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, 2001
[ ] 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
June 30, 2001.
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 Six Months Ended June 30, 2001:
For the six months ended June 30, 2001, sales increased 1% to $4,820,897
compared to sales of $4,777,818 for the same period in 2000. The increase
in sales is due to higher Fuel Management Systems (FMS) revenue, despite a
decrease in Power Reliability Systems (PRS) revenue.
FMS sales for the first six months of 2001 were $3,790,344, an increase of
8% over the $3,505,458 of FMS sales for the same period in 2000. The
Company has seen growing success marketing to large end-use customers such
as convenience store chains and supermarkets that sell gasoline. These
customers represent an increasingly large part of the Company's FMS sales
revenue as more and more designate INCON as an approved supplier.
PRS sales for the first six months of 2001 were down 19%, to $1,030,553, as
compared to $1,272,360 for the same period in 2000. Although basic demand
for PRS was similar to the prior year, the Company has not shipped any
large orders in 2001. In 2000 the Company shipped a single $150,000 order
in the first quarter. The Company believes that expansions of distribution
substations has slowed, and accordingly does not expect to ship as many
large orders as was the case during 2000.
Gross margins were 52% for the first half of 2001, as compared to 49% for
the same period in 2000. Strong gross margins are the result of the
Company's continued efforts to control overhead spending and align
manufacturing expenses to current production volumes.
Overall operating expenses of $2,487,429 during the first six months of
2001 were 6% higher than for the same period in 2000. This increase is
largely attributed to legal expenses related to the two matters discussed
in Note 5 to the financial statements. The Company continues to invest in
sales/marketing and product development in amounts substantially consistent
with prior periods.
Net income increased from $57,140 in the first half of 2000, to $67,389 in
the first half of 2001. The increase is primarily due to stronger gross
margins, offset by slightly higher operating expenses. The Company
continues to have no debt. Interest income contributed $135,025 to pretax
profits.
Liquidity and Capital Resources at June 30, 2001:
As of June 30, 2001 the Company had $5,283,314 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.
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/FMS and Power Utility/PRS products and future adequacy of the
Company's capital resources. 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 or PRS products owing to competition, regulatory
changes, or changes in the overall economy; competitive pressures on sales
margins for INCON products; or unanticipated warranty costs.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held June 6, 2001. At the meeting
the following matters were voted upon by shareholders. All matters were
approved as indicated:
1. To fix the number of directors at five and to re-elect Alan Lukas,
George E. Hissong, Paul F. Walsh, Charles D. Yie, and Roger E. Brooks to
the Board of Directors.
Withheld
Authority
For For Total
--- --------- -----
<s> <c> <c> <c>
Alan Lukas 4,421,945 1,689 4,423,634
George E. Hissong 4,422,034 1,600 4,423,634
Paul F. Walsh 4,422,034 1,600 4,423,634
Charles D. Yie 4,422,034 1,600 4,423,634
Roger E. Brooks 4,422,034 1,600 4,423,634
2. To ratify the appointment of Baker Newman & Noyes LLC as independent
accountants to the Company for the fiscal year ending December 31, 2001.
For Against Abstain Broker non-vote
--- ------- ------- ---------------
<s> <c> <c> <c>
4,423,534 100 0 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No exhibits are filed with this report.
No reports on Form 8-K were filed during the prior fiscal quarter, other
than a report filed on or around April 17, 2001 with regard to a change in
the Company's independent accountants.
