CONFORMED COPY
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 31, 1997
[ ] 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 3,242,394 shares of Common Stock of the issuer outstanding as of
April 30, 1997.
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 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 Three Months Ended March 31, 1997
For the three months ended March 31, 1997 sales increased 53% to $3.03
million compared to sales in the first quarter of 1996 of $1.98 million
Petroleum segment sales grew 60% to $2.6 million. The increase in sales was
partly attributable to shipping the first third of our $1.8 million shipment
to Chinese Petroleum in Taiwan. The Company also shipped approximately
$200,000 in digital probes, a new product which was still in development
during the first quarter of 1996. A small part of the increase in petroleum
segment revenues was attributable to the Company's new line leak detector,
whose sales continue to build and which generally is receiving good reviews
from customers.
The utility segment, benefiting from strong shipments of our 1250 tap
position monitor, grew 18% to $382,000 in the first quarter of 1997. Due to
the weather, first quarter sales tend to be lower then other quarters as
Utilities tend to defer maintenance until the weather warms. This attributed
to lower Optimizer sales. The Company increased the investment in the
marketing program and has a number of Utilities evaluating the product and
has received commitments for future purchases.
Gross margins for the quarter were 35.1% compared to 47.8% for the same
period in 1996. The lower gross margins were a result of the Chinese
Petroleum shipment and increased shipments of our digital probe. Due to its
size, the Chinese Petroleum order received special pricing. The digital
probes are sold to key accounts which receive discounts greater then are
normal distributor discount. However, no commission is paid an these direct
sales to key accounts, resulting in lower operating expenses. The lower
margins were offset by increased sales and lower operating expenses. Cost
cutting programs started in the fourth quarter of 1996 contributed to
operating expenses improving to 34.6% of sales compared to 52.4% for the
same period in 1996.
The increased sales and improvement in operating margins did not result in a
return to profitability due to the lower gross margins. However, due to
holding expenses relatively steady despite the increased sales the Company
improved with a net loss of $30,800 compared to a net loss of $69,400 for
the same period in 1996.
Liquidity and Capital Resources at March 31, 1997
As of March 31, 1997 the Company had $324,000 in cash and $860,000 available
to be borrowed on its $3.0 million dollar line of credit. Through better
inventory management and increased sales the Company was able to reduce
inventories $558,000 in the first quarter. The cash flow generated from the
decrease in inventories contributed to the increase in cash on hand and was
utilized to finance the increase in accounts receivable and pay down of
trade payables. The Company expects that current resources will be
sufficient to finance the Company's operating needs through the end of 1997.
In the first quarter the Company was in compliance with its bank covenants.
Further, the Company has signed a commitment letter, on April 21, 1997, from
the bank increasing the line of credit to $3.5 million from $3.0 million.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A financial data schedule is filed by the Company herewith Exibit 27 to this
report. No reports on Form 8-K were filed by the Company during the past
fiscal year.
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: May 14, 1997 financial officer)
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 31, 1997 and the related consolidated statements of earnings and
cash flows for the three months then ended. 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 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 31, 1996 (not presented herein). In our
opinion, the information set forth in the accompanying balance sheet as of
December 31, 1996, is fairly stated in all materials 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/ Coopers & Lybrand L.L.P.
Portland, Maine
April 28, 1997
March 31, 1997
INTELLIGENT CONTROLS, INC.
BALANCE SHEETS
(unaudited)
March 31 December 31
1997 1996
----------- -----------
Current Assets:
Cash and cash equivalents $ 324,018 $ 133,690
Accounts receivable, net of allowance for doubtful
accounts of $ 62,718 1997 and $60,000 in 1996 2,161,208 1,960,979
Inventories 2,305,158 2,863,335
Prepaid expenses and other 260,948 312,837
Income taxes receivable 160,000 160,000
Deferred income taxes 229,960 210,000
-------------------------
Total current assets 5,441,292 5,640,841
Property, Plant, and Equipment, net 842,491 851,081
Other assets 21,157 19,979
Restricted cash - 199,120
-------------------------
$6,304,940 $6,711,021
=========================
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Note payable - bank $2,140,246 $2,015,862
Accounts payable 703,995 881,349
Accrued expenses 598,240 673,767
Current portion of long-term debt 191,700 191,700
-------------------------
Total current liabilities 3,634,181 3,762,678
Long-term debt, net of current portion 362,307 409,967
Deferred taxes 58,450 58,450
Deposit from stockholder - 199,120
Stockholders' Equity
Common stock, no par value; 5,000,000 shares
authorized; 3,218,340 issued in 1997 and 3,215,590
in 1996 2,252,041 2,252,041
Retained earnings 2,267 33,071
Less: Treasury stock, 2,153 shares at cost (4,306) (4,306)
-------------------------
2,250,002 2,280,806
-------------------------
$6,304,940 $6,711,021
=========================
See accompanying notes.
