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)15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNESEPTEMBER 30, 1997
------------------------------------------------------------
OR
[ ]TRANSITION] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to_____________to
---------------------------- -------------
Commission file number 0-11668
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INRAD, INC.
--------------------------------------------------------------- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2003247
- ------------------------ -------------------------------------------------------------------------- ----------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
INRAD, INC. 181 LEGRAND AVENUE, NORTHVALE, NJ 07647
--------------------------------------------------------------------- -------------------------------------------------------------------------------
(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 formal 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
------- ----------- ----
Common shares of stock outstanding as of July 30,October 28, 1997:
2,109,271 SHARES
INRAD, Inc.
INDEX
PAGE NUMBER
Part I. FINANCIAL INFORMATION................................................1PART I.FINANCIAL INFORMATION........................................ 1
Item 1. Financial Statements:
Consolidated Balance SheetsSheet as of JuneSeptember 30,
1997 (unaudited)and December 31, 1996...............................11996................... 1
Consolidated StatementsStatement of Operations for the Three
and SixNine Months Ended JuneSeptember 30, 1997 and 1996
(unaudited).................2............................................. 2
Consolidated Statement of Cash Flows for the SixNine
Months Ended JuneSeptember 30, 1997 and 1996 (unaudited)..............................3.... 3
Notes to Consolidated Financial Statements......................4Statements.............. 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................................6
Part II. OTHER INFORMATION....................................................9Operations.................. 6
PART II.OTHER INFORMATION........................................... 9
Item 6. Exhibits and Reports on Form 8-K................................9
SIGNATURES ..................................................................108-K........................ 9
SIGNATURES.......................................................... 10
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INRAD, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNESEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 104,401172,447 $ 194,577
Certificate of Deposit 70,000 70,000
Accounts receivable, net 674,475751,132 735,160
Inventories 1,828,0671,656,964 1,735,144
Unbilled contract costs 92,43491,996 59,350
Other current assets 61,52223,794 60,292
----------------------- ------------
TOTAL CURRENT ASSETS 2,830,8992,766,333 2,854,523
PLANT AND EQUIPMENT, NET 1,225,6321,115,451 1,431,931
PRECIOUS METALS 279,247 279,248
OTHER ASSETS 167,060165,014 149,503
----------------------- ------------
TOTAL ASSETS $ 4,502,8384,326,045 $ 4,715,205
----------- ------------ -----------------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:CURRENT LIABILITIES:
Note payable - Bank $ 105,000112,500 $ 92,500
Current obligations under capital leases 37,82020, 611 73,399
Accounts payable and accrued liabilities 858,056825,574 640,943
Advances from customers 131,73085,627 73,244
Other current liabilities 19,65414,107 48,865
----------------------- ------------
TOTAL CURRENT LIABILITIES 1,152,2601,058,419 928,951
Note payableNOTE PAYABLE - Bank 167,500BANK 137,500 227,500
Obligations under capital leases 12,576OBLIGATIONS UNDER CAPITAL LEASES 10,670 4,751
Secured Promissory NotesSECURED PROMISSORY NOTES 250,000 250,000
Subordinated Convertible NotesSUBORDINATED CONVERTIBLE NOTES 1,203,261 1,203,261
Unsecured Demand Convertible NoteUNSECURED DEMAND CONVERTIBLE NOTE 100,000 100,000
Note payableNOTE PAYABLE - ShareownerSHAREOWNER 566,049 566,049
----------------------- ------------
TOTAL LIABILITIES 3,451,6463,325,899 3,280,512
----------- ------------ Commitments
Shareholders' equity:------------
COMMITMENTS
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 6,051,791
Accumulated deficit (4,970,015)(5,021,061) (4,586,514)
----------- ------------ 1,102,992------------
1,051,946 1,486,493
Less - Common stock in treasury,
at cost (12,300 shares at
JuneSeptember 30, 1997 and at
December 31, 1996) (51,800) (51,800)
----------------------- ------------
TOTAL SHAREHOLDERS' EQUITY 1,051,1921,000,146 1,434,693
----------------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 4,502,838 $ 4,715,205
-----------$4,326,045 $4,715,205
------------ -----------------------
------------ ------------
See Notes to Consolidated Financial Statements.
