UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A-1
AMENDED AND RESTATED
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended June 30, 1993
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 0-7059
INTERNATIONAL RESEARCH AND DEVELOPMENT CORPORATION
(Exact Name of Registrant as Specified in Charter)
Delaware 38-1688261
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 North Main Street, Mattawan, Michigan 49071
(Address of principal executive offices) (Zip Code)
(616) 668-3336
Registrant's telephone number, including area code
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES NO X
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $0.50 Par Value -- 5,606,706 shares as of August 2, 1993.
Quarterly Report on Form 10-Q
PART I FINANCIAL INFORMATION
Item 1, Financial Statements
Quarter Ended June 30, 1993
International Research and Development Corporation
Mattawan, Michigan
International Research and Development Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30 DECEMBER 31
1993 1992
<S> <C> <C>
ASSETS
Current assets:
Cash $23,669 $191,414
Receivables 10,279,133 8,721,815
Inventories (Note B) 4,399,318 3,821,376
Prepaid expenses and other current assets 1,612,331 1,685,462
Total current assets 16,314,451 14,420,067
Property and equipment:
Land 512,500 512,500
Buildings 13,287,613 13,281,293
Equipment 15,476,188 14,735,574
29,276,301 28,529,367
Less accumulated depreciation 15,623,035 14,629,711
13,653,266 13,899,656
Other assets:
Trademarks, tradenames and other intangible
assets, less
accumulated amortization 17,033,789 17,495,569
Other 1,761,908 1,811,399
18,795,697 19,306,968
$48,763,414 $47,626,691
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit borrowings $8,250,000 $8,600,000
Accounts payable 3,566,967 2,594,409
Advance billings on studies in progress 3,735,260 2,567,440
Accrued expenses and other liabilities 1,443,600 1,709,822
Current maturities of long-term debt 931,092 943,826
Total current liabilities 17,926,919 16,415,497
Long-term debt, less current maturities 9,706,209 10,139,683
Deferred income taxes 5,881,000 5,881,000
Reserve for employee benefits 660,550 906,200
Stockholders' equity:
Common stock 2,803,353 2,803,353
Additional paid-in capital 2,627,429 2,627,429
Retained earnings 9,493,754 9,256,529
Less loan to Employee Stock Ownership Plan (335,800) (403,000)
14,588,736 14,284,311
$48,763,414 $47,626,691
See notes to unaudited condensed consolidated financial statements.
</TABLE>
International Research and Development Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1993 1992 1993 1992
<S> <C> <C> <C> <C>
Operating revenues:
Research services $6,305,639 $5,218,240 $12,202,468 $10,399,687
Product sales and
services 3,315,653 2,665,801 6,975,386 5,682,758
9,621,292 7,884,041 19,177,854 16,082,445
Cost of services and
products sold:
Research services 4,591,868 4,371,153 9,077,013 8,475,852
Product sales and
services 1,618,931 1,421,593 3,370,555 2,807,548
Gross profit 3,410,493 2,091,295 6,730,286 4,799,045
Selling, general and
administrative
expenses 2,843,103 2,514,993 5,591,005 5,031,821
Operating earnings
(loss) 567,390 (423,698) 1,139,281 (232,776)
Other income (expense):
Interest expense (334,943) (400,718) (653,222) (827,852)
Interest and other income 27,021 24,696 41,300 51,321
(307,922) (376,022) (611,922) (776,531)
Earnings (loss)
before income taxes
and cumulative effect
of change in accounting
principle 259,468 (799,720) 527,359 1,009,307)
Income taxes (credit) 83,700 (333,900) 178,000 (402,200)
Earnings (loss)
before cumulative effect
of change in accounting
principle $175,768 (465,820) 349,359 (607,107)
Cumulative effect of
change in accounting
principle (3,903,000)
Net earnings (loss) $175,768 $(465,820) $349,359 $(4,510,107)
Earnings (loss) per
share:
Before cumulative effect
of change in accounting
principle $0.03 $(0.08) $0.06 $(0.11)
Cumulative effect of
change in accounting
principle (0.70)
Net earnings (loss) $0.03 $(0.08) $0.06 $(0.81)
per share
Average number of
common and common 5,606,706 5,551,516 5,606,706 5,532,877
equivalent shares
outstanding
Dividends per share $0.01 $0.01 $0.02 $0.06
See notes to unaudited condensed consolidated financial statements.
