<PAGE>
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, 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_____________
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
- ------------------------ -----------------------------
(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 July 30, 1997:
2,109,271 SHARES
<PAGE>
INRAD, Inc.
INDEX
PAGE
NUMBER
Part I. FINANCIAL INFORMATION................................................1
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1997
(unaudited) and December 31, 1996...............................1
Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 1997 and 1996 (unaudited).................2
Consolidated Statement of Cash Flows for the Six Months Ended
June 30, 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
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INRAD, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
1997 1996
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 104,401 $ 194,577
Certificate of Deposit 70,000 70,000
Accounts receivable, net 674,475 735,160
Inventories 1,828,067 1,735,144
Unbilled contract costs 92,434 59,350
Other current assets 61,522 60,292
----------- ------------
TOTAL CURRENT ASSETS 2,830,899 2,854,523
PLANT AND EQUIPMENT, NET 1,225,632 1,431,931
PRECIOUS METALS 279,247 279,248
OTHER ASSETS 167,060 149,503
----------- ------------
TOTAL ASSETS $ 4,502,838 $ 4,715,205
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable - Bank $ 105,000 $ 92,500
Current obligations under capital leases 37,820 73,399
Accounts payable and accrued liabilities 858,056 640,943
Advances from customers 131,730 73,244
Other current liabilities 19,654 48,865
----------- ------------
TOTAL CURRENT LIABILITIES 1,152,260 928,951
Note payable - Bank 167,500 227,500
Obligations under capital leases 12,576 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 3,451,646 3,280,512
----------- ------------
Commitments
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 (4,970,015) (4,586,514)
----------- ------------
1,102,992 1,486,493
Less - Common stock in treasury,
at cost (12,300 shares at June 30, 1997
and at December 31, 1996) (51,800) (51,800)
----------- ------------
TOTAL SHAREHOLDERS' EQUITY 1,051,192 1,434,693
----------- ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 4,502,838 $ 4,715,205
----------- ------------
----------- ------------
See Notes to Consolidated Financial Statements.
1
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<TABLE>
<CAPTION>
INRAD, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Net product sales $ 1,254,063 $ 1,415,070 $ 2,302,235 $ 2,564,299
Contract research and development 99,920 196,835 205,046 327,643
--------- --------- --------- ---------
1,353,983 1,611,905 2,507,281 2,891,942
--------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of goods sold 999,942 1,063,891 1,796,553 2,025,796
Contract research and development expenses 97,006 194,127 203,473 326,797
Selling, general and administrative expenses 342,227 344,357 701,815 640,039
Internal research and development expenses 34,811 42,182 62,685 67,875
--------- --------- --------- ---------
1,473,986 1,644,557 2,764,526 3,060,507
--------- --------- --------- ---------
OPERATING PROFIT (LOSS) (120,003) (32,652) (257,245) (168,565)
Other income (expense):
Interest expense (64,620) (69,767) (129,824) (144,568)
Interest and other income, net 1,417 2,815 3,568 13,639
--------- --------- --------- ---------
NET INCOME (LOSS) (183,206) (99,604) (383,501) (299,494)
ACCUMULATED DEFICIT, BEGINNING OF PERIOD (4,786,809) (4,412,630) (4,586,514) (4,212,740)
--------- --------- --------- ---------
ACCUMULATED DEFICIT, END OF PERIOD $(4,970,015) $(4,512,234) $(4,970,015) $(4,512,234)
--------- --------- --------- ---------
--------- --------- --------- ---------
NET INCOME (LOSS) PER SHARE $(0.09) $(0.05) $(0.18) $(0.14)
--------- --------- --------- ---------
--------- --------- --------- ---------
WEIGHTED AVERAGE SHARES OUTSTANDING 2,109,271 2,109,271 2,109,271 2,109,004
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
2
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INRAD, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (383,501) $(299,494)
--------- ---------
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 264,552 279,064
Noncash interest - 81,384
Gain on sale of equipment - (8,621)
CHANGES IN ASSETS AND LIABILITIES:
Accounts receivable 60,685 (21,830)
Inventories (92,923) 102,812
Unbilled contract costs (33,084) 83,418
Other current assets (1,230) 10,154
Precious metals - -
Other assets (22,247) (14,893)
Accounts payable and accrued liabilities 239,802 42,532
Advances from customers 58,486 (32,580)
Other current liabilities (29,210) (29,585)
--------- ---------
Total adjustments 444,831 491,855
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 61,330 192,361
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (53,561) (131,645)
Proceeds from sale of equipment - 299,180
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (53,561) 167,535
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of note payable - Bank (47,500) (30,000)
Principal payments of capital lease
obligations (50,445) (131,450)
Advance from shareowner - -
--------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (97,945) (161,450)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (90,176) 198,446
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 194,577 37,981
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 104,401 $ 236,427
--------- ---------
--------- ---------
See Notes to Consolidated Financial Statements.
3
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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 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.
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
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NOTE 2 -INVENTORIES AND COST OF GOODS SOLD
For the six month period ended June 30, 1997, the Company used 78% 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 78% better
approximates the expected 1997 annual cost of goods sold percentage based on
estimated profitability of actual sales through June 30, 1997 and the
anticipated annual level of product shipments and related costs.
For the six month period ended June 30, 1996, the Company used 79% as its
estimated 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 six month period ended June 30, 1997,
the Company did not make any interest payments. Subject to adequate cash flow,
the Company expects to make the remaining quarterly interest payments in 1997.