1
INRAD, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JUNESEPTEMBER 30, SIXNINE MONTHS ENDED JUNESEPTEMBER 30,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- --------------- ----------- ------------ ------------
REVENUES:
Net product sales $ 1,254,0631,412,167 $ 1,415,0701,307,043 $ 2,302,2353,714,402 $ 2,564,2993,871,342
Contract research and development 99,920 196,835 205,046 327,643
--------- --------- --------- ---------
1,353,983 1,611,905 2,507,281 2,891,942
--------- --------- --------- ---------109,925 122,973 314,971 450,616
----------- ----------- ------------ ------------
1522,092 1,430,016 4,029,373 4,321,958
COSTS AND EXPENSES:
Cost of goods sold 999,942 1,063,891 1,796,553 2,025,7961,059,631 995,181 2,856,184 3,020,977
Contract research and development expenses 97,006 194,127 203,473 326,797106,632 124,406 310,105 451,203
Selling, general and administrative expenses 342,227 344,357 701,815 640,039323,078 275,616 1,024,893 915,655
Internal research and development expenses 34,811 42,182 62,685 67,875
--------- --------- --------- ---------
1,473,986 1,644,557 2,764,526 3,060,507
--------- --------- --------- ---------25,001 61,877 87,686 129,752
----------- ----------- ------------ ------------
1,514,342 1,457,080 4,278,868 4,517,587
----------- ----------- ------------ ------------
OPERATING PROFIT (LOSS) (120,003) (32,652) (257,245) (168,565)
Other income (expense)7,750 (27,064) (249,495) (195,629)
OTHER INCOME (EXPENSE):
Interest expense (64,620) (69,767) (129,824) (144,568)(63,895) (70,439) (193,719) (215,007)
Interest and other income, net 1,417 2,815 3,568 13,639
--------- --------- --------- ---------5,098 2,733 8,666 16,372
----------- ----------- ------------ ------------
NET INCOME (LOSS) (183,206) (99,604) (383,501) (299,494)(51,047) (94,770) (434,548) (394,264)
ACCUMULATED DEFICIT, BEGINNING OF PERIOD (4,786,809) (4,412,630) (4,586,514)(4,970,015) (4,512,234) (4,586,513) (4,212,740)
--------- --------- --------- -------------------- ----------- ------------ ------------
ACCUMULATED DEFICIT, END OF PERIOD $(4,970,015) $(4,512,234) $(4,970,015) $(4,512,234)
--------- --------- --------- ---------
--------- --------- --------- ---------$(5,021,062) $(4,607,004) $ (5,021,061) $(4,607,004)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
NET INCOME (LOSS) PER SHARE $(0.09)$(0.03) $(0.05) $(0.18) $(0.14)
--------- --------- --------- ---------
--------- --------- --------- ---------$(0.21) $(0.19)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
WEIGHTED AVERAGE SHARES OUTSTANDING 2,109,271 2,109,271 2,109,271 2,109,004
--------- --------- --------- ---------
--------- --------- --------- ---------2,109,093
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
See Notes to Consolidated Financial Statements.
2
INRAD, INC.
CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWS
(UNAUDITED)
SIXNINE MONTHS ENDED JUNESEPTEMBER 30,
-------------------------
1997 1996
---- --------- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (383,501) $(299,494)$(434,548) $(394,264)
--------- ---------
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 264,552 279,064398,028 418,596
Noncash interest - 81,384123,269
Gain on sale of equipment -(3,800) (8,621)
CHANGES IN ASSETS AND LIABILITIES:
Accounts receivable 60,685 (21,830)(15,971) 147,782
Inventories (92,923) 102,81278,180 154,854
Unbilled contract costs (33,084) 83,418(32,645) 76,130
Other current assets (1,230) 10,15436,498 33,307
Precious metals - -0 754
Other assets (22,247) (14,893)(22,818) (16,093)
Accounts payable and accrued liabilities 239,802 42,532207,321 (56,973)
Advances from customers 58,486 (32,580)12,383 (47,770)
Other current liabilities (29,210) (29,585)(34,757) (35,128)
--------- ---------
Total adjustments 444,831 491,855622,419 790,107
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 61,330 192,361187,871 395,843
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (53,561) (131,645)(74,239) (178,577)
Proceeds from sale of equipment -3,800 299,180
--------- ---------
NET CASH (USED IN) PROVIDED BY (USED IN) INVESTING
ACTIVITIES (53,561) 167,535(70,439) 120,603
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of note payable - Bank (47,500) (30,000)(70,000) (45,000)
Principal payments of capital
lease obligations (50,445) (131,450)
Advance from shareowner - -
--------- ---------(69,562) (156,448)
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (97,945) (161,450)(139,562) (201,448)
--------- ---------
NET (DECREASE) INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (90,176) 198,446(22,130) 314,998
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 194,577 37,981
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 104,401172,447 $ 236,427352,979
--------- ---------
--------- ---------
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, 1996 and 1995 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 companyCompany 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.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share." This Statement
establishes standards for computing and presenting earnings per share ("EPS")
and applies to all entities with publicly held common stock or potential common
stock. This Statement replaces the presentation of primary EPS and fully
diluted EPS with a presentation of basic EPS and diluted EPS, respectively.
