1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended February 28, 1997 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 February 28, 1997.
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INOTEK TECHNOLOGIES CORP.
INDEX
Page
No.
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Part I. Financial information
Item 1. Financial Statements:
Balance Sheets as of February 28, 1997 (unaudited) and May 31, 1996.....1
Statements of Income for the Three Months Ended February 28, 1997
and February 29, 1996 (unaudited) ...................................2
Statements of Income for the Nine Months Ended February 28, 1997
and February 29, 1996 (unaudited) ...................................3
Statements of Cash Flows for the Nine Months Ended February 28, 1997
and February 29, 1996 (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
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INOTEK TECHNOLOGIES CORP.
BALANCE SHEETS
FEBRUARY 28 MAY 31
1997 1996
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 581,179 $ 460,855
Trade receivables, net of allowance for doubtful accounts
of $34,065 at February 28 and $77,809 at May 31 3,285,779 2,644,022
Inventories 2,146,282 2,002,231
Deferred taxes 60,974 75,572
Prepaid expenses and other assets 230,524 96,588
- -----------------------------------------------------------------------------------------------------
Total current assets 6,304,738 5,279,268
Property and equipment, net 286,911 351,958
Goodwill, net of accumulated amortization of $501,939 at
February 28 and $452,509 at May 31 2,140,010 2,189,442
Other assets 74,416 65,238
Deferred taxes 192,762 164,538
- -----------------------------------------------------------------------------------------------------
Total assets $8,998,837 $8,050,444
=====================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,822,563 $1,423,116
Accrued expenses 829,369 669,126
Income taxes payable 174,908 110,777
Current portion of notes payable including indebtedness to
shareholders of $13,215 at February 28 and $5,945 at May 31 213,215 305,945
- -----------------------------------------------------------------------------------------------------
Total current liabilities 3,040,055 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 February 28 and at May 31
Outstanding shares - 4,354,088 at February 28 and May 31 43,541 43,541
Additional paid-in-capital 3,299,546 3,299,546
Retained earnings 2,548,910 2,198,393
- -----------------------------------------------------------------------------------------------------
Total shareholders' equity 5,891,997 5,541,480
- -----------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $8,998,837 $8,050,444
=====================================================================================================
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
FEBRUARY 28 FEBRUARY 29
1997 1996
- --------------------------------------------------------------------
Net Sales:
Products $ 5,370,857 $ 5,650,761
Services 772,539 658,209
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6,143,396 6,308,970
Cost of sales:
Products 3,934,829 4,311,805
Services 435,882 359,021
- --------------------------------------------------------------------
4,370,711 4,670,826
- --------------------------------------------------------------------
Gross margin 1,772,685 1,638,144
Operating expenses:
Sales and marketing 802,290 860,394
General and administrative 744,460 690,366
- --------------------------------------------------------------------
1,546,750 1,550,760
- --------------------------------------------------------------------
Operating income 225,935 87,384
Interest expense (4,170) (10,783)
- --------------------------------------------------------------------
Earnings before income taxes 221,765 76,601
Income tax provision 102,375 42,813
- --------------------------------------------------------------------
Net earnings $ 119,390 $ 33,788
====================================================================
Net earnings per share $ .03 $ .01
====================================================================
Weighted average shares outstanding 4,373,637 4,384,952
====================================================================
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
STATEMENTS OF INCOME
(UNAUDITED)
NINE MONTHS ENDED
FEBRUARY 28 FEBRUARY 29
1997 1996
- ----------------------------------------------------------------------
Net Sales:
Products $ 15,916,829 $ 16,333,041
Services 2,083,763 2,037,228
- ----------------------------------------------------------------------
18,000,592 18,370,269
Cost of sales:
Products 11,565,625 12,218,372
Services 1,154,410 1,083,736
- ----------------------------------------------------------------------
12,720,035 13,302,108
- ----------------------------------------------------------------------
Gross margin 5,280,557 5,068,161
Operating expenses:
Sales and marketing 2,423,593 2,638,272
General and administrative 2,187,861 2,122,591
- ----------------------------------------------------------------------
4,611,454 4,760,863
