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 August 31, 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 August 31, 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 August 31, 1997 (unaudited) and May 31, 1997.........................................1
Statements of Income for the Three Months Ended August 31, 1997
and August 31, 1996 (unaudited) .......................................................................2
Statements of Income for the Three Months Ended August 31, 1997
and August 31, 1996 (unaudited) .......................................................................3
Statements of Cash Flows for the Three Months Ended August 31, 1997
and August 31, 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
AUGUST 31 MAY 31
1997 1997
---------- ----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 435,746 $ 376,145
Trade receivables, net of allowance for doubtful accounts
of $57,957 at August 31 and $45,182 at May 31 2,840,125 3,619,039
Inventories 2,639,547 2,178,744
Deferred taxes 94,946 77,953
Prepaid income taxes -- 13,660
Prepaid expenses and other assets 148,719 165,240
---------- ----------
Total current assets 6,159,083 6,430,781
Property and equipment, net 472,740 370,837
Goodwill, net of accumulated amortization of $534,895 at
August 31 and $518,417 at May 31 2,107,056 2,123,534
Other assets 57,445 64,590
Deferred taxes 161,968 193,395
---------- ----------
Total assets $8,958,292 $9,183,137
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,923,222 $1,865,089
Accrued expenses 654,428 776,153
Income taxes payable 3,970 --
Current portion of notes payable including indebtedness to
shareholders of $10,493 at August 31 and $13,833 at May 31 210,493 413,833
---------- ----------
Total current liabilities 2,792,113 3,055,075
Notes payable to shareholders 59,710 59,710
Shareholders' equity:
Common shares, $.01 par value:
Authorized shares, 10,000,000
Issued shares - 4,354,088 at August 31 and at May 31
Outstanding shares - 4,354,088 at August 31 and May 31 43,541 43,541
Additional paid-in-capital 3,299,546 3,299,546
Retained earnings 2,763,382 2,725,265
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Total shareholders' equity 6,106,469 6,068,352
---------- ----------
Total liabilities and shareholders' equity $8,958,292 $9,183,137
========== ==========
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
AUGUST 31 AUGUST 31
1997 1996
------------ ------------
Net Sales:
Products $ 5,514,687 $ 5,096,791
Services 656,556 648,533
------------ ------------
6,171,243 5,745,324
Cost of sales:
Products 4,070,425 3,691,618
Services 331,923 338,390
------------ ------------
4,402,348 4,030,008
------------ ------------
Gross margin 1,768,895 1,715,316
Operating expenses:
Sales and marketing 895,805 808,209
General and administrative 785,223 705,315
------------ ------------
1,681,028 1,513,524
------------ ------------
Operating income 87,867 201,792
Interest expense (7,131) (7,109)
------------ ------------
Earnings before income taxes 80,736 194,683
Income tax provision 42,619 89,161
------------ ------------
Net earnings $ 38,117 $ 105,522
============ ============
Net earnings per share $ .01 $ .02
============ ============
Weighted average shares outstanding 4,643,434 4,571,058
============ ============
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
AUGUST 31
1997 1996
---------- ----------
Operating Activities
Net earnings $ 38,117 $ 105,522
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 64,455 84,945
Deferred taxes 14,434 7,266
Net changes in operating assets and liabilities:
Accounts receivable 778,914 (237,823)
Inventories (460,803) (44,143)
Prepaid expenses and other assets 16,521 15,440
Accounts payable 58,133 97,010
Accrued expenses (121,725) (138,055)
Income tax payable 17,630 2,826
---------- ----------
Net cash provided by operating activities 405,676 (107,012)
INVESTING ACTIVITIES
Purchase of property and equipment (112,960) (105,051)
Increase in other assets 7,146 (11,506)
Decrease (increase) in capitalized service inventory (36,921) (2,509)
---------- ----------
Net cash used in investing activities (142,735) (119,066)
FINANCING ACTIVITIES
Net change in bank borrowings (200,000) 100,000
Net increase (decrease) in notes payable (3,340) (5,945)
---------- ----------
Net cash used in financing activities (203,340) 94,055
---------- ----------
Change in cash and cash equivalents 59,601 (132,023)
Cash and cash equivalents, beginning of period 376,145 460,855
---------- ----------
Cash and cash equivalents, end of period $ 435,746 $ 328,832
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 5,768 $ 8,754
Income taxes $ 10,555 $ 79,162
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED AUGUST 31, 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, 1997.
2. LONG-TERM DEBT
On September 30, 1997, the Company extended its bank revolving credit
agreement through September 30, 1998 under the same terms as its previous
agreement.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER 1998 COMPARED TO FIRST QUARTER 1997
The Company's sales increased 7.4% to $6,171,243 for the first quarter ended
August 31, 1997 from $5,745,324 for the first quarter of the prior year. The
increase during the quarter was the result of increased volume sales in the
Company's distribution operation. Gross margin as a percent of sales decreased
from 29.9% during the first quarter of fiscal year 1997 to 28.7% for the first
quarter of the current fiscal year primarily due to continued price
competition.
Sales and marketing costs during the first quarter of fiscal year 1998
increased by 11% or $87,596 as compared with the first quarter of the previous
year. General and administrative costs also increased by 11% or $79,908 during
the first quarter ending August 31, 1997 as compared with August 31, 1996.
Expenses increased primarily due to increased headcount and the opening of our
Kansas City office.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $435,746 and $376,145 at August 31, 1997 and May
31, 1997, respectively. Outstanding borrowings under the Company's revolving
credit agreement amounted to $200,000 at August 31, 1997 and $400,000 at May
31, 1997. At August 31, 1997 the maximum available borrowings under the
revolving credit facility amounted to $2,243,711. The Company's current assets
exceeded its current liabilities at August 31, 1997 and May 31, 1997 by
$3,366,970 and $3,375,706, respectively.
The Company's funding requirements during the quarter were met through cash on
hand, cash provided by operations and borrowings against INOTEK's revolving
credit agreement. During September, 1997, the Company extended its revolving
credit agreement with Texas Commerce Bank for one year under the same terms as
its previous agreement. The Company has no material commitment for capital
expenditures as of August 31, 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.
2. Exhibit (27)-Financial Data Schedule.
(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: October 8, 1997 /s/ David L. White
---------------------------------------
(Officer)
David L. White
Chief Executive Officer
Date: October 8, 1997 /s/ R. Lee Simpson
---------------------------------------
(Officer)
R. Lee Simpson
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
20 Report furnished to security holders.
27 Financial Data Schedule.