<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 February 29, 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.
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
----- -----
4,354,088 shares of common stock, $.01 par value (the issuer's only class of
common stock), were outstanding as of February 29, 1996.
<PAGE> 2
INOTEK TECHNOLOGIES CORP.
INDEX
<TABLE>
<CAPTION>
Page
No.
----
<S> <C>
Part I. Financial information
Item 1. Financial Statements:
Balance Sheets as of February 29, 1996 (unaudited) and May 31, 1995 . . . . . . . . . . . . . . . . 1
Statements of Operations for the Three Months Ended February 29, 1996
and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Operations for the Nine Months Ended February 29, 1996
and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Cash Flows for the Nine Months Ended February 29, 1996
and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Part II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . 7
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Index to Exhibits
Exhibit (20)-Report Furnished to Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
<PAGE> 3
INOTEK TECHNOLOGIES CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 29 MAY 31
1996 1995
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 255,960 $ 576,799
Trade receivables, net of allowance for doubtful accounts
of $31,847 at February 29 and $25,770 at May 31 2,562,078 2,664,396
Inventories 2,311,704 2,284,406
Deferred taxes 49,005 52,000
Prepaid expenses and other assets 187,088 115,393
- -------------------------------------------------------------------------------------------------------------
Total current assets 5,365,835 5,692,994
Property and equipment, net 421,684 449,975
Goodwill, net of accumulated amortization of $436,032 at
February 29 and $386,601 at May 31 2,205,919 2,255,350
Other assets 65,732 43,990
Deferred taxes 169,249 160,000
- -------------------------------------------------------------------------------------------------------------
Total assets $ 8,228,419 $ 8,602,309
=============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,511,911 $ 1,874,760
Accrued expenses 711,289 727,601
Income taxes payable 71,369 5,215
Current portion of notes payable including indebtedness to
shareholders of $11,738 at February 29 and $22,298 at May 31 411,738 222,298
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 2,706,307 2,829,874
Notes payable to shareholders - 5,945
Redeemable common shares, $.01 par value - 121,109 at May 31 - 381,276
Shareholders' equity:
Common shares, $.01 par value:
Authorized shares, 10,000,000
Issued shares - 4,354,088 at February 29 and 4,475,197 at May 31
Outstanding shares - 4,354,088 at February 29 and May 31 43,541 43,541
Additional paid-in-capital 3,302,356 3,299,546
Retained earnings 2,176,215 2,042,127
- -------------------------------------------------------------------------------------------------------------
Total shareholders' equity 5,522,112 5,385,214
- -------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 8,228,419 $ 8,602,309
=============================================================================================================
</TABLE>
See accompanying notes
1
<PAGE> 4
INOTEK TECHNOLOGIES CORP.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 29 FEBRUARY 28
1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales:
Products $5,650,761 $5,638,723
Services 658,209 561,592
Other - -
- -------------------------------------------------------------------------------------------------------------
6,308,970 6,200,315
Cost of sales:
Products 4,311,805 4,059,772
Services 359,021 335,544
Other - -
- -------------------------------------------------------------------------------------------------------------
4,670,826 4,395,316
- -------------------------------------------------------------------------------------------------------------
Gross margin 1,638,144 1,804,999
Operating expenses:
Sales and marketing 860,394 1,102,269
General and administrative 690,366 768,493
- -------------------------------------------------------------------------------------------------------------
1,550,760 1,870,762
- -------------------------------------------------------------------------------------------------------------
Operating income (loss) 87,384 (65,763)
Interest expense (10,783) (30,148)
- -------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations before income taxes 76,601 (95,911)
Income tax provision (benefit) 42,813 1,318
- -------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations 33,788 (97,229)
Discontinued operation - 67,490
- -------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 33,788 $ (29,739)
=============================================================================================================
Per share:
Earnings (loss) from continuing operations $ .01 $ (.02)
Discontinued operation - .01
- -------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ .01 $ (.01)
=============================================================================================================
Weighted average shares outstanding 4,384,952 4,512,897
=============================================================================================================
</TABLE>
See accompanying notes
2
<PAGE> 5
INOTEK TECHNOLOGIES CORP.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FEBRUARY 29 FEBRUARY 28
1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales:
Products $16,333,041 $17,326,825
Services 2,037,228 1,691,587
Other - 48,722
- -------------------------------------------------------------------------------------------------------------
18,370,269 19,067,134
Cost of sales:
Products 12,218,372 12,659,852
Services 1,083,736 1,065,081
Other - 11,171
- -------------------------------------------------------------------------------------------------------------
13,302,108 13,736,104
- -------------------------------------------------------------------------------------------------------------
Gross margin 5,068,161 5,331,030
Operating expenses:
Sales and marketing 2,638,272 3,476,511
General and administrative 2,122,591 2,148,932
- -------------------------------------------------------------------------------------------------------------
4,760,863 5,625,443
