<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended May 31, 1996 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NASDAQ
.01 PAR VALUE
(Title of Class) (Name of each exchange on which registered)
Indicate by checkmark 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
------- -------
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of August 20, 1996 was $1,670,739.
Shares of Common Stock outstanding at August 20, 1996 were 4,354,088.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference into the
indicated part of this report: Proxy statement for annual meeting of
shareholders to be held October 14, 1996 which will be filed with the
Securities and Exchange Commission on September 10, 1996----Part III.
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
INOTEK Technologies Corp. (the Company), previously known as Entronics
Corporation, was incorporated in Texas in June 1984 and began operations in
October 1984. In October 1991, the Company merged with and assumed the name of
its wholly- owned subsidiary, INOTEK Technologies Corp. In June 1987, the
Company entered into an Agreement and Plan of Reorganization whereby the
Company was dissolved as a Texas corporation and incorporated as a Delaware
corporation. The Texas corporation transferred substantially all of its assets
and liabilities to the Delaware corporation in exchange for 3,806,250 shares of
the Delaware corporation's common stock which was distributed to shareholders
of the Texas corporation. In addition, 10,000,000 shares of $.01 par value
common stock were authorized and a three-for-two split of the Company's common
stock was effected. In August 1987, the Company consummated its initial public
offering with the registration of 1,000,000 shares of common stock with the
Securities and Exchange Commission. The offering consisted of 400,000 shares
sold by the Company and 600,000 shares sold by officers/shareholders.
In June 1989, the Company acquired INOTEK Corporation, a privately-held Texas
corporation, through the merger with the Company's wholly-owned subsidiary,
Entronics INOTEK Acquisition Corporation which later changed its name to INOTEK
Technologies Corp. In fiscal year 1990, INOTEK Technologies Corp. acquired
three distribution and sales representative companies which provide the same
basic services as INOTEK Technologies Corp.
The Company had two principal operating divisions: (1) INOTEK, a marketing and
service company for instrumentation, process controls, information management,
and test and measurement equipment; and (2) Entronics, which designs,
manufactures, and markets a line of Automatic Money Order Dispensers (AMOD's).
The Entronics division was sold on March 16, 1995 as a result of an unsolicited
offer from one of the division's largest customers. The Company's principal
executive offices are located at 11212 Indian Trail, Dallas, Texas 75229.
DISTRIBUTION/REPRESENTATIVE SALES AND SERVICE
PRODUCTS AND OPERATIONS
INOTEK's role as a high technology marketing and service company is a function
of meeting the needs of two constituencies: (1) the customers (end users) of
its products and services; and (2) the product vendors that it represents.
INOTEK's base distribution business covers a broad range of product lines from
highly-engineered, technically-advanced items to commodity-oriented components
where customers purchase single or multiple quantities of specific products.
Representative product lines are shipped by the manufacturer to the end
customer with INOTEK receiving a commission for its marketing and support
effort. The industrial marketplace includes: (1) Process controls and
instrumentation - products utilized in the manipulation of pressures,
temperatures, and flows and the measurement of their physical properties; (2)
Test equipment - portable instrumentation used in diagnostic evaluation of
electronic, process, or automation equipment; and (3) Information management -
the computer hardware and software, the programmable logic controller, sensors,
and final control devices responsible for the master control of a factory
process. Among INOTEK's major product lines are IBM industrial computers,
Reliance programmable controls, OPTO 22, Fluke electronic test equipment and
Tektronix oscilloscopes.
INOTEK operates a technical services business which involves the repair and
calibration of customer-owned factory equipment. Technical services also are
provided for products manufactured in a semi-finished state (i.e. process
control/information management products) which require final configuration to
meet customer's specification. Many of these services are provided at an
additional charge to the customer.
2
<PAGE> 3
ITEM 1. BUSINESS (CONTINUED)
PATENTS AND TRADEMARKS
INOTEK believes that its corporate name and logo has significant recognition
throughout the industry and has registered it as a trademark.
MAJOR CUSTOMERS
INOTEK, through the purchase of Mill-Power Technologies in April 1990, has been
able to develop its marketing of service contracts on office and industrial
equipment. Pursuant to this acquisition, the Company has one major customer
for this service, Duke Power Company. Sales to this customer for fiscal 1996
for industrial equipment and service contracts were $2,463,425.
MARKETING
At May 31, 1996, INOTEK had a sales force of 36 employees marketing in 21
southern and midwestern states. INOTEK's success as a high profile
distributor/representative of medium-to-high technological products has been
made possible through the establishment and cultivation of relationships with
well known product vendors. Already well established in the southwest, INOTEK
expanded into the midwest through the purchase of Pacific Indicator Company in
August 1989; into the south and southeast in November 1989, through the
acquisition of the Sesco Division of Austin-based Quinstar, Inc. and in April
1990, into Virginia, and North and South Carolina through the acquisition of
Mill-Power Technologies, an affiliate of Charlotte-based Duke Power Company.
In addition, INOTEK publishes a catalogue that is distributed widely to current
and potential customers.
COMPETITION
Competition in the high-technology, product distribution/representative market
is based on product features, customer service, quality distribution channels,
technical sales force, and consumer brand preferences. INOTEK competes with a
large number of other distributors on primarily a local or regional basis.
