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, 1999 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, 1999.
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INOTEK TECHNOLOGIES CORP.
INDEX
Page
No.
----
Part I. Financial information
Item 1. Financial Statements:
Balance Sheets as of February 28, 1999 (unaudited) and May 31, 1998.........................1
Statements of Operation for the Three Months Ended February 28, 1999
and February 28, 1998 (unaudited) ......................................................2
Statements of Operation for the Nine Months Ended February 28, 1999
and February 28, 1998 (unaudited) .......................................................3
Statements of Cash Flows for the Nine Months Ended February 28, 1999
and February 28, 1998 (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
1999 1998
(UNAUDITED)
- ------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 472,400 $ 362,830
Trade receivables, net of allowance for doubtful accounts
of $72,720 at February 28 and $57,403 at May 31 2,387,414 3,207,384
Inventories 1,533,044 2,131,155
Deferred taxes 107,559 117,820
Prepaid expenses and other assets 56,878 133,138
- ------------------------------------------------------------------------------------------
Total current assets 4,557,296 5,952,327
Property and equipment, net 712,737 579,138
Goodwill, net of accumulated amortization of $633,764 at
February 28 and $584,328 at May 31 2,008,187 2,057,623
Other assets 66,833 56,164
Deferred taxes 104,732 108,101
- ------------------------------------------------------------------------------------------
Total assets $ 7,449,784 $ 8,753,353
==========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,058,058 $ 1,643,442
Accrued expenses 259,078 664,774
Current portion of notes payable 200,000 200,000
- ------------------------------------------------------------------------------------------
Total current liabilities 1,517,136 2,508,216
Shareholders' equity:
Common shares, $.01 par value:
Authorized shares, 10,000,000
Issued and 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 2,628,941 2,902,050
Treasury Stock (39,380)
- ------------------------------------------------------------------------------------------
Total shareholders' equity 5,932,648 6,245,137
- ------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 7,449,784 $ 8,753,353
==========================================================================================
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
STATEMENTS OF OPERATION
(UNAUDITED)
THREE MONTHS ENDED
FEBRUARY 28 FEBRUARY 28
1999 1998
- ---------------------------------------------------------------------------------
Net Sales $ $
Product 4,735,701 5,384,001
Services 175 564,140
- ---------------------------------------------------------------------------------
4,735,876 5,948,141
Cost of Goods Sold 3,387,949 3,804,568
Services 10,937 277,744
- ---------------------------------------------------------------------------------
3,398,886 4,082,312
- ---------------------------------------------------------------------------------
Gross margin 1,336,990 1,865,829
Operating expenses:
Sales and marketing 948,981 907,429
General and administrative 639,666 878,193
- ---------------------------------------------------------------------------------
1,588,647 1,785,622
- ---------------------------------------------------------------------------------
Operating income (loss) (251,657) 80,207
Interest expense (4,297) (5,842)
- ---------------------------------------------------------------------------------
Earnings before income taxes (255,954) 74,365
Income tax provision (59,682) 33,618
- ---------------------------------------------------------------------------------
Net earnings (loss) $ (196,272) $ 40,747
=================================================================================
Net earnings (loss) per share - basic and diluted $ (.05) $ .01
=================================================================================
Weighted average shares outstanding 4,254,088 4,604,157
=================================================================================
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
STATEMENTS OF OPERATION
(UNAUDITED)
NINE MONTHS ENDED
FEBRUARY 28 FEBRUARY 28
1999 1998
- ---------------------------------------------------------------------------------
Net Sales:
Products $ 15,789,291 $ 17,587,599
Services 127,116 1,865,580
- ---------------------------------------------------------------------------------
15,916,407 19,453,179
Cost of sales:
Products 11,374,471 12,896,232
Services 144,267 940,499
- ---------------------------------------------------------------------------------
11,518,738 13,836,731
- ---------------------------------------------------------------------------------
Gross margin 4,397,669 5,616,448
Operating expenses:
Sales and marketing 2,676,810 2,746,989
General and administrative 2,038,849 2,601,342
