-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BWf2lxfsdhX43cj9nquCpJZujZjz0LBXdO1p0i41ot+zN9wNV9mVCaAmY5Bdp91u NOm9D0Ljjq4Go5NdhhGM2Q== 0000910647-97-000111.txt : 19970501 0000910647-97-000111.hdr.sgml : 19970501 ACCESSION NUMBER: 0000910647-97-000111 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970430 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTELLIGENT CONTROLS INC CENTRAL INDEX KEY: 0000762953 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 010354107 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-24894 FILM NUMBER: 97591022 BUSINESS ADDRESS: STREET 1: 74 INDUSTRIAL PARK ROAD CITY: SACO STATE: ME ZIP: 04072 BUSINESS PHONE: 2072830156 MAIL ADDRESS: STREET 1: PO BOX 638 CITY: SACO STATE: ME ZIP: 04072 10-K/A 1 BODY OF THE 10-K/A U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB/A (Amendment No. 1) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ____ to ____ Commission File No. 1-13628 INTELLIGENT CONTROLS, INC. (Name of small business issuer in its charter) Maine 01-0354107 (State of incorporation) (IRS Employer Identification No.) 74 Industrial Park Road, Saco, Maine 04072 (Address of principal executive offices) (Zip code) Issuer's telephone number: (207) 283-0156 Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered - ------------------- ----------------------------------------- Common Stock, American Stock Exchange no par value
Securities registered under Section 12(g) of the Exchange Act: None 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 [ ] Check if no disclosure of delinquent filers in response to Item 405 of Regulation S-B is contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] Issuer's revenues for its most recent fiscal year: $9,891,000 The aggregate market value of the voting stock held by non-affiliates as of March 16, 1997 was $4,143,600. There were 3,242,394 shares of Common Stock of the issuer outstanding as of March 16, 1997. DOCUMENTS INCORPORATED BY REFERENCE: None Transitional Small Business Disclosure Format: Yes [ ] No [X] This Amendment contains the information required in Items 9, 10, 11, and 12 of Form 10-KSB. In addition, this Amendment corrects a typographical error in a net sales table in Item 1. PART I ITEM 1. DESCRIPTION OF BUSINESS. Intelligent Controls Inc. ("INCON" or the "Company") is a Maine corporation founded in 1978. Primarily, INCON develops, manufactures, and sells electronic measurement systems to the petroleum and power utility industries. The table below shows sales for these product lines over the past three years. NET SALES BY PRODUCT LINE (Dollars In Thousands)
1996 1995 1994 --------------- --------------- -------------- Total % of Total % of Total % of Sales Sales Sales Sales Sales Sales ---------------------------------------------------- Petroleum (ATG): OEMs $ 557 6% $ 264 3% $ 372 5% End Users 7,881 79% 7,856 84% 5,617 78% Utility and Other Power Utility 1,198 12% 912 10% 939 13% General Instrument 255 3% 244 3% 267 4% --------------------------------------------------- TOTAL NET SALES $9,891 100% $9,276 100% $7,195 100%
Petroleum Equipment Segment INCON manufactures a line of electronic instruments for use in retail gasoline stations and similar locations where petroleum fuels or chemicals are stored in underground storage tanks ("USTs") and above ground storage tanks ("ASTs"). The product line includes automatic tank gauges, dedicated leak detectors, liquid level sensors, line leak detectors, and various accessories, all of which are used to meet UST monitoring regulations promulgated by the U.S. Environmental Protection Agency (the "EPA"), and to provide information for the station owner to manage his inventory and business. The manufacturing process for these and other INCON products consists of light mechanical and electronic assembly. In the petroleum equipment segment, INCON's primary products are its automatic tank gauge systems, which consist of wall-mounted electronic tank gauge consoles, tank-mounted liquid level sensors, leak sensors, and associated accessories. These systems provide very accurate measurement of inventory (gasoline or other liquid) in a UST or AST. INCON's tank gauges also perform leak tests to determine whether product is leaking from the tank. ATG systems can also monitor a wide variety of leak detection sensors which may be located between the walls of double wall tanks, in sumps, under dispensers, or in other locations where leaking product may collect. In 1995 INCON began field testing a new product for detecting leaks in pipes. The Company's electronic Line Leak Detector ("LLD") monitors the pressurized piping between the tank-mounted submersible pump (located in the tank) and the dispenser (gas pump) in service stations and similar facilities. The product is designed to meet pipeline monitoring requirements imposed by EPA regulations. The LLD can interface with the ATG or stand alone. In 1996 the product went through a number of design changes and an extensive beta test program. The product is now in full release. INCON also offers dedicated leak detection ("DLD") consoles. These devices are similar to the ATG console, except that they do not measure inventory levels. Instead, these devices monitor leak detection sensors only, and provide certain kinds of customers with an inexpensive alternative for achieving regulatory compliance. In addition to the ATG consoles, line leak detectors and liquid level