<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
[X] Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended JUNE 30, 1996
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Commission file number 1-10790
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INDUSTRIAL TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 04-2596252
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification Number
One Trefoil Drive, Trumbull, CT 06611
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(Address of Principal Executive Offices) (Zip Code)
(203) 268-8000
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(Issuer's Telephone Number, including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d)of the Securities Exchange Act of 1934 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 .
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As of June 30, 1996, the registrant had outstanding 5,368,298 shares of
Common Stock, $.01 par value.
Transitional Small Business Disclosure Format.
Yes No X .
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<PAGE>
INDEX
INDUSTRIAL TECHNOLOGIES, INC.
Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) 3-6
Consolidated Balance Sheets,
June 30, 1996, and September 30, 1995 3
Consolidated Statements of Operations, Three
Months and Nine Months Ended, June 30, 1996,
and 1995 4
Consolidated Statements of Cash Flows, Nine
Months Ended June 30, 1996, and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on 8-K 9
SIGNATURES 10
<PAGE>
PART I - FINANCIAL INFORMATION
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
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(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 205,984 $ 214,448
Trade accounts receivable, less allowance for doubtful
accounts of $33,977 in fiscal 1996 and $41,864 in fiscal 1995 1,607,203 2,080,270
Inventories 1,823,901 1,806,893
Prepaid expenses and other current assets 131,992 65,711
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Total current assets 3,769,080 4,167,322
Property and equipment, net 73,482 38,682
Intangible and other assets, net 70,451 69,364
Costs in excess of net assets of business acquired 3,343,646 3,574,242
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Total assets $ 7,256,659 $ 7,849,610
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 525,776 $ 659,462
Current portion of long-term debt 18,500 74,000
Accounts payable 1,026,432 769,348
Accrued expenses 952,405 884,608
Warranty and installation costs 280,699 396,360
Deferred revenue and customer deposits 264,719 217,416
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Total current liabilities 3,068,531 3,001,194
Long-term debt 0 180,000
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Total liabilities 3,068,531 3,181,194
Stockholders' equity:
Common stock, $.01 par value. Authorized 14,000,000
shares; issued and outstanding 5,368,298 shares in
fiscal 1996 and 5,218,298 shares in fiscal 1995 53,682 52,182
Additional paid-in capital 13,062,904 13,194,272
Accumulated deficit (8,928,458) (8,578,038)
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Total stockholders' equity 4,188,128 4,668,416
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Total liabilities and stockholders' equity $ 7,256,659 $ 7,849,610
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</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
3
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INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
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June 30, June 30, June 30, June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 1,753,429 $ 2,159,990 $ 5,107,854 $ 6,714,177
Cost of goods sold 969,019 1,152,050 2,637,976 3,753,805
------------ ------------ ------------ ------------
Gross profit 784,410 1,007,940 2,469,878 2,960,372
Operating expenses:
Selling 319,012 466,173 1,060,481 1,372,834
General and administrative 383,671 241,818 1,102,049 680,524
Engineering 136,787 102,820 350,265 302,081
Amortization of costs in excess of
net assets of business acquired 76,865 76,865 230,596 230,596
------------ ------------ ------------ ------------
Total operating expenses 916,335 887,676 2,743,391 2,586,035
------------ ------------ ------------ ------------
Operating income (loss) (131,925) 120,264 (273,513) 374,337
------------ ------------ ------------ ------------
Interest income (expense), net (21,417) (36,405) (76,907) (104,441)
Other income (expense), net 0 (46,180) 0 (76,218)
------------ ------------ ------------ ------------
Total other income (expense) (21,417) (82,585) (76,907) (180,659)
Net income (loss) $ (153,342) $ 37,679 $ (350,420) $ 193,678
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Income/ (loss) per share $ (0.03) $ 0.01 $ (0.07) $ 0.06
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average common shares outstanding 5,233,298 3,480,798 5,233,298 3,480,798
------------ ------------ ------------ ------------
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</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
4
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
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June 30, June 30,
1996 1995
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(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (350,420) $ 193,678
Adjustment to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation 856 90,953
