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, 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 November 30, 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 November 30, 1998 (unaudited) and May 31, 1998..............1
Statements of Operation for the Three Months Ended November 30, 1998
and November 30, 1997 (unaudited) ............................................2
Statements of Operation for the Six Months Ended November 30, 1998
and November 30, 1997 (unaudited) ............................................3
Statements of Cash Flows for the Six Months Ended November 30, 1998
and November 30, 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
NOVEMBER 30 MAY 31
1998 1998
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 434,642 $ 362,830
Trade receivables, net of allowance for doubtful accounts
of $62,959 at November 30 and $57,403 at May 31 3,250,819 3,207,384
Inventories 2,126,998 2,131,155
Deferred taxes 119,642 117,820
Prepaid expenses and other assets 120,769 133,138
- -------------------------------------------------------------------------------------------------------------------
Total current assets 6,052,870 5,952,327
Property and equipment, net 602,123 579,138
Goodwill, net of accumulated amortization of $617,285 at
November 30 and $584,328 at May 31 2,024,666 2,057,623
Other assets 75,333 56,164
Deferred taxes 106,703 108,101
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 8,861,695 $ 8,753,353
===================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,050,019 $ 1,643,442
Accrued expenses 443,271 664,774
Current portion of notes payable 200,000 200,000
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,693,290 2,508,216
Shareholders' equity:
Common shares, $.01 par value:
Authorized shares, 10,000,000
Issued and 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 2,825,318 2,902,050
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 6,168,405 6,245,137
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 8,861,695 $ 8,753,353
===================================================================================================================
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
STATEMENTS OF OPERATION
(UNAUDITED)
THREE MONTHS ENDED
NOVEMBER 30 NOVEMBER 30
1998 1997
- -------------------------------------------------------------------------------------------------------------------
Net Sales:
Products $ 5,630,930 $ 6,688,911
Services 47,790 644,884
- -------------------------------------------------------------------------------------------------------------------
5,678,720 7,333,795
Cost of sales:
Products 4,071,871 5,021,239
Services 30,980 330,832
- -------------------------------------------------------------------------------------------------------------------
4,102,851 5,352,071
- -------------------------------------------------------------------------------------------------------------------
Gross margin 1,575,869 1,981,724
Operating expenses:
Sales and marketing 834,788 943,755
General and administrative 771,212 937,926
- -------------------------------------------------------------------------------------------------------------------
1,606,000 1,881,681
- -------------------------------------------------------------------------------------------------------------------
Operating income (loss) (30,131) 100,043
Interest expense (4,297) (5,921)
- -------------------------------------------------------------------------------------------------------------------
Earnings before income taxes (34,428) 94,122
Income tax provision 6,597 60,300
- -------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (41,025) $ 33,822
===================================================================================================================
Net earnings (loss) per share - basic and diluted $ (.01) $ .01
===================================================================================================================
Weighted average shares outstanding 4,354,088 4,643,069
===================================================================================================================
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
STATEMENTS OF OPERATION
(UNAUDITED)
SIX MONTHS ENDED
NOVEMBER 30 NOVEMBER 30
1998 1997
- -------------------------------------------------------------------------------------------------------------------
Net Sales:
Products $11,053,590 $ 12,203,598
Services 126,941 1,301,440
- -------------------------------------------------------------------------------------------------------------------
11,180,531 13,505,038
Cost of sales:
Products 7,987,461 9,091,664
Services 132,391 662,755
- -------------------------------------------------------------------------------------------------------------------
8,119,852 9,754,419
- -------------------------------------------------------------------------------------------------------------------
Gross margin 3,060,679 3,750,619
Operating expenses:
Sales and marketing 1,727,829 1,839,560
General and administrative 1,399,403 1,723,149
- -------------------------------------------------------------------------------------------------------------------
3,127,232 3,562,709
- -------------------------------------------------------------------------------------------------------------------
