<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, 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, 972-243-7000.
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
--- ---
4,354,088 shares of common stock, $.01 par value (the issuer's only class of
common stock), were outstanding as of August 31, 1996.
<PAGE> 2
INOTEK TECHNOLOGIES CORP.
INDEX
Page
No.
----
Part I. Financial information
Item 1. Financial Statements:
Balance Sheets as of August 31, 1996 (unaudited)
and May 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . 1
Statements of Operations for the Three Months
Ended August 31, 1996 and 1995 (unaudited) . . . . . . . . . . . 2
Statements of Cash Flows for the Three Months
Ended August 31, 1996 and 1995 (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
<PAGE> 3
INOTEK TECHNOLOGIES CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31 MAY 31
1996 1996
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $328,832 $460,855
Trade receivables, net of allowance for doubtful accounts
of $62,735 at August 31 and $77,809 at May 31 2,881,845 2,644,022
Inventories 2,046,374 2,002,231
Deferred taxes 58,394 75,572
Prepaid expenses and other assets 81,148 96,588
- --------------------------------------------------------------------------------------------------------------
Total current assets 5,396,593 5,279,268
Property and equipment, net 391,050 351,958
Goodwill, net of accumulated amortization of $468,986 at
August 31 and $452,509 at May 31 2,172,965 2,189,442
Other assets 76,744 65,238
Deferred taxes 174,450 164,538
- --------------------------------------------------------------------------------------------------------------
Total assets $8,211,802 $8,050,444
==============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,520,126 $1,423,116
Accrued expenses 531,071 669,126
Income taxes payable 113,603 110,777
Current portion of notes payable including indebtedness to
shareholders of $5,945 at May 31 400,000 305,945
- --------------------------------------------------------------------------------------------------------------
Total current liabilities 2,564,800 2,508,964
Shareholders' equity:
Common shares, $.01 par value:
Authorized shares, 10,000,000
Issued shares - 4,354,088 at August 31 and at 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 2,303,915 2,198,393
- --------------------------------------------------------------------------------------------------------------
Total shareholders' equity 5,647,002 5,541,480
- --------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $8,211,802 $8,050,444
==============================================================================================================
</TABLE>
See accompanying notes
1
<PAGE> 4
INOTEK TECHNOLOGIES CORP.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31 AUGUST 31
1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales:
Products $ 5,096,791 $ 5,283,190
Services 648,533 670,475
- --------------------------------------------------------------------------------------------------------------
5,745,324 5,953,665
Cost of sales:
Products 3,691,618 3,911,632
Services 338,390 359,939
- --------------------------------------------------------------------------------------------------------------
4,030,008 4,271,571
- --------------------------------------------------------------------------------------------------------------
Gross margin 1,715,316 1,682,094
Operating expenses:
Sales and marketing 808,209 882,805
General and administrative 705,315 713,397
- --------------------------------------------------------------------------------------------------------------
1,513,524 1,596,202
- --------------------------------------------------------------------------------------------------------------
Operating income 201,792 85,892
Interest expense (7,109) (7,375)
- --------------------------------------------------------------------------------------------------------------
Earnings before income taxes 194,683 78,517
Income tax provision 89,161 43,560
- --------------------------------------------------------------------------------------------------------------
Net earnings $ 105,522 $ 34,957
==============================================================================================================
Net earnings per share $ .02 $ .01
==============================================================================================================
Weighted average shares outstanding 4,571,058 4,463,327
==============================================================================================================
</TABLE>
See accompanying notes
2
<PAGE> 5
INOTEK TECHNOLOGIES CORP.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31 AUGUST 31
1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net earnings (loss) $ 105,522 $ 34,957
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 84,945 84,009
Deferred taxes 7,266 (8,715)
Net changes in operating assets and liabilities:
Accounts receivable (237,823) 76,678
Inventories (44,143) 78,352
Prepaid expenses and other assets 15,440 (82,676)
Accounts payable 97,010 (504,060)
Accrued expenses (138,055) (64,943)
Income tax payable 2,826 40,408
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities (107,012) (345,990)
INVESTING ACTIVITIES
Purchase of property and equipment (105,051) (18,549)
Decrease (increase) in other assets (11,506) (3,624)
Increase in capitalized service inventory (2,509) (38,245)
- --------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (119,066) (60,418)
FINANCING ACTIVITIES
Net increase in bank borrowings 100,000 100,000
Reduction in notes payable (5,945) (5,360)
Shares redeemed - (56,250)
- --------------------------------------------------------------------------------------------------------------
Net cash used in financing activities 94,055 38,390
- --------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents (132,023) (368,018)
Cash and cash equivalents, beginning of period 460,855 576,799
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 328,832 $ 208,781
==============================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 8,754 $ 4,103
Income taxes $ 79,162 $ 11,850
</TABLE>
See accompanying notes
3
<PAGE> 6
INOTEK TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED AUGUST 31, 1996
(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, 1996.
Certain amounts have been reclassified in the 1996 financial statements in
order to conform to the 1997 presentation.
2. LONG-TERM DEBT
On September 30, 1996, the Company extended its bank revolving credit
agreement through September 30, 1997 under the same terms as its previous
agreement.
4
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER 1997 COMPARED TO FIRST QUARTER 1996
The Company's sales decreased 3.5% to $5,745,324 for the first quarter ended
August 31, 1996 from $5,953,665 for the first quarter of the prior year. The
decrease during the quarter was the result of lower volume sales in the
Company's distribution operation. Gross margin as a percent of sales increased
from 28.2% during the first quarter of fiscal year 1996 to 29.9% for the first
quarter of the current fiscal year primarily as a result of a slightly improved
sales mix of higher margin products.