Basic EPS excludes dilution and is computed by dividing earnings available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Similar to fully diluted EPS, diluted EPS reflects the
potential dilution of securities that could share in the earnings. This
Statement is not expected to have a material effect on INRAD's reported EPS
amounts. This Statement is effective for INRAD's financial statements for the
year ended December 31, 1997.
4
NOTE 2 -INVENTORIES- INVENTORIES AND COST OF GOODS SOLD
For the sixnine month period ended JuneSeptember 30, 1997, the Company used 78%76.9%
as its estimated cost of goods sold percentage. For the previous year,
1996, the actual cost of goods sold percentage was 74.8%. The Company
believes 78%76.9% better approximates the expected 1997 annual cost of goods
sold percentage based on estimated profitability of actual sales through
JuneSeptember 30, 1997 and the anticipated annual level of product shipments
and related costs.
For the sixnine month period ended JuneSeptember 30, 1996, the Company used 79%78% as
its estimated cost of goods sold percentage.
NOTE 3 -DEBT- DEBT
NOTE PAYABLE - SHAREOWNER
By mutual informal agreement, the Company has deferred certain interest
payments to its principal shareowner. During the sixnine month period ended
JuneSeptember 30, 1997, the Company did not make any interest payments. Subject to adequate cash flow,
the Company expectsThe
Company's ability to make the remaining quarterly interest paymentspayment in 1997.1997
is subject to adequate cash flow.
Although by its terms the indebtedness to the shareowner is due on December
31, 1996, it cannot be repaid until the Chase Manhattan Bank debt has been
repaid in full.full, which is expected to be on September 1, 1999. The
shareowner loan has been classified as noncurrent in the accompanying
balance sheet because the shareowner has agreed not to demand payment prior
to JulyOctober 1, 1998.
UNSECURED DEMAND CONVERTIBLE NOTE
Although by its terms the Note is due on demand, it cannot be repaid until
the Chase Manhattan 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 JulyOctober 1, 1998.
SECURED PROMISSORY NOTE
Although by its terms the Note is due on July 8, 1997, it cannot be repaid
until the Chase Manhattan Bank debt has been repaid in full. The
Promissory note has been classified as noncurrent in the accompanying
balance sheet because the Note holder has agreed not to demand payment
prior to JulyOctober 1, 1998.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information contains forward-looking statements, including
statements with respect to the revenues to be realized from existing
backlog orders and ability to generate sufficient cash flow in the future.
The Company wishes to insure that any forward-looking statements are
accompanied by meaningful cautionary statements in order to comply with the
terms of the safe harbor provided by the Private Securities Reform Act of
1995. Actual results may vary from these forward-looking statements due to
the following factors: inability to maintain customer relationships and/or
add new customers; unforeseen overhead expenses that may adversely affect
financial results or other inabilitiesinability's to operate with a positive cash
flow. Readers are further cautioned that the Company's financial results
can vary from quarter to quarter, and the financial results reported for
the secondthird quarter may not necessarily be indicative of future results. The
foregoing is not intended to be an exhaustive list of all factors which
could cause actual results to differ materially from those expressed in
forward-looking statements made by the Company. For more information about
the Company, please review the Company's most recent Form 10-K filed with
the Securities & Exchange Commission.
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 secondthird quarter of 1997 decreased $161,000,increased $105,000, or 11%8%, from the
comparable quarter in 1996, and net sales for the sixnine months ended
JuneSeptember 30, 1997 decreased $262,000,$157,000, or 10%4%, from the comparable 1996
period. International shipments in the first sixnine months of 1997 were
$404,000 (18%$512,000 (14% of total shipments) compared to $477,000 (19%$664,000 (17%) for the first
sixnine months of 1996. Product sales during the sixnine months ended JuneSeptember
30, 1997 were less than the prior year because bookings were down,
particularly bookings shippable on a short term basis. During the secondthird
quarter of 1997, shipments were lessmore than in the comparable quarter in 1996,
while bookings increased during that same period.were more than in 1996 for both the second and third
quarters. Most of the increased bookings were not shippable during the quarter, but will be shippable in the future.
The backlog of unfilled product orders was $2,147,000$2,250,000 at JuneSeptember 30,
1997, compared with $1,672,000 at December 31, 1996 and $2,000,000$2,004,000 at
JuneSeptember 30, 1996.
