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 April 1, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 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 4,739,399 shares of Common Stock of the issuer outstanding as of
April 30, 2000.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
PART I
ITEM 1. FINANCIAL STATEMENTS
Unaudited financial statements of the Intelligent Controls, Inc. (the
"Company" or "INCON") appear after the signature page hereto, and are
incorporated herein 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 April 1, 2000:
For the three months ended April 1, 2000, sales decreased 43% to $2,498,317
compared to sales of $4,409,063 in the first three months of 1999. The
decrease in revenue was primarily caused by a continued slowdown in sales
of the Company's Fuel Management Systems (FMS) products.
Sales of FMS products decreased 55%, to $1,765,797, for the first quarter
of 2000 as compared to the first quarter of 1999. The decrease is believed
to reflect an overall reduction in petroleum equipment purchases,
particularly sales through distributors. Sales for the first quarter of
1999 were very strong following record new orders during the second half of
1998. This late 1998 activity was spurred by increased demand from
customers seeking to install automatic leak detection systems to meet the
EPA-mandated December 22, 1998 compliance deadline.
Sales of power utility/predictive maintenance instruments increased 60% to
$732,520 for the first three months of 2000 as compared the first three
months of 1999. A sale of $150,000 to one customer contributed to this
first quarter growth. The Company believes that electrical deregulation and
growth in demand have led power utilities to recognize the advantages of
remote monitoring of their power transmission and distribution
infrastructure, utilizing the Company's circuit breaker monitors and load
tap position indication products.
Gross margins declined to 49% in the first quarter of 2000 as compared to
56% for the first quarter of 1999. The decline in gross margin was
primarily due to the reduction in sales volume resulting in production
inefficiencies. Although the Company has taken steps to control overhead
spending and has adjusted overall manufacturing expenses to better align
with lower manufacturing volumes, inefficiencies have still adversely
affected gross margin.
Operating expenses decreased 26%, or approximately $435,000, in the first
quarter of 2000 as compared to the same period in 1999. Approximately one-
half of the decrease results from lower sales commissions on reduced sales
volume. Administrative and sales/marketing expenses also declined by 28%,
while investment in research and development was 23% higher than in the
first quarter of 1999.
Net income decreased from $505,057 in the first three months of 1999, to
$28,906 in the first three months of 2000. The decrease was primarily due
to decreased sales volumes and lower gross margin contribution. Reductions
in SG & A and manufacturing spending enabled the Company to remain slightly
profitable despite declining sales. The Company also continues to have low
debt and significant interest income from its strong cash balance, which
contributed $58,000 to pretax profits.
Liquidity and Capital Resources at April 1, 2000:
As of April 1, 2000 the Company had $4,594,044 in cash and 100%
availability on its $3,500,000 line of credit. The Company expects that
current resources will be sufficient to finance the Company's operating
needs for at least the next 12 months.
Year 2000 Issues
Year 2000 (Y2K) issues arise from the inability of some computer-based
systems to properly recognize and process dates after December 31, 1999.
The Company has not had to spend any additional money on Y2K compliance in
the first quarter of 2000. The total cost of the Company's Y2K compliance
effort has been approximately $80,000. The Company does not expect to
incur any significant additional costs to address Y2K issues beyond what
has already been incurred.
Forward-Looking Statements
The "Management's Discussion and Analysis" section of this report contains
forward-looking statements, as defined in Section 21E of the Securities
Exchange Act of 1934. Examples of such statements in this report include
those relating to estimates of future market demand and trends regarding
Petroleum and Power Utility/Predictive Maintenance products, future
adequacy of the Company's capital resources, and expected costs of Y2K
compliance efforts. The Company cautions investors that numerous factors
could cause actual results and business conditions to differ materially
from those reflected in such forward-looking statements including, but not
limited to, the following: unanticipated shifts in market demand for FMS
products or Power Utility/Predictive Maintenance products, owing to
competition, regulatory changes, or changes in the overall economy;
competitive pressures on sales margins for INCON products; unanticipated
warranty costs from existing products or newly introduced products;
unexpected costs associated with Y2K issues; and risks attendant to
expansion of the Company's business through increased investment in product
development, increased marketing and sales efforts, and future
acquisitions.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
An index of the exhibits filed with this report appears 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.
