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 June 30, 1996
[ ] 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 3,216,187 shares of Common Stock of the issuer
outstanding as of July 29, 1996.
Transitional Small Business Disclosure Format: Yes No
X
Page 1 of
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 Six Months Ended June 30, 1996
For the six months ended June 30, 1996 sales were $4.3
million a slight decrease from 1995's comparable period of
$4.5 million.
The lower sales were due to a 9% decrease in sales to $3.6
million in the Petroleum segment of the business. This was a
result of a softness in the market due to the cold winter
and our lateness with new products. Due to the success of
the Optimizer circuit breaker monitor, the Utility segment
grew 13% to $676,000 from 1995's comparable period. There
are now a number of large utilities evaluating the product
and Optimizer purchases are beginning to be budgeted for
1997. Management estimates that there are approximately 1.3
million circuit breakers in the world that the Optimizer can
fit on.
Gross margins for the first six months were 47.1% compared
to 47.4% for the same period in 1995. The quality problems
with existing products and lower sales contributed to the
unabsorbed overhead, which lowered margins in the first half
of 1996. Lower then anticipated sales, lateness of new
producs and quality problems have also contributed to a $1.0
million increase in inventories. Operating expenses grew 15%
from $1.8 million in 1995 to $2.1 million in 1996. The
growth was attributed to our continued increased investment
in new product development and increase in the warranty
reserve. In the second quarter the digital probe was
released for general sale and the Company is shipping
approximately 100 units per month. The line leak detector
continues to be shipped in a controlled release.
At the end of the second quarter the Company decided to
eliminate a number of positions which did not fit with the
longterm direction of the Company. In the third and fourth
quarter's of this year a number of key positions will be
created and filled. These positions will contribute to the
continued growth of the Company.
Liquidity and Capital Resources at June 30, 1996
As of June 30, 1996 the Company had $188,000 in cash and
$1,000,000 available to be borrowed on its $3.0 million
dollar line of credit. On April 15, 1996, the working
capital line of credit was increased to $3.0 million from
$2.0 million. To fund the $1,000,000 increase in inventories
and a $115,000 loss from operations, the Company increased
the days outstanding to trade creditors and borrowed
$600,000 on the working capital line of credit. Due to the
operating losses in the last three quarters, the Company is
out of compliance with its cash flow covenant. The required
covenant is 1.5 times and the Company is currently .12
times. The cash flow covenant is calculated as operating
cash flow divided by current portion of long term debt plus
interest. The Company's primary lender is aware of the
situation and has agreed to relax this covenant through the
fourth quarter of 1996, but has increased the rate the
Company borrows at to prime plus .25% from the current
borrowing rate of prime. The Company expects that current
resources will be sufficient to finance the Company's
operating needs through the end of 1996.
PART II
ITEM 1. LEGAL PROCEEDINGS
On July 26, 1996 the Company received notice of the filing
of an action entitled John D. Knight v Intelligent Controls,
Inc. in Maine Superior Court, Cumberland County. The action
is being brought by Mr. Knight, a former director and
executive officer of INCON whose employment was recently
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. The complaint further alleges that he
is entitled to $574,200 in statutory punitive damages, plus
attorneys' fees and costs. The Company believes that the
bonus arrangements called for in the 1986 agreement have
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 bonus payments due
to Mr. Knight were paid each year in accordance with the
substitute arrangements. The Company's management intends to
defend vigorously against this claim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
The Annual Meeting of Shareholders was held on June 4, 1996.
At the meeting, the following matters were voted upon by
shareholders. All matters were approved as indicated:
1. Establishing the number of directors at five and to elect
Alan Lukas, Charlton H. Ames, Nathaniel V. Henshaw, George
E. Hissong and Paul F. Walsh as directors.
Withheld
Authority
For For Total
Alan Lukas 2,485,124 1,600 2,486,724
Charlton Ames 2,485,124 1,600 2,486,724
Nathaniel Henshaw 2,483,724 3,000 2,486,724
George Hissong 2,485,724 1,600 2,486,724
Paul Walsh 2,484,624 2,100 2,486,724
2. Ratification of Coopers & Lybrand L.L.P. as independent
accountants to the Company for the year 1996.
For Against Abstain Total
2,482,124 3,600 1,000 2,486,724
3. Ratification of the amendment to the employee stock
purchase plan.
For Against Abstain Unvoted Total
2,459,816 3,100 21,050 2,758 2,486,724
ITEM 5. OTHER INFORMATION.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
No exhibits are being filed with this report. No reports on
Form 8-K were filed by the Company during the past fiscal
quarter.June 30, 1996
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:
Kenneth J. Burek, Vice
President
of Finance (on behalf of
the
Company and as principal
Date: August 13, 1996 financial officer)
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: August 13, 1996 financial officer)
INTELLIGENT CONTROLS, INC.
