UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995March 31, 1996
-------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-11668
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INRAD, Inc.
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(Exact name of registrant as specified in its charter)
New Jersey 22-2003247
--------------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation (I.R.S. Employer or organization) Identification Number)
INRAD, Inc. 181 Legrand Avenue, Northvale, NJ 07647
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(Address of principal executive offices) (Zip Code)
(201) 767-1910
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(Registrant's telephone number, including area code)
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(Former name, former address and formerformal 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]X No
[ ]---- ----
Common shares of stock outstanding as of NovemberMay 1, 1995:
2,106,5711996:
2,109,271 shares
INRAD, Inc.
INDEX
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Page Number
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Part I. FINANCIAL INFORMATION ..................................... 1.............................................1
Item 1. Financial StatementsStatements:
Consolidated Balance Sheet as of September
30, 1995March 31, 1996
and December 31, 19941995 (unaudited) .... 1...............................1
Consolidated Statement of Operations for the
Three and Nine Months Ended September 30,March 31, 1996 and 1995
and 1994 (unaudited) ..................... 2.....................................................2
Consolidated Statement of Cash Flows for
the NineThree Months Ended September 30,March 31, 1996 and
1995 and
1994 (unaudited) .............................. 3................................................3
Notes to Consolidated Financial Statements .... 4......................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . 8.........................................7
Part II. OTHER INFORMATION ........................................ 12................................................10
Item 6. Exhibits and Reports on Form 8-K ...... 12........................10
Signatures ......................................................... 13................................................................11
ItemPART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
INRAD, Inc.
-----------
Consolidated Balance Sheet
--------------------------
(Unaudited)
September 30,March 31, December 31,
1996 1995
1994
------------- --------------- ----
Assets
- ------
Assets
Current assets:
Cash and cash equivalents $ 152,659262,801 $ 119,71837,981
Certificate of Deposit 70,000 70,000
Accounts receivable, net 678,408 609,155709,326 804,834
Inventories 1,749,052 1,897,772
Plant and equipment1,675,483 1,671,673
Unbilled contract costs 137,620 151,649
Assets held for sale 150,933 -- Unbilled contract costs 223,361 156,717279,111
Other current assets 36,106 50,16783,819 61,699
----------- -----------
Total current assets 3,060,519 2,903,5292,939,049 3,076,947
Plant and equipment, net 2,121,239 2,742,5311,715,452 1,788,080
Precious metals 283,307 311,797280,001 280,001
Other assets 152,841 125,407152,095 151,016
----------- -----------
Total assets $ 5,617,9065,086,597 $ 6,083,2645,296,044
=========== ===========
Liabilities and Shareowners'Shareholders' Equity
Current liabilities:
Note payable - Bank $ 60,00075,000 $ 520,00060,000
Current obligations under capital leases 203,388 311,199
Subordinated Convertible Notes 1,050,947 846,116
Demand Note 100,000 --99,152 190,754
Accounts payable and accrued liabilities 699,122 625,452740,232 708,403
Advances from customers 181,531 116,560167,158 116,205
Other current liabilities 21,472 52,17238,300 53,084
----------- -----------
Total current liabilities 2,316,460 2,471,4991,119,842 1,128,446
Note Payablepayable - Bank 335,000 --290,000 320,000
Obligations under capital leases 122,861 183,63263,443 75,088
Secured Promissory Notes 250,000 250,000
Subordinated Convertible Notes 1,113,158 1,080,623
Unsecured Demand Convertible Note 100,000 100,000
Note payable - Shareowner 525,262 500,788541,577 533,420
----------- -----------
Total liabilities 3,549,583 3,405,9193,478,020 3,487,577
----------- -----------
Shareowners'Commitments (Note 10)
Shareholders' equity:
Common stock: $.01 par value; 2,121,571 shares issued 21,216 21,216
Capital in excess of par value 6,051,791 6,067,991 5,967,991
Accumulated deficit (3,952,884) (3,243,862)(4,412,630) (4,212,740)
----------- -----------
2,136,323 2,745,3451,660,377 1,876,467
Less - Common stock in treasury,
at cost (15,000 shares) (68,000)(12,300 shares at March 31, 1996;
15,000 shares at December 31, 1995) (51,800) (68,000)
----------- -----------
Total shareowners'shareholders' equity 2,068,323 2,677,3451,608,577 1,808,467
----------- -----------
Total liabilities and shareowners'shareholders' equity $ 5,617,9065,086,597 $ 6,083,2645,296,044
=========== ===========
See Notes to Consolidated Financial Statements.
