<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 1995 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, 214-243-7000.
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
--- ---
4,457,197 shares of common stock, $.01 par value (the issuer's only class of
common stock), were outstanding as of August 31, 1995.
<PAGE> 2
INOTEK TECHNOLOGIES CORP.
INDEX
<TABLE>
<CAPTION>
Page
No.
-----
<S> <C>
Part I. Financial information
Item 1. Financial Statements:
Balance Sheets as of August 31, 1995 (unaudited) and May 31, 1995 . . . . . . . . . . . . . . . . 1
Statements of Operations for the Three Months Ended August 31, 1995
and 1994 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Cash Flows for the Three Months Ended August 31, 1995
and 1994 (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
</TABLE>
<PAGE> 3
INOTEK TECHNOLOGIES CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31 MAY 31
1995 1995
- -----------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 208,781 $ 576,799
Trade receivables, net of allowance for doubtful accounts
of $51,943 at August 31 and $25,770 at May 31 2,587,718 2,664,396
Inventories 2,206,054 2,284,406
Deferred taxes 52,257 52,000
Prepaid expenses and other assets 198,069 115,393
- -----------------------------------------------------------------------------------------------------------------
Total current assets 5,252,879 5,692,994
Property and equipment, net 439,335 449,975
Goodwill, net of accumulated amortization of $403,078 at
August 31 and $386,601 at May 31 2,238,873 2,255,350
Other assets 47,516 43,990
Deferred taxes 168,458 160,000
- -----------------------------------------------------------------------------------------------------------------
Total assets $ 8,147,061 $ 8,602,309
=================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,370,700 $ 1,874,760
Accrued expenses 662,658 727,601
Income taxes payable 45,623 5,215
Current portion of notes payable including indebtedness to
shareholders of $22,883 at August 31 and $22,298 at May 31 322,883 222,298
- -----------------------------------------------------------------------------------------------------------------
Total current liabilities 2,401,864 2,829,874
Notes payable to shareholders - 5,945
Redeemable common shares, $.01 par value - 103,109 at August 31
and 121,109 at May 31 325,026 381,276
Shareholders' equity:
Common shares, $.01 par value:
Authorized shares, 10,000,000
Issued shares - 4,457,197 at August 31 and May 31
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 2,077,084 2,042,127
- -----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 5,420,171 5,385,214
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 8,147,061 $ 8,602,309
=================================================================================================================
</TABLE>
See accompanying notes
1
<PAGE> 4
INOTEK TECHNOLOGIES CORP.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31
---------------------------------
1995 1994
<S> <C> <C>
Net Sales:
Products $ 5,283,190 $ 5,882,652
Services 670,475 564,484
Other - 48,722
- ---------------------------------------------------------------------------------------------------------------
5,953,665 6,495,858
Cost of sales:
Products 3,911,632 4,373,152
Services 359,939 375,987
Other - 11,171
- ---------------------------------------------------------------------------------------------------------------
4,271,571 4,760,310
- ---------------------------------------------------------------------------------------------------------------
Gross margin 1,682,094 1,735,548
Operating expenses:
Sales and marketing 882,805 1,301,257
General and administrative 702,222 608,034
- ---------------------------------------------------------------------------------------------------------------
1,585,027 1,909,291
- ---------------------------------------------------------------------------------------------------------------
Operating income (loss) 97,067 (173,743)
Interest expense (18,550) (26,700)
- ---------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations before income taxes 78,517 (200,443)
Income tax provision (benefit) 43,560 (68,959)
- ---------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations 34,957 (131,484)
Discontinued operation - 84,358
- ---------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 34,957 $ (47,126)
===============================================================================================================
Per share:
Earnings (loss) from continuing operations $ .01 $ (.03)
Discontinued operation - .02
- ---------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ .01 $ (.01)
===============================================================================================================
Weighted average shares outstanding 4,463,327 4,623,842
===============================================================================================================
</TABLE>
See accompanying notes
2
<PAGE> 5
INOTEK TECHNOLOGIES CORP.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31
-----------------------------------
1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net earnings (loss) $ 34,957 $ (47,126)
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 84,009 117,578
Deferred taxes (8,715) -
Net changes in operating assets and liabilities:
Accounts receivable 76,678 (341,673)
Inventories 78,352 829,299
Prepaid expenses and other assets (82,676) (78,020)
Accounts payable (504,060) (332,522)
Accrued expenses (64,943) 28,129
Income tax payable 40,408 (248,949)
Discontinued operation - (82,232)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (345,990) (155,516)
INVESTING ACTIVITIES
Purchase of property and equipment (18,549) (29,271)
(Increase) decrease in other assets (3,624) 16,566
Increase in capitalized service inventory (38,245) (43,763)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (60,418) (56,468)
FINANCING ACTIVITIES
Net increase (decrease) in borrowings 100,000 (347,782)
Reduction in notes payable (5,360) (13,207)
Purchase of redeemable common shares (56,250) (56,250)
Exercise of stock options - 13,485
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 38,390 (403,754)
- ------------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents (368,018) (615,738)
Cash and cash equivalents, beginning of period 576,799 729,037
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 208,781 $ 113,299
==================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 4,103 $ 27,615
Income taxes 11,850 235,449
</TABLE>
See accompanying notes
3
<PAGE> 6
INOTEK TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED AUGUST 31, 1995
(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, 1995.
