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, 1998 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, 1998.
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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, 1998 (unaudited) and May 31, 1997....................1
Statements of Income for the Three Months Ended February 28, 1998
and February 28, 1997 (unaudited)...................................................2
Statements of Income for the Nine Months Ended February 28, 1998
and February 28, 1997 (unaudited)...................................................3
Statements of Cash Flows for the Nine Months Ended February 28, 1998
and February 28, 1997 (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
1998 1997
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 396,647 $ 376,145
Trade receivables, net of allowance for doubtful accounts
of $64,967 at February 28 and $45,182 at May 31 3,086,368 3,619,039
Inventories 2,815,034 2,178,744
Deferred taxes 140,065 77,953
Prepaid income taxes -- 13,660
Prepaid expenses and other assets 139,803 165,240
- ------------------------------------------------------------------------------------------------------
Total current assets 6,577,917 6,430,781
Property and equipment, net 502,149 370,837
Goodwill, net of accumulated amortization of $556,864 at
February 28 and $518,417 at May 31 2,074,101 2,123,534
Other assets 59,164 64,590
Deferred taxes 141,502 193,395
- ------------------------------------------------------------------------------------------------------
Total assets $ 9,354,833 $ 9,183,137
======================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,045,051 $ 1,865,089
Accrued expenses 869,328 776,153
Income taxes payable 59,416 -
Current portion of notes payable including indebtedness to
shareholders of $13,833 at May 31 200,000 413,833
- ------------------------------------------------------------------------------------------------------
Total current liabilities 3,173,795 3,055,075
Notes payable to shareholders - 59,710
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 2,837,951 2,725,265
- ------------------------------------------------------------------------------------------------------
Total shareholders' equity 6,181,038 6,068,352
- ------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 9,354,833 $ 9,183,137
======================================================================================================
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
FEBRUARY 28 FEBRUARY 28
1998 1997
- ------------------------------------------------------------------------------------
Net Sales:
Products $ 5,384,001 $ 5,370,857
Services 564,140 772,539
- ------------------------------------------------------------------------------------
5,948,141 6,143,396
Cost of sales:
Products 3,804,568 3,934,829
Services 277,744 435,882
- ------------------------------------------------------------------------------------
4,082,312 4,370,711
- ------------------------------------------------------------------------------------
Gross margin 1,865,829 1,772,685
Operating expenses:
Sales and marketing 907,429 802,290
General and administrative 878,193 744,460
- ------------------------------------------------------------------------------------
1,785,622 1,546,750
- ------------------------------------------------------------------------------------
Operating income 80,207 225,935
Interest expense (5,842) (4,170)
- ------------------------------------------------------------------------------------
Earnings before income taxes 74,365 221,765
Income tax provision 33,618 102,375
- ------------------------------------------------------------------------------------
Net earnings $ 40,747 $ 119,390
====================================================================================
Net earnings per share $ .01 $ .03
====================================================================================
Weighted average shares outstanding 4,604,157 4,373,637
====================================================================================
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
STATEMENTS OF INCOME
(UNAUDITED)
NINE MONTHS ENDED
FEBRUARY 28 FEBRUARY 28
1998 1997
- -------------------------------------------------------------------------------------------
Net Sales:
Products $17,587,599 $ 15,916,829
Services 1,865,580 2,083,763
- ------------------------------------------------------------------------------- ------------
19,453,179 18,000,592
Cost of sales:
Products 12,896,232 11,565,625
Services 940,499 1,154,410
- ------------------------------------------------------------------------------- ------------
13,836,731 12,720,035
- ------------------------------------------------------------------------------- ------------
Gross margin 5,616,448 5,280,557
Operating expenses:
Sales and marketing 2,746,989 2,423,593
General and administrative 2,601,342 2,187,861
- ------------------------------------------------------------------------------- ------------
5,348,331 4,611,454
- ------------------------------------------------------------------------------- ------------
Operating income 268,117 669,103
Interest expense (18,894) (19,046)
- ------------------------------------------------------------------------------- ------------