There are few national competitors. The ability to handle a broad range of
products and services for those products has allowed INOTEK to compete in the
existing market. In the process control and test equipment product lines,
vendors and manufacturers are shifting their marketing direction to make
greater use of the high tech sales and service channel. This channel continues
to develop as manufacturers recognize the value that distributors with service
capabilities have to offer, both to themselves and to their end user.
EMPLOYEES
At May 31, 1996, INOTEK had 98 full time employees. INOTEK's employees are not
covered by collective bargaining agreements and management believes that its
employee relations are good.
3
<PAGE> 4
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases a 24,000 square foot facility in Dallas, Texas at a base
rent of $5,775 per month or $69,300 per year. Management believes that this
facility, which houses the Company's corporate personnel and certain INOTEK
operations, sales, and service personnel, will be adequate for the foreseeable
future; however, the Company's future facilities requirements will depend upon
the success of the Company's business.
INOTEK also has branch offices in the following locations:
Houston, Texas Chicago, Illinois
Tulsa, Oklahoma Charlotte, North Carolina
ITEM 3. LEGAL PROCEEDINGS
None pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended May 31, 1996.
4
<PAGE> 5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded in the over-the-counter market in the
United States and is quoted on the National Association of Security Dealer's,
Inc. Automatic Quotation System (NASDAQ) under the symbol INTK. The following
table sets forth the quarterly high and low prices reported on the NASDAQ
National Market System for the years ended May 31, 1996 and 1995.
QUARTERLY STOCK PRICES
FISCAL YEARS ENDED MAY 31
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------
High Low High Low
--------------------------------------------
<S> <C> <C> <C> <C>
June - Aug 1-5/16 5/8 1-5/8 15/16
Sep - Nov 1-1/8 1/2 1-1/4 3/4
Dec - Feb 25/32 7/16 1 5/8
Mar - May 1-3/16 17/32 1 9/16
</TABLE>
At August 20, 1996, 4,354,088 shares of the Company's Common Stock were issued
and outstanding to 1,122 holders of record.
DIVIDENDS
The Company has not declared cash dividends since inception and has no
intention to do so in the foreseeable future.
5
<PAGE> 6
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements and notes thereto, and Item 7--"Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere herein. The following selected financial data is not covered by the
"Report of Independent Auditors" included elsewhere herein. See Note 2 to the
financial statements for information regarding business acquisitions and
divestitures.
Fiscal Year Ended May 31
(000's except per share data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales $24,534 $24,892 $27,997 $25,738 $23,550
Gross profit 6,761 6,570 8,278 8,002 7,758
Earnings (loss) from continuing operations
before income taxes, extraordinary credit
and cumulative effect of accounting change 345 (656) 525 229 117
Earnings (loss) from continuing operations
before extraordinary credit and cumulative
effect of accounting change 156 (468) 282 74 25
Net earnings (loss) 156 (66) 815 196 431
PER SHARE:
Earnings (loss) from continuing operations
before extraordinary credit and cumulative
effect of accounting change .04 (.10) .06 .02 .01
Net earnings (loss) .04 (.01) .17 .04 .09
BALANCE SHEET DATA:
Total assets 8,050 8,602 10,509 9,764 12,107
Long-term obligations (including redeemable
common stock) - 387 635 902 1,177
Shareholders' equity 5,541 5,385 5,456 4,652 4,456
</TABLE>
6
<PAGE> 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1996 VS. 1995
Sales decreased 1% to $24,533,727 in 1996 from $24,891,783 in 1995, due
primarily to lower sales volumes experienced in the Company's distribution
operations. Service revenues increased by 14% to $2,688,625 in 1996 from
$2,366,221 in 1995 due to increased service and repair levels. Gross margins
from the distribution of process controls, instrumentation, factory automation
and test and measurement equipment remained steady at 25% while margins from
INOTEK's service operations improved from 39% in 1995 to 47% in 1996 due to
productivity improvements.
Sales and marketing expenses decreased 26% or $1,205,136 from 1995 to 1996 as a
result of an effort beginning in December 1994 to reduce headcount while
maintaining support for customers and product lines. General and
administrative expenses increased 19% or $462,940 due to somewhat higher
compensation costs. Overall operating expenses decreased 10% from $7,124,341
in 1995 to $6,382,145 in 1996. At each balance sheet date, the Company
evaluates the realizability of goodwill based on nondiscounted cash flows and
operating income. Based upon its most recent analysis, the Company believes
that no material impairment of goodwill exists at May 31, 1996.
Interest expenses decreased from $101,166 in 1995 to $33,815 in 1996 due to
lower outstanding borrowings. Proceeds from the sale of the Company's
Entronics division in March 1995 were substantially used to reduce debt
incurred under INOTEK's revolving credit agreement.
Tax expense amounted to $188,648 in 1996 as compared with a benefit of $187,632
in 1995. The effective tax rates for 1996 and 1995 are 55% and 29%,
respectively. The higher effective tax rate in 1996 is due to the effect of
goodwill amortization and other expenses which are not deductible for income
tax purposes. The realization of deferred tax assets is based on available
taxable income during the carryback period.