- -------------------------------------------------------------------------------------------------------------
Operating income (loss) 307,298 (294,413)
Interest expense (25,825) (92,074)
- -------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations before income taxes 281,473 (386,487)
Income tax provision (benefit) 147,385 (91,087)
- -------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations 134,088 (295,400)
Discontinued operation - 181,158
- -------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 134,088 $ (114,242)
=============================================================================================================
Per share:
Earnings (loss) from continuing operations $ .03 $ (.07)
Discontinued operation - .04
- -------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ .03 $ (.03)
=============================================================================================================
Weighted average shares outstanding 4,431,342 4,534,638
=============================================================================================================
</TABLE>
See accompanying notes
3
<PAGE> 6
INOTEK TECHNOLOGIES CORP.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FEBRUARY 29 FEBRUARY 28
1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net earnings (loss) $ 134,088 $ (114,242)
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 224,184 268,901
Deferred taxes (6,254) (23,943)
Net changes in operating assets and liabilities:
Accounts receivable 102,318 373,692
Inventories (27,298) 1,026,308
Prepaid expenses and other assets (71,695) (105,111)
Accounts payable (362,849) (900,724)
Accrued expenses (16,312) 18,233
Income tax payable 66,154 (293,367)
Discontinued operation - 164,905
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 42,336 414,652
INVESTING ACTIVITIES
Purchase of property and equipment (68,323) (125,988)
Decrease (increase) in other assets (21,740) 8,826
Increase in capitalized service inventory (78,141) (38,233)
Discontinued operations - 22,395
- -------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (168,204) (133,000)
FINANCING ACTIVITIES
Net increase (decrease) in bank borrowings 200,000 (531,608)
Reduction in notes payable (16,505) (37,568)
Purchase of redeemable common shares (378,466) (168,750)
Retirement of treasury shares - (19,019)
Exercise of stock options - 13,485
- -------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (194,971) (743,460)
- -------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents (320,839) (461,808)
Cash and cash equivalents, beginning of period 576,799 729,037
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 255,960 $ 267,229
=============================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 19,187 $ 67,498
Income taxes 87,468 328,318
</TABLE>
See accompanying notes
4
<PAGE> 7
INOTEK TECHNOLOGIES CORP.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED FEBRUARY 29, 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, 1995.
Certain amounts have been reclassified in the 1995 financial statements in
order to conform to the 1996 presentation.
2. LONG-TERM DEBT
On September 30, 1995, the Company extended its bank revolving credit
agreement through September 30, 1996 under the same terms as its previous
agreement.
3. REDEEMABLE COMMON SHARES
On January 2, 1996, the Company purchased all outstanding redeemable
common shares for $265,966 in cash.
4. 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
$781,842 for the nine months ended February 28, 1995.
5
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRD QUARTER 1996 COMPARED TO THIRD QUARTER 1995
The Company's sales increased 2% to $6,308,970 for the third quarter ended
February 29, 1996 from $6,200,315 for the third quarter ended February 28,
1995. Sales for the first nine months of fiscal year 1996 decreased 4% to
$18,370,269 from $19,067,134 for the first nine months of fiscal year 1995.
The increase during the third quarter was the result of increased service
revenues principally from Duke Power Co. The decrease in sales during the
first nine months was the result of approximately 6% lower product sales
related to the Company's distribution operations offset by 20% growth from
service revenues. Gross margin as a percent of sales decreased from 29.1%
during the third quarter of fiscal year 1995 to 26.0% for the second quarter of
the current fiscal year primarily as a result of lower gross margins from the
distribution of process controls, instrumentation and information management
equipment.
Sales and marketing costs during the third quarter decreased by $241,875 as
compared with the third quarter of fiscal 1995 primarily due to lower
compensation costs resulting from reductions in force made in fiscal year 1995.
General and administrative expenses decreased by $78,127 due to lower bonus
expense, lower uncollectible account expense and lower expense from the
repurchase of stock.
Interest expense decreased by $19,365 due primarily to lower outstanding
borrowings.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $255,960 and $576,799 at February 29, 1996 and
May 31, 1995, respectively. Outstanding borrowings under the Company's
revolving credit agreement amounted to $400,000 and $200,000 at February 29,
1996 and May 31, 1995, respectively. At February 29, 1996, the maximum
available borrowings under the revolving credit facility amounted to
$2,297,235. The Company's current assets exceeded its current liabilities at
February 29, 1996 and May 31, 1995 by $3,359,528 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 February 29, 1996. In January 1996, the Company repurchased
all outstanding redeemable common shares for $265,966 in cash.
6
<PAGE> 9
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.
7
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INOTEK TECHNOLOGIES CORP.
(REGISTRANT)
Date: April 12, 1996 /s/ David L. White
---------------------------------------
(Officer)
David L. White
Chief Executive Officer
Date: April 12, 1996 /s/ R. Lee Simpson
---------------------------------------
(Officer)
R. Lee Simpson
Chief Financial Officer
8
<PAGE> 11
INDEX TO EXHIBITS
DESCRIPTION
Exhibit (20)-Report furnished to security holders.
Exhibit (27)-Financial Data Schedule.
<PAGE> 1
EXHIBIT (20)
INOTEK TECHNOLOGIES CORP.