Sales and marketing costs during the first quarter decreased by $74,596 as
compared with the first quarter of fiscal 1996 primarily due to lower
compensation costs. General and administrative expenses were roughly the same
when comparing the two periods.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $328,832 and $460,855 at August 31, 1996 and May
31, 1996, respectively. Outstanding borrowings under the Company's revolving
credit agreement amounted to $400,000 and $300,000 at August 31, 1996 and May
31, 1996, respectively. At August 31, 1996, the maximum available borrowings
under the revolving credit facility amounted to $2,326,254. The Company's
current assets exceeded its current liabilities at August 31, 1996 and May 31,
1996 by $2,831,793 and 2,770,304, respectively.
The Company's funding requirements during the quarter were met through cash on
hand and borrowings against INOTEK's revolving credit agreement. During
September 1996, 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,
1996.
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.
(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 11, 1996 /s/David L. White
-----------------------------
(Officer)
David L. White
Chief Executive Officer
Date: October 11, 1996 /s/R. Lee Simpson
-----------------------------
(Officer)
R. Lee Simpson
Chief Financial Officer
7
<PAGE> 10
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
20 Report furnished to Security Holders
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT (20)
INOTEK TECHNOLOGIES CORP.
REPORT FURNISHED TO SECURITY HOLDERS
TO OUR SHAREHOLDERS:
INOTEK Technologies Corp. reported earnings of $105,522 or $.02 per share on
revenues of $5,745,324 for its first quarter ended August 31, 1996 compared
with earnings of $34,957 or $.01 per share on revenues of $5,953,665 for the
first quarter of the previous year.
INOTEK 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, 1996, we had drawn only $400,000
of the $3 million line.
Thank you for your continued support.
/S/NEAL E. YOUNG /S/DAVID L. WHITE
Neal E. Young David L. White
Chairman Chief Executive Officer
October 11, 1996
INOTEK TECHNOLOGIES CORP.
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31
1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 5,745,324 $ 5,953,665
COST AND EXPENSES:
COST OF SALES 4,030,008 4,271,571
SALES AND MARKETING 808,209 882,805
GENERAL AND ADMINISTRATIVE 705,315 713,397
- ------------------------------------------------------------------------
TOTAL COST AND EXPENSES 5,543,532 5,867,773
- ------------------------------------------------------------------------
OPERATING INCOME 201,792 85,892
INTEREST EXPENSE (7,109) (7,375)
- ------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 194,683 78,517
INCOME TAXES 89,161 43,560
- ------------------------------------------------------------------------
NET EARNINGS $ 105,522 $ 34,957
========================================================================
NET EARNINGS PER SHARE $ .02 $ .01
========================================================================
</TABLE>
INOTEK TECHNOLOGIES CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31 MAY 31
1996 1996
- -----------------------------------------------------------------------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 328,832 $ 460,855
TRADE RECEIVABLES, (NET OF
ALLOWANCE FOR DOUBTFUL
ACCOUNTS OF $62,735 AND $77,809) 2,881,845 2,644,022
INVENTORIES 2,046,374 2,002,231
DEFERRED TAX ASSET 58,394 75,572
PREPAID EXPENSES & OTHER ASSETS 81,148 96,588
- ------------------------------------------------------------------------
TOTAL CURRENT ASSETS 5,396,593 5,279,268
PROPERTY AND EQUIPMENT, NET 391,050 351,958
GOODWILL, NET 2,172,965 2,189,442
OTHER ASSETS 76,744 65,238
DEFERRED TAX ASSET 174,450 164,538
- ------------------------------------------------------------------------
TOTAL ASSETS $ 8,211,802 $ 8,050,444
========================================================================
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 1,520,126 $ 1,423,116
ACCRUED EXPENSES 531,071 669,126
INCOME TAXES PAYABLE 113,603 110,777
CURRENT PORTION OF NOTES
PAYABLE 400,000 305,945
- ------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,564,800 2,508,964
SHAREHOLDERS' EQUITY:
COMMON SHARES, $.01 PAR VALUE;
AUTHORIZED SHARES - 10,000,000
ISSUED SHARES - 4,354,088
OUTSTANDING SHARES - 4,354,088 43,541 43,541
ADDITIONAL PAID-IN CAPITAL 3,299,546 3,299,546
RETAINED EARNINGS 2,303,915 2,198,393
- ------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 5,647,002 5,541,480
- ------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 8,211,802 $ 8,050,444
========================================================================
</TABLE>
8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 328,832
<SECURITIES> 0
<RECEIVABLES> 2,944,580
<ALLOWANCES> 62,735
<INVENTORY> 2,046,374
<CURRENT-ASSETS> 5,396,593
<PP&E> 2,495,353
<DEPRECIATION> 2,104,303
<TOTAL-ASSETS> 8,211,802
<CURRENT-LIABILITIES> 2,564,800
<BONDS> 0
0
0
<COMMON> 43,541
<OTHER-SE> 5,603,461
<TOTAL-LIABILITY-AND-EQUITY> 8,211,802
<SALES> 5,096,791
<TOTAL-REVENUES> 5,745,324
<CGS> 3,691,618
<TOTAL-COSTS> 4,030,008
<OTHER-EXPENSES> 1,513,524
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,109
<INCOME-PRETAX> 194,683
<INCOME-TAX> 89,161
<INCOME-CONTINUING> 105,522
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 105,522
<EPS-PRIMARY> .02
<EPS-DILUTED> 0
</TABLE>