1995 VS. 1994
Sales decreased 11% to $24,891,783 in 1995 from $27,996,666 in 1994, due
principally to lower shipment volumes in the Company's instrumentation, process
controls, and test equipment product lines. The Company's service revenues
declined by 23% to $2,366,221 in 1995 from $3,092,324 in 1994 as a result of
lower revenues from the Company's service agreement with Duke Power Co. Gross
margins related to INOTEK's industrial equipment distribution business declined
from 26% in 1994 to 25% in 1995 primarily as a result of a more competitive
market while service gross margins declined from 48% in 1994 to 39% in 1995 as
a result of lower contract billings to Duke Power Co.
In addition, in an effort to concentrate its focus on its core distribution
business areas, the Company terminated its systems engineering operations
effective July 31, 1994 which had contributed approximately a $200,000 loss to
the Company's results of operations for the 1995 fiscal year.
Operating expenses decreased by 7% from $7,666,884 in 1994 to $7,124,341 in
1995 as a result of the elimination of expenses related to the systems
engineering operations as well as lower personnel costs resulting from a
reduction in force in December 1994. These savings offset approximately
$100,000 in cost related to the settlement in fiscal year 1995 of a dispute
regarding the performance of a single systems engineering contract. Operating
expenses as a percent of total sales increased from 27% in 1994 to 29% in 1995.
At each balance sheet date, the Company evaluates the realizability of goodwill
based on nondiscounted cash flows and operating income. Based upon its most
recent analysis, the Company believes that no material impairment of goodwill
exists at May 31, 1995.
7
<PAGE> 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Interest expense increased from $86,512 in 1994 to $101,166 in 1995 due to
higher interest rates in effect during the period.
Tax expense amounted to $187,632 benefit in 1995 as compared with a $243,232
provision in 1994. The effective tax rates were 29% and 46% in 1995 and 1994,
respectively. The difference in effective rates from the two years was
primarily the result of the amortization of goodwill and other expenses which
are not deductible for income tax purposes. In the first quarter of fiscal
year 1994, the Company adopted Financial Accounting Statement No. 109,
"Accounting for Income Taxes". The cumulative effect of applying the change in
method was recognized as a credit to income of $138,000 in 1994. Realization
of deferred tax assets is based on available taxable income during the
carryback period.
INFLATION
The impact of inflation or changing prices has not had a material economic
effect (other than normal industry trends) on past business operations or
projected future activity.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash amounted to $460,855 and $576,799, at May 31, 1996 and 1995,
respectively. Cash provided by operations during the years ended May 31, 1996,
1995, and 1994 amounted to $335,372, $823,049, and $399,551, respectively.
In September 1995, the Company renewed its agreement with Texas Commerce Bank
of Dallas to provide a one-year revolving credit facility of up to $3 million,
depending on the value of the borrowing base, as defined in the agreement.
Borrowings under the agreement bear interest at either a Eurodollar-based rate
plus 250 basis points or the bank's prime rate and are secured by the Company's
accounts receivable and inventory. The agreement includes certain covenants
specifying the maximum ratio of debt to tangible net worth and the minimum
tangible net worth that the Company must maintain. As of May 31, 1996, the
balance due under the revolving credit facility totaled $300,000 while the
maximum available borrowings amounted to $2,139,825.
During 1996, the Company elected to purchase all the remaining shares of the
Company's common stock from a shareholder and former officer under an agreement
allowing the shareholder to resell the stock to the Company at a price of
$3.125 per share. The total cost of the transaction was $378,466 and allowed
the Company to avoid certain expenses which would have exceeded the cost of
funding the stock purchase. There are no other commitments on behalf of the
Company to acquire its stock.
On March 16, 1995, the Company sold its Entronics division for $958,302 as a
result of an unsolicited offer received from on of the division's largest
customers. Income from the Entronics division net of related taxes amounted to
$187,357 and $395,187 in 1995 and 1994, respectively and was estimated to
diminish further in future years. The divestiture allows the Company to focus
further on its core distribution operations. Cash proceeds from the sale were
used substantially to reduce borrowings under the Company's bank revolving
credit agreement.
In February 1991, two officer/shareholders agreed to make available to the
Company an unsecured, ten-year, standby line of credit of $500,000, available
on demand and renewable annually. During 1992, $94,000 was advanced to the
Company under the line of credit with an agreement to repay the amount over a
five-year period. During 1996, $22,298 was repaid to the officer/shareholders
leaving $5,945 outstanding at May 31, 1996. There were no advances during the
year under the line of credit agreement.
8
<PAGE> 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Other than that previously mentioned, the Company has not identified any matter
out of the normal course of operations that may have an impact on the Company's
future operations and has no material commitments of capital resources other
than normal business operations. Expenditures for working capital and property
and equipment should remain consistent with previous operating requirements and
with the size of a company in our industry.
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED
Statement of Financial Accounting Standards (SFAS) No. 121, which the Company
will adopt in fiscal year 1997, establishes accounting standards for the
impairment of long-lived assets and certain other intangible assets.
Management is currently analyzing the impact of the adoption of SFAS No. 121,
but does not anticipate any material impact on the company's consolidated
financial statements. SFAS No. 123, "Accounting For Stock-Based Compensation",
establishes financial accounting and reporting standards for stock-based
employee compensation plans. SFAS No. 123 permits, as an alternative, the use
of existing accounting rules for such plans. The Company expects to adopt this
alternative in fiscal year 1997, therefore, SFAS 123 will have no effect on the
Company's consolidated financial statements except for the additional required
disclosures.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements on page 10.