COST OF GOODS SOLD
For the sixnine month period ended JuneSeptember 30, 1997, the Company used 78%76.9%
as its estimated cost of goods sold percentage. For the previous year,
1996, the actual cost of goods sold percentage was 74.8%. The Company
believes 78%76.9% better approximates the expected 1997 annual cost of goods
sold percentage based on estimated profitability of actual sales through
JuneSeptember 30, 1997 and the anticipated annual level of product shipments
and related costs.
For the sixnine month period ended JuneSeptember 30, 1996, the Company used 79%78% as
its estimated cost of goods sold percentage.
6
CONTRACT RESEARCH AND DEVELOPMENT
Contract research and development revenues for the second quarter of 1997
decreased $97,000, or 49%, from the comparable quarter in 1996, and revenues for
the six months ended June 30, 1997 and 1996 were $205,000 and $328,000,
respectively. Related contract research and development expenditures, including
allocated indirect costs, for the quarter ended June 30, 1997 were $97,000
compared to $194,000 for the comparable 1996 quarter; expenses for the six month
period ended June 30, 1997 and 1996 were $203,000 and $327,000, respectively.
Revenues decreased from 1996 to 1997 due to a lower opening backlog of
contracts. The Company expects to continue to focus its future efforts on
funded programs closely aligned with its core business.
The Company's backlog of contract R&D was $629,000 at June 30, 1997, compared
with $75,000 at December 31, 1996 and $162,000 at June 30, 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $62,000$109,000 for the
first sixnine months of 1997. The increase is due primarily to higher selling
expenses, including sales salaries, due to the addition of a sales person,
increased advertising and travel, and a lower allocation of general and administrative
expenses to contract research and development. During the secondthird quarter of
1997, Selling, General and Administrative Expenses decreased $2,000increased $47,000 as
compared to 1996. This decreaseincrease was due to less commissions on international sales
offset by additional selling expenses for
salaries, advertising and travel, and
a lower allocation of general and administrative expenses to contract research
and development.travel.
INTERNAL RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the quarter ended JuneSeptember 30, 1997
were $35,000$25,000 compared to $42,000$62,000 for the quarter ended JuneSeptember 30, 1996.
Expenses for the sixnine months ended JuneSeptember 30, 1997 were $63,000$88,000 compared
to $68,000$130,000 for the comparable 1996 period. The Company is focusing its
internal research and development efforts in 1997 on a few new products
with short development cycles.
INTEREST EXPENSE
Interest expense was $65,000$64,000 for the quarter ended JuneSeptember 30, 1997
compared to $70,000 for the quarter ended JuneSeptember 30, 1996, and $130,000$194,000
and $145,000$215,000 for the sixnine months ended JuneSeptember 30, 1997 and 1996,
respectively.
7
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended March 31, 1997, the Company signed an agreement
with Chase Manhattan Bank (successor to Chemical Bank) amending the terms
of its credit facility. The new agreement requires monthly principal
payments of $10,000 for January, 1997, and 7,500 from February 1997 until
December 1997, monthly principal payments of $10,000 from January 1998
until December 1998, and monthly principal payments $12,500 from January
1999 until August 1999. A final payment of $7,500 is due on September 1,
1999. The Company's cash flow requirements will increase in 1997 because
the Company must begin making cash interest payments ($110,000 annually) on
its Subordinated Convertible Notes issued in 1993. The first payment was
due on June 15, 1997, and was not made.
Capital expenditures, including internal labor and overhead charges, for
the sixnine months ended JuneSeptember 30, 1997 and 1996 were $54,000$74,000 and
$132,000,$178,000, 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.
During the sixnine month period ended JuneSeptember 30, 1997 and for each of the
three years in the period ended December 31, 1996, the Company hadhas 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 shareownersshareholders, including the principal shareowner,shareholder, as
further described in the Company's Annual Report on Form 10-K. Thethe
Company's liquidity is dependent on its ability to generate sufficient cash
flow from operations. 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.
8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
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) Reports on Form 8-K:
None.None
9
SIGNATURES
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.INC.
By: /s/ Warren Ruderman
------------------------
Warren Ruderman
President and Chief Executive Officer/S/ WARREN RUDERMAN
-------------------------------------
WARREN RUDERMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
By: /s/ James/S/ JAMES L. Greco
------------------------
JamesGRECO
-------------------------------------
JAMES L. Greco
ControllerGRECO
CONTROLLER
(Chief Accounting Officer)
Date: AugustNovember 12, 1997
10