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, 2001
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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
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
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 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
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Common shares of stock outstanding as of March 31, 2001:
4,997,300 SHARES
INRAD, INC.
INDEX
PAGE NUMBER
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PART I. FINANCIAL INFORMATION..........................................1
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 2000, (unaudited)
and December 31, 2000.......................................1
Consolidated Statements of Operations for the Three
Months Ended March 31, 2001 and 2000 (unaudited)............2
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2001 and 2000 (unaudited)............3
Notes to Consolidated Financial Statements..................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................5
Changes in Securities and Use of Proceeds...................6
PART II. OTHER INFORMATION..............................................7
Item 6. Exhibits and Reports on Form 8-K............................7
SIGNATURES..............................................................8
PART I. FINANCIAL INFORMATION
INRAD, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2001 2000*
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UNAUDITED
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,416,056 $ 2,233,878
Accounts receivable, net 1,452,153 1,237,050
Inventories 1,877,191 1,762,689
Unbilled contract costs 561,481 524,103
Deferred income taxes 100,000 0
Other current assets 147,489 62,307
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TOTAL CURRENT ASSETS 5,554,370 5,820,027
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PLANT AND EQUIPMENT,
Plant and equipment at cost 7,070,557 6,555,913
Less: Accumulated depreciation
and amortization (5,217,196) (5,149,518)
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Total plant and equipment 1,853,361 1,406,395
PRECIOUS METALS 307,265 307,265
OTHER ASSETS 426,413 296,068
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TOTAL ASSETS $ 8,141,409 $ 7,829,755
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 1,033,159 $ 1,017,320
Current obligations under capital leases 133,024 97,596
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TOTAL CURRENT LIABILITIES 1,166,183 1,114,916
CAPITAL LEASE OBLIGATIONS 270,280 326,059
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TOTAL LIABILITIES 1,436,463 1,440,975
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SHAREHOLDERS' EQUITY:
10% Convertible preferred stock, Series A,
no par value; 500 shares issued and outstanding, respectively 500,000 500,000
10% Convertible preferred stock, Series B, no par value;
2100 shares issued and outstanding, respectively 2,100,000 2,100,000
Common stock: $.01 par value; 5,001,900 shares issued at
March 31, 2001 and 4,957,678 at December 31, 2000 50,019 49,577
Capital in excess of par value 9,143,344 9,084,898
Accumulated deficit (4,859,467) (5,110,745)
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6,933,896 6,623,730
Subscription receivable (214,000) (220,000)
Less - Common stock in treasury,
at cost (4,600 shares at March 31, 2001 and
at December 31, 2000) (14,950) (14,950)
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TOTAL SHAREHOLDERS' EQUITY 6,704,946 6,388,780
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,141,409 $ 7,829,755
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* Derived from Audited Financial Statements
See Notes to Consolidated Financial Statements.
1
INRAD, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31
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2001 2000
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REVENUES:
Product sales $2,351,270 $ 1,099,200
Contract R & D 37,378 359,497
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Total Revenue 2,388,648 1,458,697
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COST AND EXPENSES:
Cost of goods sold 1,508,512 580,266
Contract R & D expenses 56,803 242,265
Selling, general & administrative expenses 639,403
452,110
Internal R & D expenses 29,402 169,478
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Total Cost and Expenses 2,234,120 1,444,119
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OPERATING PROFIT 154,528 14,578
OTHER INCOME (EXPENSE):
Interest expense 0 (7,049)
Interest & other income, net -3,250 4,026
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NET INCOME BEFORE INCOME TAX BENEFIT 151,278 11,555
Income tax benefit 100,000 0
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Net income 251,278 11,555
ACCUMULATED DEFICIT, BEGINNING OF PERIOD (5,110,745) (5,768,614)
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ACCUMULATED DEFICIT, END OF PERIOD $(4,859,467) $(5,757,059)
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NET INCOME PER COMMON SHARE- BASIC 0.05 0.01
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NET INCOME PER COMMON SHARE- DILUTED 0.04 0.01
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WEIGHTED AVERAGE SHARES OUTSTANDING- BASIC 4,966,389 4,127,345
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WEIGHTED AVERAGE SHARES OUTSTANDING- DILUTED 6,524,677 4,127,345
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See Notes to Consolidated Financial Statements.