9
<PAGE> 10
INOTEK TECHNOLOGIES CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Financial Statements and Notes:
Balance Sheets as of May 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Statements of Operations for the Years Ended May 31, 1996, 1995, and 1994 . . . . . . . . . . . . . . 14
Statements of Shareholders' Equity for the Years Ended May 31, 1996, 1995, and 1994 . . . . . . . . . 16
Statements of Cash Flows for the Years Ended May 31, 1996, 1995, and 1994 . . . . . . . . . . . . . . 17
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Schedule II-Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
All other schedules are omitted because they are not applicable or not
required, or because the required information is included in the financial
statements or notes thereto.
10
<PAGE> 11
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
INOTEK Technologies Corp.
We have audited the accompanying balance sheets of INOTEK Technologies Corp. as
of May 31, 1996 and 1995, and the related statements of operations,
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of INOTEK Technologies Corp. as
of May 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
We have also audited Schedule II of INOTEK Technologies Corp. for each of the
two years in the period ended May 31, 1996. In our opinion, this schedule
presents fairly, in all material respects, the information required to be set
forth therein.
GRANT THORNTON LLP
Dallas, Texas
July 23, 1996
11
<PAGE> 12
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
INOTEK Technologies Corp.
We have audited the accompanying statements of operations, shareholders' equity
and cash flows of INOTEK Technologies Corp. for the year ended May 31, 1994.
Our audit also included the related financial statement schedule listed in the
index to the financial statements. The financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of INOTEK
Technologies Corp. for the year ended May 31, 1994, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Note 8 to the financial statements, the Company changed its
method of accounting for income taxes, effective June 1, 1993.
ERNST & YOUNG LLP
Dallas, Texas
July 18, 1994
12
<PAGE> 13
INOTEK TECHNOLOGIES CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31
1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 460,855 $ 576,799
Trade receivables, net of allowance for doubtful accounts
of $77,809 in 1996 and $25,770 in 1995 2,644,022 2,664,396
Inventories 2,002,231 2,284,406
Deferred tax asset 75,572 52,000
Prepaid expenses and other assets 96,588 115,393
- -------------------------------------------------------------------------------------------------------------
Total current assets 5,279,268 5,692,994
Property and equipment, net 351,958 449,975
Goodwill, net of accumulated amortization of $452,509 in 1996
and $386,601 in 1995 2,189,442 2,255,350
Other assets 65,238 43,990
Deferred tax asset 164,538 160,000
- -------------------------------------------------------------------------------------------------------------
Total assets $ 8,050,444 $ 8,602,309
=============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade $ 1,423,116 $ 1,874,760
Accrued expenses 669,126 727,601
Income taxes payable 110,777 5,215
Current portion of notes payable, including indebtedness
to shareholders of $5,945 in 1996 and $22,298 in 1995 305,945 222,298
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 2,508,964 2,829,874
Notes payable to shareholders -- 5,945
Redeemable common shares, $.01 par value - 121,109 shares in 1995 -- 381,276
Shareholders' equity:
Common shares, $.01 par value:
Authorized shares - 10,000,000
Issued shares - 4,354,088 in 1996 and 4,475,197 in 1995
Outstanding shares - 4,354,088 in 1996 and 1995 43,541 43,541
Additional paid-in capital 3,299,546 3,299,546
Retained earnings 2,198,393 2,042,127
- -------------------------------------------------------------------------------------------------------------
Total shareholders' equity 5,541,480 5,385,214
- -------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 8,050,444 $ 8,602,309
=============================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 14
INOTEK TECHNOLOGIES CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales
Products $ 21,845,102 $ 22,476,840 $ 24,205,315
Services 2,688,625 2,366,221 3,092,324
Other - 48,722 699,027
- --------------------------------------------------------------------------------------------------------------
24,533,727 24,891,783 27,996,666
Cost of sales
Products 16,343,500 16,878,393 17,907,602
Services 1,429,353 1,432,275 1,605,131
Other - 11,171 205,780
- --------------------------------------------------------------------------------------------------------------
17,772,853 18,321,839 19,718,513
- --------------------------------------------------------------------------------------------------------------
Gross margin 6,760,874 6,569,944 8,278,153
Operating expenses
Sales and marketing 3,466,482 4,671,618 4,951,279
General and administrative 2,915,663 2,452,723 2,715,605
- --------------------------------------------------------------------------------------------------------------
6,382,145 7,124,341 7,666,884
- --------------------------------------------------------------------------------------------------------------
Operating income (loss) 378,729 (554,397) 611,269
Interest expense (33,815) (101,166) (86,512)
- --------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations
before income taxes and cumulative effect
of change in accounting principle 344,914 (655,563) 524,757
Income tax provision (benefit) 188,648 (187,632) 243,232
- --------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations
before cumulative effect of change in
accounting principle 156,266 (467,931) 281,525
Discontinued operation
Income from discontinued operation
(less income taxes of $123,174 in 1995
and $260,781 in 1994) - 187,357 395,187
Gain on sale of discontinued operation
(less income taxes of $141,768) - 214,911 -
- --------------------------------------------------------------------------------------------------------------
Earnings (loss) before cumulative effect of change
in accounting principle 156,266 (65,663) 676,712
Cumulative effect of change in accounting principle - - 138,000
- --------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 156,266 $ (65,663) $ 814,712
==============================================================================================================
</TABLE>
14
<PAGE> 15
INOTEK TECHNOLOGIES CORP.