Date: May 15, 2000 By: /s/ Andrew B. Clement
-------------------------------
Andrew B. Clement, Controller
(on behalf of the Company and as
principal financial officer)
INTELLIGENT CONTROLS, INC.
BALANCE SHEETS
As of April 1, 2000 and December 31, 1999
<TABLE>
<CAPTION>
(unaudited)
2000 1999
----------- -----------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,594,044 $ 4,980,805
Accounts receivable, net of allowances of
$122,000 in 2000 and $105,000 in 1999 1,807,240 1,488,414
Inventories (Note 4) 1,053,036 1,054,625
Prepaid expenses and other current assets 95,501 89,976
Income taxes receivable 82,648 105,292
Deferred income taxes 209,799 209,799
----------------------------
Total current assets 7,842,268 7,928,911
Property and equipment, net (Note 3) 700,768 753,604
Other assets 36,528 36,033
----------------------------
Total assets $ 8,579,564 $ 8,718,548
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 387,359 $ 461,560
Accrued expenses 531,953 585,424
Current portion of long-term debt 133,189 160,872
----------------------------
Total current liabilities 1,052,501 1,207,856
Long-term debt, net of current portion 12,535
Deferred income taxes 49,709 49,709
Commitments
Stockholders' equity:
Common stock, no par value; 8,000,000 shares
authorized 5,061,123 shares issued at
April 1, 2000 and at December 31, 1999 7,606,818 7,585,534
Retained earnings 1,966,180 1,937,274
Receivable from stockholder (1,484,988) (1,463,704)
Treasury stock, 321,724 shares at
April 1, 2000 and at December 31, 1999 (610,656) (610,656)
----------------------------
Total stockholders' equity 7,477,354 7,448,448
----------------------------
Total liabilities and stockholders'
equity $ 8,579,564 $ 8,718,548
============================
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE> F-1
INTELLIGENT CONTROLS, INC.
STATEMENTS OF INCOME (unaudited)
For the Three Month Periods Ended April 1, 2000 and March 27, 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net sales $2,498,317 $4,409,063
Cost of sales 1,266,886 1,947,442
--------------------------
Gross profit 1,231,431 2,461,621
Operating expenses:
Selling, general and administrative 894,320 1,391,160
Research and development 328,889 266,801
--------------------------
1,223,209 1,657,961
--------------------------
Operating income 8,222 803,660
Other income (expense)
Interest Income 58,600 65,109
Other (expense) (18,416) (26,712)
--------------------------
40,184 38,397
--------------------------
Income before income tax expense 48,406 842,057
Income tax expense 19,500 337,000
--------------------------
Net income $ 28,906 $ 505,057
==========================
Net income per share basic and diluted (Note 2) $ 0.01 $ 0.10
==========================
Weighted average common shares outstanding
(Note 2) 4,739,399 4,928,637
==========================
Weighted average common and common equivalent
shares outstanding (Note 2) 4,751,040 4,964,192
==========================
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE> F-2
INTELLIGENT CONTROLS, INC.
STATEMENTS OF CASH FLOWS (unaudited)
For the Three Month Periods Ended April 1, 2000 and March 27, 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 28,906 $ 505,057
Adjustments to reconcile net income to net cash
(Used) provided by operating activities:
Depreciation and amortization 82,241 61,108
Interest on receivable to stockholder (21,284) (18,354)
Loss on disposal of property plant & equipment 398
Changes in assets and liabilities:
Accounts receivable, net (318,826) 461,990
Inventories 1,589 (249,482)
Prepaid expenses and other current assets (5,525) (3,967)
Income tax receivable 22,644
Income tax payable (78,152)
Accounts payable and accrued expenses (127,672) (219,228)
Other assets (495) (902)
--------------------------
Net cash (used) provided by operating activities (338,422) 458,468
--------------------------
Cash flows from investing activities:
Capital expenditures (29,405) (45,295)
--------------------------
Net cash used by investing activities (29,405) (45,295)
--------------------------
Cash flows from financing activities:
Repayment of long-term debt (40,218) (40,218)
Issuance of common stock, net 21,284 454
Acquisition of treasury stock (55,229)
--------------------------
Net cash used by financing activities (18,934) (94,993)
--------------------------
Net increase (decrease) in cash (386,761) 318,180
Cash and cash equivalents at beginning of period 4,980,805 4,202,084
--------------------------
Cash and cash equivalents at end of period $4,594,044 $4,520,264
==========================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,487 $ 6,226
Income taxes $ 415,152
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE> F-3
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
Form 10-KSB for the fiscal year ended December 31, 1999.
