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 June 30, 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 August 1, 1995:
2,106,571 shares
<PAGE>
INRAD, Inc.
INDEX
Page Number
-----------
Part I. FINANCIAL INFORMATION ........................................ 1
Item 1. Financial Statements
Consolidated Balance Sheet as of June 30, 1995
and Dec1mber 31, 1994 (unaudited) ..................... 1
Consolidated Statement of Operations for
the Three and Six Months ended June 30, 1995
and 1994 (unaudited) .................................. 2
Consolidated Statement of Cash Flows for
the Six Months Ended June 30, 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
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INRAD, Inc.
Consolidated Balance Sheet
(Unaudited)
June 30, December 31,
1995 1994
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 28,295 $ 119,718
Certificate of Deposit 70,000 70,000
Accounts receivable, net 773,721 609,155
Inventories 1,820,006 1,897,772
Unbilled contract costs 228,717 156,717
Other current assets 60,053 50,167
----------- -----------
Total current assets 2,980,792 2,903,529
Plant and equipment, net 2,491,041 2,742,531
Precious metals 311,767 311,797
Other assets 154,022 125,407
----------- -----------
Total assets $ 5,937,622 $ 6,083,264
=========== ===========
Liabilities and Shareowners' Equity
Current liabilities:
Note payable - Bank $ 430,000 $ 520,000
Subordinated Convertible Notes 896,270 846,116
Accounts payable and accrued liabilities 831,619 625,452
Current obligations under capital leases 243,019 311,199
Advances from customers 204,730 116,560
Other current liabilities 30,576 52,172
----------- -----------
Total current liabilities 2,636,214 2,471,499
Obligations under capital leases 144,045 183,632
Secured Promissory Notes 250,000 250,000
Advance from Shareowner 225,000 --
Note payable - Shareowner 517,104 500,788
----------- -----------
Total liabilities 3,772,363 3,405,919
----------- -----------
Shareowners' 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 (3,755,948) (3,243,862)
----------- -----------
2,233,259 2,745,345
Less - Common stock in treasury,
at cost (15,000 shares) (68,000) (68,000)
----------- -----------
Total shareowners' equity 2,165,259 2,677,345
----------- -----------
Total liabilities and shareowners' equity $ 5,937,622 $ 6,083,264
=========== ===========
See Notes to Consolidated Financial Statements.
1
<PAGE>
INRAD, Inc.
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- -------------------------------
1995 1994* 1995 1994*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Net sales $1,055,508 $ 1,462,988 $ 2,038,664 $ 2,731,636
Contract research and development 376,404 250,662 663,399 441,568
------------ ------------ ------------ ------------
1,431,912 1,713,650 2,702,063 3,173,204
------------ ------------ ------------ ------------
Costs and expenses:
Cost of goods sold 902,451 1,083,413 1,743,058 2,033,742
Contract research and development expenses 366,751 241,511 648,461 419,464
Selling, general and administrative expenses 230,773 295,442 489,972 601,320
Internal research and development expenses 91,111 61,724 191,424 131,494
------------ ------------ ------------ ------------
1,591,086 1,682,090 3,072,915 3,186,020
------------ ------------ ------------ ------------
Operating profit (loss) (159,174) 31,560 (370,852) (12,816)
Other income (expense):
Interest expense (72,277) (81,648) (147,984) (171,748)
Interest and other income, net 162 7,650 6,750 9,561
------------ ------------ ------------ ------------
Net income (loss) (231,289) (42,438) (512,086) (175,003)
Accumulated deficit, beginning of period (3,524,659) (2,503,033) (3,243,862) (2,370,468)
------------ ------------ ------------ ------------
Accumulated deficit, end of period $ (3,755,948) $ (2,545,471) $ (3,755,948) $ (2,545,471)
============ ============ ============ ============
Net income (loss) per share $ (0.11) $ (0.02) $ (0.24) $ (0.08)
============ ============ ============ ============
Weighted average shares outstanding 2,106,571 2,106,571 2,106,571 2,106,571
============ ============ ============ ============
</TABLE>
* Prior year amounts have been reclassified to conform to current year
presentation.
See Notes to Consolidated Financial Statements.
2
<PAGE>
INRAD, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended June 30,
------------------------
1995 1994
---------- ----------
Cash flows from operating activities:
Net income (loss) $ (512,086) $ (175,003)
---------- ----------
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Depreciation and amortization 376,288 352,532
Noncash interest 66,470 62,348
Changes in assets and liabilities:
Accounts receivable (164,566) 1,706
Inventories 77,766 (123,915)
Unbilled contract costs (72,000) 8,079
Other current assets (9,886) (13,308)
Precious metals 30 (2,448)
Other assets (29,743) 1,281
Accounts payable and accrued liabilities 206,168 (122,690)
Advances from customers 88,170 45,852
Other current liabilities (21,595) (495)
---------- ----------
Total adjustments 517,102 208,942
---------- ----------
Net cash provided by operating activities 5,016 33,939
---------- ----------
Cash flows from investing activities:
Capital expenditures (123,672) (63,670)
---------- ----------
Cash flows from financing activities:
Principal payments of note payable - Bank (90,000) (140,000)
Principal payments of capital
lease obligations (107,767) (138,070)
Advance from Shareowner 225,000 --
---------- ----------
Net cash provided by (used in)
financing activities 27,233 (278,070)
---------- ----------
Net (decrease) in cash and
cash equivalents (91,423) (307,801)
Cash and cash equivalents at
beginning of period 119,718 560,703
---------- ----------
Cash and cash equivalents
at end of period $ 28,295 $ 252,902
========== ==========
See Notes to Consolidated Financial Statements.