1
INRAD, Inc.
-----------
Consolidated Statement of Operations
------------------------------------
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------March 31,
----------------------------
1996 1995 1994* 1995 1994*
---- ----
---- ----
Revenues:
Net product sales $ 1,079,2491,149,229 $ 1,229,194 $ 3,117,913 $ 3,960,830983,156
Contract research and development 225,535 315,823 888,934 757,391130,808 286,995
----------- -----------
----------- -----------
1,304,784 1,545,017 4,006,847 4,718,221
----------- -----------1,280,037 1,270,151
----------- -----------
Costs and expenses:
Cost of goods sold 923,303 976,307 2,666,361 3,010,049961,905 840,607
Contract research and development expenses 221,871 314,271 870,332 733,735132,670 281,710
Selling, general and administrative expenses 243,584 264,375 733,556 865,695295,682 259,199
Internal research and development expenses 56,392 127,818 247,816 259,31225,693 100,313
----------- -----------
----------- -----------
1,445,150 1,682,771 4,518,065 4,868,791
----------- -----------1,415,950 1,481,829
----------- -----------
Operating profit (loss) (140,366) (137,754) (511,218) (150,570)(135,913) (211,678)
Other income (expense):
Interest expense (63,172) (81,009) (211,156) (252,757)(74,801) (75,707)
Interest and other income, net 6,602 952 13,352 10,513
----------- -----------10,824 6,588
----------- -----------
Net income (loss) (196,936) (217,811) (709,022) (392,814)(199,890) (280,797)
Accumulated deficit, beginning of period (3,755,948) (2,545,471)(4,212,740) (3,243,862) (2,370,468)
----------- -----------
----------- -----------
Accumulated deficit, end of period $(3,952,884) $(2,763,282) $(3,952,884) $(2,763,282)
=========== ===========$(4,412,630) $(3,524,659)
=========== ===========
Net income (loss) per share $ (0.09) $ (0.10) $ (0.34) $ (0.19)
=========== ===========(0.13)
=========== ===========
Weighted average shares outstanding 2,106,571 2,106,571 2,106,5712,108,737 2,106,571
=========== ===========
=========== ===========See Notes to Consolidated Financial Statements.
2
INRAD, Inc.
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Consolidated Statement of Cash Flows
------------------------------------
(Unaudited)
Three Months Ended March 31,
1996 1995
Cash flows from operating activities:
Net income (loss) $(199,890) $(280,797)
--------- ---------
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Depreciation and amortization 139,531 188,144
Noncash interest 40,692 33,233
Gain on sale of equipment (8,621) --
Changes in assets and liabilities:
Accounts receivable 95,508 (50,618)
Inventories (3,810) --
Unbilled contract costs 14,029 (65,785)
Other current assets (22,120) (29,896)
Precious metals -- (3,113)
Other assets (14,346) (4,777)
Accounts payable and accrued liabilities 31,829 179,777
Advances from customers 50,953 95,369
Other current liabilities (14,784) 17,210
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Total adjustments 308,861 359,544
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Net cash provided by operating activities 108,971 78,747
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Cash flows from investing activities:
Capital expenditures (65,084) (55,288)
Proceeds from sale of equipment 299,180 --
--------- ---------
Net cash provided by (used in) investing activities 234,096 (55,288)
--------- ---------
Cash flows from financing activities:
Principal payments of note payable - ----------------
* Prior year amounts have been reclassified to conform to current year presentation.
See Notes to Consolidated Financial Statements.