2
INRAD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31
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2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 251,278 $ 11,555
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ADJUSTMENTS TO RECONCILE NET INCOME
TO CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 67,678 63,819
Provision for bad debts (20,643) 0
Deferred income taxes (100,000) 0
CHANGES IN ASSETS AND LIABILITIES:
Accounts receivable (194,640) (13,296)
Inventories (114,502) (199,327)
Unbilled contract costs (37,378) 245,184
Other current assets (85,182) (4,033)
Other assets 108,155 (3,146)
Accounts payable and accrued liabilities 51,267 211,282
Advances from customers 0 (141,552)
Other current liabilities 0 15,927
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Total adjustments (325,065) 174,858
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NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (73,787) 186,413
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CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits on capital commitments (238,500) 0
Capital expenditures (514,644) (95,951)
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NET CASH USED IN INVESTING ACTIVITIES (753,144) (95,951)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants and options 58,888 0
Proceeds form issuance of preferred stock 6,000 0
Principal payments of capital lease obligations (55,779) 0
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NET CASH PROVIDED BY FINANCING ACTIVITIES 9,109 0
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (817,822) 90,462
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,233,878 377,169
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,416,056 $ 467,631
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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, 2000 and 1999 and for the
years then ended and notes thereto included in the Company's report on Form
10-K, filed with the Securities and Exchange Commission.
INVENTORY VALUATION
For the periods ended March 31, 2001 and March 31, 2000, inventories are valued
on a lower of cost (first-in-first-out basis) or market basis (net realizable
value). Work In Process inventory for the period is stated at actual cost, not
in excess of estimated realizable value.
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 PER SHARE
Basic and diluted net income per share is computed using the weighted average
number of common shares outstanding. Diluted net income per share also includes
the weighted average of common share equivalents including options and
convertible preferred stock.
4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
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 meaningful cautionary statements accompany any
forward-looking 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 especially to the following factors:
adverse changes in economic or industry conditions in general or in the markets
served by the Company and its customers, actions by competitors, and inability
to add new customers and/or maintain customer relationships. Readers are further
cautioned that the Company's financial results can vary from quarter to quarter,
and the financial results reported for the first three months may not
necessarily be indicative of future results. The foregoing is not intended to be
an exhaustive list of all factors that could cause actual results to differ
materially from those expressed in forward-looking statements made by the
Company. Investors are encouraged to review the risk factors set forth in the
Company's most recent Form 10-K as filed with the Securities and Exchange
Commission in March 2001.
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes thereto presented
elsewhere herein. The discussion of results should not be construed to imply any
conclusion that such results will necessarily continue in the future.
RESULTS OF OPERATIONS
TOTAL REVENUES
Total sales for the three months ended March 31, 2001 were $2,389,000 as
compared with total sales of $1,459,000 for the first three months of 2000; up
64%.
PRODUCT SALES
Product sales for the first quarter were $2,351,000 as compared with $1,099,000
for the same period last year, up 114%. Sales were higher compared to the same
period last year due to the higher backlog at the beginning of this year and
continued strong bookings during the quarter.
Product backlog on March 31, 2001 increased $109,000 to $3,557,000 compared with
$3,448,000 on December 31, 2000 and $1,946,000 on March 31, 2000.
Product bookings for the quarter were $2,486,000 vs. $1,609,000 for the same
period last year; up 55%.
The quarter was characterized by strong order intake in our Custom Optics and
Systems segments and stronger than planned shipments in our Systems and Crystals
and Components segments.
COST OF GOODS SOLD
For the three-month period ended March 31, 2001, the cost of goods sold as a
percentage of product revenues was 64.2%. For the full year 2000, the actual
cost of good sold percentage was 54.5%. Inventory costs for the quarter were
determined by physical inventory, adjusted to net realizable value.
The increase in cost of goods sold in comparison to 2000 was anticipated,
resulting from investments in management and engineering personnel required for
process re-engineering, manufacturing systems implementation, and infrastructure
that will support the Company's growth plans.
