-----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, PQm34VM5DJCeQ4O1Q9yOVzBhPUU9ONYBBe4MQNF/g0tBuYCDC1Z+uH7cwhNDUn+C 07a2FPsFpg2/bbTZ2ZPgzw== 0000910647-01-500233.txt : 20020410 0000910647-01-500233.hdr.sgml : 20020410 ACCESSION NUMBER: 0000910647-01-500233 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 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: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-24894 FILM NUMBER: 1786197 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 10QSB 1 incon-q3.txt BODY OF FORM 10-QSB 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 September 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 September 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 the Nine Months Ended September 30, 2001: For the nine months ended September 30, 2001, sales increased 2% to $7,498,347 compared to sales of $7,327,262 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 nine months of 2001 were $5,967,163, an increase of 12% over the $5,307,507 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 nine months of 2001 were down 24%, to $1,531,184, as compared to $2,019,755 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 two orders totaling $250,000 in the first and third quarter. The Company believes that expansions of distribution substations have slowed, which reduces the prospects of receiving large orders of this type of equipment. Gross margins were 53% for the first nine months of 2001, as compared to 51% 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 $3,935,407 during the first nine months of 2001 were 14% higher than for the same period in 2000. This increase is largely attributed to legal expenses in connection with the proceedings described in Note 5 to the financial statements. In September 2001, the Company also accrued a one-time $150,000 charge for continued salary and benefits for a former executive officer. This officer, Mr. Alan Lukas, will continue as Chairman of the Board of Directors and will provide consulting services to the Company. Investments in sales/marketing and product development are consistent with prior periods. Net income decreased from $254,117 in the first nine months of 2000, to $106,565 in the first nine months of 2001. The decrease is primarily due to additional legal expenses and a one-time salary continuation accrual, partially offset by higher volumes and stronger gross margins. The Company continues to have no debt. Interest income contributed $184,093 to pretax profits. Liquidity and Capital Resources at September 30, 2001: As of September 30, 2001 the Company had $5,475,866 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 1. LEGAL PROCEEDINGS A description of legal proceedings is found in Note 5 to the financial statements, and is incorporated herein by reference. ITEM 5. OTHER INFORMATION In September 2001, Alan Lukas stepped down as Vice President of Product Development. He continues to serve as Chairman of the Board of Directors, remains a major shareholder and will be providing consulting services to INCON from time to time. In connection with the termination of his full- time employment, Mr. Lukas will receive continued salary and benefits for the period set forth in his Employment Agreement dated as of May 1, 1998. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K An index of the exhibits filed with this report appears after the financial statements below, and is incorporated herein by reference. No reports on Form 8-K were filed during the prior fiscal quarter. 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: November 14, 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 September 30, 2001 and December 31, 2000
(unaudited) 2001 2000 ----------- ---- ASSETS ------ Current Assets: Cash and cash equivalents $ 5,475,866 $ 5,182,325 Accounts receivable, net of allowances of $ 127,000 in 2001 and $137,500 in 2000 1,599,635 1,755,483 Inventories (Note 4) 1,322,304 1,124,969 Prepaid expenses and other current assets 184,775 79,457 Deferred income taxes 196,574 196,574 --------------------------- Total current assets 8,779,154 8,338,808 Property and equipment, net (Note 3) 483,718 568,144 Other assets 43,975 40,440 --------------------------- Total assets $ 9,306,847 $ 8,947,392 =========================== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current Liabilities: Accounts payable $ 595,104 $ 554,745 Income taxes payable 55,780 - Accrued expenses 636,954 467,668 Current portion of long-term debt - 12,535 --------------------------- Total current liabilities 1,287,838 1,034,948 Deferred income taxes 28,725 28,725 Contingencies (Note 5) Stockholders' equity: Common stock, no par value; 8,000,000 shares authorized, 5,061,123 shares issued at September 30, 2001 and at Decemeber 31, 2000 7,736,103 7,670,207 Retained earnings 2,479,110 2,372,545 Receivable from stockholder (1,614,273) (1,548,377) Treasury stock at cost, 321,724 shares at September 30, 2001 and at December 31, 2000 (610,656) (610,656) --------------------------- Total stockholders' equity 7,990,284 7,883,719 --------------------------- Total liabilities and stockholders' equity $ 9,306,847 $ 8,947,392 ===========================
The accompanying notes are an integral part of the financial statements F-1 INTELLIGENT CONTROLS, INC. STATEMENTS OF OPERATIONS (unaudited) For the Three and Nine Month Periods Ended September 30, 2001 and September 30, 2000
Three Months Ended Nine Months Ended September 30 September 30 September 30 September 30 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Net sales $2,677,450 $2,549,442 $7,498,347 $7,327,262 Cost of sales 1,192,771 1,175,622 3,506,704 3,605,317 ------------------------------------------------------------- Gross profit 1,484,679 1,373,820 3,991,643 3,721,945 Operating expenses: Selling, general and administrative 1,136,549 821,202 2,989,151 2,540,317 Research and development 311,433 279,679 946,255 909,689 ------------------------------------------------------------- 1,447,982 1,100,881 3,935,406 3,450,006 ------------------------------------------------------------- Operating income 36,697 272,939 56,237 271,939 Other income (expense): Interest income, net 49,068 77,903 184,093 212,117 Other expense (21,594) (23,476) (62,765) (61,939) ------------------------------------------------------------- 27,474 54,427 121,328 150,178 ------------------------------------------------------------- Income before income taxes 64,171 327,366 177,565 422,117 Income tax expense 25,000 130,000 71,000 168,000 ------------------------------------------------------------- Net income $ 39,171 $ 197,366 $ 106,565 $ 254,117 ============================================================= Net income per share basic (Note 2) $0.01 $0.04 $0.02 $0.05 Net income per share diluted (Note 2) $0.01 $0.04 $0.02 $0.05 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 4,745,023 4,739,577 4,745,881 =============================================================