- ----------------------------------------------------------------------
Operating income 669,103 307,298
Interest expense (19,046) (25,825)
- ----------------------------------------------------------------------
Earnings before income taxes 650,057 281,473
Income tax provision 299,540 147,385
- ----------------------------------------------------------------------
Net earnings $ 350,517 $ 134,088
======================================================================
Net earnings per share $ .08 $ .03
======================================================================
Weighted average shares outstanding 4,377,509 4,431,342
======================================================================
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
FEBRUARY 28 FEBRUARY 29
1997 1996
- ---------------------------------------------------------------------------------------
Operating Activities
Net earnings $ 350,517 $ 134,088
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 242,066 224,184
Deferred taxes (13,626) (6,254)
Net changes in operating assets and liabilities:
Accounts receivable (641,757) 102,318
Inventories (144,051) (27,298)
Prepaid expenses and other assets (133,936) (71,695)
Accounts payable 399,447 (362,849)
Accrued expenses 160,243 (16,312)
Income tax payable 64,131 66,154
- ---------------------------------------------------------------------------------------
Net cash provided by operating activities 283,034 42,336
INVESTING ACTIVITIES
Purchase of property and equipment (195,112) (68,323)
Increase in other assets (9,178) (21,740)
Decrease (increase) in capitalized service inventory 67,525 (78,141)
- ---------------------------------------------------------------------------------------
Net cash used in investing activities (136,765) (168,204)
FINANCING ACTIVITIES
Net change in bank borrowings (100,000) 200,000
Net increase (decrease) in notes payable 74,055 (16,505)
Purchase of redeemable common shares (378,466)
- ---------------------------------------------------------------------------------------
Net cash used in financing activities (25,945) (194,971)
- ---------------------------------------------------------------------------------------
Change in cash and cash equivalents 120,324 (320,839)
Cash and cash equivalents, beginning of period 460,855 576,799
- ---------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 581,179 $ 255,960
=======================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 6,440 $ 19,187
Income taxes $ 100,148 $ 87,468
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED FEBRUARY 28, 1997
(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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRD QUARTER 1997 COMPARED TO THIRD QUARTER 1996
The Company's sales for the third quarter ended February 28, 1997 were
$6,143,396, down by just under 3% from the $6,308,970 reported for the quarter
ended February 29, 1996. Sales for the first nine months of fiscal year 1997
decreased by 2% to $18,000,592 from $18,370,269 for the first nine months of
fiscal year 1996. The decrease is due to a decrease in volume from the
Company's distribution operations offset by increased service revenues from
higher service call activity. Gross margin as a percent of sales increased from
approximately 26% during the third quarter of last year to 29% for the third
quarter of the current fiscal year. The increased margin percent results from a
change in product mix, a more disciplined effort to improve sales margins and
an increase in higher margin service revenues.
Sales and marketing expenses decreased by approximately 7% while general and
administrative costs increased by 8% due principally to changes in compensation
costs.
Interest expense for the third quarter of fiscal year 1997 was $4,170 compared
with $10,783 for the third quarter of the prior year.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $581,179 and $460,855 at February 28, 1997 and
February 29, 1996, respectively. Outstanding borrowings under the Company's
revolving credit agreement amounted to $200,000 and $300,000 at February 28,
1997 and February 29, 1996, respectively. At February 29, 1997, the maximum
available borrowings under the revolving credit facility amounted to
$2,614,400. The Company's current assets exceeded its current liabilities at
February 28, 1997 and May 31, 1996 by $3,264,683 and $2,770,304, respectively.
In October 1996, 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, and borrowings against INOTEK's revolving
credit agreement. The Company has no material commitments for capital
expenditures as of February 28, 1997.
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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.
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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: April 14, 1997 /s/David L. White
------------------------------
(Officer)
David L. White
Chief Executive Officer
Date: April 14, 1997 /s/R. Lee Simpson
------------------------------
(Officer)
R. Lee Simpson
Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
20 - Report furnished to security holders