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share:
Earnings (loss) from continuing operations
before cumulative effect of change in
accounting principle $ .04 $(.10) $ .06
Discontinued operation - .09 .08
Cumulative effect of change in accounting
principle - - .03
- ----------------------------------------------------------------------------------------------------------
Net earnings (loss) $ .04 $(.01) $ .17
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 16
INOTEK TECHNOLOGIES CORP.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Shares Additional Treasury Shares
---------------------- Paid-in Retained ------------------
Shares Amount Capital Earnings Shares Amount Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1993 4,553,717 $ 45,537 $3,595,056 $1,293,078 (90,000) $(281,969) $4,651,702
Issuance of common shares to
previous owner of INOTEK 61,538 616 49,384 - - - 50,000
Acquisition of common shares 72,000 720 224,280 - (238,667) (285,003) (60,003)
Cancellation of treasury shares (298,667) (2,987) (469,516) - 298,667 472,503 -
Net earnings - - - 814,712 - - 814,712
- -----------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1994 4,388,588 43,886 3,399,204 2,107,790 (30,000) (94,469) 5,456,411
Stock options exercised 14,500 145 13,340 - - - 13,485
Cancellation of treasury shares (30,000) (300) (94,169) - 30,000 94,469 -
Acquisition of common shares (19,000) (190) (18,829) - - - (19,019)
Net loss - - - (65,663) - - (65,663)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1995 4,354,088 43,541 3,299,546 2,042,127 - - 5,385,214
Net earnings - - - 156,266 - - 156,266
- -----------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1996 4,354,088 $ 43,541 $3,299,546 $2,198,393 - $ - $5,541,480
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 17
INOTEK TECHNOLOGIES CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ 156,266 $ (65,663) $ 814,712
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Gain on sale of discontinued operation - (356,679) -
Cumulative effect of change in accounting principle - - (138,000)
Depreciation and amortization 290,418 334,241 390,602
Deferred taxes (28,110) (25,000) 39,820
Provision for losses on accounts receivable 55,101 - 54,000
Provision for inventory obsolescence 36,670 47,841 90,000
Net changes in operating assets and liabilities:
Trade receivables (34,727) 421,570 (226,660)
Inventories 245,505 348,718 (461,771)
Prepaid expenses and other assets 18,805 (32,310) 90,401
Accounts payable (451,644) 195,890 104,515
Income taxes payable 105,562 (313,649) 84,617
Accrued expenses (58,475) 57,766 (152,423)
Discontinued operation - 210,324 (290,262)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 335,371 823,049 399,551
INVESTING ACTIVITIES
Purchases of property and equipment (87,755) (161,584) (109,873)
Decrease (increase) in capitalized service inventory (38,738) (74,164) 122,701
Change in other assets (21,248) 20,290 12,133
Proceeds from asset sales - 22,129 -
Proceeds from sale of discontinued operation - 958,302 -
Investing activities of discontinued operation - 40,832 6,818
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (147,741) 805,805 31,779
FINANCING ACTIVITIES
Increase (decrease) in bank borrowings 100,000 (1,507,767) 178,394
Exercise of stock options - 13,485 -
Reduction in notes payable (22,298) (42,791) (50,102)
Purchase of treasury shares - (19,019) (60,003)
Purchase of redeemable common shares (381,276) (225,000) (225,000)
- --------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (303,574) (1,781,092) (156,711)
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (115,944) (152,238) 274,619
Cash at beginning of year 576,799 729,037 454,418
- --------------------------------------------------------------------------------------------------------------
Cash at end of year $ 460,855 $ 576,799 $ 729,037
==============================================================================================================
</TABLE>
17
<PAGE> 18
INOTEK TECHNOLOGIES CORP.
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 28,737 $ 100,913 $ 86,512
Income taxes $ 111,178 $ 338,242 $ 441,676
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES
Modifications of purchase price of stock issued $ - $ - $ 50,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE> 19
INOTEK TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996, 1995, AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
INOTEK Technologies Corp. (the Company) sells and services process
controls and instrumentation, information management products, and
test and measurement equipment. The Company's Entronics division,
which was sold in March, 1995, designs, manufactures, markets, and
repairs a line of Automatic Money Order Dispensers (AMODs).
Inventories
Inventories consist of finished goods and are valued at the lower of
average cost or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
on a straight-line basis over the estimated lives of the individual
assets, ranging from three to seven years.
Goodwill and Intangible Assets
The Company has classified as goodwill the cost in excess of fair
value of the net assets of acquired companies. Goodwill is being
amortized on a straight-line basis over 40 years. At each balance
sheet date, the Company evaluates the realizability of goodwill based
on nondiscounted cash flows and operating income. Based upon its most
recent analysis, the Company believes that no material impairment of
goodwill exists at May 31, 1996. Noncompete agreements and other
intangible assets are being amortized on a straight-line basis over
the estimated lives of the individual assets, ranging from one to
seven years. Accumulated amortization of noncompete agreements and
other intangible assets was $665,398 at May 31, 1996 and 1995.
