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, 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
--- ---
4,604,088 shares of common stock, $.01 par value (the issuer's only class of
common stock), were outstanding as of August 31, 1999.
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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, 1999 (unaudited) and May 31, 1999.........................................1
Statements of Operation for the Three Months Ended August 31, 1999
and August 31, 1998 (unaudited) ......................................................................2
Statements of Cash Flows for the Three Months Ended August 31, 1999
and August 31, 1998 (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
1999 1999
(UNAUDITED)
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 290,639 $ 173,667
Trade receivables, net of allowance for doubtful accounts
of $77,904 at August 31 and $73,221 at May 31 2,175,949 2,181,222
Inventories 1,348,854 1,409,887
Deferred taxes 137,578 103,232
Income Tax Receivable 291,021 352,120
Prepaid expenses and other assets 216,155 83,913
----------- ------------
Total current assets 4,460,196 4,304,042
Property and equipment, net 745,123 755,400
Goodwill, net of accumulated amortization of $666,721 at
August 31 and $650,242 at May 31 1,975,230 1,991,709
Other assets 65,166 59,008
Deferred taxes (33,220) --
----------- ------------
Total assets $ 7,212,495 $ 7,110,159
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,191,012 $ 927,953
Accrued expenses 363,658 343,863
Current portion of notes payable -- --
----------- ------------
Total current liabilities 1,554,670 1,271,816
Deferred Tax Liability -- 37,626
Shareholders' equity:
Common shares, $.01 par value:
Authorized shares, 10,000,000
Issued and Outstanding shares
4,604,088 at August 31 and 4,354,088 at May 31 46,041 43,541
Additional paid-in-capital 3,367,047 3,299,546
Retained earnings 2,284,117 2,497,010
----------- ------------
Total shareholders' equity 5,697,205 5,840,097
Less: Common stock in treasury at cost, 100,000 shares in 1999 (39,380) (39,380)
----------- ------------
Total Shareholders' equity 5,657,825 5,800,717
----------- ------------
Total liabilities and shareholders' equity $ 7,212,495 $ 7,110,159
=========== ============
See accompanying notes
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STATEMENTS OF OPERATION
(UNAUDITED)
THREE MONTHS ENDED
AUGUST 31 AUGUST 31
1999 1998
------------ ------------
Net Sales $ 4,288,119 $ 5,501,811
----------- ------------
Cost of Goods Sold 3,028,922 4,017,001
----------- ------------
Gross margin 1,259,197 1,484,810
Operating expenses:
Sales and marketing 897,620 893,041
General and administrative 628,401 628,191
----------- ------------
1,526,021 1,521,232
----------- ------------
Operating income (loss) (266,824) (36,422)
Interest Income (Expense) 4,837 (4,297)
----------- ------------
Earnings before income taxes (261,987) (40,719)
Income tax provision (49,140) (5,012)
----------- ------------
Net earnings (loss) $ (212,847) $ (35,707)
=========== ============
Net earnings (loss) per share - basic and diluted $ (.05) $ (.01)
=========== ============
Weighted average shares outstanding 4,706,788 4,644,616
=========== ============
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
AUGUST 31
1999 1998
---------- ----------
Operating Activities
Net earnings $ (212,847) $ (35,707)
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 70,678 58,124
Deferred taxes (38,752) 2,382
Provision for losses on accounts receivable 4,683 10,740
Provision for inventory obsolescence (81,514) 5,001
Net changes in operating assets and liabilities:
Accounts receivable 590 347,769
Inventories 142,504 417,391
Prepaid expenses and other assets (132,242) 83,986
Accounts payable 263,058 (357,080)
Accrued expenses 19,795 (283,123)
Income Tax Payable 61,100 --
---------- ----------
Net cash provided by operating activities 97,053 249,483
INVESTING ACTIVITIES
Purchase of property and equipment (43,249) (77,921)
Increase in other assets (6,833) (31,500)
Decrease (increase) in capitalized service inventory -- 5,614
---------- ----------
Net cash used in investing activities (50,082) (103,807)
FINANCING ACTIVITIES
Net change in bank borrowings -- --
Net increase (decrease) in notes payable -- --
Proceeds from stock issue 70,000 --
---------- ----------
Net cash used in financing activities 70,000 --
---------- ----------
Change in cash and cash equivalents 116,971 145,676
Cash and cash equivalents, beginning of period 173,668 362,830
---------- ----------
Cash and cash equivalents, end of period $ 290,639 $ 508,506
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ (4,837) $ 4,297
Income taxes $ -- $ --
See accompanying notes
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INOTEK TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED AUGUST 31, 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, 1999.
2. LONG-TERM DEBT
On September 23, 1999, the Company secured a new agreement with Bank One,
Texas, N.A. for a one-year revolving credit facility of up to .5 million.
The credit line provides for borrowings based on the Company's
receivables, at the bank's prime rate plus one per cent and is secured by
receivables and inventory.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER 2000 COMPARED TO FIRST QUARTER 1999
The Company's total sales decreased 22.1% to $4,288,119 for the first quarter
ended August 31, 1999 from $5,501,811 for the first quarter of the prior year.
Sales decreased during the first quarter of fiscal year 2000 as compared to the
first quarter of fiscal year 1999 by $1,217,692. Because of the dramatic
downturn in activity in our two key customer categories - manufacturing and
petro-chemical, and the impact of project dollars being channeled into Y-2K
fixes, Inotek endured one of its worst quarters in recent memory. The former
conditions have begun to correct themselves and project dollars should become
available by the third quarter of fiscal year 2000.
Sales and marketing costs during the first quarter of fiscal year 2000 increased
.01% or $4,579 as compared with the first quarter of the previous year. General
and administrative costs remained the same for the first quarter ending August
31, 1999 when compared to the first quarter of last year.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $290,638 and $173,668 at August 31, 1999 and May
31, 1999, respectively. Outstanding borrowings under the Company's revolving
credit agreement amounted to $0 at August 31, 1999 and May 31, 1999. At August
31, 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 August 31, 1999 and May 31, 1999 by $2,905,527 and $3,032,226
respectively.
The Company's funding requirements during the quarter were met through cash on
hand and cash provided by operations. On September 23 1999, the Company secured
a new agreement with Bank One, Texas, N.A. for a one-year revolving credit
facility of up to .5 million. The credit line provides for borrowings based on
the value of the Company's receivables, at the bank's prime rate plus one per
cent and is secured by receivables and inventory. The Company has no material
commitment for capital expenditures as of August 31, 1999.
YEAR 2000 COMPLIANCE
The Company has reviewed all of its current computer applications with respect
to the Year 2000 issue. The Company believes all of its relevant applications
are Year 2000 compliant and that no material costs with respect to Year 2000
compliance will be incurred by the Company. The Company is unable to determine
the effects of the Year 2000 compliance issue, if any, by its suppliers and
customers.
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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 regulations 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: October 15, 1999 /s/ Neal E. Young
-------------------------------------
(Officer)
Neal E. Young
Chairman of the board
Date: October 15, 1999 /s/ Dennis W. Stone
-------------------------------------
(Officer)
Dennis W. Stone
Chief Executive Office
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INDEX TO EXHIBIT
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
20 Report furnished to security holders.
27 Article 5 of regulations S-X.