</TABLE>
International Research and Development Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
1993 1992
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $349,359 $(4,510,107)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,497,708 1,501,157
Cumulative effect of change in accounting 3,903,000
principle
Changes in operating assets and liabilities:
Receivables (1,557,318) 456,453
Inventories (577,942) (112,780)
Other operating assets 19,149 (548,674)
Accounts payable 987,922 (722,564)
Advance billings on studies in progress 1,167,820 211,702
Accrued expenses and other operating liabilities (463,763) (495,546)
Net cash provided by (used in) operating activities 1,422,935 (317,359)
INVESTING ACTIVITIES
Property and equipment acquisitions (766,113) (594,433)
Other 16,575
Net cash used in investing activities (749,538) (594,433)
FINANCING ACTIVITIES
Line of credit borrowings (payments) (350,000) 1,853,000
Payments on long-term debt (446,208) (744,417)
Cash dividends paid (112,134) (329,770)
Receipts from Employee Stock Ownership Plan 67,200 40,000
Proceeds from exercise of stock options 2,875
Net cash provided by (used in) financing activities (841,142) 821,688
Net decrease in cash (167,745) (90,104)
Cash at beginning of period 191,414 284,938
Cash at end of period $23,669 $194,834
( ) Denotes use of cash.
See notes to unaudited condensed consolidated financial statements.
</TABLE>
International Research and Development Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1993
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of the Corporation and its wholly owned subsidiaries, Carme', Inc.,
IRAD Corporation, and Medical Surgical Specialties, Ltd., and reflect all
adjustments, consisting of normal recurring accruals, which management considers
necessary for a fair presentation of the results of operations for the periods
shown.
The financial statements have been prepared in accordance with the instructions
to Form 10-Q. Therefore, they do not include all of the information and
footnotes required for a fair presentation of financial position, results of
operations, and cash flows in conformity with generally accepted accounting
principles for complete financial statements.
The results of operations of any interim period are not necessarily indicative
of results of operations for the year.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Corporation's annual report on Form 10-K for
the year ended December 31, 1992.
NOTE B - INVENTORIES
Inventories consist of the following:
JUNE 30 DECEMBER 31
1993 1992
Finished goods $1,675,000 $1,390,000
Components and packaging 1,963,000 1,511,000
Raw materials and supplies 761,000 920,000
$4,399,000 3,821,000
NOTE C - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Prior to 1993, the cost of retiree healthcare benefits was recognized as an
expense as claims were incurred. As permitted under the provisions of Financial
Accounting Standard No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions," the Corporation began providing for these postretirement
medical benefits on a prospective basis as part of its annual benefit cost
during the quarter ended March 31, 1993. This mandatory change in accounting
principle has not had a material effect on quarterly operating results.
In light of the continuing escalation of medical and medical insurance costs,
the Corporation's Board of Directors voted on July 29, 1993 to terminate
healthcare coverage for future retirees. The financial effect of this change in
policy is not material and will be reflected in operations during the quarter
ended September 30, 1993.
NOTE D - LITIGATION
The Corporation and its subsidiaries are subject to lawsuits and claims arising
out of their business. However, in management's opinion, the liability, if any,
from these matters would not materially affect the consolidated financial
position of the Corporation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
Consolidated operating revenues for the periods of three and six months ended
June 30, 1993 increased $1,737,000 (22%) and $3,096,000 (19%), respectively,
over the corresponding periods in 1992. This marks the fourth consecutive
quarter that consolidated quarterly operating revenues have increased over the
comparable prior year period.