sensors, INCON offers a wide variety of accessories, software, and leak detection sensors. These provide the ability to expand the systems for special applications, allow the systems to sense leaks in many different locations, and simplify installation. Some of these products are assembled by the Company, although many are made by outside vendors to INCON's specifications. In September 1994 INCON began producing its own liquid level sensor. INCON's liquid level sensors are based on magnetostrictive position measurement technology which is widely accepted in the industry. The in-house manufacturing of liquid level sensors gives INCON increased control over this important component and has significantly reduced the overall cost of this component to the Company. In most cases, each UST or AST requires a liquid level sensor. INCON's ATG consoles will support from one to eight liquid level sensors. Under a private label contract, INCON manufactures a Digital Liquid Level Sensor ("DLP"). This device integrates microcomputer functions of the automatic tank gauge console into the tank mounted liquid level sensor. The microprocessor in the DLP interprets the signals from the level and temperature sensing systems and transmits the processed data to a remote computer or other device. Data from many sensors are transmitted over a common cable in a manner similar to a computer local on a network. This product eliminates the need for the ATG console, and allows the ATG information to be read directly by personal computers, cash registers, point of sale equipment, or fuel management systems, whether remotely or at the site. The demand for ATGs, DLDs, and LLDs domestically has been bolstered by regulations promulgated by the Environmental Protection Agency and, in some cases, by state environmental regulators. Present EPA regulations require new UST systems to meet certain performance standards and all USTs (new or old) to be monitored for leakage. In addition to more sophisticated techniques (such as automatic tank gauging), EPA regulations currently permit the use of inventory reconciliation and manual (dip stick) testing as a means of leak detection. Although simpler and less expensive, these methods do not provide for accurate inventory measurement and control. Moreover, EPA leak detection requirements will become more stringent. After December 22, 1998, inventory reconciliation and manual testing will be permissible only (i) during the first ten years after a tank is newly installed or upgraded in accordance with EPA performance standards or (ii) in the case of small tanks having less than 550 gallons of capacity. In addition all tanks must meet EPA performance standards by 1998. Management anticipates that the 1998 upgrade deadline and restriction of reconciliation and manual testing will favorably affect the market for ATGs, DLDs, and LLDs through 1998 and beyond. Internationally, many countries have environmental laws similar to the United States and the demand for ATGs, DLDs and LLDs is expected to grow in these countries. In 1996, INCON received a $2 million dollar order to supply tank gauge systems to Taiwan. Power Utility and General Instrument Segment INCON's Power Utility and General Instrument Lines consist of electronic instruments for measurement and control in power utilities and general industrial applications. Typical customers include large publicly owned electric power utilities, municipal utilities, and manufacturing customers. The power utility product line includes two instruments used in power utility substations, the Model 1250, and the Optimizer[TRADEMARK]. These products offer automated control and data collection for electrical substations. Two other power utility products, the Model 1255 and Model 1810, are offered for use in automating hydroelectric generating plants. The Model 1250 Tap Position Monitor is used on large high-voltage transformers. These transformers are typically equipped with "tap changers" which regulate the voltage on the power utility transmission and distribution grid. The voltage is adjusted by switching to any one of approximately 32 "voltage taps." The Model 1250 allows the utility to monitor which tap has been selected from a central monitoring facility through their "system control and data acquisition" system (SCADA). The utility can then establish interactive control over the tap selection equipment through the same SCADA system and can thereby adjust and regulate the voltage being produced by the transformer. This product is sold directly to the manufacturers of transformers and is mounted on most new transformers sold. The Optimizer is a microprocessor-based monitoring device used to predict life and to schedule preventive maintenance for high voltage circuit breakers used by electric power utilities. It measures the energy dissipated by the contacts in large circuit breakers as they operate. The Optimizer product can help power utilities reduce the cost of breaker maintenance and avoid service interruptions. The product was fully released in 1996 and is being marketed both domestically and internationally. Based on data from Electrical World Magazine, the Company's management estimates that there are approximately 400,000 power utility circuit breakers in the United States. Compared to the present industry standard of periodically disassembling the breaker, inspecting it, and replacing key parts, the Optimizer offers