Operating income (loss) (66,553) 187,910
Interest expense (8,594) (13,052)
- -------------------------------------------------------------------------------------------------------------------
Earnings before income taxes (75,147) 174,858
Income tax provision 1,585 102,919
- -------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (76,732) $ 71,939
===================================================================================================================
Net earnings (loss) per share - basic and diluted $ (.02) $ .02
===================================================================================================================
Weighted average shares outstanding 4,418,942 4,643,357
===================================================================================================================
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
NOVEMBER 30
1998 1997
- -------------------------------------------------------------------------------------------------------------------
Operating Activities
Net earnings (76,732) $ 71,939
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 117,420 110,846
Deferred taxes (424) (59,283)
Provision for losses on accounts receivable 22,355 27,595
Provision for inventory obsolescence 8,335 64,781
Net changes in operating assets and liabilities:
Accounts receivable (65,790) (240,555)
Inventories (4,178) (680,377)
Prepaid expenses and other assets 12,369 8,139
Accounts payable 406,577 500,582
Accrued expenses (221,503) 222,086
Income tax payable - 147,437
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 198,429 173,190
INVESTING ACTIVITIES
Purchase of property and equipment (111,528) (160,848)
Increase in other assets (19,169) 7,640
Decrease (increase) in capitalized service inventory 4,080 (57,316)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (126,617) (210,524)
FINANCING ACTIVITIES
Net change in bank borrowings - (200,000)
Net increase (decrease) in notes payable - (6,758)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities - (206,758)
- -------------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents 71,812 (244,092)
Cash and cash equivalents, beginning of period 362,830 376,145
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 434,642 $ 132,053
===================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 8,641 $ 9,687
Income taxes $ - $ 20,890
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 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
SECOND QUARTER 1999 COMPARED TO SECOND QUARTER 1998
The Company's total sales decreased 22.6% to $5,678,720 for the second quarter
ended November 30, 1998 from $7,333,795 for the second quarter of the prior
year. Distribution sales decreased during the second quarter of fiscal year 1999
as compared to the second quarter of fiscal year 1998 by 15.8% or $1,057,981 due
primarily to a soft market. Service revenue decreased 92.6% or during the second
quarter of fiscal year 1999 compared to the second quarter of the prior year.
The decrease in service revenue during the quarter was due to the expiration of
the service contract with Duke Energy. Gross margin as a percent of sales for
the second quarter of 1999 was 27.8% compared to 27.0% for the second quarter of
the previous year.
Sales and marketing costs during the second quarter of fiscal year 1999
decreased 11.6% or $108,967 as compared with the second quarter of the previous
year. General and administrative costs decreased 17.8% or $166,714 during the
second quarter ending November 30, 1998 as compared with the second quarter of
fiscal year 1998 primarily due to reduced headcount and a reduction in expenses
associated with the Duke Energy service contract.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $434,642 and $362,830 at November 30, 1998 and
May 31, 1998, respectively. Outstanding borrowings under the Company's revolving
credit agreement amounted to $200,000 at November 30, 1998 and May 31, 1998. At
November 30, 1998 the maximum available borrowings under the revolving credit
facility amounted to $2,420,002. The Company's current assets exceeded its
current liabilities at November 30, 1998 and May 31, 1998 by $3,359,580 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 November 30,
1998.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (year 2000) approaches. The issue is
whether computer systems will properly recognize date sensitive information when
the year changes to 2000. The Company is utilizing both internal and external
resources to identify, correct or reprogram, and test the systems for the year
2000 compliance. Project completion is planned for the middle of 1999, allowing
adequate time for testing. Management has not yet assessed the year 2000
compliance expense and related potential effect on the Company's earnings.
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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 (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, 1999 /s/ David L. White
---------------------------------
(Officer)
David L. White
Chief Executive Officer
Date: January 14, 1999 /s/ Susan I. Williamson
---------------------------------
(Officer)
Susan I. Williamson
Treasurer
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EXHIBIT
INDEX
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule