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 March 27, 1999
[ ] 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 5,061,123 shares of Common Stock of the issuer outstanding as of
April 30, 1999.
Transitional Small Business Disclosure Format: Yes No X
----- -----
PART I
ITEM 1. FINANCIAL STATEMENTS
Unaudited financial statements of the Company appear beginning at page F-1
below, and are incorporated herin by reference. These financial statements
include all adjustments that, 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 Three Months Ended March 27, 1999:
For the three months ended March 27, 1999, sales increased 24% to
$4,409,063 compared to sales in the first quarter of 1998 of $3,537,314.
Sales of fuel management systems (FMS) products grew by 22% in the first
quarter of 1999, as compared to the same period in 1998. The increase in
sales resulted from shipping a record backlog carried through year-end 1998
as well as new first quarter 1999 bookings that increased 12% when compared
to the same period in 1998. As previously reported, the robust business
of the second half of 1998 resulted from strong new construction activity,
a successful new product, namely the 1001/2001 automatic tank gauge (ATG),
and numerous customer programs to automate leak detection systems to
meet the EPA mandated December 22, 1998 compliance deadline. In addition,
shipments to a single OEM customer of a digital probe were $125,000 higher
in the first quarter 1999 than in the same period of 1998.
Sales of power utility/predictive maintenance products increased by 45% in
the first quarter of 1999 as compared to the first quarter of 1998.
Bookings increased by 13% compared to the first three months of 1998 and a
significant portion of the first quarter shipments were from the year-end
1998 backlog.
Gross margins improved to 55.8% in the first quarter of 1999, as compared
to 43.7% for the same period in 1998. The improvement in gross margin is
attributable to material purchase price improvements, manufacturing volume
efficiencies, and favorable product mix. Margins for first quarter of 1998
were adversely affected by a $592,000 shipment to Chinese Petroleum, at
reduced margin so the true gross margin improvement, although still quite
strong, is somewhat overstated on a directly comparable basis.
Operating expenses increased 8.7% overall in the first three months of
1999, compared to the same period in 1998. This increase was primarily due
to additional investment in the sales and marketing department as well as
R & D.
Net income increased twelve-fold from $36,972 in the first quarter of 1998,
to $505,057 in the first quarter of 1999. The increase is primarily due to
increased sales volume and higher gross margins. With a significant cash
balance and reduced debt as compared to 1998, the Company earned
significant interest income while having very small interest expense. The
combined effect of these working capital changes created an increase to
pretax income of $65,109.
Liquidity and Capital Resources at March 27, 1999:
As of March 27, 1999 the Company had $4.5 million in cash and 100%
availability on its $3.5 million dollar line of credit. The Company
expects that current resources will be sufficient to finance the Company's
operating needs through the end of 1999.
Year 2000 Issues
Except as stated below, the Company's Y2K compliance status remains
essentially unchanged from that reported in our Form 10-KSB for the fiscal
year ended December 26, 1998.
The total cost of the Company's Y2K compliance efforts through March 27,
1999 is estimated at $12,000. The aggregate projected costs for 1999
(including costs incurred in the first quarter) are $18,000.
This discussion of Y2K issues contains forward-looking statements, as
defined in Section 21E of the Securities Exchange Act of 1934. Examples of
such statements include estimates of completion dates for evaluation of
systems and estimates of costs associated with Y2K compliance efforts. The
Company cautions investors that numerous factors could cause actual results
to differ materially from those reflected in such forward-looking
statements including, but not limited to, the following: unanticipated
problems with IT systems that vendors have represented as Y2K compliant,
unanticipated customer or distributor resistance to INCON plans for
addressing Y2K issues on the Model TS-1001/2001 ATGs, or unanticipated
problems in the field with installed INCON products believed to be Y2K
compliant.
PART II
ITEM 1. LEGAL PROCEEDINGS
On April 21, 1999 the Company received notice of the filing of an action
entitled Omega Environmental, Inc. v. INCON International, Inc. in United
States Bankruptcy Court for the Western District of Washington. The action
was brought by Omega Environmental, Inc. for avoidance and recovery of
approximately $60,000 in alleged preferential transfers under 11 U.S.C.
Sections 547 and 550. The Company is currently evaluating the validity of
this claim.
ITEM 5. OTHER INFORMATION
During the first quarter 1999 the Company fully released System Sentinel
Software, Version 1.0. This software product allows operators of multiple
petroleum distribution facilities to remotely poll fuel inventory levels
and monitor tanks for leaks from one or more centrally located computers.
An ISO 9001 quality review was completed in March 1999, and NTS (National
Testing Service), an outside auditing organization, recommended the
Company be certified for ISO 9001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
An index of the exhibits filed with this report appears beginning at page
E-1 below, and is incorporated herein by reference. No reports on Form 8-K
were filed during the prior fiscal quarter.
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/ Andrew B. Clement
---------------------
Andrew B. Clement, Controller
(on behalf of the Company and as
Date: May 11, 1999 principal financial officer)
Index to Exhibits
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
INTELLIGENT CONTROLS, INC.
We have reviewed the accompanying balance sheet of Intelligent Controls,
Inc. as of March 27, 1999, and the related statements of income and cash
flows for the three month periods ended March 27, 1999 and March 28, 1998.
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 the 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 consolidated financial statements for the year ended December 26,
1998 (not presented herein). In our opinion, the information set forth in
the accompanying balance sheet as of December 26, 1998 is fairly stated in
all material 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 PricewaterhouseCoopers L.L.P.
- -------------------------------------
Portland, Maine
April 8, 1999
INTELLIGENT CONTROLS, INC.
BALANCE SHEETS
ASSETS
-------
<TABLE>
<CAPTION>
(unaudited)
March 27 December 26
1999 1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,520,264 $ 4,202,084
Accounts receivable, net of allowance of
$215,000 in 1999 and $170,000 in 1998 2,791,487 3,253,477
Inventories (Note 4) 1,570,395 1,320,913
Prepaid expenses and other 131,392 127,425
Deferred income taxes 343,520 343,520
--------------------------
Total current assets 9,357,058 9,247,419
Property and equipment, net (Note 3) 873,537 889,748
Other assets 32,513 31,611
--------------------------
$10,263,108 $10,168,778
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Income taxes payable $ 221,117 $ 299,269
Accounts payable 889,247 1,007,400
Accrued expenses 1,043,607 1,144,682
Current portion of long-term debt 194,000 194,000
--------------------------
Total current liabilities 2,347,971 2,645,351
Long-term debt, net of current portion 100,061 140,279
Deferred taxes 76,740 76,740
Stockholders' equity:
Common stock, no par value; 8,000,000 shares
authorized; 5,061,123 issued in 1999
and 5,060,760 in 1998 7,585,534 7,585,080
Retained earnings 1,644,253 1,139,196
Receivable from stockholder (1,395,082) (1,376,728)
Treasury stock, 136,951 shares in 1999 and
115,951 shares in 1998 (96,369) (41,140)
--------------------------
7,738,336 7,306,408
--------------------------
$10,263,108 $10,168,778
==========================
</TABLE>
The accompanying notes are an integral part of the financial statements
INTELLIGENT CONTROLS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
(unaudited) (unaudited)
March 27 March 28
1999 1998
<S> <C> <C>
Net sales $4,409,063 $3,537,314
Cost of sales 1,947,442 1,992,464
-------------------------
2,461,621 1,544,850
Operating expenses:
Selling, general and administrative 1,391,160 1,191,186
Research and development 266,801 245,161
-------------------------
1,657,961 1,436,347
-------------------------
Operating income 803,660 108,503
Other income (expense):
Interest income (expense) 65,109 (17,024)
Other expense (26,712) (29,857)
-------------------------
38,397 (46,881)
-------------------------
Income before income tax expense 842,057 61,622
Income tax expense 337,000 24,650
-------------------------
Net income $ 505,057 $ 36,972
=========================
Net income per share basic and diluted: $ .10 $ .01
=========================
Weighted average number of
Common shares outstanding 4,928,637 3,289,336
=========================
Weighted average common and
Common equivalent shares outstanding 4,964,192 3,423,531
=========================
</TABLE>
The accompanying notes are an integral part of the financial statements
INTELLIGENT CONTROLS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
(unaudited) (unaudited)
March 27 March 28
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $ 505,057 $ 36,972
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 61,108 64,212
Loss on disposal of property, plant & equipment 398 -
Changes in assets and liabilities:
Accounts receivable 461,990 (680,707)
Inventories (249,482) 248,496
Prepaid expenses and other current assets (3,967) 33,072
Income taxes payable (78,152) -
Income taxes receivable - 24,650
Accounts payable and accrued expenses (219,228) (124,776)
Other assets (902) (784)
-------------------------
Net cash provided (used) by operating activities 476,822 (398,865)
Cash flows from investing activities:
Purchases of equipment and leasehold
improvements, net (45,295) (54,495)
-------------------------
Net cash (used) by investing activities (45,295) (54,495)
Cash flows from financing activities:
Increase in non-interest bearing overdraft - 302,093
Net borrowings on note payable - bank - 170,143
Repayment of long-term debt (40,218) (48,398)
Issuance of common stock 454 65,360
Acquisition of treasury stock (55,229) (12,500)
Increase in receivable from stockholder (18,354) (23,338)
-------------------------
Net cash (used) provided by financing activities (113,347) 453,360
-------------------------
Net increase in cash and cash equivalents 318,180 0
Cash and cash equivalents at beginning of year 4,202,084 300
-------------------------
Cash and cash equivalents at end of period $4,520,264 $ 300
=========================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 6,226 $ 29,857
=========================
Income taxes $ 415,152 $ -
=========================
</TABLE>
The accompanying notes are an integral part of the financial statements
INTELLIGENT CONTROLS, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. General
-------
The 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. The year-end balance sheet was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
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 for the fiscal year ended December 26, 1998.
