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 November 30, 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 November 30, 1997.
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INOTEK TECHNOLOGIES CORP.
INDEX
Page
No.
----
Part I. Financial information
Item 1. Financial Statements:
Balance Sheets as of November 30, 1997 (unaudited) and
May 31, 1997 ................................................. 1
Statements of Income for the Three Months Ended November 30,
1997 and November 30, 1996 (unaudited) ....................... 2
Statements of Income for the Six Months Ended November 30,
1997 and November 30, 1996 (unaudited) ....................... 3
Statements of Cash Flows for the Six Months Ended November 30,
1997 and November 30, 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
NOVEMBER 30 MAY 31
1997 1997
(UNAUDITED)
- -------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 132,053 $ 376,145
Trade receivables, net of allowance
for doubtful accounts of $72,777
at November 30 and $45,182 at May 31 3,831,999 3,619,039
Inventories 2,794,340 2,178,744
Deferred taxes 169,764 77,953
Prepaid income taxes -- 13,660
Prepaid expenses and other assets 157,101 165,240
- -------------------------------------------------------------------------------
Total current assets 7,085,257 6,430,781
Property and equipment, net 511,109 370,837
Goodwill, net of accumulated amortization of
$551,372 at November 30 and $518,417 at May 31 2,090,579 2,123,534
Other assets 56,951 64,590
Deferred taxes 160,867 193,395
- -------------------------------------------------------------------------------
Total assets $9,904,763 $9,183,137
===============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,365,671 $1,865,089
Accrued expenses 998,239 776,153
Income taxes payable 133,777 --
Current portion of notes payable
including indebtedness to
shareholders of $14,480 at November
30 and $13,833 at May 31 214,480 413,833
- -------------------------------------------------------------------------------
Total current liabilities 3,712,167 3,055,075
Notes payable to shareholders 52,305 59,710
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 2,797,204 2,725,265
- -------------------------------------------------------------------------------
Total shareholders' equity 6,140,291 6,068,352
- -------------------------------------------------------------------------------
Total liabilities and shareholders' equity $9,904,763 $9,183,137
===============================================================================
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
NOVEMBER 30 NOVEMBER 30
1997 1996
- --------------------------------------------------------------------
Net Sales
Products $ 6,688,911 $ 5,449,181
Services 644,884 662,691
- --------------------------------------------------------------------
7,333,795 6,111,872
Cost of Sales:
Products 5,021,239 3,939,178
Services 330,832 380,138
- --------------------------------------------------------------------
5,352,071 4,319,316
- --------------------------------------------------------------------
Gross Margin 1,981,724 1,792,556
Operating Expenses:
Sales and Marketing 943,755 813,094
General and Administrative 937,926 738,086
- --------------------------------------------------------------------
1,881,681 1,551,180
- --------------------------------------------------------------------
Operating Income 100,043 241,376
Interest Expense (5,921) (7,767)
- --------------------------------------------------------------------
Earnings before income taxes 94,122 233,609
Income tax provision 60,300 108,004
- --------------------------------------------------------------------
Net earnings $ 33,822 $ 125,605
====================================================================
Net earnings per share $ .01 $ .03
====================================================================
Weighted average shares outstanding 4,643,069 4,510,638
====================================================================
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
STATEMENTS OF INCOME
(UNAUDITED)
SIX MONTHS ENDED
NOVEMBER 30 NOVEMBER 30
1997 1996
- ---------------------------------------------------------------------
Net Sales
Products $12,203,598 $10,545,972
Services 1,301,440 1,311,224
- --------------------------------------------------------------------
13,505,038 11,857,196
Cost of Sales:
Products 9,091,664 7,630,796
Services 662,755 718,528
- --------------------------------------------------------------------
9,754,419 8,349,324
- --------------------------------------------------------------------
Gross Margin 3,750,619 3,507,872
Operating expenses:
Sales and Marketing 1,839,560 1,621,303
General and Administrative 1,723,149 1,443,401
- -------------------------------------------------------------------
3,562,709 3,064,704
- -------------------------------------------------------------------
Operating Income 187,910 443,168
Interest Expense (13,052) (14,876)
- -------------------------------------------------------------------
Earnings before income taxes 174,858 428,292
Income tax provision 102,919 197,165
- -------------------------------------------------------------------
Net earnings $ 71,939 $ 231,127
===================================================================
Net earnings per share $ .02 $ .05
===================================================================
Weighted average shares outstanding 4,643,357 4,542,923
===================================================================
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
NOVEMBER 30
1997 1996
- --------------------------------------------------------------------------------
Operating Activities
Net Earnings $ 71,939 $ 231,127
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 110,846 163,932
Deferred Taxes (59,283)
Net Changes in Operating Assets and
liabilities
Accounts Receivable (212,960) (215,290)
Inventories (615,596) (3,596)
Prepaid expenses and other assets 8,139 (87,813)
Accounts payable 500,582 85,428
Accrued expenses 222,086 61,720
Income tax payable 147,437 51,707
- --------------------------------------------------------------------------------
Net cash provided by operating activities 173,190 283,786
Investing activities
Purchase of property and equipment (160,848) (173,718)
Increase in other assets 7,640 (9,672)
Decrease (increase) in capitalized
service inventory (57,316) 63,257
- --------------------------------------------------------------------------------
Net cash used in investing activities (210,524) (120,133)
Financing Activities
Net change in bank borrowings (200,000) (100,000)
Net increase (decrease) in notes payable (6,758) 74,055
- --------------------------------------------------------------------------------
Net cash used in financing activities (206,758) (25,945)
- --------------------------------------------------------------------------------
Change in cash and cash equivalents (244,092) 137,708
Cash and cash equivalents, beginning of period 376,145 460,855
- --------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 132,053 $ 598,563
================================================================================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 9,687 $ 7,700
Income taxes $ 20,890 $ 70,000
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 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
SECOND QUARTER 1998 COMPARED TO SECOND QUARTER 1997
The Company's sales increased 20% to $7,333,795 for the second quarter ended
November 30, 1997 from $6,111,872 for the second 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 29.3% during the second quarter of fiscal year 1997 to 27.0% for the second
quarter of the current fiscal year primarily due to continued price competition
and reductions in our Duke service contract.
Sales and marketing costs during the second quarter of fiscal year 1998
increased by 16% or $130,661 as compared with the second quarter of the previous
year. General and administrative costs also increased by 27% or $199,840 during
the second quarter ending November 30, 1997 as compared with November 30, 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 $132,053 and $376,145 at November 30, 1997 and
May 31, 1997, respectively. Outstanding borrowings under the Company's revolving
credit agreement amounted to $200,000 at November 30, 1997 and $400,000 at May
31, 1997. At November 30, 1997 the maximum available borrowings under the
revolving credit facility amounted to $2,800,000. The Company's current assets
exceeded its current liabilities at November 30, 1997 and May 31, 1997 by
$3,373,090 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 November 30, 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.
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: January 14, 1998 /s/ DAVID L. WHITE
--------------------------------
(Officer)
Chief Executive Officer
Date: January 14, 1998 /s/ SUSAN I. WILLIAMSON
--------------------------------
(Officer)
Susan I. Williamson
Controller/Treasurer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
20 Report furnished to security holders
27 Financial Data Schedule
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