Revenue Recognition
Sales of products and services are recorded as products are shipped or
services are rendered. Revenue earned on systems engineering
contracts is reported using the percentage-of-completion method. The
percentage of completion is based primarily on contract costs incurred
to date as a percentage of the total estimated costs on an individual
contract. Where there is a change in the estimated cost to complete a
project, the Company recognizes the effect of the change in the period
in which it becomes known. Charges are made to operations for any
losses anticipated on individual contracts. Sales to one customer,
Duke Power Company, totaled approximately $2,463,425, $2,333,000, and
$3,380,000 in 1996, 1995, and 1994, respectively.
19
<PAGE> 20
INOTEK TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings per Share
Earnings (loss) per share are computed by dividing net earnings (loss)
by the weighted average number of shares of common stock outstanding
and, where the effect is dilutive, common stock equivalents during the
year. The weighted average number of shares of common stock
outstanding and dilutive common stock equivalents for the years ended
May 31, 1996, 1995 and 1994, were 4,430,084, 4,521,218, and 4,766,444
respectively. The assumed exercise of stock options and warrants is
antidilutive for the year ended May 31, 1995.
Concentrations of Credit Risk
The Company markets its products and services to a diverse group of
manufacturing companies. The Company performs ongoing credit
evaluations of its customers and generally does not require
collateral. Credit losses are provided for in the financial
statements.
The Company has cash deposits consisting primarily of demand deposits
and time deposits with various banks. These deposits have maturities
of less than three months and bear minimal risk. The Company has not
experienced any losses on its cash deposits.
Financial Instruments
The carrying amounts for cash, accounts receivable, and accounts
payable approximate fair value because of the short-term nature of
these financial instruments. The carrying amount reported for notes
payable approximates fair value because substantially all of the
instruments have variable interest rates which reprice frequently.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
2. DIVESTITURES AND ACQUISITIONS
On March 16, 1995, the Company sold its Entronics division for cash
proceeds of $958,302. There are no assets or liabilities related to
the Entronics division included in the accompanying balance sheets.
The identifiable revenues and expenses related to the Entronics
division have been reclassified on 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 $809,113 and $1,511,276 in 1995 and
1994, respectively.
20
<PAGE> 21
INOTEK TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. DIVESTITURES AND ACQUISITIONS (CONTINUED)
During 1990, the Company acquired INOTEK Corporation (INOTEK), a marketing
and service company for instrumentation, process controls, information
management, and systems engineering for approximately $3,000,000 in cash
and common stock over a three-year period based upon INOTEK's future
performance. During 1994, 61,538 additional shares of common stock valued
at $50,000 were issued under the terms of the purchase agreement and were
accounted for as an adjustment to the original purchase price. In
addition, the purchase agreement provided that all shares issued in the
acquisition may be resold to the Company at a price of $3.125 at a rate not
to exceed 6,000 shares per month through January 1, 1997. During 1996, the
Company elected to repurchase all remaining shares of stock subject to the
repurchase option for a total cost of $378,466.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment at May 31 consist of:
1996 1995
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Furniture and fixtures $ 802,125 $ 804,276
Service inventory 811,187 796,232
Machinery and equipment 675,223 606,969
Leasehold improvements 60,118 55,760
Vehicles 83,101 73,154
-----------------------------------------------------------------------------------------------------
2,431,754 2,336,391
Accumulated depreciation (2,079,796) (1,886,416)
-----------------------------------------------------------------------------------------------------
$ 351,958 $ 449,975
=====================================================================================================
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses at May 31, 1996 and 1995, include accrued
compensation costs of $312,476 and $320,856, respectively.
5. NOTES PAYABLE
Notes payable at May 31 consist of:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Bank revolving credit agreement $ 300,000 $ 200,000
Notes payable to officer/shareholders 5,945 28,243
-----------------------------------------------------------------------------------------------------
305,945 228,243
Less current portion 305,945 222,298
-----------------------------------------------------------------------------------------------------
$ - $ 5,945
=====================================================================================================
</TABLE>
21
<PAGE> 22
INOTEK TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE (CONTINUED)
The bank revolving credit agreement provides for borrowings up to
$3,000,000, depending on the amount of the borrowing base, as defined
($2,139,825 maximum available borrowings at May 31, 1996), and bears
interest at the bank's prime rate (8.25% at May 31, 1996).
Alternatively, the Company may elect borrowings to bear interest at a
Eurodollar-based rate plus 250 basis points; however, no borrowings
are outstanding at May 31, 1996 at this rate. Borrowings are secured
by all accounts receivable and inventory. The revolving credit
agreement contains covenants specifying the maximum ratio of debt to
tangible net worth and the minimum tangible net worth that the Company
must maintain. The agreement expires on September 30, 1996.
The notes payable to officer/shareholders are subordinated to the bank
revolving credit agreement, bear interest at 10.5% annually, and are
payable in quarterly installments of $6,101 through June 1996. The
notes were drawn under an annually renewable ten-year standby line of
credit of $500,000, provided by the officer/shareholders. During
1996, 1995, and 1994, the Company made payments under notes payable to
shareholders totaling $22,298, $20,103 and $18,124, respectively.