3
<PAGE>
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
<PAGE>
NOTE 2 - INVENTORIES AND COST OF GOODS SOLD
For the six month period ended June 30, 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 second quarter of 1995, the Company continued to operate at less than
full capacity. The costs associated with such underutilization have been treated
as period costs and therefore expensed in the six month period ended June 30,
1995. The cost of goods sold percentage used may not, however, be representative
of the entire year, as the Company hopes to achieve normal capacity levels
during the fourth quarter through successful implementation of a sales and
marketing program and other strategies. For the six month period ended June 30,
1994, the Company used 74.5% (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:
June 30, 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 2,244,000 2,046,000
----------- -----------
Gross deferred tax assets 2,382,000 2,185,000
----------- -----------
Deferred tax liabilities
Depreciation (367,000) (375,000)
----------- -----------
Gross deferred tax liabilities (367,000) (375,000)
----------- -----------
2,015,000 1,810,000
Valuation allowance (2,015,000) (1,810,000)
----------- -----------
Net deferred tax assets $ 0 $ 0
=========== ===========
5
<PAGE>
NOTE 4 - DEBT
At June 30, 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 liability has been classified as long term, as management
does not expect that the amount received will have to be repaid within one year.
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
<PAGE>
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 second quarter of 1995 decreased $407,000, or 28% from the
comparable quarter in 1994, and net sales for the six months ended June 30, 1995
decreased $693,000, or 25%, from the comparable 1994 period. International
shipments in the first six months of 1995 were $389,000, compared to $658,000
for the first six 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 six months of 1995,
compared to 24% for the comparable 1994 period.
The backlog of unfilled product orders was $1,506,000 at June 30, 1995, compared
with $1,116,000 at December 31, 1994 and $1,643,000 at June 30, 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 six month period ended June 30, 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%. During the
second quarter of 1995, the Company continued to operate at less than full
capacity. The costs associated with such underutilization have been treated as
period costs and therefore expensed in the six month period ended June 30, 1995.
The cost of goods sold percentage used may not, however, be representative of
the entire year, as the Company hopes to achieve normal capacity levels during
the fourth quarter through successful implementation of a sales and marketing
program and other strategies.
For the six month period ended June 30, 1994, the Company used 74.5% (after
reclassification of allocated overhead costs) as its estimated cost of goods
sold percentage.
Contract Research and Development
Contract research and development revenues for the second quarter of 1995
increased 126,000, or 50%, from the comparable quarter in 1994, and revenues for
the six months ended June 30, 1995 and 1994 were $663,000 and $442,000,
respectively. Related contract research and development expenditures, including
allocated indirect costs, for the quarter ended June 30, 1995 were $367,000
7
<PAGE>
compared to $242,000 for the comparable 1994 quarter, and expenses for the six
month period ended June 30, 1995 and 1994 were $649,000 and $419,000,
respectively.
The Company's backlog of contract R&D was $1,153,000 at June 30, 1995, compared
with $1,223,000 at December 31, 1994 and $2,313,000 at June 30, 1994. The
Company expects to reduce its future emphasis on funded research; as a 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 $65,000, or 22%, in the
second quarter of 1995, and $111,000, or 19%, for the six months ended June 30,
1995 compared to the same period in 1994. The decrease is due primarily to lower
selling commissions on international sales, a higher allocation of general and
administrative costs to contract research in the second quarter, and cost
containment efforts by 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.
Internal Research and Development Expenses
Internal research and development expenses for the quarter ended June 30, 1995,
were $91,000 compared to $62,000 (as reclassified, Note 5) for the quarter ended
June 30, 1994. Expenses for the six month period ended June 30, 1995 were
$191,000, compared to $131,000 (as reclassified) for the comparable 1994 period.
During the first six months 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 $9,000, or 11%, in the second quarter, and
decreased $24,000, or 14%, for the six months ended June 30, 1995. 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
<PAGE>
Liquidity and Capital Resources
As shown on the accompanying financial statements, the Company reported a net
loss of approximately $516,000 for the six month period ended June 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.
At June 30, 1995 and as of December 31, 1994, the Company is in technical
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 June 30, 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 technical 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.
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 defined. The proceeds
were used to pay trade debt and other operating expenses.
Capital expenditures, including internal labor and overhead charges, were
approximately $124,000 and $64,000 for the six months ended June 30, 1995 and
1994, 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.
9
<PAGE>
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 June 30, 1995.
10
<PAGE>
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: August 11, 1995
11
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEETS, AND THE CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1995
<CASH> 28,295
<SECURITIES> 0
<RECEIVABLES> 773,721
<ALLOWANCES> 0
<INVENTORY> 1,820,006
<CURRENT-ASSETS> 2,980,792
<PP&E> 2,491,041
<DEPRECIATION> 376,288
<TOTAL-ASSETS> 5,937,622
<CURRENT-LIABILITIES> 2,636,214
<BONDS> 0
<COMMON> 21,216
0
0
<OTHER-SE> 2,144,043
<TOTAL-LIABILITY-AND-EQUITY> 5,937,622
<SALES> 2,702,063
<TOTAL-REVENUES> 2,702,063
<CGS> 2,391,519
<TOTAL-COSTS> 2,391,519
<OTHER-EXPENSES> 681,396
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 141,234
<INCOME-PRETAX> (512,086)
<INCOME-TAX> 0
<INCOME-CONTINUING> (512,086)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (512,086)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> 0
</TABLE>