2
INRAD, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
----------------------
1995 1994
---- ----
Cash flows from operating activities:
Net income (loss) $(709,022) $(392,814)
--------- ---------
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization 564,432 528,798
Noncash interest expense 104,305 93,522
Changes in assets and liabilities:
Accounts receivable (69,253) 148,715
Inventories 148,720 5,967
Unbilled contract costs (66,644) 15,540
Other current assets 14,061 8,133
Precious metals 28,490 726
Other assets (29,124) (5,900)
Accounts payable and accrued liabilities 73,670 (129,672)
Advances from customers 64,971 (23,092)
Other current liabilities (30,700) (1,249)
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Total adjustments 802,928 641,488
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Net cash provided by operating activities 93,906 248,674
--------- ---------
Cash flows from investing activities:
Capital expenditures (140,308) (137,375)
Proceeds from sale of equipment 47,925 --
--------- ---------
Net cash (used in) investing activities (92,383) (137,375)
--------- ---------
Cash flows from financing activities:
Principal payments of note payable - Bank (125,000) (185,000)
Principal payments of capital lease
obligations (168,582) (210,486)
Proceeds from Demand Note 100,000 --
Proceeds from sale of Common Stock Warrants 100,000 --
Proceeds from issuance of Subordinated
Convertible Note 125,000 --
--------- ---------
Net cash provided by (used in) financing
activities 31,418 (395,486)
--------- ---------
Net increase (decrease) in cash and cash equivalents 32,941 (284,187)
Cash and cash equivalents at beginning of period 119,718 560,703
--------- ---------
Cash and cash equivalents at end of period $ 152,659 $ 276,516Bank (15,000) (45,000)
Principal payments of capital lease obligations (103,247) (76,378)
--------- ---------
Net cash (used in) financing activities (118,247) (121,378)
--------- ---------
Net increase (decrease) in cash and cash equivalents 224,820 (97,919)
Cash and cash equivalents at beginning of period 37,981 189,718
--------- ---------
Cash and cash equivalents at end of period $ 262,801 $ 91,799
========= =========
See Notes to Consolidated Financial Statements.
3
INRAD, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
- ----------------------------------------
Basis of Presentation
The accompanying unaudited interim consolidated financial statements of INRAD,
Inc. (the "Company") reflect all adjustments, which are of a normal recurring
nature, and disclosures which, in the opinion of management, are necessary for a
fair statement of results for the interim periods. It is suggested that these
consolidated financial statements be read in conjunction with the audited
consolidated financial statements as of December 31, 19941995 and 19931994 and for the
years then ended and notes thereto included in the Registrant's Annual Report on
Form 10-K, filed with the Securities and Exchange Commission.
Inventory Valuation
Interim inventories as well as cost of goods sold are computed by
using the gross profit method of interim inventory valuation and applying an
estimated gross profit percentage based on the actual values for the preceding
fiscal year, unless the company believes that a different gross profit
percentage may more accurately reflect its current year's cost of goods sold and
gross profit.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. Deferred tax assets and liabilities are
determined based on the difference between the financial statement carrying
amounts and the tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse.
Net Income (Loss) Per Share
Net income (loss) per share is computed using the weighted average number of
common shares outstanding. The effect of common stock equivalents has been
excluded from the computation because their effect is antidilutive.
4
NOTE 2 - INVENTORIES AND COST OF GOODS SOLD
- -------------------------------------------
Cost of goods sold for the three months ended March 31, 1996 was computed based
on the previous year's annual cost of goods sold percentage (83.7%). The
percentage used may or may not be indicative of the actual annual 1996 cost of
goods sold percentage, which will be determined when the Company performs its
annual physical inventory.
For the ninethree month period ended September 30,March 31, 1995, the Company used 85.5% as
its estimated cost of goods sold percentage. For the previous year, 1994, the
actual cost of goods sold percentage, after reclassification of allocated
overhead costs from internal R&D expense to cost of goods sold, was 82.6% (see
Note 5). During the third quarter of 1995, the Company continued to operate at
less than full capacity. The cost of goods sold percentage utilized is now
expected to be representative of the annual percentage, based on actual
year-to-date results and management's estimate of fourth quarter revenues and
expenses. For the nine month period ended September 30, 1994, the Company used
76.0% (after reclassification of allocated overhead costs) as its
estimated cost of goods sold percentage.