6. LEASE COMMITMENTS
The Company leases office and manufacturing space and equipment under
various noncancelable lease agreements. Several of the space leases
contain options for renewal or early termination. Total rent expense
was $315,719, $322,089, and $337,485 for the years ended May 31, 1996,
1995 and 1994, respectively. As of May 31, 1996, the future minimum
rental payments are as follows:
<TABLE>
<CAPTION>
Year ending May 31
------------------
<S> <C>
1997 $ 273,175
1998 188,115
1999 63,314
2000 12,395
2001 411
---------------------------------------------------
$ 537,410
===================================================
</TABLE>
7. EMPLOYEE BENEFIT PLANS
In 1987, the Company established the INOTEK Technologies Corp. 401(k)
Savings Plan & Trust (the Plan) to provide eligible employees with a
retirement savings plan. On January 1, 1993, the Plan was amended to
allow employees to defer up to 15% of their compensation and provide
for a matching contribution by the Company of up to 3% of each
eligible employee's compensation. A vesting schedule was also adopted
providing for participant's vesting in Company contributions over
seven years with forfeitures allocated to remaining participants. All
employees are eligible to participate in the Plan upon completing six
months of service. The Company expensed $80,852, $75,312, and $82,400
for Plan contributions for the years ended May 31, 1996, 1995, and
1994, respectively.
22
<PAGE> 23
INOTEK TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
Effective June 1, 1993, the Company changed its method of accounting
for income taxes from the deferred method to the liability method
required by FASB Statement No. 109, "Accounting for Income Taxes". As
permitted under the new rules, prior years' financial statements have
not been restated.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets
and liabilities as of May 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 26,000 $ 15,000
Allowance for obsolete inventory 36,000 24,000
Property and equipment 213,000 208,000
Accrued expenses 13,000 17,000
Inventory 13,000 10,000
Other - 2,000
- ----------------------------------------------------------------------------------------------------
Total deferred tax assets 301,000 276,000
Valuation allowance for deferred tax assets (48,890) (48,000)
- ----------------------------------------------------------------------------------------------------
Net deferred tax assets 252,110 228,000
Deferred tax liabilities:
Prepaid insurance 12,000 16,000
- ----------------------------------------------------------------------------------------------------
Total net deferred tax assets $ 240,110 $ 212,000
</TABLE>
Significant components of the provision for income taxes as of May 31 are
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 188,683 $ (137,787) $ 233,030
State 28,075 (24,845) 21,871
- -----------------------------------------------------------------------------------------------------
216,758 (162,632) 254,901
Deferred:
Federal (28,110) (25,000) (11,669)
- -----------------------------------------------------------------------------------------------------
$ 188,648 $ (187,632) $ 243,232
=====================================================================================================
</TABLE>
23
<PAGE> 24
INOTEK TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
The reconciliation of income tax at the U.S. federal statutory tax rate
to income tax expense (benefit) is %:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at U.S. statutory rates 34% (34)% 34%
Amortization of goodwill 6 3 4
State income taxes 8 (3) 4
Stock repurchase - 2 -
Nondeductible sales expense 7 - -
Other - 3 4
- --------------------------------------------------------------------------------------------------------
55% (29)% 46%
========================================================================================================
</TABLE>
9. STOCK OPTIONS AND WARRANTS
The Company adopted an Incentive/Nonqualified Stock Option Plan (the
1987 Plan) in June 1987 and the INOTEK Technologies Corp. Stock Option
Plan (the 1993 Plan) in October 1993 whereby the Company may grant up
to 100,000 and 200,000, respectively, qualified and non-qualified
incentive stock options to key employees, excluding employees who own
more than 10% of the Company's outstanding stock. The options granted
under the 1987 Plan had an initial exercise price of $0.93 per share
and expire between 1997 and 2001. The options granted under the 1993
Plan vest over five years, are exercisable over a ten year period from
the date of issuance, had an initial exercise price of $1.06 per share,
and expire between 1994 and 2004. A summary of option transactions
under both plans for the years ended May 31, 1996, 1995, and 1994
follows (number of shares):
<TABLE>
<CAPTION>
1993 Plan 1987 Plan
- -----------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of year 46,000 98,500 - 21,250 41,250 42,750
Options granted 57,500 98,500 - - -
Options exercised - - - - (14,500) -
Options canceled (7,500) (52,500) - (1,500) (5,500) (1,500)
- -----------------------------------------------------------------------------------------------------------------------
Options outstanding at end of year 96,000 46,000 98,500 19,750 21,250 41,250
=======================================================================================================================
Options exercisable at end of year 15,500 11,500 - 19,750 21,250 41,250
=======================================================================================================================
</TABLE>
In consideration of the standby line of credit mentioned in Note 5,
the Company granted the two officer/shareholders warrants to purchase
common stock at an initial exercise price of $1 per share for 250,000
shares each or a total of 500,000 shares. The warrants expire
February 11, 2001. The exercise price of all options and warrants
approximates the fair market value of the Company's common stock as of
the date of grant. In December 1995, the exercise price of all
options under both plans and warrants was reset to $.50 per share
which represented the fair market value at that time.
24
<PAGE> 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the directors of the Company is set forth in the
Proxy Statement to be delivered to stockholders in connection with the
Company's Annual Meeting of Stockholders to be held on October 14, 1996
(the Proxy Statement) under the heading "Election of Directors," which
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information concerning executive compensation is set forth in the Proxy
Statement under the heading "Executive Compensation," which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information concerning security ownership of certain beneficial owners
and management is set forth in the Proxy Statement under the heading
"Security Ownership of Management and Principal Stockholders," which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference
from the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) AND (D) FINANCIAL STATEMENTS AND SCHEDULES
The financial statements and schedule are listed on the accompanying Index
of Financial Statements at Item 8 and are filed as part of this Annual
Report on Form 10-K.