Certain amounts have been reclassified in the 1995 financial statements
in order to conform to the 1996 presentation.
2. LONG-TERM DEBT
The Company extended its bank revolving credit agreement through September
30, 1996 under the same terms as its previous agreement.
3. SALE OF ENTRONICS DIVISION
On March 16, 1995, the Company sold its Entronics division. The
identifiable revenues and expenses related to the Entronics division have
been reclassified in the accompanying statements of operations from their
historical classification to separately identify them as net results from
discontinued operations. Revenues of the Entronics division amounted to
$332,035 for the three months ended August 31, 1994.
4
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER 1996 COMPARED TO FIRST QUARTER 1994
The Company's sales decreased 8% to $5,953,665 for the first quarter ended
August 31, 1995 from $6,495,858 for the first quarter ended August 31, 1994.
The decrease was the result of lower volume sales in the Company's core
distribution business. Gross margin as a percent of sales increased from 26.7%
during the first quarter of fiscal year 1995 to 28.3% for the first quarter of
the current fiscal year principally as a result of higher gross margins from
the Company's computer service operations.
Sales and marketing costs decreased by $418,452 due to headcount reductions in
December 1994 and the discontinuation of the Company's systems engineering
operation. General and administrative expenses increased by $94,188 due to
higher compensation costs and increases in reserves for accounts receivable and
inventory losses.
Interest expense decreased by $8,150 due primarily to lower outstanding
borrowings.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES.
Cash and cash equivalents were $208,781 and $576,799 at August 31, 1995 and May
31, 1995, respectively. Outstanding borrowings under the Company's revolving
credit agreement amounted to $300,000 and $200,000 at August 31, 1995 and May
31, 1995, respectively. At August 31, 1995, the maximum available borrowings
under the revolving credit facility amounted to $2,242,994. The Company's
current assets exceeded its current liabilities at August 31, 1995 and May 31,
1995 by $2,851,015 and 2,863,120, respectively.
The Company's funding requirements during the quarter were met through cash on
hand, cash provided from operations and borrowings against INOTEK's revolving
credit agreement. During September, 1995, 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 August 31, 1995.
5
<PAGE> 8
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)-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.
6
<PAGE> 9
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 12, 1995 /s/David L. White
-----------------------------------
(Officer)
David L. White
Chief Executive Officer
Date: October 12, 1995 /s/R. Lee Simpson
-----------------------------------
(Officer)
R. Lee Simpson
Chief Financial Officer
7
<PAGE> 10
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
Exhibit (20) Report furnished to security holders.
Exhibit (27) Financial Data Schedule
</TABLE>
8
<PAGE> 1
EXHIBIT (20)
INOTEK TECHNOLOGIES CORP.
REPORT FURNISHED TO SECURITY HOLDERS
<PAGE> 2
TO OUR SHAREHOLDERS:
INOTEK Technologies Corp. reported earnings of $34,957 or $.01 per share on
revenues of $5,953,665 for its first quarter ended August 31, 1995 compared
with a loss of $47,126 or $.01 per share on revenues of $6,495,858 for the
first quarter of the previous year.
Our profitability, in spite of 8% lower revenues, was due to reduced operating
expenses as well as much lower interest expense.
INOTEX also announced that it renewed its agreement with Texas Commerce Bank
for a one-year revolving credit facility of up to $3 million. The credit line
provides for borrowings based on the value of the Company's receivables, at
either the bank's prime rate or a LIBOR-based rate and is secured by
receivables and inventory. As of August 31, 1995, we had drawn only $300,000 of
the $3 million line.