NOTE 3 - INCOME TAXES
Deferred tax assets (liabilities) comprise the following:
September 30,March 31, December 31,
1996 1995
1994
------------- ---------------- ----
Deferred tax assets
Inventory capitalization adjustment $ 75,00060,000 $ 73,00060,000
Inventory reserves 4,000 4,00010,000 10,000
Vacation liabilities 60,000 62,000 62,000
Other 8,000 12,000
Loss carryforwards 2,307,000 2,046,0002,351,000 2,279,000
----------- -----------
Gross deferred tax assets 2,446,000 2,185,0002,491,000 2,423,000
----------- -----------
Deferred tax liabilities
Depreciation (363,000) (375,000)(238,000) (242,000)
----------- -----------
Gross deferred tax liabilities (363,000) (375,000)(238,000) (242,000)
----------- -----------
2,083,000 1,810,0002,253,000 2,181,000
Valuation allowance (2,083,000) (1,810,000)(2,253,000) (2,181,000)
----------- -----------
Net deferred tax assets $ 0 $ 0
=========== ===========
5
NOTE 4 - DEBT
On August 31, 1995, the Company signed an agreement with Chemical Bank amending
the terms of its credit facility. The new agreement requires monthly principal
payments of $5,000 from September 1995 to December 1996, and monthly principal
payments of $10,000 thereafter until March 1998. A final payment of $170,000 is
due on April 1, 1998. Borrowings bear interest at prime+2 1/4%. The agreement
also amended the financial covenants contained in the original agreement.
Chemical Bank also agreed to waive any defaults which existed under the previous
facility.
In connection with the new agreement, a shareowner and Subordinated Convertible
Note holder agreed to maintain a certificate of deposit with Chemical Bank in
the amount of $245,000 as collateral for the loan. Once the principal balance of
the loan is reduced below $245,000, with each principal payment made by the
Company, a like amount may be withdrawn from the collateral deposit.
At September 30, 1995 and as of December 31 1994, the Company was in default of
its debt agreements with the holders of the Subordinated Convertible Notes, and
all amounts payable under such agreements have been classified as current
liabilities. Management intends to seek appropriate waivers from the holders of
the Subordinated Convertible Notes, although there can be no assurance that the
Company can obtain such waivers. Any such failure to obtain covenant relief
would result in a default under the terms of the Notes, and, if the indebtedness
was accelerated by the holders of the Notes, would therefore cause a default
under the terms of the Company's Bank indebtedness.
In April 1995, the Company received $225,000 from a shareowner and Subordinated
Convertible Note holder of the Company through the issuance of $125,000 of 8%
Subordinated Convertible Notes due December 15, 2000 (convertible at $1.00 per
share) and 250,000 warrants at $0.40 per share. The warrants entitle the holder
to purchase 250,000 shares of Common Stock at $0.6875 per share. On September
27, 1995, the Company raised an additional $100,000 from the same shareowner in
the form of a 10% Unsecured Demand Promissory Note. The Note is convertible into
Common Stock of the Company at the conversion price of $1.00; interest is also
payable in Common Stock at the same conversion price.
The Company is attempting to renegotiate the terms of certain of its existing
equipment lease obligations, so as to modify the payment stream to reduce the
current payment requirements. There is no assurance that the Company will be
able to execute a satisfactory renegotiation of its current lease agreements.
The Company does not anticipate a material gain or loss to result from the
renegotiation of its lease obligations.Payable - Shareowner
By mutual informal agreement, beginning with the quarter ended June 30, 1995,
the Company has deferred certain interest payments
to its principal shareowner. At March 31, 1996, the Company made one quarterly
interest payment. The payments are expectedCompany expects to be resumedcontinue to make the required quarterly
interest payments in 1996 and, are expectedsubject to include both
the scheduled quarterly payment andadequate cash flow, any deferred
payments.
Although by its terms the indebtedness to the shareowner is due on
December 31, 1996, it cannot be repaid until the Chemical Bank debt has been
repaid in full. The interest
obligations have been accrued by the Company and are included in accounts
payable and accrued liabilities.
6
NOTE 5 - RECLASSIFICATION RELATING TO INTERNAL RESEARCH AND
DEVELOPMENT
Prior to January 1, 1995, internal research and development costs included
direct charges and allocations of plant overhead costs. Effective January 1,
1995, the Company modified its reporting to charge allocations of plant overhead
costs directly to cost of goods sold. This reclassification has no effect on
operating profit (loss) or net income (loss).
NOTE 6 - PLANT AND EQUIPMENT HELD FOR SALE
Management has implemented a program to sell certain nonoperating equipment to
raise additional cash. The equipment is carried at net book value, which
approximates realizable value. The equipmentshareowner loan has been classified as a current
assetnoncurrent in the
accompanying balance sheet because management expects the equipmentshareowner has agreed not to demand
payment prior to March 31, 1997.