(B) REPORTS ON FORM 8-K
There were no Form 8-K reports filed during the quarter ended May 31, 1996.
(C) EXHIBITS
Included as exhibits are the items listed in the Exhibit Index. The
Company will furnish a copy of any of the exhibits below upon payment of
$15.00 per exhibit to cover the costs to the Company of furnishing the
exhibit.
25
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT INDEX
<S> <C>
2.0 Plan and Agreement of Merger dated as of June 30, 1989 by and between Entronics Inotek Acquisition Corporation
and INOTEK Corporation (Filed on 8-K dated June 30, 1989).
2.1 Asset purchase agreement for Mill-Power Technologies and first amendment (Filed on 8-K dated April 16, 1990).
2.2 Second amendment to the asset purchase agreement for Mill-Power Technologies.
3.0 By-Laws of Entronics Inotek Acquisition Corporation.
(Filed on 8-K dated June 30, 1989).
3.1 Amendment to Bylaws of Entronics Inotek Acquisition Corporation for name change.
3.2 Certificate of Ownership and Merger merging INOTEk Technologies Corp. into Entronics Corporation.
27 Financial Data Schedule*
</TABLE>
- -------------------------------------
*Filed Herewith
26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By:/s/ Neal E. Young
--------------------------------------------
Neal E. Young, August 27, 1996
(Chairman of the Board)
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ J. Denny Carreker
- -------------------------------------------
J. Denny Carreker, August 27, 1996
(Director)
/s/ C. Rayford Massey
- -------------------------------------------
C. Rayford Massey, August 27, 1996
(Director)
/s/ Wilson J. Prokosch
- -------------------------------------------
Wilson J. Prokosch, August 27, 1996
(Director)
/s/ R. Lee Simpson
- -------------------------------------------
R. Lee Simpson, August 27, 1996
(Chief Financial Officer)
/s/ David L. White
- -------------------------------------------
David L. White, August 27, 1996
(Director, Chief Executive Officer)
/s/ Neal E. Young
- -------------------------------------------
Neal E. Young, August 27, 1996
(Chairman of the Board)
27
<PAGE> 28
INOTEK TECHNOLOGIES CORP.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MAY 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Additions
Balance at Charged to Charged to Balance at
beginning Costs and Other End of
Description of period Expenses Accounts Deductions Period
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
1996 $ 25,770 $ 55,101 $ 57,097 $ 60,159 $ 77,809
1995 $ 56,714 $ - $ 21,400 $ 52,344 $ 25,770
1994 $ 21,889 $ 54,000 $ 13,650 $ 32,825 $ 56,714
Note: During 1996, 1995 and 1994, additions charged to other accounts consist of certain reclassifications.
Deductions consist of the write-off of uncollectible accounts, net of recoveries.
Allowance for inventory obsolescence
1996 $ 93,689 $ 36,670 $ - $ 25,570 $ 104,789
1995 $ 58,938 $ 47,841 $ - $ 13,090 $ 93,689
1994 $ 171,354 $ 90,000 $ - $ 202,416 $ 58,938
Note: Deductions consist of the write-off of inventory determined to be obsolete.
</TABLE>
28
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.0 Plan and Agreement of Merger dated as of June 30, 1989 by and between Entronics Inotek Acquisition
Corporation and INOTEK Corporation (Filed on 8-K dated June 30, 1989).
2.1 Asset purchase agreement for Mill-Power Technologies and first amendment (Filed on 8-K dated April 16,
1990).
2.2 Second amendment to the asset purchase agreement for Mill-Power Technologies.
3.0 By-Laws of Entronics Inotek Acquisition Corporation.
(Filed on 8-K dated June 30, 1989).
3.1 Amendment to Bylaws of Entronics Inotek Acquisition Corporation for name change.
3.2 Certificate of Ownership and Merger merging INOTEK Technologies Corp. into Entronics Corporation.
27 Financial Data Schedule*
</TABLE>
- --------------------------------------------
*Filed Herewith
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 460,855
<SECURITIES> 0
<RECEIVABLES> 2,721,831
<ALLOWANCES> 77,809
<INVENTORY> 2,002,231
<CURRENT-ASSETS> 5,279,268
<PP&E> 2,431,754
<DEPRECIATION> 2,079,796
<TOTAL-ASSETS> 8,050,444
<CURRENT-LIABILITIES> 2,508,964
<BONDS> 0
<COMMON> 43,541
0
0
<OTHER-SE> 5,497,939
<TOTAL-LIABILITY-AND-EQUITY> 8,050,444
<SALES> 21,845,102
<TOTAL-REVENUES> 24,533,727
<CGS> 16,343,500
<TOTAL-COSTS> 17,772,853
<OTHER-EXPENSES> 6,382,145
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,815
<INCOME-PRETAX> 344,914
<INCOME-TAX> 188,648
<INCOME-CONTINUING> 156,266
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 156,266
<EPS-PRIMARY> .04
<EPS-DILUTED> 0
</TABLE>
