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, 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 August 31, 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 August 31, 1998 (unaudited) and May 31, 1998.........................................1
Statements of Operation for the Three Months Ended August 31, 1998
and August 31, 1997 (unaudited) .......................................................................2
Statements of Cash Flows for the Three Months Ended August 31, 1998
and August 31, 1997 (unaudited) .......................................................................3
Notes to Financial Statements.............................................................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................................................................5
Part II. Other Information
Item 1. Legal Proceedings....................................................................................6
Item 4. Submission of Matters to a Vote of Security Holders..................................................6
Item 6. Exhibits and Reports on Form 8-K.....................................................................6
Signatures ...................................................................................................7
Index to Exhibits
Exhibit (20)-Report Furnished to Security Holders............................................................8
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INOTEK TECHNOLOGIES CORP.
BALANCE SHEETS
AUGUST 31 MAY 31
1998 1998
(UNAUDITED)
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 508,506 $ 362,830
Trade receivables, net of allowance for doubtful accounts
of $51,322 at August 31 and $57,403 at May 31 2,848,875 3,207,384
Inventories 1,708,763 2,131,155
Deferred taxes 114,400 117,820
Prepaid expenses and other assets 49,152 133,138
------------ ------------
Total current assets 5,229,696 5,952,327
Property and equipment, net 609,800 579,138
Goodwill, net of accumulated amortization of $600,807 at
August 31 and $584,328 at May 31 2,041,144 2,057,623
Other assets 87,664 56,164
Deferred taxes 109,139 108,101
------------ ------------
Total assets $ 8,077,443 $ 8,753,353
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,286,362 $ 1,643,442
Accrued expenses 381,651 664,774
Current portion of notes payable 200,000 200,000
------------ ------------
Total current liabilities 1,868,013 2,508,216
Shareholders' equity:
Common shares, $.01 par value:
Authorized shares, 10,000,000
Issued and 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 2,866,343 2,902,050
------------ ------------
Total shareholders' equity 6,209,430 6,245,137
------------ ------------
Total liabilities and shareholders' equity $ 8,077,443 $ 8,753,353
============ ============
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
STATEMENTS OF OPERATION
(UNAUDITED)
THREE MONTHS ENDED
AUGUST 31 AUGUST 31
1998 1997
----------- -----------
Net Sales:
Products $ 5,422,660 $ 5,514,687
Services 79,151 656,556
----------- -----------
5,501,811 6,171,243
Cost of sales:
Products 3,915,590 4,070,425
Services 101,411 331,923
----------- -----------
4,017,001 4,402,348
----------- -----------
Gross margin 1,484,810 1,768,895
Operating expenses:
Sales and marketing 893,041 895,805
General and administrative 628,191 785,223
----------- -----------
1,521,232 1,681,028
----------- -----------
Operating income (loss) (36,422) 87,867
Interest expense (4,297) (7,131)
----------- -----------
Earnings before income taxes (40,719) 80,736
Income tax provision (5,012) 42,619
----------- -----------
Net earnings (loss) $ (35,707) $ 38,117
=========== ===========
Net earnings (loss) per share $ (.01) $ .01
=========== ===========
Weighted average shares outstanding 4,354,088 4,644,616
=========== ===========
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
AUGUST 31
1998 1997
---------- ----------
Operating Activities
Net earnings (35,707) $ 38,117
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 58,124 64,455
Deferred taxes 2,382 14,434
Provision for losses on accounts receivable 10,740 12,363
Provision for inventory obsolescence 5,001 5,001
Net changes in operating assets and liabilities:
Accounts receivable 347,769 766,551
Inventories 417,391 (465,804)
Prepaid expenses and other assets 83,986 16,521
Accounts payable (357,080) 58,133
Accrued expenses (283,123) (121,725)
Income tax payable -- 17,630
---------- ----------
Net cash provided by operating activities 249,483 405,676
INVESTING ACTIVITIES
Purchase of property and equipment (77,921) (112,960)
Increase in other assets (31,500) 7,146
Decrease (increase) in capitalized service inventory 5,614 (36,921)
---------- ----------
Net cash used in investing activities (103,807) (142,735)
FINANCING ACTIVITIES
Net change in bank borrowings -- (200,000)
Net increase (decrease) in notes payable -- (3,340)
---------- ----------
Net cash used in financing activities -- (203,340)
---------- ----------
Change in cash and cash equivalents 145,676 59,601
Cash and cash equivalents, beginning of period 362,830 376,145
---------- ----------
Cash and cash equivalents, end of period 508,506 $ 435,746
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 4,297 $ 5,768
Income taxes $ -- $ 10,555
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED AUGUST 31, 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, 1998.
2. LONG-TERM DEBT
On September 30, 1998, the Company extended its bank revolving credit
agreement through October 31, 1999 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 1999 COMPARED TO FIRST QUARTER 1998
The Company's sales decreased 10.8% to $5,501,811 for the first quarter ended
August 31, 1998 from $6,171,243 for the first quarter of the prior year.
Distribution sales decreased during the first quarter of fiscal year 1999 as
compared to the first quarter of fiscal year 1998 by 1.7% or $92,027. Service
revenue decreased 87.9% during the first quarter of fiscal year 1999 compared to
the first quarter of the prior year. The decrease in service revenue during the
quarter was due to the reduction in the service contract with Duke Energy. We
were notified by Duke Energy that it was canceling 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. Gross margin as a percent of sales decreased slightly from 28.6% during
the first quarter of fiscal year 1997 to 27.0% for the first quarter of the
current fiscal year due primarily to the reduction in the Duke Energy service
contract.
Sales and marketing costs during the first quarter of fiscal year 1999 decreased
$2,764 as compared with the first quarter of the previous year. General and
administrative costs decreased 20% or $157,032 during the first quarter ending
August 31, 1998 as compared with the quarter ending August 31, 1997 primarily
due to reduced headcount and a reduction in expenses.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $508,506 and $362,830 at August 31, 1998 and May
31, 1998, respectively. Outstanding borrowings under the Company's revolving
credit agreement amounted to $200,000 at August 31, 1998 and May 31, 1998. At
August 31, 1998 the maximum available borrowings under the revolving credit
facility amounted to $2,305,978. The Company's current assets exceeded its
current liabilities at August 31, 1998 and May 31, 1998 by $3,361,683 and
$3,444,111, 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, 1998, the Company extended its revolving
credit agreement with Chase Bank of Texas (formerly known as Texas Commerce
Bank) for thirteen months under the same terms as its previous agreement. The
Company has no material commitment for capital expenditures as of August 31,
1998.
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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: October 15, 1998 /s/David L. White
------------------------------
(Officer)
David L. White
Chief Executive Officer
Date: October 15, 1998 /s/Susan I. Williamson
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(Officer)
Susan I. Williamson
Treasurer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------- -------
20 Report furnished to security holders
27 Financial Data Schedule