Research revenues increased $1,087,000 (21%) and $1,803,000 (17%) for the
periods of three and six months ended June 30, 1993, respectively, over the
corresponding periods in 1992. This growth resulted primarily from an increase
in the number of ongoing studies over comparable 1992 levels.
Product sales and service revenues for the three months and six months ended
June 30, 1993 increased $650,000 (24%) and $1,293,000 (23%), respectively, over
the comparable 1992 periods, including increases in the skin care products
segment of $437,000 (20%) and $608,000 (12%). The improvements in skin care
products revenue relate to increased sales in the health food market (up 54% for
the quarter and 46% for the six month period, as compared to 1992 sales volume
during the same periods), and steady growth in the mass market area. The sales
improvement is primarily the result of a 1992 change in the Corporation's sales
distribution system from an internal direct sales effort to a managed broker
network. Under this new distribution system, the Corporation's products are now
actively being promoted in substantially all regions of the United States. This
distribution network along with improved marketing and increased new product
development should, in management's opinion, continue to result in new and
repeat health food and mass market business throughout the balance of 1993.
Growth in revenues in the specialty medical products and services segment was
also very impressive, with 1993 three and six months revenues up 46% ($213,000)
and 103% ($685,000), respectively, over 1992 levels. The increase in the
specialty medical products and services revenue stems primarily from increased
distribution and expansion of medical specialty repairs, as well as steady
growth in sales of the Door-Aid(TM) power door opener.
Cost of product sales and services in the combined skin care and specialty
medical products segment for the three and six month periods ended June 30,
1993, represented approximately 49% and 48%, respectively, of the related
revenue, as compared to 53% and 49% for the same periods in 1992. Skin care
products have a lower cost than medical products and services; accordingly, such
decreases are a direct result of the increased skin care product sales discussed
above.
Even though research revenues have experienced a greater than 15% growth during
1993, the cost of research services for the three and six month periods ended
June 30, 1993 have increased only 5% ($221,000 ) and 7% ($601,000),
respectively, over 1992 levels. This stabilization is the direct result of
management's continued emphasis on cost containment. The modest increases in
the cost of research services stem primarily from the addition of specially
trained staff as part of management's strategy to obtain a wider variety of
ongoing studies for the pharmaceutical industry. Cost of research services for
both the three and six month periods ended June 30, 1993 represented
approximately 74% of the related revenue, as compared to approximately 83% for
the same periods in 1992.
Consolidated selling, general and administrative expenses increased $328,000
(13%) in the second quarter of 1993 over the second quarter of 1992. For the
first six months, consolidated selling, general and administrative expenses were
11% ($559,000) higher than the same period in 1992. These increases result
directly from the increases in product sales and services discussed above and
relate principally to increased product promotion, advertising and selling
commissions. Selling, general and administrative expenses have continued to
decline as a percentage of operating revenues as a result of the Corporation's
ongoing cost containment program. Selling, general and administrative expenses
as a percentage of operating revenues were 32% and 31% for the three and six
month periods ended June 30, 1992, respectively, as compared to 30% and 29% in
the comparable periods of 1993.
As compared to the corresponding periods in 1992, operating earnings increased
$991,000 ($805,000 in the research segment and $186,000 in the product
sales/services segment) for the three months ended June 30, 1993 (a 234%
increase), and $1,372,000 ($1,133,000 in the research segment and $239,000 in
the product sales/services segment) for the period of six months then ended (a
589% increase). These increases are primarily the result of the changes
outlined above.