The accompanying notes are an integral part of the financial statements F-2 INTELLIGENT CONTROLS, INC. STATEMENTS OF CASH FLOWS (unaudited) For the Nine Month Periods Ended September 30, 2001 and September 30, 2000
2001 2000 ---- ---- Cash flows from operating activities: Net income $ 106,565 $ 254,117 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 196,998 237,935 Changes in assets and liabilities: Accounts receivable, net 155,848 (66,592) Inventories (197,335) (159,471) Prepaid expenses and other current assets (105,318) (15,105) Income tax receivable - 105,292 Income tax payable 55,780 105,845 Other assets (3,535) (2,852) Accounts payable and accrued expenses 209,645 (31,603) ------------------------- Net cash provided by operating activities 418,648 427,566 ------------------------- Cash flows from investing activities: Capital expenditures (112,572) (95,485) ------------------------- Net cash used for investing activities (112,572) (95,485) ------------------------- Cash flows from financing activities: Repayment of long-term debt (12,535) (120,654) ------------------------- Net cash used for financing activities (12,535) (120,654) ------------------------- Net increase in cash 293,541 211,427 Cash and cash equivalents at beginning of period 5,182,325 4,980,805 ------------------------- Cash and cash equivalents at end of period $5,475,866 $5,192,232 ========================= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ - $ 6,278 Income taxes $ - $ 35,500 Non-cash investing and financing activities Interest on stockholder receivable $ 65,896 $ 63,390
The accompanying notes are an integral part of the financial statements F-3 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 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 September 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 ----------- ------------- --------- Three Months Ended September 30, 2001 ------------------------------------- Basic earnings per share $ 39,171 4,739,399 $0.01 Dilutive potential shares - ===== -------------------------- Diluted earnings per share $ 39,171 4,739,399 $0.01 ======================================== Nine Months Ended September 30, 2001 ------------------------------------ Basic earnings per share $106,565 4,739,399 $0.02 Dilutive potential shares 178 ===== -------------------------- Diluted earnings per share $106,565 4,739,577 $0.02 ======================================== Three Months Ended September 30, 2000 ------------------------------------- Basic earnings per share $197,366 4,739,399 $0.04 Dilutive potential shares 5,624 ===== -------------------------- Diluted earnings per share $197,366 4,745,023 $0.04 ======================================== Nine Months Ended September 30, 2000 ------------------------------------ Basic earnings per share $254,117 4,739,399 $0.05 Dilutive potential shares 6,482 ===== -------------------------- Diluted earnings per share $254,117 4,745,881 $0.05 ========================================
F-4 3. Property and Equipment ---------------------- Property and equipment at cost as of September 30, 2001 and December 31, 2000 consisted of the following:
2001 2000 ---- ---- Leasehold improvements $ 157,756 $ 154,344 Equipment 1,316,718 1,269,134 Computer software 216,843 199,969 Furniture and fixtures 192,092 191,637 Construction in progress 73,090 28,842 ------------------------- 1,956,499 1,843,926 Less accumulated depreciation and amortization 1,472,781 1,275,782 ------------------------- $ 483,718 $ 568,144 =========================
4. Inventories -----------
2001 2000 ---- ---- Raw Material $ 830,117 $ 717,558 Work in Progress 288,324 272,420 Finished Goods 203,863 134,991 ------------------------- $1,322,304 $1,124,969 =========================
Inventories as of September 30, 2001 and December 31, 2000 consisted of the following: 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 federal court granted this motion. An arbitration hearing on all claims was held in October and November. The parties are awaiting a decision of the arbitration panel. F-5 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 10.4A Letter Agreement dated August 27, 2001 with Alan Lukas, regarding severance arrangements EX-10 3 inq3-x10.txt LETTER OF AGREEMENT EXHIBIT 10.4A August 27, 2001 Alan Lukas 16 Stapleford Drive Falmouth, ME 04105 Dear Al: This letter will serve to formally confirm our mutual agreement whereby you will leave your full-time Vice President - Product Development position at Intelligent Controls, Inc. ( INCON ), to be effective September 14, 2001. As discussed among the Directors, you will continue, for the time being, to serve as Chairman of the Board and also be available, as required, for up to 400 hours of consulting service, in total, per year. We have agreed that you will continue to receive base pay, on a bi- weekly basis for twelve months, subject to a shortened time-frame in the event you secure full-time employment, as called out in section 5 (b) 1 of your employment agreement dated May 1, 1998. Your current annual base pay rate is $133,000. In addition, all other provisions of section 5 (b) shall apply. You will also continue to receive the Board/Consulting retainer, which is currently paid quarterly, as per section 5 (b) 2 of your employment agreement and the Company will make available health insurance benefits to you and your family as required by section 5 (b) 2. INCON will provide on-going e-mail services and appropriate phone messaging and forwarding support, if needed. Other administrative services can be made available, upon request, but it is not the mutual intent, after a limited transition, that you maintain an office here. Alan, I look forward to your continued contributions to INCON's success and wish you the best of luck with your new business activities. Very truly yours, /s/ Roger E. Brooks ------------------- Roger E. Brooks President/CEO Agreed and accepted: /s/ Alan Lukas - -------------- Alan Lukas Date: 9/9/01 -----END PRIVACY-ENHANCED MESSAGE-----