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 March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-11668
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)
181 Legrand Avenue, Northvale, NJ 07647
(Address of principal executive offices)
(Zip Code)
(201) 767-1910
(Registrant's telephone number, including area code)
---------------------------------------------------------------------
(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
---
Common shares of stock outstanding as of May 1, 1995:
2,106,571 shares
INRAD, Inc.
INDEX
Page Number
-----------
Part I. FINANCIAL INFORMATION..................................... 1
Item 1. Financial Statements
Consolidated Balance Sheet as of March 31, 1995
and December 31, 1994 (unaudited).................... 1
Consolidated Statement of Operations for the Three
Months Ended March 31, 1995 and 1994 (unaudited)..... 2
Consolidated Statement of Cash Flows for the Three Months
Ended March 31, 1995 and 1994 (unaudited)............ 3
Notes to Consolidated Financial Statements........... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 7
Part II. OTHER INFORMATION....................................... 10
Item 6. Exhibits and Reports on Form 8-K.................... 10
Signatures........................................................ 11
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INRAD, Inc.
Consolidated Balance Sheet
(Unaudited)
March 31, December 31,
1995 1994
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 21,799 $ 119,718
Certificate of Deposit 70,000 70,000
Accounts receivable, net 659,773 609,155
Inventories 1,897,772 1,897,772
Unbilled contract costs 222,502 156,717
Other current assets 80,063 50,167
----------- -----------
Total current assets 2,951,909 2,903,529
Plant and equipment, net 2,610,238 2,742,531
Precious metals 314,910 311,797
Other assets 129,621 125,407
----------- -----------
Total assets $ 6,006,678 $ 6,083,264
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Note payable -- Bank $ 475,000 $ 520,000
Subordinated Convertible Notes 871,192 846,116
Accounts payable and accrued liabilities 805,229 625,452
Current obligations under capital leases 264,131 311,199
Advances from customers 211,929 116,560
Other current liabilities 69,382 52,172
----------- -----------
Total current liabilities 2,696,863 2,471,499
Obligations under capital leases 154,322 183,632
Secured Promissory Notes 250,000 250,000
Note payable -- Shareowner 508,945 500,788
----------- -----------
Total liabilities 3,610,130 3,405,919
----------- -----------
Shareholders' equity:
Common stock: $.01 par value;
2,121,571 shares issued 21,216 21,216
Capital in excess of par value 5,967,991 5,967,991
Accumulated deficit (3,524,659) (3,243,862)
----------- -----------
2,464,548 2,745,345
Less -- Common stock in treasury,
at cost (15,000 shares) (68,000) (68,000)
----------- -----------
Total shareholders' equity 2,396,548 2,677,345
----------- -----------
Total liabilities and shareholders' equity $ 6,006,678 $ 6,083,264
=========== ===========
See Notes to Consolidated Financial Statements.
1
INRAD, Inc.
