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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, 1997
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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)
INRAD, Inc. 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
----- -----
Common shares of stock outstanding as of May 14, 1997:
2,109,271 shares
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<PAGE>
INRAD, Inc.
INDEX
<TABLE>
<CAPTION>
Page Number
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<S> <C>
Part I. FINANCIAL INFORMATION........................................................................1
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1997 (unaudited)
and December 31, 1996..............................................................1
Consolidated Statements of Operations for the Three
Months Ended March 31, 1997 and 1996 (unaudited)...................................2
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1997 and 1996 (unaudited)..........................................3
Notes to Consolidated Financial Statements.........................................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................................6
Part II. OTHER INFORMATION ..........................................................................9
Item 6. Exhibits and Reports on Form 8-K....................................................9
Signatures .........................................................................................10
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INRAD, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
1997 1996
------------ -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 181,425 $ 194,577
Certificate of Deposit 70,000 70,000
Accounts receivable, net 639,418 735,160
Inventories 1,801,245 1,735,144
Unbilled contract costs 68,804 59,350
Other current assets 65,772 60,292
------------ -------------
Total current assets 2,826,664 2,854,523
Plant and equipment, net 1,336,467 1,431,931
Precious metals 279,248 279,248
Other assets 148,213 149,503
------------ -------------
Total assets $ 4,590,592 $ 4,715,205
============ =============
Liabilities and Shareholders' Equity
Current liabilities:
Note payable - Bank $ 97,500 $ 92,500
Current obligations under capital leases 61,586 73,399
Accounts payable and accrued liabilities 708,587 640,943
Advances from customers 123,023 73,244
Other current liabilities 34,270 48,865
------------ -------------
Total current liabilities 1,024,966 928,951
Note payable - Bank 197,500 227,500
Obligations under capital leases 14,418 4,751
Secured Promissory Notes 250,000 250,000
Subordinated Convertible Notes 1,203,261 1,203,261
Unsecured Demand Convertible Note 100,000 100,000
Note payable - Shareowner 566,049 566,049
------------ -------------
Total liabilities 3,356,194 3,280,512
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Commitments (Note 10)
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 (4,786,809) (4,586,514)
------------ -------------
1,286,198 1,486,493
Less - Common stock in treasury,
at cost (12,300 shares at March 31, 1997;
and at December 31, 1996) (51,800) (51,800)
------------ -------------
Total shareholders' equity 1,234,398 1,434,493
------------ -------------
Total liabilities and shareholders' equity $ 4,590,592 $ 4,715,205
============ =============
</TABLE>
See Notes to Consolidated Financial Statements.
1
<PAGE>
INRAD, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
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<S> <C> <C>
Revenues:
Net product sales $ 1,048,172 $ 1,149,229
Contract research and development 105,126 130,808
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1,153,298 1,280,037
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Costs and expenses:
Cost of goods sold 796,611 961,905
Contract research and development expenses 106,467 132,670
Selling, general and administrative expenses 359,588 295,682
Internal research and development expenses 27,874 25,693
-------------- --------------
1,290,540 1,415,950
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Operating (loss) (137,242) (135,913)
Other income (expense):
Interest expense (65,204) (74,801)
Interest and other income, net 2,151 10,824
-------------- --------------
Net (loss) (200,295) (199,890)
Accumulated deficit, beginning of period (4,586,514) (4,212,740)
-------------- --------------
Accumulated deficit, end of period $ (4,786,809) $ (4,412,630)
============== ==============
Net (loss) per share $(0.09) $(0.09)
============== ==============
Weighted average shares outstanding 2,109,271 2,108,737
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
INRAD, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (200,295) $ (199,890)
-------------- --------------
Adjustments to reconcile net (loss) to
cash provided by (used in)
operating activities:
Depreciation and amortization 131,076 139,531
Noncash interest - 40,692
Gain on sale of equipment - (8,621)
Changes in assets and liabilities:
Accounts receivable 95,742 95,508
Inventories (66,101) (3,810)
Unbilled contract costs (9,454) 14,029
Other current assets (5,480) (22,120)
Precious metals - -
Other assets (782) (14,346)
Accounts payable and accrued liabilities 90,334 31,829
Advances from customers 49,779 50,953
Other current liabilities (14,595) (14,784)
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Total adjustments 270,519 308,861
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Net cash provided by operating activities 70,224 108,971
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Cash flows from investing activities:
Capital expenditures (33,540) (65,084)
Proceeds from sale of equipment - 299,180
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Net cash provided by (used in) investing activities (33,540) 234,096
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Cash flows from financing activities:
Principal payments of note payable - Bank (25,000) (15,000)
Principal payments of capital lease obligations (24,836) (103,247)
-------------- --------------
Net cash (used in) financing activities (49,836) (118,247)
-------------- --------------
Net increase (decrease) in cash and cash equivalents (13,152) 224,820
Cash and cash equivalents at beginning of period 194,577 37,981
-------------- --------------
Cash and cash equivalents at end of period $ 181,425 $ 262,801
============== ==============
</TABLE>
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, 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 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 Loss Per Share
Net 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
<PAGE>
NOTE 2 - INVENTORIES AND COST OF GOODS SOLD
For the three months period ended March 31, 1997, the Company used 76% as its
estimate cost of goods sold percentage. For the previous year, 1996, the actual
cost of goods sold percentage was 74.8%. The Company believes 76% better
approximates the expected 1997 annual cost of goods sold percentage based on
estimated profitability of actual sales through March 31, 1997 and the
anticipated annual level of product shipments and related costs.