REPORT FURNISHED TO SECURITY HOLDERS
TO OUR SHAREHOLDERS:
INOTEK Technologies Corp. reported earnings of $33,788 or $.01 per share on
revenues of $6,308,970 for its third quarter ended February 29, 1996 compared
with a net loss of $29,739 or $.01 per share on revenues of $6,200,315 for the
third quarter of the previous year.
For the first nine months of the year, the Company reported earnings of
$134,088 or $.03 per share on revenues of $18,370,269 compared with a net loss
of $114,242 or $.03 per share on revenues of $19,067,134 for the first nine
months of the previous year.
Thank you for your continued support.
/s/ NEAL E. YOUNG /s/ DAVID L. WHITE
Neal E. Young David L. White
Chairman Chief Executive Officer
April 12, 1996
INOTEK TECHNOLOGIES CORP.
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 29 FEBRUARY 28 FEBRUARY 29 FEBRUARY 28
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 6,308,970 $ 6,200,315 $ 18,370,269 $19,067,134
COST AND EXPENSES:
COST OF SALES 4,670,826 4,395,316 13,302,108 13,736,104
SALES AND MARKETING 860,394 1,102,269 2,638,272 3,476,511
GENERAL AND ADMINISTRATIVE 690,366 768,493 2,122,591 2,148,932
- -------------------------------------------------------------------------------------------------------
TOTAL COST AND EXPENSES 6,221,586 6,266,078 18,062,971 19,361,547
- -------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 87,384 (65,763) 307,298 (294,413)
INTEREST EXPENSE (10,783) (30,148) (25,825) (92,074)
- -------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 76,601 (95,911) 281,473 (386,487)
INCOME TAXES 42,813 1,318 147,385 (91,087)
- -------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS 33,788 (97,229) 134,088 (295,400)
DISCONTINUED OPERATION - 67,490 - 181,158
- -------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ 33,788 $ (29,739) $ 134,088 $ (114,242)
=======================================================================================================
PER SHARE:
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS $ .01 $ (.02) $ .03 $ (.07)
DISCONTINUED OPERATION - .01 - .04
- -------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ .01 $ (.01) $ .03 $ (.03)
=======================================================================================================
</TABLE>
INOTEK TECHNOLOGIES CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 29 MAY 31
1996 1995
- ---------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 255,960 $ 576,799
TRADE RECEIVABLES, (NET OF
ALLOWANCE FOR DOUBTFUL
ACCOUNTS OF $31,847 AND
$25,770) 2,562,078 2,664,396
INVENTORIES 2,311,704 2,284,406
DEFERRED TAX ASSET 49,005 52,000
PREPAID EXPENSES & OTHER ASSETS 187,088 115,393
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 5,365,835 5,692,994
PROPERTY AND EQUIPMENT, NET 421,684 449,975
GOODWILL, NET 2,205,919 2,255,350
OTHER ASSETS 65,732 43,990
DEFERRED TAX ASSET 169,249 160,000
- ---------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 8,228,419 $ 8,602,309
===================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 1,511,911 $ 1,874,760
ACCRUED EXPENSES 711,289 727,601
INCOME TAXES PAYABLE 71,369 5,215
CURRENT PORTION OF NOTES
PAYABLE 411,738 222,298
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,706,307 2,829,874
NOTES PAYABLE - 5,945
REDEEMABLE COMMON SHARES,
$.01 PAR VALUE -121,109
SHARES AT MAY 31, 1995 - 381,276
SHAREHOLDERS' EQUITY:
COMMON SHARES, $.01 PAR VALUE;
AUTHORIZED SHARES - 10,000,000
ISSUED SHARES - 4,354,088 AT
FEBRUARY 29 AND 4,475,197 AT
MAY 31
OUTSTANDING SHARES 4,354,088
AT FEBRUARY 29 AND MAY 31 43,541 43,541
ADDITIONAL PAID-IN CAPITAL 3,302,356 3,299,546
RETAINED EARNINGS 2,176,215 2,042,127
- ---------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 5,522,112 5,385,214
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 8,228,419 $ 8,602,309
===================================================================================================
</TABLE>
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 255,960
<SECURITIES> 0
<RECEIVABLES> 2,593,925
<ALLOWANCES> 31,847
<INVENTORY> 2,311,704
<CURRENT-ASSETS> 5,365,835
<PP&E> 2,463,295
<DEPRECIATION> 2,041,611
<TOTAL-ASSETS> 8,228,419
<CURRENT-LIABILITIES> 2,706,307
<BONDS> 0
<COMMON> 43,541
0
0
<OTHER-SE> 5,478,571
<TOTAL-LIABILITY-AND-EQUITY> 8,228,419
<SALES> 16,333,041
<TOTAL-REVENUES> 18,370,269
<CGS> 12,218,372
<TOTAL-COSTS> 13,302,108
<OTHER-EXPENSES> 4,760,863
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,825
<INCOME-PRETAX> 281,473
<INCOME-TAX> 147,385
<INCOME-CONTINUING> 134,088
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134,088
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
</TABLE>