BALANCE SHEETS
(unaudited)
June 30
December 31
1996 1995
Current Assets:
Cash and cash equivalents $ 187,989 $ 225,518
Accounts receivable, net of allowance
for doubtful accounts of $50,350
in 1996 and $29,495 in 1995 1,708,311 1,952,846
Inventories 3,243,277 2,242,516
Prepaid expenses and other 244,134 296,321
Deferred income taxes 211,062 126,300
--------- ---------
Total current assets 5,594,773 4,843,501
Property, Plant, and Equipment, net 896,798 858,752
Other assets 16,182 13,825
---------- ----------
$6,507,753 $5,716,078
========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Note payable - bank $1,963,572 $1,362,647
Accounts Payable 754,270 446,840
Accrued expenses 493,239 443,366
Accrued income taxes - 51,068
Current portion of long-term debt 160,500 160,500
--------- ---------
Total current liabilities 3,371,581 2,464,421
Long-term debt, net of current portion 535,746 535,677
Deferred taxes 45,750 45,750
Stockholders' Equity
Common stock, no par value;
5,000,000 shares authorized;
3,218,340 issued in 1996 and
3,215,590 in 1995 2,221,352 2,221,352
Retained earnings 337,630 453,184
Less: Treasury stock, 2,153 shares
at cost in 1996 and 2,153 shares
at cost in 1995 (4,306) (4,306)
--------- ---------
2,554,676 2,670,230
---------- ----------
$6,507,753 $5,716,078
========== ==========
See accompanying notes
F-2
INTELLIGENT CONTROLS, INC.
STATEMENTS OF INCOME (unaudited)
Three Months Ended Six
Months Ended
June 30 June 30 June 30 June 30
1996 1995 1996 1995
Net sales $2,286,432 $2,430,042 $4,269,686 $4,545,318
Cost of sales 1,221,899 1,295,392 2,256,943 2,391,696
--------- --------- --------- ---------
1,064,533 1,134,650 2,012,743 2,153,622
Operating expenses:
Selling, general
administrative 839,218 763,910 1,633,515 1,451,309
Research and
development 238,131 217,052 484,856 384,153
--------- -------- --------- ---------
1,077,349 980,962 2,118,371 1,835,462
Operating income
(loss) (12,816) 153,688 (105,628) 318,160
Other income (expense):
Interest expense (44,252) (21,269) (78,092) (28,957)
Other income
(expenses) (18,964) 9,819 (12,664) 2,762
---------- --------- --------- ---------
(63,216) (11,450) (90,756) (26,195)
---------- --------- --------- ---------
Income (loss)
before income tax
expense (76,032) 142,238 (196,384) 291,965
Income tax expense
(benefit) (29,876) 62,305 (80,830) 121,836
---------- --------- ----------- ----------
Net income (loss)
after tax $ (46,156) $ 79,933 $ (115,554) $ 170,129
Earnings per share:
Net Income (loss) ($.01) $.02 ($.03) $.05
Weighted average
number of common
shares outstanding 3,366,617 3,519,125 3,366,617 3,519,125
See accompanying notes.
INTELLIGENT CONTROLS, INC.
STATEMENT OF CASH FLOWS (unaudited)
Six Months Ended
June 30 June 30
1996 1995
Cash flows from operating activities
Net Income $ (115,554) $170,129
Adjustments to reconcile net income to net cash
(used) by operating activities:
Depreciation and amortization 101,714 58,483
Changes in assets and liabilities:
Accounts receivable 244,535 (243,779)
Inventories (1,000,761) (421,545)
Prepaid expenses and other (32,575) (83,063)
Accounts payable and accrued expenses 357,303 151,769
Accrued income taxes (51,068) 18,065
Other (2,357) (3,288)
--------- ---------
Net cash (used) by operating activities (498,763) (353,229)
Cash flows from investing activities:
Purchases of equipment and leasehold
improvements, net (139,760) (243,778)
--------- ---------
Net cash (used) by investing activities (139,760) (243,778)
Cash flows from financing activities:
Net borrowings on note payable - bank 600,925 238,111
Net borrowings of long-term debt 69 74,698
Issuance of common stock, net --- 5,139
Sale of treasury stock --- 8,378
Net cash provided by financing activities 600,994 326,326
--------- ---------
Net increase (decrease) in cash (37,529) (270,681)
Cash and cash equivalents at beginning of year 225,518 501,662
--------- ----------
Cash and cash equivalents at end of period $ 187,989 $ 230,981
========= ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 78,092 $ 28,957
Income taxes $ 55,000 $ 103,771
See accompanying notes.
F-4
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 principals
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,
(Unaudited) December
June 30 31
1996 1995
Leasehold improvements $ 105,442 $ 104,503
Equipment 1,054,968 933,658
Software 119,554 103,164
Furniture and Fixtures 120,087 118,966
---------- ----------
1,400,051 1,268,291
Less accumulated depreciation and
amortization (503,253) (401,539)
---------- ----------
$ 896,798 $ 858,752
========== ==========
F-4
3. Inventories consisted of the following at June 30, 1996
and December 31,1995.
(Unaudited) December
June 30 31
1996 1995
Raw Material $ 2,038,064 $ 1,509,821
Work in Progress 394,210 176,130
Finished Goods 706,657 470,051
Other 104,346 86,514
----------- ----------
$ 3,243,277 2,242,516
=========== ==========