Earnings before income taxes 249,223 650,057
Income tax provision 136,537 299,540
- ------------------------------------------------------------------------------- ------------
Net earnings $ 112,686 $ 350,517
=============================================================================== ============
Net earnings per share $ .02 $ .08
=============================================================================== ============
Weighted average shares outstanding 4,625,330 4,377,509
============================================================================================
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
FEBRUARY 28
1998 1997
- ------------------------------------------------------------------------------------------------
Operating Activities
Net earnings 112,686 $ 350,517
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 177,240 242,066
Deferred taxes (10,219) (13,626)
Net changes in operating assets and liabilities
Accounts receivable 532,671 (641,757)
Inventories (636,290) (144,051)
Prepaid expenses and other assets 25,437 (133,936)
Accounts payable 179,962 399,447
Accrued expenses 93,175 160,243
Income tax payable 73,076 64,131
- ------------------------------------------------------------------------------------------------
Net cash provided by operating activities 547,738 283,034
INVESTING ACTIVITIES
Purchase of property and equipment (240,233) (195,112)
Increase in other assets 5,427 (9,178)
Decrease (increase) in capitalized service inventory (18,887) 67,525
- ------------------------------------------------------------------------------------------------
Net cash used in investing activities (253,693) (136,765)
FINANCING ACTIVITIES
Net change in bank borrowings (200,000) (100,000)
Net increase (decrease) in notes payable (73,543) 74,055
- ------------------------------------------------------------------------------------------------
Net cash used in financing activities (273,543) (25,945)
- ------------------------------------------------------------------------------------------------
Change in cash and cash equivalents 20,502 120,324
Cash and cash equivalents, beginning of period 376,145 460,855
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 396,647 $ 581,179
================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 14,163 $ 6,440
Income taxes $ 79,805 $ 100,148
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED FEBRUARY 28, 1998
(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
THIRD QUARTER 1998 COMPARED TO THIRD QUARTER 1997
The Company's sales decreased 3% to $5,948,141 for the third quarter ended
February 28, 1998 from $6,143,396 for the third quarter of the prior year. The
decrease during the quarter was due primarily to the reduction in the service
contract with Duke Energy. We were notified by Duke Energy that it was
cancelling maintenance service on most equipment under contract with INOTEK,
effective March 1, 1998. The contract with Duke Energy was implemented December
1, 1993 and is set to expire November 30, 1998. The reduction in the contract
from March 1, 1998 through November 30, 1998 is approximately $700,000. Although
we are planning to reduce expenses as a result of this contract reduction, it is
unlikely that we will be able to operate profitably for at least several
quarters. Gross margin as a percent of sales increased from 28.9% during the
third quarter of fiscal year 1997 to 31.4% for the third quarter of the current
fiscal year primarily due to reductions in cost associated with the Duke service
contract.
Sales and marketing costs during the third quarter of fiscal year 1998 increased
by 13.1% or $105,139 as compared with the third quarter of the previous year.
General and administrative costs also increased by 18.0% or $133,733 during the
third quarter ending February 28, 1998 as compared with February 28, 1997.
Expenses increased primarily due to increased compensation costs and increased
marketing costs.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $396,647 and $376,145 at February 28, 1998 and
May 31, 1997, respectively. Outstanding borrowings under the Company's revolving
credit agreement amounted to $200,000 at February 28, 1998 and $400,000 at May
31, 1997. At February 28, 1998 the maximum available borrowings under the
revolving credit facility amounted to $2,564,000. The Company's current assets
exceeded its current liabilities at February 28, 1998 and May 31, 1997 by
$3,404,122 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 February 28, 1998.
FORWARD LOOKING STATEMENT
This report contains forward looking statements which are subject to various
risks and uncertainties. The Company's actual results could differ from those
anticipated in forward looking statements as a result of numerous factors which
may be beyond the Company's control.
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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, 1998 /s/ DAVID L. WHITE
-----------------------
(Officer)
David L. White
Chief Executive Officer
Date: April 14, 1998 /s/ SUSAN I. WILLIAMSON
-----------------------
(Officer)
Susan I. Williamson
Controller/Treasurer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
Exhibit 20.0 Inotek Technologies Corp.
Report furnished to Security Holders
Exhibit 27.0 Financial Data Schedule