Unsecured Demand Convertible Note
Although by its terms the Note is due on demand, it cannot be sold withinrepaid until the
next year.
7Chemical Bank debt has been repaid in full. The Demand Note has been classified
as noncurrent in the accompanying balance sheet because the Note holder has
agreed not to demand payment prior to March 31, 1997.
NOTE 5 - TREASURY STOCK
- -----------------------
During the quarter ended March 31, 1996, the Company issued 2,700 shares of
Common Stock previously held in treasury. The difference between the cost of the
treasury shares and the proceeds received was charged to capital in excess of
par value.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
Results of Operations-------------
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's unaudited consolidated financial statements presented elsewhere
herein. The discussion of results should not be construed to imply any
conclusion that such results will necessarily continue in the future.
Net Product Sales
Net sales for the thirdfirst quarter of 1995 decreased $150,000,1996 increased $166,000, or 12%,17% from the
comparable quarter in 1994, and net sales for the nine months ended September
30, 1995 decreased $843,000, or 21%, from the comparable 1994 period.1995. International shipments in the first ninethree months of
1996 were $162,000 (14% of total shipments) compared to $184,000 (19%) for the
first three months of 1995. Product sales during the first quarter of 1995 were
$540,000, compared
to $977,000 forpoor because the first nine months of 1994. Product salesbacklog at December 31, 1994 was low and because bookings which
could be shipped on a short-term basis were lower in 1995
compared to 1994 due primarily to lower bookings and a lower backlog.
International shipments represented 17% of totalnot adequate. The shipments for the
first nine
months of 1995, compared to 25% forquarter ended March 31, 1996 were higher than the comparable 1994 period.quarter in 1995
because of a higher backlog and an improved rate of orders which could be
shipped on a short-term basis.
The backlog of unfilled product orders was $1,441,000$2,367,000 at September 30, 1995,March 31, 1996,
compared with $1,116,000$1,470,000 at December 31, 19941995 and $1,196,000$1,428,000 at September 30,
1994.March 31, 1995.
Cost of Goods Sold
ForCost of Goods Sold for the nine month periodthree months ended September 30, 1995, the Company used 85.5% as
its estimated cost of goods sold percentage. ForMarch 31, 1996 was computed based
on the previous year, 1994, the
actualyear's annual cost of goods sold percentage after reclassification(83.7%). The
percentage used may or may not be indicative of allocated
overhead costs from internal R&D expense to cost of goods sold, was 82.6% (see
Note 5). During the third quarter of 1995, the Company continued to operate at
less than full capacity. Theactual annual 1996 cost of
goods sold percentage, utilized is now
expected towhich will be representative ofdetermined when the Company performs its
annual percentage, based on actual
year-to-date results and management's estimate of fourth quarter revenues and
expenses.physical inventory.
For the ninethree month period ended September 30, 1994,March 31, 1995, the Company used 76.0%
(after reclassification of allocated overhead costs)85.5% as its
estimated cost of goods sold percentage.
Contract Research and Development
Contract research and development revenues were $131,000 for the third quarter of 1995
decreased $90,000, or 29%, from the comparable quarter in 1994, and revenuesthree months
ended March 31, 1996, compared to $287,000 for the ninethree months ended September 30, 1995 and 1994 were $889,000 and $757,000,
respectively.March 31,
1995. Related contract research and development expenditures, including
allocated indirect costs, for the quarter ended September 30, 1995March 31, 1996 were $222,000$133,000
compared to $314,000$282,000 for the comparable 1994 quarter,1995 quarter. Revenues decreased from
1995 to 1996 due to a lower backlog of contracts. The Company intends to focus
its future funded efforts on programs closely aligned with its core business.
This is likely to result in lower bookings of funded research programs and lower
contract revenues and expenses for the nine
month period ended September 30, 1995 and 1994 were $870,000 and $734,000,
respectively.in 1996.
The Company's backlog of contract R&D was $627,000$357,000 at September 30, 1995,March 31, 1996, compared
with $1,223,000$413,000 at December 31, 19941995 and $2,292,000$1,153,000 at September 30,
1994. The Company expects to reduce its future emphasis on funded research; as a
8March 31, 1995.