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: July 31, 2001 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 June 30, 2001 and December 31, 2000
(unaudited)
2001 2000
----------- ----
ASSETS
------
<s> <c> <c>
Current Assets:
Cash and cash equivalents $ 5,283,314 $ 5,182,325
Accounts receivable, net of allowances of $ 173,000 in 2001
and $137,500 in 2000 1,604,448 1,755,483
Inventories (Note 4) 1,293,317 1,124,969
Prepaid expenses and other current assets 104,382 79,457
Deferred income taxes 196,574 196,574
---------------------------
Total current assets 8,482,035 8,338,808
Property and equipment, net (Note 3) 518,382 568,144
Other assets 42,797 40,440
---------------------------
Total assets $ 9,043,214 $ 8,947,392
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 534,513 $ 554,745
Income taxes payable 46,063
Accrued expenses 482,805 467,668
Current portion of long-term debt 12,535
---------------------------
Total current liabilities 1,063,381 1,034,948
Deferred income taxes 28,725 28,725
Commitments and contingencies
Stockholders' equity:
Common stock, no par value; 8,000,000 shares authorized,
5,061,123 shares issued at June 30, 2001 and
at Decemeber 31, 2000 7,713,897 7,670,207
Retained earnings 2,439,934 2,372,545
Receivable from stockholder (1,592,067) (1,548,377)
Treasury stock at cost, 321,724 shares at June 30, 2001 and
at December 31, 2000 (610,656) (610,656)
---------------------------
Total stockholders' equity 7,951,108 7,883,719
---------------------------
Total liabilities and stockholders' equity $ 9,043,214 $ 8,947,392
===========================
The accompanying notes are an integral part of the financial statements
INTELLIGENT CONTROLS, INC.
STATEMENTS OF OPERATIONS(unaudited)
For the Three and Six Month Periods Ended June 30, 2001 and July 1, 2000
Three Months Ended Six Months Ended
June 30 July 1 June 30 July 1
2001 2000 2001 2000
---- ---- ---- ----
<s> <c> <c> <c> <c>
Net sales $2,614,590 $2,279,502 $4,820,897 $4,777,818
Cost of sales 1,248,234 1,162,663 2,313,933 2,429,552
-------------------------------------------------------
Gross profit 1,366,356 1,116,839 2,506,964 2,348,266
Operating expenses:
Selling, general and administrative 930,134 824,796 1,852,607 1,719,114
Research and development 322,038 300,875 634,822 629,764
-------------------------------------------------------
1,252,172 1,125,671 2,487,429 2,348,878
-------------------------------------------------------
Operating income (loss) 114,184 (8,832) 19,535 (612)
Other income (expense):
Interest income, net 61,085 75,615 135,025 134,215
Other expense (20,702) (20,046) (41,171) (38,463)
-------------------------------------------------------
40,383 55,569 93,854 95,752
-------------------------------------------------------
Income before income taxes 154,567 46,737 113,389 95,140
Income tax expense 60,300 18,500 46,000 38,000
-------------------------------------------------------
Net income $ 94,267 $ 28,237 $ 67,389 $ 57,140
=======================================================
Net income per share basic (Note 2) $0.02 $0.01 $0.01 $0.01
Net income per share diluted (Note 2) $0.02 $0.01 $0.01 $0.01
Weighted average common shares outstanding (Note 2) 4,739,399 4,739,399 4,739,399 4,739,399
=======================================================
Weighted average common and
common equivalent shares outstanding (Note 2) 4,739,399 4,746,133 4,739,874 4,747,474
=======================================================
The accompanying notes are an integral part of the financial statements
INTELLIGENT CONTROLS, INC.
STATEMENTS OF CASH FLOWS (unaudited)
For the Six Month Periods Ended June 30, 2001 and July 1, 2000
2001 2000
---- ----
<s> <c> <c>
Cash flows from operating activities:
Net income $ 67,389 $ 57,140
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 133,231 162,101
Changes in assets and liabilities:
Accounts receivable, net 151,035 146,220
Inventories (168,348) (158,227)
Prepaid expenses and other current assets (24,925) 32,194
Income tax receivable 41,144
Income tax payable 46,063
Other assets (2,357) (1,674)
Accounts payable and accrued expenses (5,095) (87,051)
-------------------------
Net cash provided by operating activities 196,993 191,847
-------------------------
Cash flows from investing activities:
Capital expenditures (83,469) (73,298)
-------------------------
Net cash used for investing activities (83,469) (73,298)
-------------------------
Cash flows from financing activities:
Repayment of long-term debt (12,535) (80,436)
-------------------------
Net cash used for financing activities (12,535) (80,436)
-------------------------
Net increase in cash 100,989 38,113
Cash and cash equivalents at beginning of period 5,182,325 4,980,805
-------------------------
Cash and cash equivalents at end of period $5,283,314 $5,018,918
=========================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 6,278
Income taxes
Non-cash investing and financing activities
Interest on stockholder receivable $ 43,690 $ 42,337
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 Form 10-KSB for the fiscal year ended December 31, 2000.