Amortization of costs in excess of net assets
of business acquired 230,596 230,596
Changes in assets and liabilities:
Trade accounts receivable 473,067 (507,656)
Inventories (17,008) 671,122
Prepaid expenses and other current assets (66,281) (4,380)
Accounts payable 257,084 (766,876)
Accrued expenses 67,797 (303,110)
Warranty and installation costs (115,661) 108,856
Deferred revenue and customer deposits 47,303 (452,811)
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Net cash provided by (used for) operating activities 527,333 (739,628)
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Cash flows from investing activities:
Capitalization of product software (35,656) 0
Other (1,087) 0
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Net cash used for investing activities (36,743) 0
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Cash flows from financing activities:
Net payments on revolving financing agreement (513,686) 0
Payments on notes payable to bank 0 (325,000)
Proceeds from notes payable 200,000 0
Payments on notes payable (55,500) (61,666)
Proceeds (costs) from issuance of common stock, net of costs (129,868) 1,303,552
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Net cash (used for) from financing activities (499,054) 916,886
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Net increase (decrease) in cash and cash equivalents (8,464) 177,258
Cash and cash equivalents at beginning of period: 214,448 181,148
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Cash and cash equivalents at end of period: $ 205,984 $ 358,406
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----------------- -----------------
Supplemental disclosures of cash flow information
Cash paid during period for:
Interest $ 69,338 $ 106,056
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</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
5
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. NATURE OF BUSINESS
Industrial Technologies, Inc., ("INTEC"), is a leading manufacturer of
advanced sensing, monitoring, computer processing, and inspection technologies
used in diverse industrial manufacturing and other applications. INTEC's
specialized product and technology divisions are directed to the common mission
of developing and implementing leading-edge products and technologies for the
improvement of manufacturing productivity and quality.
INTEC instruments, computers and turnkey systems are designed and
manufactured to meet the diverse needs and demanding conditions found in process
measurement and control applications. INTEC serves its clients in a broad range
of industries ranging from aerospace, communications and industrial equipment
suppliers to specialized web process manufacturers in the paper, glass, steel,
film, photo-sensitives, aluminum, and rubber industries. INTEC's products and
systems are dedicated to improving manufacturing efficiencies and quality
required to maintain leadership in highly competitive global markets.
Note 2. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all necessary, normal and recurring adjustments
which are required to present fairly the financial position of the Company and
its subsidiary as of June 30, 1996, and the results of operations and cash flows
for the three months ended June 30, 1996 and June 30, 1995. Certain
information and footnote disclosures normally included in the annual financial
statements, which are prepared in accordance with generally accepted accounting
principles, have been condensed or omitted. Accordingly, the Company believes
that although the disclosures are adequate to make the information presented not
misleading, these financial statements should be read in conjunction with the
annual financial statements of the Company and notes thereto, contained in the
Company's Form 10-KSB, for the fiscal year ended September 30, 1995. The
results of operations for the three month period ended June 30, 1996, are not
necessarily indicative of those that may be expected for the full fiscal year.
Note 3. COMMITMENTS AND CONTINGENCIES
The Company has entered into employment agreements with certain
officers of the Company. The agreements are for terms ranging from one year to
five years and provide for a base salary and certain benefits which are
specified in each of the agreements. Each of the agreements also provide for
severance pay for termination under certain circumstances which are defined in
the agreements. The minimum annual commitments under the agreements are 1996
$353,000; 1997 $145,000; 1998 $145,000; and 1999 $36,250.
Intec Corp. is currently working with the Department of Environmental
Protection of the State of Connecticut (CT-DEP) to review, and to clear, all
adverse findings with respect to the Tetrachloroethylene Analysis performed in
May 1992. This analysis was performed in conjunction with the CT-DEP Property
Transfer Program. A follow-up analysis was made as recently as August 1995.
Although the levels of the contaminant have decreased substantially, they still
remain above acceptable levels. Appropriate methods are being employed to lower
these levels. Tests will continue until compliance levels have been met. The
Company has spent approximately $28,000 to date. The Company believes the
resolution of this matter will not have a material impact on the financial
position, results of operations and cash flows of the Company.