- ---------------------------------------------------------------------------------
4,715,659 5,348,331
- ---------------------------------------------------------------------------------
Operating income (loss) (317,990) 268,117
Interest expense (13,111) (18,894)
- ---------------------------------------------------------------------------------
Earnings before income taxes (331,101) 249,223
Income tax provision (58,097) 136,537
- ---------------------------------------------------------------------------------
Net earnings (loss) $ (273,004) $ 112,686
=================================================================================
Net earnings (loss) per share - basic and diluted $ (.06) $ .02
=================================================================================
Weighted average shares outstanding 4,254,088 4,625,330
=================================================================================
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
FEBRUARY 28
1999 1998
- ----------------------------------------------------------------------------------
Operating Activities
Net earnings $(273,004) $ 112,686
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 172,459 177,240
Deferred taxes 13,630 (10,219)
Provision for losses on accounts receivable 32,102 0
Provision for inventory obsolescence 13,336 0
Net changes in operating assets and liabilities:
Accounts receivable 787,868 532,671
Inventories 584,775 (636,290)
Prepaid expenses and other assets (48,406) 25,437
Accounts payable (585,384) 179,962
Accrued expenses (253,101) 93,175
Unearned Billings (27,929) 73,076
- ----------------------------------------------------------------------------------
Net cash provided by operating activities 416,346 547,738
INVESTING ACTIVITIES
Purchase of property and equipment (261,176) (240,233)
Increase in other assets (10,775) 5,427
Decrease (increase) in capitalized service inventory 4,555 (18,887)
- ----------------------------------------------------------------------------------
Net cash used in investing activities (267,396) (253,693)
FINANCING ACTIVITIES
Net change in bank borrowings -- (200,000)
Net increase (decrease) in notes payable (73,543)
Purchase of Treasury Shares (39,380)
- ----------------------------------------------------------------------------------
Net cash used in financing activities (39,380) (273,543)
- ----------------------------------------------------------------------------------
Change in cash and cash equivalents 109,570 20,502
Cash and cash equivalents, beginning of period 362,830 376,145
- ----------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 472,400 $ 396,647
==================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 12,938 $ 14,163
Income taxes $ -- $ 100,148
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED FEBRUARY 28, 1999
(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
THIRD QUARTER 1999 COMPARED TO THIRD QUARTER 1998
The Company's total sales decreased 20% to $4,735,875 for the third quarter
ended February 28, 1999 from $5,948,141 for the third quarter of the prior year.
Distribution sales decreased during the third quarter of fiscal year 1999 as
compared to the second quarter of fiscal year 1998 by 12.% or $648,300 due
primarily to a soft market. Service revenue decreased 99.97% during the third
quarter of fiscal year 1999 compared to the third 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
third quarter of 1999 was 28.3% compared to 31.4% for the third quarter of the
previous year.
Sales and marketing costs during the third quarter of fiscal year 1999 increased
4.6% or $41,552 as compared with the third quarter of the previous year. General
and administrative costs decreased 27.2% or $238,527 during the third quarter
ending February 28, 1999 as compared with the third 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 $471,589 and $362,830 at February 28, 1999 and
May 31, 1998, respectively. Outstanding borrowings under the Company's revolving
credit agreement amounted to $200,000 at February 28, 1999 and May 31, 1998. At
February 28, 1999 the maximum available borrowings under the revolving credit
facility amounted to $2,420,002. The Company's current assets exceeded its
current liabilities at February 28, 1999 and May 31, 1998 by $3,040,160 and
$3,404,122, 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 February 28,
1999.
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 (20)-Report furnished to security holders.
2. Exhibit (27)- Article 5 of regulation S-X
(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, 1999 /s/ Neal E. Young
-------------------------------------
(Officer)
Neal E. Young
Chairman of the board
Date: April 14, 1999 /s/ David L. White
-------------------------------------
(Officer)
David L. White
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
20 Report furnished to security holders.
27 Financial Data Schedule.