We have received a good response (an increase in the average number of daily
orders) to our new catalog and "INOFAX" fax on demand system. We plan to
further increase our marketing efforts with targeted product mailers and a
newsletter to our customers.
Thank you for your continued support.
/s/ NEAL A. YOUNG /s/ DAVID L. WHITE
Neal E. Young David L. White
Chairman Chief Executive Officer
October 12, 1995
INOTEK TECHNOLOGIES CORP.
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31
1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 5,953,665 $ 6,495,858
COST AND EXPENSES:
COST OF SALES 4,271,571 4,760,310
SALES AND MARKETING 882,805 1,301,257
GENERAL AND ADMINISTRATIVE 702,222 608,034
- --------------------------------------------------------------------------------------
TOTAL COST AND EXPENSES 5,856,598 6,669,601
- --------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 97,067 (173,743)
INTEREST EXPENSE (18,550) (26,700)
- --------------------------------------------------------------------------------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 78,517 (200,443)
INCOME TAXES 43,560 (68,959)
- --------------------------------------------------------------------------------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS 34,957 (131,484)
DISCONTINUED OPERATION - 84,358
- --------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ 34,957 $ (47,126)
======================================================================================
PER SHARE:
EARNINGS (LOSS) FROM CONTINUING OPERATIONS $ .01 $ (.03)
DISCONTINUED OPERATION - .02
- --------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ .01 $ (.01)
======================================================================================
</TABLE>
INOTEK TECHNOLOGIES CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31 MAY 31
1995 1995
- -----------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 208,781 $ 576,799
TRADE RECEIVABLES, (NET OF
ALLOWANCE FOR DOUBTFUL
ACCOUNTS OF $51,943 AND
$25,770) 2,587,718 2,664,396
INVENTORIES 2,206,054 2,284,406
DEFERRED TAX ASSET 52,257 52,000
PREPAID EXPENSES & OTHER ASSETS 198,069 115,393
- -----------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 5,252,879 5,692,994
PROPERTY AND EQUIPMENT, NET 439,335 449,975
GOODWILL, NET 2,238,873 2,255,350
OTHER ASSETS 47,516 43,990
DEFERRED TAX ASSET 168,458 160,000
- -----------------------------------------------------------------------------------
TOTAL ASSETS $8,147,061 $8,602,309
===================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $1,370,700 $1,874,760
ACCRUED EXPENSES 662,658 727,601
INCOME TAXES PAYABLE 45,623 5,215
CURRENT PORTION OF NOTICES PAYABLE 322,883 222,298
- -----------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,401,864 2,829,874
NOTES PAYABLE 5,945
REDEEMABLE COMMON SHARES,
$.01 PAR VALUE, 103,109 SHARES
AT AUGUST 31, 1995 AND 121,109
SHARES AT MAY 31, 1995 325,026 381,276
SHAREHOLDERS' EQUITY:
COMMON SHARES, $.01 PAR VALUE;
AUTHORIZED SHARES - 10,000,000
ISSUED SHARES - 4,457,197 AT
AUGUST 31 AND MAY 31 43,541 43,541
ADDITIONAL PAID-IN CAPITAL 3,299,546 3,299,546
RETAINED EARNINGS 2,077,084 2,042,127
- -----------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 5,420,171 5,385,214
- -----------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $8,147,061 $8,602,309
===================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> AUG-31-1995
<CASH> 208,781
<SECURITIES> 0
<RECEIVABLES> 2,587,718
<ALLOWANCES> 51,943
<INVENTORY> 2,206,054
<CURRENT-ASSETS> 5,252,879
<PP&E> 2,390,261
<DEPRECIATION> 1,950,926
<TOTAL-ASSETS> 8,147,061
<CURRENT-LIABILITIES> 2,401,864
<BONDS> 0
<COMMON> 43,541
0
0
<OTHER-SE> 5,376,630
<TOTAL-LIABILITY-AND-EQUITY> 8,147,061
<SALES> 5,283,190
<TOTAL-REVENUES> 5,953,665
<CGS> 3,911,632
<TOTAL-COSTS> 4,271,571
<OTHER-EXPENSES> 1,585,027
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,550
<INCOME-PRETAX> 78,517
<INCOME-TAX> 43,560
<INCOME-CONTINUING> 34,957
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,957
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