Note 4. INVENTORIES
The components of inventories are as follows:
June 30, 1996 September 30, 1995
------------------ ------------------
Raw materials and subassemblies net
of revenues $ 1,276,730 $1,229,082
Work in process 291,824 293,519
Finished goods 255,347 284,292
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$ 1,823,901 $1,806,893
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6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996, COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
The Company had net sales for the three months ended June 30, 1996 (the
current quarter), of $1,753,429 compared to $2,159,990 for the three months
ended June 30, 1995 (the prior year quarter). The decrease of $406,561
primarily reflects the shortfall of shipments for the current quarter due to
orders delayed until future periods.
The Company generated gross profits of $784,410 (45% of net sales) for the
current quarter compared to gross profits of $1,007,940 (47% of net sales) for
the prior year quarter. The decreased amount relates to the decrease in Company
sales, and the decrease of gross profit percentage is a result of product and
market mix.
Selling, general and administrative expenses for the current quarter were
$702,683 (40% of net sales) compared to $707,991 (33% of net sales) for the
prior year quarter. The shift of expenses from selling to general and
administrative was due to lower sales, fluctuations in product and market mix,
reclassification of certain expenses and adjustments to reserves in the prior
year quarter.
Engineering expenses for the current quarter were $136,787 compared to the
prior year quarter of $102,820. This increase reflects the addition of
strategic personnel to accelerate new product development.
Amortization of costs in excess of net assets of business acquired are the
same for the current and prior quarters and will continue to be so given the
remaining established life of the asset.
The Company had net interest expense of $21,417 for the current quarter
compared to $36,405 in the prior year quarter. This reduction is due to the
Company's entering into a revolving financing agreement to replace the existing
bank debt which resulted in a reduction in principal outstanding.
Other expenses for the current quarter have been reclassified to conform
with audited fiscal year end 1995 presentation.
The net loss of $153,342 in the current quarter compares to a profit of
$37,679 in the prior year quarter . The decrease in profitability is
substantially the result of decreased sales.
At July 15, 1996, the Company's backlog of customer orders was
approximately $2,400,000, compared to approximately $2,200,000 at June 30, 1995.
The increase over the levels of the prior year period is a positive trend and
management believes this will continue.
NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO NINE MONTHS ENDED JUNE 30, 1995
The Company had net sales for the nine months ended June 30, 1996, (the
current nine months), of $5,107,854 compared to $6,714,177 for the nine months
ended June 30, 1995, (the prior nine months). The decrease of $1,606,323
reflects the short fall of orders for the current nine months due to orders
delayed until future periods and the prior nine months included improved INTEC
sales specifically relating to Far East business.
The Company generated gross profits of $2,469,878 (48% of net sales) for
the current nine months compared to gross profits of $2,960,372 (44% of net
sales) for the prior nine months. The decreased amount related to the decrease
in Company sales, and the increased gross profit percentage is a result of
product and market mix.
Selling, general and administrative expenses for the current nine months
were $2,162,530 (42% of net sales) compared to $2,053,358 (31% of net sales) for
the prior nine months. This percentage increase and the shift of expenses from
selling to general and administrative was due to lower sales, fluctuations in
product and market mix, reclassification of certain expenses and adjustments to
reserves in the prior nine months.
Engineering expenses for the current nine months were $350,265 compared to
the prior nine months of $302,081. This increase reflects the addition of
strategic personnel to accelerate new product development.
7
<PAGE>
Amortization of costs in excess of net assets of business acquired are the
same for the first nine months of the current fiscal year and will continue to
be so given the remaining established life of the asset.
The Company had net interest expense of $76,907 for the first nine months
of the current fiscal year compared to $104,441 the first nine months of fiscal
1995. This reduction is due to the Company's entering into a revolving
financing agreement to replace the existing bank debt which resulted in a
reduction in principal outstanding.
Other expenses for the first nine months of the current fiscal year have
been reclassified to conform with audited fiscal year end 1995 presentation.