the advantage of actually measuring the stress to which the circuit breaker has been subjected to and better predicting when it needs maintenance. This information allows the utility to extend the interval between preventive maintenance operations thereby significantly reducing the cost of circuit breaker maintenance. Based on industry technical meetings and meetings with power utility executives, INCON management believes power utilities in recent years have increased their level of investment in monitoring equipment in order to control maintenance costs. Competition The petroleum equipment business is very competitive. The Company's products compete with similar products from other manufacturers in the industry. In addition to INCON, there are at least four other significant suppliers of automatic tank gauge systems, one of whom is believed to have approximately a 50% market share. These suppliers generally are larger and have greater resources than the Company. In addition, there are at least ten other minor suppliers of ATGs. INCON has a strong competitive position in the power utility business for its particular product niche. The Company is the only supplier of programmable tap position monitoring systems in the United States, and competes only with older technologies. The competing products tend to be somewhat lower in price, but are more difficult to install, are not programmable, and have more parts that are subject to wear and replacement. There are many types of transformers and tap changers in service in the United States today that operate with the Model 1250, and the 1250's programmability gives it a major advantage over non-programmable products. INCON owns exclusive rights to the U.S. patent on the Optimizer technology. Rising interest in the concept of circuit breaker monitoring has resulted in several competing products being offered by other companies. However, competing products tend to have fewer features and are more costly. Raw Materials In most of its products, INCON tries to utilize off-the-shelf electronic components which are readily available from more than one distributor. However, there are some products which are designed around a particular manufacturer, such as in the use of microprocessor chips and printers. If one of these manufacturers were to suddenly cease production of a key component, the Company might need to find an alternate source or redesign the product. Stainless steel and brass are the major components in two of the Company's products. Both of these commodities can fluctuate greatly in price due to supply and demand, thereby affecting the Company's future earnings. Intellectual Property INCON markets its petroleum equipment products under the registered trademark "Tank Sentinel". INCON holds two patents for its electrical instruments and has filed a patent on its LLD product. The Company has copyrights for certain software. INCON's key software is highly technical and would be difficult to copy. The Company has numerous trade secrets with regard to methods of detecting leaks in tanks and pipelines. Among these are the INCON's volumetric tank leak testing algorithm, its continuous automatic leak detection algorithm, and its method of detecting leaks in pressurized piping. Similarly, INCON's process for producing the magnetostrictive wire required by the liquid level sensor is a Company secret. General In 1996 no single customer accounted for more than 10% of the Company's business. As of March 7, 1997 the Company employed 74 employees, including 10 in sales and marketing, 11 in research and development, 9 in administration, and 44 in manufacturing. All but 4 of these employees are full time. The Company markets its products through networks of independent sales representatives. The Company also makes some of its sales on a direct basis, particularly in the case of products sold to OEMs. INCON continuously invests in the development of new products and new applications for existing products. During 1994, 1995, and 1996, the expenditures relating to the development of new products and improvements to existing products were approximately $465,000, $965,000, and $983,000, respectively. Government Regulation The automatic tank gauge product line is used in service stations and requires listing by Underwriters Laboratory (UL) in the United States and by the Canadian Standards Association (CSA) in Canada. All major portions of the Tank Sentinel[REGISTERED TRADEMARK]ATG product line, including line leak detectors, are presently listed by UL and CSA. The Tank Sentinel[REGISTERED TRADEMARK]ATG products perform leak detection in accordance with EPA regulation 40 CFR Part 280, Subpart D. To prove compliance with the federal and state regulations for monthly leak detection, the ATG system and line leak detectors must be tested by an independent laboratory in accordance with EPA regulations and certified to meet the EPA performance requirements. The INCON TS-1000 system, TS-2000 system and TS-LLD have been tested by Ken Wilcox Associates of Blue Springs, Missouri. The Tank Sentinel[REGISTERED TRADEMARK]ATG products also meet the much more stringent standard for tank tightness. To prove compliance with the federal and state regulations for tank tightness tests, the ATG system must be tested by an independent laboratory in accordance with EPA/530/UST-90/006 and certified to meet the EPA performance requirements. The INCON TS-1000 and TS-2000 systems have been tested by Ken Wilcox Associates. In Canada the TS-1000 system, TS-2000 and TS-LLD are certified by Underwriters Laboratory of Canada in accordance with ULC/ORD-C58.12-1992, "Leak Detection Devices (Volumetric Type) For Underground Flammable Liquid Storage Tanks". This standard is very similar to EPA/530/UST-90/006. With regard to INCON's own operations, the cost of compliance with federal, state, and local environmental laws does not materially affect the Company's financial condition. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. The members of the Company's Board of Directors are as follows:
