1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended November 30, 1996 Commission File
Number 0-16101
INOTEK TECHNOLOGIES CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1986151
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11212 INDIAN TRAIL, DALLAS, TEXAS 75229
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code, 972-243-7000.
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 ___
4,354,088 shares of common stock, $.01 par value (the issuer's only class of
common stock), were outstanding as of November 30, 1996.
2
INOTEK TECHNOLOGIES CORP.
INDEX
Page
No.
----
Part I. Financial information
Item 1. Financial Statements:
Balance Sheets as of November 30, 1996 (unaudited) and May 31, 1996 . . . . . . . . . . . . . . . . 1
Statements of Income for the Three Months Ended November 30, 1996
and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Income for the Six Months Ended November 30, 1996
and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Cash Flows for the Six Months Ended November 30, 1996
and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Part II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . 7
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Index to Exhibits
Exhibit (20)-Report Furnished to Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3
INOTEK TECHNOLOGIES CORP.
BALANCE SHEETS
NOVEMBER 30 MAY 31
1996 1996
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 598,563 $ 460,855
Trade receivables, net of allowance for doubtful accounts
of $59,753 at November 30 and $77,809 at May 31 2,859,312 2,644,022
Inventories 2,005,827 2,002,231
Deferred taxes 59,075 75,572
Prepaid expenses and other assets 184,401 96,588
- ---------------------------------------------------------------------------------------------------------------
Total current assets 5,707,178 5,279,268
Property and equipment, net 331,442 351,958
Goodwill, net of accumulated amortization of $485,463 at
November 30 and $452,509 at May 31 2,156,487 2,189,442
Other assets 74,910 65,238
Deferred taxes 184,464 164,538
- ---------------------------------------------------------------------------------------------------------------
Total assets $ 8,454,481 $ 8,050,444
===============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,508,544 $ 1,423,116
Accrued expenses 730,846 669,126
Income taxes payable 162,484 110,777
Current portion of notes payable including indebtedness to
shareholders of $13,215 at November 30 and $5,945 at May 31 213,215 305,945
- ---------------------------------------------------------------------------------------------------------------
Total current liabilities 2,615,089 2,508,964
Notes payable to shareholders 66,785 -
Shareholders' equity:
Common shares, $.01 par value:
Authorized shares, 10,000,000
Issued shares - 4,354,088 at November 30 and at May 31
Outstanding shares - 4,354,088 at November 30 and May 31 43,541 43,541
Additional paid-in-capital 3,299,546 3,299,546
Retained earnings 2,429,520 2,198,393
- ---------------------------------------------------------------------------------------------------------------
Total shareholders' equity 5,772,607 5,541,480
- ---------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 8,454,481 $ 8,050,444
===============================================================================================================
See accompanying notes
1
4
INOTEK TECHNOLOGIES CORP.
STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
NOVEMBER 30
1996 1995
- ---------------------------------------------------------------------------------------------------------------
Net Sales:
Products $ 5,449,181 $ 5,399,090
Services 662,691 708,544
- ---------------------------------------------------------------------------------------------------------------
6,111,872 6,107,634
Cost of sales:
Products 3,939,178 3,994,935
Services 380,138 364,776
- ---------------------------------------------------------------------------------------------------------------
4,319,316 4,359,711
- ---------------------------------------------------------------------------------------------------------------
Gross margin 1,792,556 1,747,923
Operating expenses:
Sales and marketing 813,094 895,073
General and administrative 738,086 718,828
- ---------------------------------------------------------------------------------------------------------------
1,551,180 1,613,901
- ---------------------------------------------------------------------------------------------------------------
Operating income 241,376 134,022
Interest expense (7,767) (7,667)
- ---------------------------------------------------------------------------------------------------------------
Earnings before income taxes 233,609 126,355
Income tax provision 108,004 61,012
- ---------------------------------------------------------------------------------------------------------------
Net earnings $ 125,605 $ 65,343
===============================================================================================================
Net earnings per share $ .03 $ .01
===============================================================================================================
Weighted average shares outstanding 4,510,638 4,445,395
===============================================================================================================
See accompanying notes
2
5
INOTEK TECHNOLOGIES CORP.