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
March 31,
-------------------------
1995 1994*
----------- -----------
Revenues:
Net product sales $ 983,156 $ 1,268,648
Contract research and development 286,995 190,906
----------- -----------
1,270,151 1,459,554
----------- -----------
Costs and expenses:
Cost of goods sold 840,607 950,329
Contract research and development expenses 281,710 177,953
Selling, general and administrative expenses 259,199 305,878
Internal research and development expenses 100,313 69,770
----------- -----------
1,481,829 1,503,930
----------- -----------
Operating profit (loss) (211,678) (44,376)
Other income (expense):
Interest expense (75,707) (90,100)
Interest and other income, net 6,588 1,911
----------- -----------
Net income (loss) (280,797) (132,565)
Accumulated deficit, beginning of period (3,243,862) (2,370,468)
----------- -----------
Accumulated deficit, end of period $(3,524,659) $(2,503,033)
=========== ===========
Net income (loss) per share $ (0.13) $ (0.06)
=========== ===========
Weighted average shares outstanding 2,106,571 2,106,571
=========== ===========
* 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)
Three Months Ended
March 31,
------------------------
1995 1994
---------- ----------
Cash flows from operating activities:
Net income (loss) $ (280,797) $ (132,565)
---------- ----------
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Depreciation and amortization 188,144 176,266
Noncash interest 33,233 31,173
Changes in assets and liabilities:
Accounts receivable (50,618) 54,175
Inventories -- (132,858)
Unbilled contract costs (65,785) (8,944)
Other current assets (29,896) (24,920)
Precious metals (3,113) 1,728
Other assets (4,777) 3,401
Accounts payable and accrued liabilities 179,777 (104,848)
Advances from customers 95,369 85,877
Other current liabilities 17,210 --
---------- ----------
Total adjustments 359,544 81,050
---------- ----------
Net cash provided by (used in) operating activities 78,747 (51,515)
---------- ----------
Cash flows from investing activities:
Capital expenditures (55,288) (41,323)
---------- ----------
Cash flows from financing activities:
Principal payments of note payable - Bank (45,000) (95,000)
Principal payments of capital lease obligations (76,378) (67,932)
---------- ----------
Net cash (used in) financing activities (121,378) (162,932)
---------- ----------
Net (decrease) in cash and cash equivalents (97,919) (255,770)
Cash and cash equivalents at beginning of period 189,718 560,703
---------- ----------
Cash and cash equivalents at end of period $ 91,799 $ 304,933
========== ==========
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, 1994 and 1993 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
For the three months ended 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 was 82.6%, after reflecting the reclassification
described in Note 5. The Company operated at less than full capacity during the
first quarter. The costs associated with such underutilization have been treated
as period costs and therefore expensed in the quarter ended March 31, 1995. The
cost of goods sold percentage used in the first quarter is not, however,
expected to be representative of the entire year, as the Company expects to
achieve normal capacity levels for the remainder of the year.
NOTE 3 -- INCOME TAXES
Deferred tax assets (liabilities) comprise the following:
March 31, December 31,
1995 1994
----------- -----------
Deferred tax assets
Inventory capitalization adjustment $ 74,000 $ 73,000
Inventory reserves 4,000 4,000
Vacation liabilities 60,000 62,000
Loss carryforwards 2,155,000 2,046,000
----------- -----------
Gross deferred tax assets 2,293,000 2,185,000
----------- -----------
Deferred tax liabilities
Depreciation (371,000) (375,000)
----------- -----------
Gross deferred tax liabilities (371,000) (375,000)
----------- -----------
1,922,000 1,810,000
Valuation allowance (1,922,000) (1,810,000)
----------- -----------
Net deferred tax assets $ 0 $ 0
=========== ===========
5
NOTE 4 -- DEBT
At March 31, 1995 and as of December 31 1994, the Company was in default of its
debt agreements with Chemical Bank and the holders of the Subordinated
Convertible Notes, and all amounts payable under such agreements have been
classified as current liabilities. The Company is currently attempting to obtain
a waiver from Chemical Bank and to renegotiate the terms of its current credit
agreement. There can be no assurance that the Company will be able to execute a
satisfactory renegotiation of its current agreement with Chemical Bank. The
Company has continued to make its principal and interest payments on a timely
basis as required by its current Bank agreement.
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.
The Company is also attempting to obtain additional financing from other
sources. In April 1995, the Company received $225,000 from a shareowner and
Convertible Note holder of the Company. The terms of the advance have not yet
been defined. The proceeds were used to pay trade debt and other operating
expenses.
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).
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND 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 first quarter of 1995 decreased $285,000, or 23% from the
comparable quarter in 1994. International shipments in the first three months of
1995 were $184,000, compared to $293,000 for the first three months of 1994.
Product sales were lower in 1995 compared to 1994 due primarily to lower
bookings and a lower backlog. International shipments represented 19% of total
shipments for the first three months of 1995, compared to 23% for the comparable
1994 period.