Year First Elected as Name of Director Age Director Positions with Company - ---------------- --- ---------- ---------------------- Alan Lukas 46 1978 Chief Executive Officer, Chairman of the Board, Director Charlton H. Ames 55 1991 Director Nathaniel V. Henshaw 35 1993 Director George E. Hissong 61 1996 Director Paul F. Walsh 47 N/A Nominee for election as a Director
The directors of the Company are elected for one year terms at the Annual Meeting of Shareholders. The executive officers of the Company are as follows:
Name Age Positions with Company - ---- --- ---------------------- Alan Lukas 46 Chief Executive Officer, Director, and Chairman of the Board Kenneth J. Burek 37 Vice President of Finance
Mr. Lukas founded INCON in 1978. Previously he had held positions as Project Engineer at GenRad (1972-1973), Applications Engineer at Analog Devices, Inc. (1973), Product Marketing Manager at Teledyne Philbrick (1974), and Engineering Manager at Process Development Corp., Division of Honeycomb Systems (1975-1978). From 1975 to 1978, Mr. Lukas served on the Board of Directors of ImmunoSystems Inc. of Scarborough, Maine, a firm engaged in the detection of hazardous substances in the environment. He currently serves on the Board of Directors and Executive Committee of the Center for Technology Transfer in Portland, Maine, and is a member of the Advisory Board of the School of Engineering Science at the University of Southern Maine. He has been a director of INCON since 1978. Mr. Ames has served as President of Morse, Payson & Noyes Capital Corporation, a private investment firm, since 1985. Since such time, he has also managed the investment portfolio of Katahdin Securities, a venture capital firm. From 1977 to 1985, he was Vice President of Ames & Wellman Company, a private investment firm. Mr. Ames became a Director of INCON in 1991. Mr. Henshaw has been a Loan & Investment Officer of Coastal Enterprises, Inc. (CEI), which provides various types of equity and debt financing to local businesses, since 1988. He also serves as President of Coastal Ventures, Inc., the general partner of a recently formed venture capital fund sponsored by CEI. Mr. Henshaw became a Director of INCON in 1993. Mr. Hissong has served as a Trustee of the Kennebunk Light and Power District since 1991. From 1978 to 1986 he was Chairman and President of Energy Sciences Inc. He currently is Treasurer of Hissong Development Corporation. Mr. Hissong was elected a Director in March 1996. Mr. Walsh has served as President and Chief Executive Officer of Wright Express Corporation, an information and financial services company, since February 1995. From January 1990 to February 1995, Mr. Walsh was Chairman of BancOne Investor Services Corporation, a financial services company. He has served since 1990 as a Director of Staples, Inc., a leading office supplies distributor. Mr. Walsh is a nominee for election as a Director of INCON at the Annual Meeting of Shareholders. Mr. Burek joined INCON in January 1993. Previously he was Corporate Controller of Atlantic Antibodies, a division of Bausch and Lomb, from 1985 to 1987, and Corporate Controller at the Hews Company from 1988 to 1992. Under the bylaws of the Company, all executive officers hold office until the next Annual Meeting of Directors and until their successors are chosen and have qualified, or until their earlier resignation or removal from office. There are no family relationships among any executive officers or directors. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Under Section 16(a) of the Securities Exchange Act of 1934, certain persons associated with the Company (directors, executive officers and beneficial owners of more than 10% of the outstanding Common Stock) are required to file with the Securities and Exchange Commission and the Companyvarious reports disclosing their ownership of Company securities and changes in such ownership. To the Company's knowledge, all requisite reports for 1996 were filed in a timely manner. ITEM 10. EXECUTIVE COMPENSATION. The following table sets forth certain information for each of the fiscal years ended December 30, 1996, 1995 and 1994 regarding compensation paid to the Company's Chief Executive Officer. No other officer was paid compensation in excess of $100,000 in the fiscal year ended December 31, 1996. SUMMARY COMPENSATION TABLE
Annual Compensation -------------------------------------- All Other Other Compen- Compen- Name Year Salary Bonus sation sation - ---- ---- ------ ----- ------ ------- Alan Lukas 1996 $84,000 $0 $0 $0 (1) 1995 $86,300 $0 $0 1994 $74,900 $3,000 $0 The Company leases a facility from a corporation owned in part by Alan Lukas. Alan Lukas' profits from this arrangement currently amount to less than $1,250 per year. See Item 12 below.