7
result, bookings of new contracts is expected to decrease. This change in
emphasis will also result in lower contract revenues and expenses in future
quarters.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $21,000,increased $36,000, or 8%14%, in the
thirdfirst quarter of 1995, and $132,000, or 15%, for the nine months ended September
30, 1995 compared to the same period in 1994.1996. The decreaseincrease is due primarily to lowerhigher selling commissions on internationalexpenses,
including sales salaries, and a higherlower allocation of general and administrative
costsoverhead to contract research and cost containment efforts bydevelopment. Subject to availability of
resources, the Company in the administrative and support areas.
The Company's anticipated future reduction in funded research programs is
expected to result in a lower allocation of G&A costs to contracts. The lower
allocation, which would result in higher net G&A costs, is expected to be
partially offset by cost reductions.
As the Company continues to implement its sales and marketing strategy, selling
expenses are expectedexpects to increase certain selling costs in the fourth quarter of 19951996,
including additional sales staff and future
quarters in 1996.advertising.
Internal Research and Development Expenses
Internal researchResearch and development expenses for the quarter ended September 30,
1995,March 31, 1996 were
$56,000$26,000 compared to $128,000 (as reclassified, Note 5)$100,000 for the quarter ended September 30, 1994. Expenses for the nine month period ended
September 30, 1995 were $248,000, comparedMarch 31, 1995. The Company
expects to $259,000 (as reclassified) for the
comparable 1994 period. During 1995, R&D expenses have decreased each quarter as
the Company decreasedincrease its emphasis on development of new products and increased
its short-term efforts in 1996 on sales and marketing of existing
products rather than development of new products. This trendemphasis on existing
products resulted in lower R&D expenses in the first quarter of 1996, and is
expected to continue in the fourth quarter of 1995.succeeding quarters in 1996.
Interest Expense
Interest expense decreased by $18,000, or 22%, in the third quarter,was $75,000 and decreased $42,000, or 16%,$76,000 for the nine monthsquarters ended September 30, 1995.March 31, 1996
and 1995, respectively. The decrease is due primarily to lower amountsCompany's total borrowings were at similar levels at
March 31, 1996 and 1995, which resulted in a comparable amount of bank and lease borrowings.interest
expense.
Inflation
The Company's policy is to periodically review its pricing of
standard products to keep pace with current costs. As to special and long term
contracts, management endeavors to take potential inflation into account in
pricing decisions. The impact of inflation on the Company's business has
not been material to date.
98
Liquidity and Capital Resources
As shown onLIQUIDITY AND CAPITAL RESOURCES
During the accompanying financial statements,quarter ended March 31, 1996, the Company reported a net
loss of approximately $709,000 forsold equipment, from which
the nine month period ended September 30,
1995, and also incurred losses in 1994, 1993, and 1992. During the past three
years, the Company's working capital requirements were met principally by cash
provided by operating activities, unsecured loans from its principal shareowner,
and borrowings from other sources.
On August 31, 1995,proceeds to the Company signed an agreement with Chemical Bank amending
the termswere approximately $299,000. The Company utilized a
portion of its credit facility. The new agreement requires monthly principal
paymentsthese proceeds to repay in full certain lease obligations. Repayment
of $5,000 from September 1995 to December 1996, and monthly principal
payments of $10,000 thereafter until March 1998. A final payment of $170,000 is
due on April 1, 1998. The agreement also amended the financial covenants
contained in the original agreement. Chemical Bank also agreed to waive any
defaults which existed under the previous facility.
In connection with the new agreement, a shareowner and Subordinated Convertible
Note holder agreed to maintain a certificate of deposit in the amount of
$245,000 as collateral for the loan. Once the principal balance of the loan isthese lease obligations reduced below $245,000, with each principal payment made by the Company, a like
amount may be withdrawn from the collateral deposit.
In April 1995, the Company received $225,000 from a shareowner and Subordinated
Convertible Note holder of the Company through the issuance of $125,000 of 8%
Subordinated Convertible Notes due December 15, 2000 (convertible at $1.00 per
share) and 250,000 warrants at $0.40 per share. The warrants entitle the holder
to purchase 250,000 shares of Common Stock at $0.6875 per share. On September
27, 1995, the Company raised an additional $100,000 from the same shareowner in
the form of a 10% Unsecured Demand Promissory Note. The Note is convertible into
Common Stock of the Company at the conversion price of $1.00; interest is also
payable in Common Stock at the same conversion price. The proceeds from both
transactions were used to pay trade debt and other operating expenses.