For the three months period ended March 31, 1996, the Company used 83.7% as its
estimate cost of goods sold percentage.
NOTE 3 - DEBT
Note Payable - Shareowner
By mutual informal agreement, the Company has deferred certain interest payments
to its principal shareowner. During the quarter ended March 31, 1997, the
Company did not make any interest payments. The Company expects to make the
required quarterly interest payments in 1997 and, subject to adequate cash flow,
any deferred payments.
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. The shareowner loan has been classified as noncurrent in the accompanying
balance sheet because the shareowner has agreed not to demand payment prior to
April 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 April 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 April 1, 1998.
5
<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 first quarter of 1997 decreased $101,000, or 9% from the
comparable quarter in 1996. International shipments in the first three months of
1997 were $245,000 (23% of total shipments) compared to $162,000 (14%) for the
first three months of 1996. International sales increased over the prior year
due to an increase in bookings of new overseas orders. Product sales during the
first quarter of 1997 were less than the prior year because bookings were down
in the first quarter of 1997 as compared with the first quarter of 1996,
particularly orders shipable on a short term basis.
The backlog of unfilled product orders was $1,943,000 at March 31, 1997,
compared with $1,672,000 at December 31, 1996 and $2,367,000 at March 31, 1996.
Cost of Goods Sold
For the three months ended March 31, 1997, the Company used 76% 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 76% better approximates
the expected 1997 annual cost of cost of goods sold percentage based on
estimated profitability of actual sales through March 31, 1997 and the
anticipated annual level of product shipments and related costs.
For the three month period ended March 31, 1996, the Company used 83.7% as its
estimated cost of goods sold percentage.
Contract Research and Development
Contract research and development revenues were $105,000 for the three months
ended March 31, 1997, compared to $131,000 for the three months ended March 31,
1996. Related contract research and development expenditures, including
allocated indirect costs, for the quarter ended March 31, 1997 were $106,000
compared to $133,000 for the comparable 1996 quarter. Revenues decreased from
1996 to 1997 due to a lower backlog of contracts. The Company intends to focus
its future funded efforts on programs closely aligned with its core business.
The Company's backlog of contract R&D was $331,000 at March 31, 1997, compared
with $75,000 at December 31, 1996 and $357,000 at March 31, 1996.
6
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $64,000, or 22%, in the
first quarter of 1997. The increase is due primarily to higher selling expenses,
including sales salaries, due to the addition of a sales person, and a lower
allocation of general and administrative expenses to contract research and
development. Subject to availability of resources, the Company expects to
increase certain selling costs in 1997.
Internal Research and Development Expenses
Research and development expenses for the quarter ended March 31, 1997 were
$28,000 compared to $26,000 for the quarter ended March 31, 1996. 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 and $75,000 for the quarters ended March 31, 1997
and 1996, respectively.
7
<PAGE>
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. Subject to adequate cash flow, the Company may be able to resume
interest payments to its principal shareowner. During the quarter ended March
31, 1997, the Company did not make any quarterly interest payments to the
shareowner.
Capital expenditures, including internal labor and overhead charges, for the
three months ended March 31, 1997 and 1996 were $34,000 and $65,000,
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 first quarter ended March 31, 1997 and for each of the three years in
the period ended December 31, 1996, the Company has 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,
shareowners including the principal shareowner, as further described in the
Company's Annual Report on Form 10-K. Management expects that cash flow from
operations will provide adequate liquidity for the Company's operations in 1997.
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
<PAGE>
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.
9
<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/ James L. Greco
-------------------------------------
James L. Greco
Controller
(Chief Accounting Officer)
Date: May 14, 1997
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:
-------------------------------------
Warren Ruderman
President and Chief Executive Officer
By:
-------------------------------------
James L. Greco
Controller
(Chief Accounting Officer)
Date: May 14, 1997
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The
Consolidated Balance Sheet and Consolidated Statement of Operations found on
pages two and three on the Company's 10-Q for the year to date and is qualified
in its' entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 181,425
<SECURITIES> 0
<RECEIVABLES> 644,418
<ALLOWANCES> 5,000
<INVENTORY> 1,801,245
<CURRENT-ASSETS> 2,826,664
<PP&E> 8,118,740
<DEPRECIATION> 6,782,273
<TOTAL-ASSETS> 4,590,592
<CURRENT-LIABILITIES> 1,024,966
<BONDS> 2,331,228
0
0
<COMMON> 21,216
<OTHER-SE> 1,213,182
<TOTAL-LIABILITY-AND-EQUITY> 4,590,592
<SALES> 1,153,298
<TOTAL-REVENUES> 1,153,298
<CGS> 903,078
<TOTAL-COSTS> 903,078
<OTHER-EXPENSES> 27,874
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,204
<INCOME-PRETAX> (200,295)
<INCOME-TAX> 0
<INCOME-CONTINUING> (200,295)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (200,295)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> 0
</TABLE>