STATEMENTS OF INCOME
(UNAUDITED)
SIX MONTHS ENDED
NOVEMBER 30
1996 1995
- ---------------------------------------------------------------------------------------------------------------
Net Sales:
Products $10,545,972 $10,682,280
Services 1,311,224 1,379,019
- ---------------------------------------------------------------------------------------------------------------
11,857,196 12,061,299
Cost of sales:
Products 7,630,796 7,906,567
Services 718,528 724,715
- ---------------------------------------------------------------------------------------------------------------
8,349,324 8,631,282
- ---------------------------------------------------------------------------------------------------------------
Gross margin 3,507,872 3,430,017
Operating expenses:
Sales and marketing 1,621,303 1,777,878
General and administrative 1,443,401 1,432,225
- ---------------------------------------------------------------------------------------------------------------
3,064,704 3,210,103
- ---------------------------------------------------------------------------------------------------------------
Operating income 443,168 219,914
Interest expense (14,876) (15,042)
- ---------------------------------------------------------------------------------------------------------------
Earnings before income taxes 428,292 204,872
Income tax provision 197,165 104,572
- ---------------------------------------------------------------------------------------------------------------
Net earnings $ 231,127 $ 100,300
===============================================================================================================
Net earnings per share $ .05 $ .02
===============================================================================================================
Weighted average shares outstanding 4,542,923 4,454,410
===============================================================================================================
See accompanying notes
3
6
INOTEK TECHNOLOGIES CORP.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
NOVEMBER 30 NOVEMBER 30
1996 1995
- ---------------------------------------------------------------------------------------------------------------
Operating Activities
Net earnings $ 231,127 $ 100,300
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 163,932 162,690
Deferred taxes (3,429) (5,898)
Net changes in operating assets and liabilities:
Accounts receivable (215,290) 105,248
Inventories (3,596) (29,852)
Prepaid expenses and other assets (87,813) (119,852)
Accounts payable 85,428 (306,031)
Accrued expenses 61,720 76,758
Income tax payable 51,707 64,377
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 283,786 47,740
INVESTING ACTIVITIES
Purchase of property and equipment (173,718) (34,505)
Increase in other assets (9,672) (22,333)
Decrease (increase) in capitalized service inventory 63,257 (69,720)
- ---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (120,133) (126,558)
FINANCING ACTIVITIES
Net change in bank borrowings (100,000) 100,000
Net increase (decrease) in notes payable 74,055 (10,860)
Shares redeemed - (112,500)
- ---------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (25,945) (23,360)
- ---------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents 137,708 (102,178)
Cash and cash equivalents, beginning of period 460,855 576,799
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 598,563 $ 474,621
===============================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 7,700 $ 12,022
Income taxes $ 70,000 $ 46,076
See accompanying notes
4
7
INOTEK TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary for a fair presentation of the results
for the interim periods presented have been made. The results of operations
for such interim periods are not necessarily indicative of the results of
operations for a full year. The interim unaudited financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended May 31, 1996.
2. LONG-TERM DEBT
On September 30, 1996, the Company extended its bank revolving credit
agreement through September 30, 1997 under the same terms as its previous
agreement.
On October 24, 1996, the Company borrowed $80,000 from two
officer/shareholders under note agreements bearing interest at 9.25% annually.
The notes are unsecured and are payable in quarterly installments of $5,041
through October 2001.
5
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SECOND QUARTER 1997 COMPARED TO SECOND QUARTER 1996
The Company's sales for the second quarter ended November 30, 1996 were
$6,111,872, relatively unchanged from the $6,107,634 reported for the quarter
ended November 30, 1995. Sales for the first six months of fiscal year 1997
decreased by just under 2% to $11,857,196 from $12,061,299 for the first six
months of fiscal year 1996. Sales from the Company's distribution operations
increased approximately 1% from higher shipment volumes while service revenues
decreased by 6% resulting primarily from lower billings to the Company's
principal service customer, Duke Power Co. Gross margin as a percent of sales
increased from 28.6% during the second quarter of fiscal year 1996 to 29.3% for
the second quarter of the current fiscal year. The increase in margin resulted
from a slight increase in distribution operations' margins due to an improved
sales mix of higher margin products offset by a decrease in margin from
service operations resulting from the revenue decline mentioned previously.
Sales and marketing expenses for the second quarter decreased by $81,979 due to
lower compensation expenses while general and administrative expenses increased
slightly by $19,258.
Interest expense for the second quarter of fiscal year 1997 was $7,767 compared
with $7,667 for the second quarter of the previous year.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $598,563 and $460,855 at November 30, 1996 and
May 31, 1996, respectively. Outstanding borrowings under the Company's
revolving credit agreement amounted to $200,000 and $300,000 at November 30,
1996 and May 31, 1996, respectively. At November 30, 1996, the maximum
available borrowings under the revolving credit facility amounted to
$2,140,205. The Company's current assets exceeded its current liabilities at
November 30, 1996 and May 31, 1996 by $3,092,089 and $2,770,304, respectively.
During the quarter, the Company borrowed $80,000 from two officer/shareholders
under note agreements bearing interest at 9.25% annually on an unsecured basis
with quarterly installments of $5,041 through October 2001. The funds were
used for general corporate purposes.
The Company's funding requirements during the quarter were met through cash on
hand, cash provided from operations, borrowings against INOTEK's revolving
credit agreement and borrowings from the officer/shareholders mentioned above.
On September 30, 1996, the Company extended its bank revolving agreement
through September 30, 1997 under the same terms as its previous agreement. The
Company has no material commitment for capital expenditures as of November 30
1996.
6
9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None pending
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
1. Exhibit (20)-Report furnished to security holders.
(b) Reports on 8-K:
No reports on Form 8-K were filed in the quarter for which this
report is filed.
7
10
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INOTEK TECHNOLOGIES CORP.
(REGISTRANT)
Date: January 10, 1996 /s/ DAVID L. WHITE
--------------------------------------
(Officer)
David L. White
Chief Executive Officer
Date: January 10, 1996 /s/ R. LEE SIMPSON
--------------------------------------
(Officer)
R. Lee Simpson
Chief Financial Officer
8
11
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
20 Report furnished to Security Holders
27 Financial Data Schedule
9