Each non-employee director of the Company receives as compensation (i) cash payments of $500 per meeting and (ii) grants of stock options (1,000 shares per quarter) having an exercise price equal to 100% of the fair market value of the stock as of the date of grant. Mr. Ames, prior to April 1, 1996, received cash payments of $1,000 per quarter (and no stock options) as compensation for his services as a director, and cash payments of $1,500 per quarter for other consulting services to the Company; on April 1, 1996, he began receiving the same compensation as the other directors. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. As of April 15, 1997, the Company's outstanding capital stock consisted of 3,242,394 shares of Common Stock, no par value. Set forth below, as of such date, is information concerning the only persons known to the Company to beneficially own more than five percent of the outstanding shares.
Number of Shares Percent Name and Address Beneficially Owned of Class - ---------------- ------------------ -------- Alan Lukas 1,172,080 (1) 36.1% (1) 74 Industrial Park Road Saco, Maine 04072 Includes 1,056,783 shares owned directly by Alan Lukas, 87,397 shares owned by his wife, 17,000 shares held by Alan Lukas as custodian for his child, and 7,500 shares owned by Lukas Brothers, a general partnership of which Alan Lukas is one of the three partners.
The following table shows, as of April 15, 1997, the number of shares of Common Stock which, to the Company's knowledge, were beneficially owned by executive officers of the Company and by each director. Except as otherwise indicated, each person named owned less than one percent of the outstanding Common Stock.
Number of Shares Percent Name and Address Beneficially Owned (1) of Class (1) - ---------------- ------------------ -------- Alan Lukas 1,172,080 (2) 36.1% (2) 74 Industrial Park Road Saco, ME 04072 Charlton H. Ames 6,682 100 Middle Street Portland, ME 04112 Nathaniel V. Henshaw (3) 46,433 1.4% 2 Portland Fish Pier, Suite 302 Portland, ME 04101 George E. Hissong 7,500 47 Fletcher Street Kennebunk, ME 04043-1915 Paul F. Walsh 3,000 97 Darling Avenue South Portland, ME 04106 Kenneth J. Burek 5,675 74 Industrial Park Road Saco, ME 04072 All directors, nominees, and executive officers as a group 1,241,370 37.8% Includes shares that could be purchased through stock options exercisable within 60 days after the record date, as follows: Mr. Henshaw 13,000; and all directors and executive officers as a group 33,250. Also includes shares owned by spouses or other relatives residing in the same household. Includes 1,056,783 shares owned directly by Alan Lukas, 87,397 shares owned by his wife, 17,000 shares held by Alan Lukas as custodian for his child, and 7,500 shares owned by Lukas Brothers, a general partnership of which Alan is one of the three partners. The shares attributed to Mr. Henshaw (excluding 100 shares held by him as custodian for his son) are owned by Coastal Enterprises, Inc., or CEI, Inc., with which Mr. Henshaw is affiliated.
The Company knows of no contractual arrangements which may at a subsequent date result in a change of control of the Company. ITEM 12. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS. The Company leases a 13,000 square foot facility from a corporation owned in part by Alan Lukas, the Chief Executive Officer and Chairman of the Board of the Company. The lease expires August 15, 1997 and is renewable, at the Company's option, for one additional five year term. The Company also has the right to purchase this facility in 1997 at the then fair market value, subject to a specified minimum price of $550,000. The current rent is approximately $62,700 per year (exclusive of utilities, taxes, and insurance) and is subject to an automatic increase of 5% per year. The Company believes that the rent under this lease is reasonable (although, under current market conditions, the equivalent industrial space is probably available at slightly lower rental rates). The Company has not yet made any decision on renewal of the lease or exercise of the purchase option. Presently, the rental payments on the building exceed the landlord corporation's monthly payments on its underlying mortgage loan; Alan Lukas' profits from this arrangement currently amount to less than $1,250 per year. SIGNATURES In accordance with Section 13 of the Exchange Act, the Company caused this Amendment to Form 10-KSB to be signed on its behalf by the undersigned, thereunto duly authorized. INTELLIGENT CONTROLS, INC. April 30, 1997 By: /s/ Kenneth J. Burek Kenneth J. Burek, Vice President of Finance (principal financial officer) -----END PRIVACY-ENHANCED MESSAGE-----