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
----------- ------------- ---------
<S> <C> <C> <C>
Three Months Ended April 1, 2000
- --------------------------------
Basic earnings per share $ 28,906 4,739,399 $0.01
Dilutive potential shares 11,641
-----------------------------------------
Diluted earnings per share $ 28,906 4,751,040 $0.01
=========================================
Three Months Ended March 27, 1999
- ---------------------------------
Basic earnings per share $505,057 4,928,637 $ .10
Dilutive potential shares 35,555
-----------------------------------------
Diluted earnings per share $505,057 4,964,192 $ .10
=========================================
</TABLE>
<PAGE> F-4
3. Property and Equipment
Property and equipment at cost as of April 1, 2000 and December 31,
1999 consisted of the following:
<TABLE>
<CAPTION>
(Unaudited)
2000 1999
----------- ----
<S> <C> <C>
Leasehold improvements $ 154,344 $ 154,344
Equipment 1,290,320 1,269,015
Computer software 196,178 187,144
Furniture and fixtures 191,636 191,637
Construction in progress 15,428 16,361
--------------------------
1,847,906 1,818,501
Less accumulated depreciation and amortization 1,147,138 1,064,897
--------------------------
$ 700,768 $ 753,604
==========================
</TABLE>
4. Inventories
Inventories as of April 1, 2000 and December 31, 1999 consisted of the
following:
<TABLE>
<CAPTION>
(Unaudited)
2000 1999
---------- ----
<S> <C> <C>
Raw Material $ 576,281 $ 549,801
Work in Progress 131,060 155,853
Finished Goods 345,695 348,971
--------------------------
$1,053,036 $1,054,625
==========================
</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 payments that Omega had made to the Company for
INCON products, as alleged preferential transfers. The Company is contesting
the validity of this claim.
Q&E LLC (a convenience store/retail petroleum operator) has filed suit
against the Company and PEMCO Service Company, Inc. for damages allegedly
arising in connection with a petroleum spill. The damages claimed are
$1,000,000. The Company's insurance carrier has assumed defense of the
claim, and is in the process of evaluating the claim.
6. New Accounting Pronouncements
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 "SAB
101" "Revenue Recognition in Financial Statements". SAB 101 summarizes
certain of the SEC's views in applying generally accepted accounting
principals to revenue recognition in financial statements. The Company is
required to adopt SAB 101 in the second quarter of 2000. Management does
not expect the adoption of SAB 101 to have a material effect on the
Company's financial condition or results of operations.
<PAGE> F-5
Index to Exhibits
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> APR-01-2000
<CASH> 4,594,044
<SECURITIES> 0
<RECEIVABLES> 1,807,240
<ALLOWANCES> 121,932
<INVENTORY> 1,053,036
<CURRENT-ASSETS> 7,842,268
<PP&E> 1,847,906
<DEPRECIATION> 1,147,138
<TOTAL-ASSETS> 8,579,564
<CURRENT-LIABILITIES> 1,052,501
<BONDS> 0
0
0
<COMMON> 7,606,818
<OTHER-SE> (129,464)
<TOTAL-LIABILITY-AND-EQUITY> 8,579,564
<SALES> 2,498,317
<TOTAL-REVENUES> 2,498,317
<CGS> 1,266,886
<TOTAL-COSTS> 2,490,095
<OTHER-EXPENSES> 18,416
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (58,600)
<INCOME-PRETAX> 48,406
<INCOME-TAX> 19,500
<INCOME-CONTINUING> 28,906
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,906
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