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
July 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 July 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 July 1, 1998.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information contains forward-looking statements, including
statements with respect 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 any forward-looking statements are accompanied by meaningful
cautionary 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 to the following factors: inability
to maintain customer relationships and/or add new customers; unforeseen overhead
expenses that may adversely affect financial results or other inabilities to
operate with a positive cash flow. Readers are further cautioned that the
Company's financial results can vary from quarter to quarter, and the financial
results reported for the second quarter may not necessarily be indicative of
future results. The foregoing is not intended to be an exhaustive list of all
factors which could cause actual results to differ materially from those
expressed in forward-looking statements made by the Company. For more
information about the Company, please review the Company's most recent Form 10-K
filed with the Securities & Exchange Commission.
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 1997 decreased $161,000, or 11%, from the
comparable quarter in 1996, and net sales for the six months ended June 30, 1997
decreased $262,000, or 10%, from the comparable 1996 period. International
shipments in the first six months of 1997 were $404,000 (18% of total shipments)
compared to $477,000 (19%) for the first six months of 1996. Product sales
during the six months ended June 30, 1997 were less than the prior year because
bookings were down, particularly bookings shippable on a short term basis.
During the second quarter of 1997, shipments were less than in the comparable
quarter in 1996, while bookings increased during that same period. Most of the
increased bookings were not shippable during the quarter, but will be in the
future.
The backlog of unfilled product orders was $2,147,000 at June 30, 1997, compared
with $1,672,000 at December 31, 1996 and $2,000,000 at June 30, 1996.
COST OF GOODS SOLD
For the six month period ended June 30, 1997, the Company used 78% 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 78% better
approximates the expected 1997 annual cost of goods sold percentage based on
estimated profitability of actual sales through June 30, 1997 and the
anticipated annual level of product shipments and related costs.
For the six month period ended June 30, 1996, the Company used 79% as its
estimated cost of goods sold percentage.
6
<PAGE>
CONTRACT RESEARCH AND DEVELOPMENT
Contract research and development revenues for the second quarter of 1997
decreased $97,000, or 49%, from the comparable quarter in 1996, and revenues for
the six months ended June 30, 1997 and 1996 were $205,000 and $328,000,
respectively. Related contract research and development expenditures, including
allocated indirect costs, for the quarter ended June 30, 1997 were $97,000
compared to $194,000 for the comparable 1996 quarter; expenses for the six month
period ended June 30, 1997 and 1996 were $203,000 and $327,000, respectively.
Revenues decreased from 1996 to 1997 due to a lower opening backlog of
contracts. The Company expects to continue to focus its future efforts on
funded programs closely aligned with its core business.
The Company's backlog of contract R&D was $629,000 at June 30, 1997, compared
with $75,000 at December 31, 1996 and $162,000 at June 30, 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $62,000 for the first six
months of 1997. The increase is due primarily to higher selling expenses,
including sales salaries, due to the addition of a sales person, increased
advertising and travel, and a lower allocation of general and administrative
expenses to contract research and development. During the second quarter of
1997, Selling, General and Administrative Expenses decreased $2,000 as compared
to 1996. This decrease was due to less commissions on international sales
offset by additional selling expenses for salaries, advertising and travel, and
a lower allocation of general and administrative expenses to contract research
and development.
INTERNAL RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the quarter ended June 30, 1997 were
$35,000 compared to $42,000 for the quarter ended June 30, 1996. Expenses for
the six months ended June 30, 1997 were $63,000 compared to $68,000 for the
comparable 1996 period. 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 for the quarter ended June 30, 1997 compared to
$70,000 for the quarter ended June 30, 1996, and $130,000 and $145,000 for the
six months ended June 30, 1997 and 1996, respectively.
7
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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. The first payment was due on June 15, 1997, and was not made.
Capital expenditures, including internal labor and overhead charges, for the six
months ended June 30, 1997 and 1996 were $54,000 and $132,000, 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 six month period ended June 30, 1997 and for each of the three years
in the period ended December 31, 1996, the Company had 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. The Company's liquidity is dependent on its ability to generate
sufficient cash flow from operations. 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: August 12, 1997
10
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND ON
PAGES ONE AND TWO ON THE COMPANY'S 10Q FOR THE YEAR TO DATE.
</LEGEND>
<CIK> 0000719494
<NAME> INRAD, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 104,401
<SECURITIES> 0
<RECEIVABLES> 679,475
<ALLOWANCES> 5,000
<INVENTORY> 1,828,067
<CURRENT-ASSETS> 2,830,899
<PP&E> 5,088,733
<DEPRECIATION> 3,863,101
<TOTAL-ASSETS> 4,502,838
<CURRENT-LIABILITIES> 1,152,260
<BONDS> 2,299,386
0
0
<COMMON> 21,216
<OTHER-SE> 1,030,776
<TOTAL-LIABILITY-AND-EQUITY> 4,502,838
<SALES> 2,507,281
<TOTAL-REVENUES> 2,507,281
<CGS> 2,000,026
<TOTAL-COSTS> 2,000,026
<OTHER-EXPENSES> 62,685
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 129,824
<INCOME-PRETAX> (383,501)
<INCOME-TAX> 0
<INCOME-CONTINUING> (383,501)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (383,501)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> 0
</TABLE>