2. Earnings Per Common Share
-------------------------
Basic earnings per share of common stock have been determined by
dividing net income or loss 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. The exercise of such options
was anti-dilutive for the three months ended June 30, 2001.
Following is a reconciliation of the dual presentations of earnings
per share for the periods presented.
Net Income Common Shares Earnings
(Numerator) (Denominator) Per Share
----------- ------------- ---------
<s> <c> <c> <c>
Three Months Ended June 30, 2001
--------------------------------
Basic loss per share $94,267 4,739,399 $0.02
Dilutive potential shares - =====
-------------------------
Diluted loss per share $94,267 4,739,399 $0.02
=======================================
Six Months Ended June 30, 2001
------------------------------
Basic earnings per share $67,389 4,739,399 $0.01
Dilutive potential shares 475 =====
-------------------------
Diluted earnings per share $67,389 4,739,874 $0.01
=======================================
Three Months Ended July 1, 2000
-------------------------------
Basic earnings per share $28,237 4,739,399 $0.01
Dilutive potential shares 6,734 =====
-------------------------
Diluted earnings per share $28,237 4,746,133 $0.01
=======================================
Six Months Ended July 1, 2000
-----------------------------
Basic earnings per share $57,140 4,739,399 $0.01
Dilutive potential shares 8,075 =====
-------------------------
Diluted earnings per share $57,140 4,747,474 $0.01
=======================================
3. Property and Equipment
----------------------
Property and equipment at cost as of June 30, 2001 and December 31,
2000 consisted of the following:
2001 2000
---- ----
<s> <c> <c>
Leasehold improvements $ 157,756 $ 154,344
Equipment 1,303,613 1,269,134
Computer software 214,608 199,969
Furniture and fixtures 192,094 191,637
Construction in progress 59,324 28,842
-------------------------
1,927,395 1,843,926
Less accumulated depreciation and amortization 1,409,013 1,275,782
-------------------------
$ 518,382 $ 568,144
=========================
4. Inventories
-----------
Inventories as of June 30, 2001 and December 31, 2000 consisted of
the following:
2001 2000
---- ----
<s> <c> <c>
Raw Material $ 823,001 $ 717,558
Work in Progress $ 283,658 272,420
Finished Goods $ 186,658 134,991
-------------------------
$1,293,317 $1,124,969
=========================
5. Legal Proceedings
-----------------
In April 1999 the Company received notice of the filing of an action
entitled Omega Environmental, Inc. v. INCON International, Inc. in
U.S. Bankruptcy Court for the Western District of Washington. The
action was brought 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.
In June 1999 the owner and operator of a convenience/gasoline store
(Q&E LLC) filed a complaint in Illinois Circuit Court (Sangamon
County) against INCON and Pemco Service Co., seeking damages arising
from a gasoline spill and the alleged failure of an electronic line
leak detector manufactured by INCON and installed by Pemco. The
complaint seeks just over $900,000 in damages, and each defendant has
filed a cross-claim against the other in respect thereof. INCON's
insurance carrier has assumed defense of the matter, which is still
in the pre-trial phase.
In April 2000 the Company commenced an arbitration against Practical
Tank Management and a related-party guarantor of payment (FFP
Partners, LP) to collect approximately $62,193, as the unpaid balance
for INCON probes and other automatic tank gauge equipment sold to
PTM. The arbitration is being held in Portland, under administration
by the American Arbitration Association. In their answer, the
defendants and an affiliate (FFP Operating Partners, LP) asserted
counterclaims against the Company for an amount stated to be in
excess of $5 million, including lost business opportunity and other
damages. In a January 2001 deposition, PTM's President stated an
intention to pursue damages of approximately $15 million, of which he
said that more than $12 million was attributable to lost business
opportunity. In June 2001, FFP Operating Partners filed suit in
Texas state court against PTM and INCON for approximately $2 million
in damages allegedly arising from these same events. INCON removed
the action from state to federal court in Texas, and then filed a
motion requesting that this claim be referred to arbitration in
Maine. The hearing date for the arbitration has been postponed until
October 2001, in part to allow the federal court in Texas to rule on
this motion. The Company is actively pursuing its claim against PTM
and FFP Partners, and Company management has stated its intention to
vigorously oppose the various claims and counterclaims interposed by
PTM and its affiliates.