the improvement in profitability and the affect of better
inventory management resulting in a $976,000 decrease in inventories. The
Company believes that current resources will be sufficient to finance the
Company's operating needs for the foreseeable future.
PART II
ITEM 1. LEGAL PROCEEDINGS.
As previously reported, the Company is party to an action entitled John
D. Knight v. Intelligent Controls, Inc., filed in Maine Superior Court,
Cumberland County. The action was brought in August 1997 by Mr.
Knight, a former director and executive officer of INCON whose
employment had recently been terminated by the Company. Mr. Knight
alleges that he is owed $287,100 in unpaid bonus payments over a six
and a half year period under his original Employment Agreement dated as
of December 29, 1986. As amended, the complaint further alleges that
he is entitled to $574,200 in statutory punitive damages, plus
attorneys'fees and costs. The complaint also alleges that the Company has
breached an Incentive Stock Option Agreement with Mr. Knight, and that he
has incurred an unspecified amount of damages from such breach.
The Company has filed an answer denying all material allegations, and
has asserted various counterclaims against Mr. Knight for breach of
contract and breach of fiduciary duty. The Company believes that the
bonus arrangements called for in the 1986 agreement had been
superseded from year to year by other annual bonus arrangements
approved by the Board of Directors (of which Mr. Knight was a voting
member), and that all bonuses due to Mr. Knight were paid each year in
accordance with these substitute arrangements. The Company further
believes that it had grounds to withhold the shares of stock that Mr.
Knight would otherwise have received upon exercise of his Incentive
Stock Option.
In October 1997 Mr. Knight filed a motion for summary judgment on his
claims; the Company has filed a motion in opposition, and has filed its
own motion for summary judgment. The Superior Court has not yet ruled
on these motions.
ITEM 5. OTHER INFORMATION.
Kenneth J. Burek has resigned from the Company effective November
28, 1997, to pursue other career opportunities. Mr. Burek served as Chief
Financial Officer. Management and the Audit Committee of the Board of
Directors are in the process of interviewing applicants for the position of
Chief Financial Officer, and expect to fill this position in the near
future. In the meantime, the Company anticipates no disruption of its
financial control and reporting function. Earlier this year, the Company
retained its outside accountants (Coopers & Lybrand, LLP) to conduct
quarterly reviews of interim financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
The following exhibits are filed with the report:
27 Financial data schedule
SIGNATURES
In accordance with the requirements of the Exchange Act, the Company caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTELLIGENT CONTROLS, INC.
By: /s/ Kenneth J Burek
------------------------------------
Kenneth J. Burek, Vice President
of Finance (on behalf of the
Company and as principal
Date: October 9, 1997 financial officer)
To the Board of Directors and Shareholders of
INTELLIGENT CONTROLS, INC.
We have reviewed the accompanying balance sheet of Intelligent Controls, Inc.,
as of September 30, 1997 and the related statements of income for the three
month and nine month periods ended September 30, 1997 and related statements of
cash flows for the nine month period ended September 30, 1997. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding financial statements taken as a
whole. Accordingly, we do not express such an opinion. We previously audited
and expressed an unqualified opinion on the Company's financial statements for
the year ended December 31, 1996 (not presented herein). In our opinion, the
information set forth in the accompanying balance sheet as of December 31,
1996, is fairly stated in all materials respects, in relation to the statement
of financial position from which it has been derived.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
- ------------------------------
Portland, Maine
October 9, 1997
INTELLIGENT CONTROLS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited)
September 30 December 31
1997 1996
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 200,039 $ 133,690
Accounts receivable, net of allowance
for doubtful accounts of $71,505 in
1997 and $60,000 in 1996 2,426,204 1,960,979
Inventories 1,886,723 2,863,335
Prepaid expenses and other 233,206 312,837
Income taxes receivable - 160,000
Deferred income taxes 173,627 210,000
-------------------------
Total current assets 4,919,799 5,640,841
Property, Plant, and Equipment, net 825,533 851,081
Other assets 23,513 19,979
Restricted cash - 199,120
-------------------------
$5,768,845 $6,711,021
=========================
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Note payable - bank $ 755,093 $2,015,862
Accounts payable 671,642 881,349
Accrued expenses 788,615 673,767
Accrued income taxes 237,772 -
Current portion of long-term debt 191,700 191,700
-------------------------
Total current liabilities 2,644,822 3,762,678
Long-term debt, net of current portion 423,450 409,967
Deferred taxes 58,450 58,450
Deposit from stockholder - 199,120
Stockholders' Equity
Common stock, no par value; 5,000,000 shares
authorized; 3,252,406 issued in 1997 and
3,238,952 in 1996 2,272,528 2,252,041
Retained earnings 369,595 33,071
Less: Treasury stock, 2,153 shares at cost
in 1996 - (4,306)
-------------------------
2,642,123 2,280,806
-------------------------
$5,768,845 $6,711,021
=========================
</TABLE>
See accompanying notes
INTELLIGENT CONTROLS, INC.
STATEMENTS OF INCOME (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept 30 Sept 30 Sept 30 Sept 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $3,796,604 $2,839,091 $9,994,590 $7,108,777
Cost of sales 2,107,496 1,704,099 5,827,823 3,961,042
----------------------------------------------------
1,689,108 1,134,992 4,166,767 3,147,735
Operating expenses:
Selling, general and
administrative 1,019,025 991,332 2,816,974 2,624,847
Research and develop. 189,640 243,492 591,104 728,348
----------------------------------------------------
1,208,665 1,234,824 3,408,078 3,353,195
Operating income (loss) 480,443 (99,832) 758,689 (205,460)
Other income (expense):
Interest expense (40,461) (53,545) (141,669) (131,068)
Other(expense) (14,462) (13,487) (44,787) (26,719)
----------------------------------------------------
(54,923) (67,032) (186,456) (157,787)
Income (loss)before income
tax expense (benefit) 425,520 (166,864) 572,233 (363,247)
Income tax expense
(benefit) 180,200 (79,074) 235,709 (159,904)
----------------------------------------------------
Net income (loss)
after tax $ 245,320 $ (87,790) $ 336,524 $ (203,343)
====================================================
Earnings per share:
Net income (loss) $ .07 $ (.02) $ .10 $ (.06)
====================================================
Weighted average number of
common shares
outstanding 3,324,662 3,479,192 3,324,662 3,479,192
====================================================
</TABLE>
See accompanying notes.