The backlog of unfilled product orders was $1,428,000 at March 31, 1995,
compared with $1,116,000 at December 31, 1994 and $2,265,000 at March 31, 1994.
Subject to availability of resources, the Company plans to implement a
significant sales and marketing program in 1995 which should result in increased
bookings and a larger backlog.
Cost of Goods Sold
For the three months ended 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%. The Company
operated at less than full capacity during the first quarter. The costs
associated with such underutilization have been treated as period costs and
therefore expensed in the quarter ended March 31, 1995. The cost of goods sold
percentage used in the first quarter is not, however, expected to be
representative of the entire year, as the Company expects to achieve normal
capacity levels for the remainder of the year.
For the three month period ended March 31, 1994, the Company used 74.9% (after
reclassification of allocated overhead costs) as its estimated cost of goods
sold percentage.
7
Contract Research and Development
Contract research and development revenues were $287,000 for the three months
ended March 31, 1995, compared to $191,000 for the three months ended March 31,
1994. Related contract research and development expenditures, including
allocated indirect costs, for the quarter ended March 31, 1995 were $282,000
compared to $178,000 for the comparable 1994 quarter.
The Company's backlog of contract R&D was $1,153,000 at March 31, 1995, compared
with $1,223,000 at December 31, 1994 and $2,481,000 at March 31, 1994.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $47,000, or 15%, in the
first quarter of 1995. The decrease is due primarily to lower selling
commissions on international sales and cost containment efforts by the Company
in the administrative and support areas.
Internal Research and Development Expenses
Research and development expenses for the quarter ended March 31, 1995 were
$100,000 compared to $70,000 (as restated, Note 5) for the quarter ended March
31, 1994. During the first quarter of 1995, scientific and technical personnel
spent more time on internal research projects than in the comparable 1994 period
in accordance with the Company's needs.
Interest Expense
Interest expense decreased by $14,000, or 16%, in the first quarter. The
decrease is due primarily to lower amounts of bank and lease borrowings.
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.
8
Liquidity and Capital Resources
As shown on the accompanying financial statements, the Company reported a net
loss of approximately $281,000 for the quarter ended March 31, 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.
At March 31, 1995 and as of December 31, 1994, the Company is in default of its
Amended and Restated Agreement with Chemical Bank with respect to compliance
with certain financial covenants. The Company is currently attempting to obtain
a waiver from Chemical Bank and to renegotiate the terms of its current credit
agreement. There can be no assurance, however, that the Bank will agree to issue
a waiver, or that the Company will be able to execute a satisfactory
renegotiation of its current agreement with Chemical Bank. The Company has
continued to make its principal and interest payments on a timely basis as
required by its current Bank agreement.
At March 31, 1995 and as of December 31, 1994, the Company is in default under
the terms of its Subordinated Convertible Notes. Management intends to seek
appropriate waivers from the holders of the 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 an additional default under the terms of the Company's bank indebtedness.
If management is unable to obtain waivers from Chemical Bank and the holders of
its Subordinated Convertible Notes, execute a satisfactory renegotiation of the
terms of its current bank credit agreement, or obtain additional financing, the
Company may find it necessary to dispose of certain assets.
Due to the circumstances described above relating to the defaults under its debt
agreements with Chemical Bank and 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.
The Company is also attempting to obtain additional financing from other
sources. In April 1995, the Company received $225,000 from a shareowner and debt
holder of the Company. The terms of the advance have not yet been determined.
The proceeds were used to pay trade debt and other operating expenses.
Capital expenditures, including internal labor and overhead charges, were
approximately $55,000 for the three months ended March 31, 1995 and 1994. 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.
9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit 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.
(B) There were no Current Reports on Form 8-K filed by the Registrant during
the quarter ended March 31, 1995.
10
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.
By: /s/ Warren Ruderman
----------------------
Warren Ruderman
President and Chief
Executive Officer
By: /s/ Ronald Tassello
----------------------
Ronald Tassello
Vice President, Finance
(Chief Accounting Officer)
Date: May 12, 1995
11