At September 30, 1995 and as of December 31 1994, the Company was in default of
its debt agreements with the holders of the Subordinated Convertible Notes, and
all amounts payable under such agreements have been classified as current
liabilities. Management intends to seek appropriate waivers from the holders of
the Subordinated Convertible Notes, although there can be no assurance that the
Company can obtain such waivers. Any such failure to obtain covenant relief
would result in a default under the terms of the Notes, and, if the indebtedness
was accelerated by the holders of the Notes, would therefore cause a default
under the terms of the Company's Bank indebtedness.
As a result of the new Chemical Bank agreement, the Company's monthly principal
payment requirement was reducedrequirements by
$10,000. It is also expected that
renegotiationapproximately $7,000. Renegotiation of the equipmentpayment terms of certain leases will resultin
1995 and repayment of others in 1996 has resulted in a reduction of the total
monthly lease payments of approximately $18,000. Certain leases by $5,000-$10,000. The Company has also continued to make
reductions where possibletheir
original terms mature in other operating expenses. The Company has also
identified certain non-operating assets1996, which it intends to sell to generate
additional cash flows. These steps were taken towill further reduce the Company's short-term
cash
requirements until operatingrequirements. The Company's cash flow improves.
10
Until cash flowrequirements will increase beginning in
1997 because of (1) the principal payment requirement to the bank increases from
operations is at satisfactory levels,$5,000 to $10,000, and (2) the Company intends
to seek additional financing from other sources to supplementmust begin making cash interest payments
($110,000 annually) on its cash flow. If
management is unable to obtain waivers from the holders of the Subordinated Convertible Notes or obtain additional financing,issued in 1993.
Subject to adequate cash flow, the Company may find it
necessaryalso expects to dispose of additional assets.
Dueresume interest
payments to its principal shareowner, including both the scheduled quarterly
payment and any deferred payments. At March 31, 1996, the Company made one
quarterly interest payment to the circumstances described above relating to the technical defaults
under its debt agreements with the holders of the Subordinated Convertible
Notes, obtaining financing or disposing of certain assets, and the Company's
ability to improve operating results and cash flows, there is substantial doubt
about the Company's ability to continue as a going concern.shareowner.
Capital expenditures, including internal labor and overhead charges, were
approximately $140,000 and $137,000 for the
ninethree months ended September 30,March 31, 1996 and 1995 were $65,000 and 1994,$55,000,
respectively. Until the Company is generating satisfactory amounts of cash flow
from its operations, it is expected that future capital expenditures will be
kept to a minimum. Management believes that in the short term, this limitation
will not have a material effect on operations.
11During the first quarter ended March 31, 1996 and for each of the
three years in the period ended December 31, 1995, the Company has suffered
recurring losses from operations. Cash outflows during these periods have been
funded on the basis of borrowings from, and issuance of common stock and
warrants to, shareowners including the principal shareowner, as further
described in the Company's Annual Report on Form 10-K. Management expects that
cash flow from operations, in addition to cash generated from the assets sold
during the first quarter, will provide adequate liquidity for the Company's
operations in 1996. This will substantially depend, however, on the Company's
ability to improve operating results and thereby generate adequate cash flow
from operations. Because of the uncertainty relating to the Company's ability to
improve operating results and cash flows, there is substantial doubt about the
Company's ability to continue as a going concern.
9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(A) ExhibitExhibits:
11. An exhibit showing the computation of per-share earnings is
omitted because the computation can be clearly determined from
the material contained in this Quarterly Report on Form 10-Q.
27. Financial Data Schedule.
(B) There were no Current Reports on Form 8-K filed by the Registrant during the
quarter ended September 30, 1995.
128-K:
None.
10
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INRAD, Inc.
By: /s/ Warren Ruderman
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Warren Ruderman
President and Chief Executive Officer
By: /s/ Ronald Tassello
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Ronald Tassello
Vice President, Finance
(Chief Accounting Officer)
Date: November 13, 1995
13May 9, 1996
See Notes to Consolidated Financial Statements.