INTELLIGENT CONTROLS, INC.
STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
Sept 30 Sept 30
1997 1996
<S> <C> <C>
Cash flows from operating activities
Net Income (loss) $ 336,524 $ (115,554)
Adjustments to reconcile net income
(loss)to net cash provided (used) by
operating activities:
Depreciation and amortization 175,831 101,714
Deferred taxes 36,333 -
Changes in assets and liabilities:
Accounts receivable (465,225) 244,535
Inventories 976,612 (1,000,761)
Prepaid expenses and other 79,631 (32,575)
Income taxes receivable 160,000 -
Accounts payable and accrued expenses (94,859) 357,303
Accrued income taxes 237,722 (51,068)
Other (3,534) (2,357)
---------------------------
Net cash provided(used) by operating
activities 1,439,125 (498,763)
Cash flows from investing activities:
Purchases of equipment and leasehold
improvements, net (150,283) (139,760)
---------------------------
Net cash (used) by investing activities (150,283) (139,760)
Cash flows from financing activities:
Net borrowings on note payable - bank (1,260,769) 600,925
Repayment of long-term debt 13,483 69
Issuance of common stock, net 20,487 -
Sale of treasury stock 4,306
Decrease in restricted cash (199,120) -
Decrease in deposit from shareholder 199,120 -
---------------------------
Net cash provided (used)by financing
activities (1,222,493) 600,994
---------------------------
Net increase (decrease) in cash 66,349 (37,529)
Cash and cash equivalents beginning of year 133,690 225,518
---------------------------
Cash and cash equivalents end of period $ 200,039 $ 187,989
===========================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 141,669 $ 78,092
===========================
Income taxes $ - $ 55,000
===========================
</TABLE>
See accompanying notes.
INTELLIGENT CONTROLS, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. The consolidated financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that
the disclosures are adequate to make the information presented not to be
misleading. In the opinion of management, the amounts shown reflect all
adjustments necessary to present fairly the financial position and results
of operations for the periods presented. All such adjustments are of a
normal recurring nature.
Earnings per share of common stock have been determined by dividing net
earnings by the weighted average number of shares of common stock
outstanding.
It is suggested that the financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's 10-KSB.
2. Property, Plant, and Equipment
Property, plant, and equipment, at cost,
<TABLE>
<CAPTION>
(Unaudited)
Sept 30, December 31
1997 1996
<S> <C> <C>
Leasehold improvements $ 111,983 $ 105,442
Equipment 1,223,100 1,119,610
Software 159,806 119,554
Furniture and Fixtures 120,087 120,087
-------------------------
1,614,976 1,464,693
Less accumulated depreciation and
amortization (789,443) (613,612)
-------------------------
$ 825,533 $ 851,081
=========================
</TABLE>
3. Inventories consisted of the following at September 30, 1997 and
December 31,1996.
<TABLE>
<CAPTION>
(Unaudited)
Sept 30, December 31
1997 1996
<S> <C> <C>
Raw Material $1,159,128 $1,930,834
Work in Progress 227,407 294,576
Finished Goods 401,239 587,788
Other 98,949 50,137
-------------------------
$1,886,723 $2,863,335
=========================
</TABLE>
4. New accounting pronouncements
During February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards SFAS No. 128,
"Earnings per Share" , which will require a change in how the Company
calculates earnings per share. This statement is effective for
financial statements issued for periods after December 15, 1997, with
earlier application not permitted. The statement requires a dual
presentation of basic and diluted earnings per share on the statements
of income. Had the earnings per share calculation been applied on a
basis consistent with the provisions of SFAS No. 128, basic and
diluted earnings per share would be equivalent to the amounts reported
in the statements of income.
In June 1997, FASB issued SFAS No. 130, Reporting Comprehensive
Income", which requires the separate reporting of all changes to
Stockholders' Equity, and SFAS No. 131, " Disclosures About Segments
of an Enterprise and Related Information", which revises existing
guidelines about the level of financial disclosure of a Company's
operations. Both statements are effective for financial statements
issued after December 15, 1997. The Company has not determined the
impact of the new standards, but does not expect them to make a
material impact to existing financial reporting.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 200,039
<SECURITIES> 0
<RECEIVABLES> 2,426,204
<ALLOWANCES> 0
<INVENTORY> 1,886,723
<CURRENT-ASSETS> 4,919,799
<PP&E> 1,614,976
<DEPRECIATION> 789,443
<TOTAL-ASSETS> 5,768,845
<CURRENT-LIABILITIES> 2,648,641
<BONDS> 423,450
0
0
<COMMON> 2,273,015
<OTHER-SE> 369,595
<TOTAL-LIABILITY-AND-EQUITY> 5,768,845
<SALES> 9,994,590
<TOTAL-REVENUES> 9,994,590
<CGS> 5,827,823
<TOTAL-COSTS> 3,408,078
<OTHER-EXPENSES> 44,787
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 141,669
<INCOME-PRETAX> 146,714
<INCOME-TAX> 235,709
<INCOME-CONTINUING> 336,524
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 336,524
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