F-1
INTELLIGENT CONTROLS, INC.
STATEMENTS OF INCOME (unaudited)
Three Months Ended
------------------------
March 31 March 31
1997 1996
-------- --------
Net sales $3,033,663 $1,983,254
Cost of sales 1,967,482 1,035,043
--------------------------
1,066,181 948,211
Operating expenses:
Selling, general and administrative 833,583 794,297
Research and development 217,538 246,725
--------------------------
1,051,121 1,041,022
Operating income (loss) 15,060 (92,811)
Other income (expense):
Interest expense (52,818) (33,840)
Other income(expense) (13,006) 6,300
--------------------------
(65,824) (27,540)
--------------------------
Loss before income tax benefit (50,764) (120,351)
Income tax benefit 19,960 50,954
--------------------------
Net loss $ (30,804) $ (69,397)
==========================
Net loss per share: ($ .01) ($ .02)
==========================
Weighted average number of
common shares outstanding 3,301,000 3,505,921
==========================
See accompanying notes.
F-2
INTELLIGENT CONTROLS, INC.
STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended
------------------------
March 31 March 31
1997 1996
-------- --------
Cash flows from operating activities
Net Income $ (30,804) $ (69,397)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 56,205 50,770
Deferred taxes (19,960) -
Changes in assets and liabilities:
Accounts receivable (200,229) 73,277
Inventories 558,177 (438,066)
Prepaid expenses and other 51,889 (72,558)
Accounts payable and accrued expenses (252,881) 587,663
Accrued income taxes - (51,068)
Other (1,178) (1,179)
--------------------------
Net cash provided by operating activities 161,219 79,442
Cash flows from investing activities:
Purchases of equipment and leasehold
improvements, net (47,615) (57,390)
--------------------------
Net cash (used) by investing activities (47,615) (57,390)
Cash flows from financing activities:
Net borrowings on note payable - bank 124,384 (54,529)
Repayment of long-term debt (47,660) (35,611)
Decrease in restricted cash (199,120) -
Decrease in deposit from shareholder 199,120 -
--------------------------
Net cash provided (used) by financing activities 76,724 (90,140)
Net increase (decrease) in cash 190,328 (68,088)
Cash and cash equivalents at beginning of year 133,690 225,518
--------------------------
Cash and cash equivalents at end of period $ 324,018 $ 157,430
==========================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 52,818 $ 33,840
==========================
Income taxes $ - $ 54,772
==========================
See accompanying notes.
F-3
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
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.
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)
March 31, December 31
1997 1996
----------- -----------
Leasehold improvements $ 106,379 $ 105,442
Equipment 1,141,342 1,119,610
Software 144,500 119,554
Furniture and Fixtures 120,087 120,087
--------------------------
1,512,308 1,464,693
Less accumulated depreciation and
amortization (669,817) (613,612)
--------------------------
$ 842,491 $ 851,081
==========================
F-4
3. Inventories consisted of the following at March 31, 1997 and December
31, 1996.
(Unaudited)
March 31 December 31
1997 1996
------------ -----------
Raw Material $1,549,225 $1,930,834
Work in Progress 289,936 294,576
Finished Goods 408,539 587,788
Other 57,458 50,137
--------------------------
$2,305,158 $2,863,335
==========================
4. New accounting pronouncements
During February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share"(SFAS No. 128), which will require a change in how the Company
calculates earnings per share. This statement is effective for
financial statements issued for periods after December 15, 1997, with
earlier application not permitted. The statement requires a dual
presentation of basic and diluted earnings per share on the statements
of income. Had the earnings per share calculation been applied on a
basis consistent with the provisions of SFAS No. 128, basic and
diluted earnings per share would be equivalent to the amounts reported
in the statements of income.
F-5