5
CONTRACT RESEARCH AND DEVELOPMENT
Contract research and development revenues were $37,000 for the three months
ended March 31, 2001, compared to $359,000 for the three months ended March 31,
2000. The March 31, 2000 revenues included a one-time adjustment for
under-absorbed overhead costs of $130,000. The decrease in R&D revenue year to
year is due to lower opening backlog of R&D contracts this year, resulting from
the winding down of contract programs. Related contract research and development
expenditures, including allocated indirect costs, for the quarter ended March
31, 2001 were $57,000 compared to $242,000 for the comparable 2000 quarter. The
Company's backlog of contract R&D showed a net increase to $243,000 on March 31,
2001, compared with $210,000 on December 31, 2000 as a result of the award of a
new Small Business Innovative Research contract award from NASA relating to
characterization of non-linear optical crystals utilized at high average power
in laser systems operating in the ultra-violet region of the electro-magnetic
spectrum. Backlog on March 31, 2000 was $730,000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $639,000 in the first
quarter of 2001 compared to $452,000 in the same period in the prior year. The
expenses increased due to increases in personnel, trade show and advertising
costs and a lower amount of total costs allocated to Contract Research &
Development activities this year due to lower sales in that category.
INTERNAL RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the quarter ended March 31, 2001 were
$29,000 compared to $169,000 for the quarter ended March 31, 2000. Contributing
to the decreased costs was a $35,000 cost subsidy from an OEM customer to be
used to offset process development costs for a product of special interest to
that customer.
The higher costs in the same period a year ago were largely due to costs of the
development of an Optical Parametric Oscillator prototype operating in the
infrared wave band, curtailed last year. That technology was sold during the
third quarter of 2000.
OPERATING INCOME
Operating income for the period ending March 31, 2001 was $155,000 as compared
with $15,000 for the same period last year reflecting increased profits due to
increased sales volume.
FEDERAL DEFERRED TAX BENEFIT
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Deferred tax liabilities and
assets are determined based on the difference between the financial statement
carrying amounts and the tax basis of assets and liabilities using enacted tax
rates in effect in the years in which the differences are expected to reverse.
At December 31, 2000, the Company had a net deferred tax asset of approximately
$2,100,000, the primary component of which was its significant net operating
loss carry forward. Through December 31, 2000, the Company had established a
valuation allowance to fully offset this deferred tax asset in the event that
the tax asset will not be realized in the future. Management has determined that
future income projections mitigate the need for a full valuation allowance. As
such, a portion of the allowance has been reduced.
6
During the quarter ended March 31, 2001 the $100,000 change in the deferred tax
asset represents the effect of recognizing a portion of the deferred tax benefit
that was not recoverable in prior years due to the Company's accounting loss
carryforward position.
NET INCOME
Net income for the period ending March 31, 2001 was $251,000 as compared with
$12,000 for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended March 31, 2001 a warrant holder exercised 26,675
warrants at a price of $1.50 per share and received 26,675 shares of the
Company's common stock.
Capital expenditures, including purchases and a portion of applicable internal
labor and overhead charges, for the three months ended March 31, 2001 and 2000
were $515,000 and $96,000, respectively. Capital expenditures for all of 2000
were $582,000. The increase reflects implementation by the Company of its
strategic plan to modernize, expand, and strengthen its plant, equipment, and
manufacturing operations. This calls for major investments in new equipment and
facilities in order to attain preeminence in the field of crystal components and
custom precision optics manufacturing and attain the Company's objectives of
growth in shareholder value. As long as cash flows from operations are adequate
and/or other financing terms can be arranged, management will continue to make
investments in capital acquisitions to insure that the Company maintains a
competitive edge in the markets that it serves.
During the three month period ended March 31, 2001 and for the prior fiscal year
the Company generated a profit. Cash outflows during these periods have
additionally been funded from the proceeds of issuance of preferred stock to
shareowners, as further described in the Company's most recent Annual Report,
Form 10-K, and conversion of certain warrants and exercise of stock options. The
Company's future liquidity is dependent upon its ability to continue to generate
adequate cash flow from operations, and to raise financial capital to fund its
capital expansion plans. The current quarter yielded negative cash flow from
operations in the amount of $ 74,000. This resulted primarily from the payout of
incentive bonuses to all employees, earned under the terms of its 2000
Performance Sharing Program and based on attainment of certain financial
performance targets in 2000, and from increases in working capital requirements
for accounts receivable and inventory due to increases in manufacturing volume.
7
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.
(B) Reports on Form 8-K:
None.
8
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/ Daniel Lehrfeld
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DANIEL LEHRFELD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
By: /s/ William S. Miraglia
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WILLIAM S. MIRAGLIA
CHIEF FINANCIAL OFFICER
Date: May 1, 2001
9