2. Earnings Per Common Share
-------------------------
Basic earnings per share of common stock have been determined by
dividing net earnings by the weighted average number of shares of
common stock outstanding during the periods presented. Diluted
earnings per share reflect the potential dilution that would occur if
existing stock options were exercised. Following is a reconciliation
of the dual presentations of earnings per share for the periods
presented.
<TABLE>
<CAPTION>
Net Income Common Shares Earnings
(Numerator) (Denominator) Per Share
----------- ------------- ---------
March 27, 1999
--------------
<S> <C> <C> <C>
Basic earnings per share $505,057 4,928,637 $0.10
=====
Dilutive potential shares - 35,555
-------------------------
Diluted earnings per share $505,057 4,964,192 $0.10
====================================
<CAPTION>
March 28, 1998
--------------
<S> <C> <C> <C>
Basic earnings per share $ 36,972 3,289,336 $0.01
=====
Dilutive potential shares - 134,195
-------------------------
Diluted earnings per share $ 36,972 3,423,531 $0.01
====================================
</TABLE>
3. Property, Plant, and Equipment
------------------------------
Property, plant, and equipment, at cost,
<TABLE>
<CAPTION>
(Unaudited)
March 27 December 26
1999 1998
<S> <C> <C>
Leasehold improvements $ 154,344 $ 109,512
Equipment 1,248,423 1,217,932
Computer software 169,176 169,176
Furniture and fixtures 178,659 102,874
Construction in progress 0 105,813
------------------------
1,750,602 1,705,307
Less accumulated depreciation and amortization 877,065 815,559
------------------------
$ 873,537 $ 889,748
========================
</TABLE>
4. Inventories consisted of the following at March 27, 1999 and December
26, 1998.
<TABLE>
<CAPTION>
(Unaudited)
March 27 December 26
1999 1998
<S> <C> <C>
Raw Material $ 989,573 $ 960,552
Work in Progress 302,039 167,512
Finished Goods 273,782 187,849
Other 5,000 5,000
-------------------------
$1,570,395 $1,320,913
=========================
</TABLE>
5. Legal Proceedings
-----------------
On April 21, 1999 the Company received notice of the filing of an
action entitled Omega Environmental, Inc. v. INCON International, Inc.
in United States Bankruptcy Court for the Western District of
Washington. The action was brought by Omega Environmental, Inc. for
avoidance and recovery of approximately $60,000 of alleged preferential
transfers under 11 U.S.C. Sections 547 and 550. The Company is currently
evaluating the validity of this claim, therefore nothing has been accrued
at this time.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-END> MAR-27-1999
<CASH> 4,520,264
<SECURITIES> 0
<RECEIVABLES> 3,006,105
<ALLOWANCES> 214,618
<INVENTORY> 1,570,395
<CURRENT-ASSETS> 9,357,058
<PP&E> 1,750,602
<DEPRECIATION> 877,065
<TOTAL-ASSETS> 10,263,108
<CURRENT-LIABILITIES> 2,347,971
<BONDS> 100,061
0
0
<COMMON> 7,585,534
<OTHER-SE> 152,802
<TOTAL-LIABILITY-AND-EQUITY> 10,263,108
<SALES> 4,409,063
<TOTAL-REVENUES> 4,409,063
<CGS> 1,947,442
<TOTAL-COSTS> 3,605,403
<OTHER-EXPENSES> 26,712
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,226
<INCOME-PRETAX> 842,057
<INCOME-TAX> 337,000
<INCOME-CONTINUING> 505,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 505,057
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