The net loss of $350,420 in the first nine months of the current fiscal
year compares to a profit of $193,678 for the first nine months of fiscal 1995.
The decrease in profitability is substantially the result of decreased sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity at June 30, 1996, consisted of
$205,984 of cash plus the borrowing power under the Company's revolving credit
loan agreement ("Loan Agreement") which provides a $2,000,000 revolving credit
loan at an annual interest rate of 15%. At June 30, 1996, the Company had
borrowed $145,776 under the Loan Agreement, and $212,829 of additional
borrowings were available. The Loan Agreement, which is a demand loan, provides
for domestic revolving credit through August 31, 1996. The agreement can be
extended for additional successive 12 month periods unless terminated by the
Company or the lender pursuant to provisions of the Loan Agreement. The Loan
Agreement contains certain restrictive covenants which include, among others,
covenants prohibiting the incurrence of additional indebtedness and the payment
of dividends, and also restrictions on fixed asset expenditures. The Company
was in compliance with all covenants at June 30, 1996.
By Loan Agreement ( "Loan Agreement No. 2") dated effective as of May 20,
1996, the Company borrowed $200,000 from a private source, at an annual interest
rate of 8%. Loan Agreement No. 2 provides for monthly interest only payments
with a lump sum principal payment on or prior to November 1, 1996. The lender
under Loan Agreement No. 2 subordinated its interest and rights to that of the
senior lender under the Loan Agreement. At June 30, 1996, the Company was in
compliance with all terms of Loan Agreement No. 2. At June 30, 1996, the
Company had a working capital of $ 700,549 compared to a working capital of
$1,166,128 at fiscal year end 1995. The decline in working capital was a result
of the net loss for the current nine months offset by non cash depreciation and
amortization expense and the reclassification of subordinated note payable to
stockholder to current liabilities.
The Company may require additional capital to finance current operations,
make enhancements to or expansions of its manufacturing capacity, in accordance
with its business strategy, or for additional working capital, for inventory and
accounts receivable. The Company may also seek additional funds through public
or private debt or through bank borrowings. No assurances can be given that
future financings will be available with terms acceptable to the Company.
Without such future financing, the Company's ability to finance its growth will
be severely limited.
CAPITAL EXPENDITURES
The Company does not have any material commitments for capital expenditures
at this time.
EFFECT OF INFLATION
The Company believes that inflation has not had a material effect on its
results of operation or financial condition during the last two fiscal years.
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not involved in any litigation which is not routine
and/or incidental to its business and would have a material impact on the
financial position of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Annual meeting held April 16, 1996
(b) Directors elected at the Meeting:
Gerald W. Stewart
Howard Davidoff
Eric H. Twerdahl
Tancred V. Schiavoni
(c) Other matters voted on:
Amendment to the 1991 Stock Incentive Plan to increase the
number of shares reserved under the Plan to a total of
520,000.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule.
(b) No reports on Form 8-K were filed by the registrant during
the third quarter ended June 30, 1996.
9
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INDUSTRIAL TECHNOLOGIES, INC.
Date: August 8, 1996 By: /s/ Joseph Schlig
-------------------------------------
Joseph Schlig, Chief Financial Officer,
Vice President and Secretary
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INDUSTRIAL
TECHNOLOGIES, INC.'S QUARTERLY REPORT TO STOCKHOLDERS FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 205,984
<SECURITIES> 0
<RECEIVABLES> 1,641,180
<ALLOWANCES> 33,977
<INVENTORY> 1,823,901
<CURRENT-ASSETS> 3,769,080
<PP&E> 73,482
<DEPRECIATION> 3,343,646
<TOTAL-ASSETS> 7,256,659
<CURRENT-LIABILITIES> 3,068,531
<BONDS> 0
53,682
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,256,659
<SALES> 5,107,854
<TOTAL-REVENUES> 5,107,854
<CGS> 2,637,976
<TOTAL-COSTS> 2,743,391
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76,907
<INCOME-PRETAX> (350,420)
<INCOME-TAX> 0
<INCOME-CONTINUING> (350,420)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (350,420)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> 0
</TABLE>