In June 1992, the Corporation finalized arrangements for a $9,500,000 line of
credit with a bank and refinanced $10,199,000 of fixed rate mortgage-based
borrowings with lower variable interest rate borrowings tied to the bank's base
lending rate. As a result of this, significantly all bank debt now accrues
interest at lower variable interest rates than in effect during the first six
months of 1992. Accordingly, interest expense for the three and six month
periods ended June 30, 1993 has decreased $66,000 and $175,000, respectively,
over 1992 levels. The $9.5 million line of credit is currently being renewed by
the Corporation's principal lender. Based upon preliminary discussions and the
existing favorable financing relationships, the Corporation is being offered an
increase of $500,000 on its working capital line as part of the renewal with
substantially all other terms remaining the same.
The Corporation realized earnings before income taxes for the 1993 second
quarter and six month period of $259,000 and $527,000, respectively, compared
with losses of $800,000 and $1,009,000, before income taxes and a mandated
change in accounting principle, for the same respective periods in 1992. Net
income was $176,000 and $349,000 for the periods of three months and six months
ended June 30, 1993, respectively, compared with net losses of $466,000 and
$4,510,000 (an operating loss of $607,000 and a one-time cumulative charge
against earnings in the amount of $3,903,000 re: FAS No. 109) for the same
periods in 1992.
Liquidity and Sources of Capital
The ratio of the Corporation's current assets to current liabilities has
continued to favorably improve, increasing from .88 at December 31, 1992 to .91
at June 30, 1993, including $2,567,000 and $3,735,000, respectively, of advanced
billings on studies in progress at those dates.
Cash flow from operations was $1,423,000 for the six months ended June 30, 1993,
contrasted to the consumption of $317,000 of cash by operations for same period
in 1992. This $1,740,000 turn-around in cash flow resulted primarily from the
increases in net income and advanced billings on studies in process discussed
above.
During the six-month period ended June 30, 1993, the Corporation spent
approximately $766,000 on equipment acquisitions primarily related to quality
control, additional computerization, and enhancements in automation for the
research business. The Corporation spent $594,000 for similar equipment
acquisitions during the comparable period in 1992.
Current financial resources (including $950,000 available on the existing line
of credit with banks and approximately $325,000 of available borrowings against
cash surrender value of life insurance policies), plus anticipated revenues from
operations for the year are expected to be adequate to fund working capital
needs for 1993.
PART II. OTHER INFORMATION
Items 1 through 3 are inapplicable and have been omitted.
Item 4 - Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of International Research and Development
Corporation was held on Friday, May 28, 1993 at 2:00 p.m. Eastern Daylight-
Savings Time, at The Park Club, 219 W. South Street, Kalamazoo, Michigan,
for the following purposes:
- To elect three directors to serve for a three-year term.
- To transact such other business as may properly come before the
meeting or any adjournment thereof.
Elected to serve as directors of the Corporation until 1996 were Messrs.
Robert A. Bozich, Arnold VanZanten, and Francis X. Wazeter, III. Set forth
below is the tabulation of the votes on each nominee for election as a
director:
TOTAL SHARES
VOTES AGAINST OR REPRESENTED IN
DIRECTOR NAME VOTES FOR WITHHELD PERSON OR BY
PROXY
Robert A. Bozich 4,779,971.95 89,091.05 4,869,063.00
Arnold VanZanten 4,778,471.95 90,591.05 4,869,063.00
Francis X. Wazeter, III 4,771,828.83 97,234.17 4,869,063.00
The shares represented in person or by proxy at the Annual Meeting comprised
86.8% of the outstanding shares of the Corporation's $0.50 Par Value, Common
Stock.
No other matters were submitted to a vote of the security holders during the
quarter ended June 30, 1993.
Item 5 is inapplicable and has been omitted.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits - not applicable.
(b) Reports on Form 8-K - The Corporation did not file any
reports on Form 8-K during the three months ended June
30, 1993.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this amendment to report to be signed on its behalf
by the undersigned thereunto duly authorized.
INTERNATIONAL RESEARCH AND DEVELOPMENT
CORPORATION
(Registrant)
Date: September 25, 1995 /s/ Curtis L. Dally
Curtis L. Dally,
Treasurer
