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, 1998
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)
INRAD, Inc. 181 Legrand Avenue, Northvale, NJ 07647
---------------------------------------------------
(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 1, 1998:
2,109,271 shares
<PAGE>
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, 1998,
(unaudited) and December 31, 1997...........................1
Consolidated Statements of Operations for the Three
Months Ended March 31, 1998 and 1997 (unaudited)............2
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997 (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 ...................................................8
Item 6. Exhibits and Reports on Form 8-K............................8
Signatures ....................................................................9
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INRAD, Inc.
Consolidated Balance Sheets
Unaudited
March 31, December 31,
1998 1997*
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 118,238 $ 209,142
Certificate of Deposit 70,000 70,000
Accounts receivable, net 751,336 654,827
Inventories 1,467,041 1,546,541
Unbilled contract costs 209,311 102,363
Other current assets 76,960 64,145
----------- -----------
Total current assets 2,692,886 2,647,018
Plant and equipment, net 903,336 996,664
Precious metals 283,614 278,693
Other assets 171,714 171,084
----------- -----------
Total assets $ 4,051,550 $ 4,093,459
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Note payable - Bank $ 127,500 $ 120,000
Current obligations under capital leases 6,803 12,262
Accounts payable and accrued liabilities 866,419 720,214
Advances from customers 75,010 63,329
Other current liabilities 30,595 57,929
----------- -----------
Total current liabilities 1,106,327 973,734
Note payable - Bank 70,000 107,500
Obligations under capital leases 7,000 8,083
Secured Promissory Notes 250,000 250,000
Subordinated Convertible Notes 1,224,921 1,224,921
Unsecured Demand Convertible Note 100,000 100,000
Note payable - Shareowner 566,049 566,049
----------- -----------
Total liabilities 3,324,297 3,230,887
----------- -----------
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 (5,293,954) (5,158,635)
----------- -----------
779,053 914,372
Less - Common stock in treasury,
at cost (12,300 shares at March 31, 1998;
and at December 31, 1997) (51,800) (51,800)
----------- -----------
Total shareholders' equity 727,253 862,572
----------- -----------
Total liabilities and shareholders' equity $ 4,051,550 $ 4,093,459
=========== ===========
* Derived from Audited Financial Statements
See Notes to Consolidated Financial Statements.
1
<PAGE>
INRAD, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31,
---------------------------
1998 1997
----------- -----------
Revenues:
Net product sales $ 1,213,671 $ 1,048,172
Contract research and development 165,663 105,126
----------- -----------
1,379,334 1,153,298
----------- -----------
Costs and expenses:
Cost of goods sold 922,592 796,611
Contract research and development expenses 175,136 106,467
Selling, general and administrative expenses 324,034 359,588
Internal research and development expenses 33,299 27,874
----------- -----------
1,455,061 1,290,540
----------- -----------
Operating profit (loss) (75,727) (137,242)
Other income (expense):
Interest expense (61,016) (65,204)
Interest and other income, net 1,424 2,151
----------- -----------
Net income (loss) (135,319) (200,295)
Accumulated deficit, beginning of period (5,158,635) (4,586,514)
----------- -----------
Accumulated deficit, end of period $(5,293,954) $(4,786,809)
=========== ===========
Net income (loss) per share Basic and Diluted $ (0.06) $ (0.09)
=========== ===========
Weighted average shares outstanding 2,109,271 2,109,271
=========== ===========
See Notes to Consolidated Financial Statements.
2
<PAGE>
INRAD, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
----------------------------
1998 1997
--------- ---------
Cash flows from operating activities:
Net income (loss) $(135,319) $(200,295)
--------- ---------
Adjustments to reconcile net income (loss)
to cash provided by (used in)
operating activities:
Depreciation and amortization 117,312 131,076
Changes in assets and liabilities:
Accounts receivable (96,509) 95,742
Inventories 79,500 (66,101)
Unbilled contract costs (106,948) (9,454)
Other current assets (12,815) (5,480)
Precious metals (4,921) --
Other assets (630) (782)
Accounts payable and accrued liabilities 146,205 90,334
Advances from customers 11,681 49,779
Other current liabilities (27,334) (14,595)
--------- ---------
Total adjustments 105,541 270,519
--------- ---------
Net cash (used in) provided by
operating activities (29,778) 70,224
--------- ---------
Cash flows from investing activities:
Capital expenditures (23,984) (33,540)
--------- ---------
Net cash used in investing activities (23,984) (33,540)
--------- ---------
Cash flows from financing activities:
Principal payments of note payable - Bank (30,000) (25,000)
Principal payments of capital lease
obligations (7,142) (24,836)
--------- ---------
Net cash used in financing activities (37,142) (49,836)
--------- ---------
Net decrease in cash and cash equivalents (90,904) (13,152)
Cash and cash equivalents at beginning of period 209,142 194,577
--------- ---------
Cash and cash equivalents at end of period $ 118,238 $ 181,425
--------- ---------
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, 1997 and 1996 and for the
years then ended and notes thereto included in the Company 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 potential diluted effect of securities which are
currently convertible to common share equivalents have been excluded from the
computation because their effect is antidilutive.
4
<PAGE>
NOTE 2 - INVENTORIES AND COST OF GOODS SOLD
For the three month period ended March 31 1998, the Company used 76% as its
estimate cost of goods sold percentage. For the previous year, 1997, the actual
cost of goods sold percentage was 77.6%. The Company believes 76% better
approximates the expected 1998 annual cost of goods sold percentage based on
estimated profitability of actual sales through March 31, 1998 and the
aticipated annual level of product shipments and related costs.
For the three month period ended March 31, 1997, the Company used 76% 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 quarter ended March 31, 1998, the
Company did not make any interest payments. The Company's ability make the
remaining quarterly interest payments in 1998 is subject to adequate cash flow.
Although by its terms the indebtedness to the shareowner was due on December 31,
1996, it cannot be repaid until the Chemical Bank debt has been repaid in full,
which is expected to be on September 1, 1999. 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, 1999.
Unsecured Demand Convertible Note
Although by its terms the Note is due on demand, it cannot be repaid until the
Chemical 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, 1999.
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, 1999.
Subordinated Convertible Notes
The two semi-annual cash interest payments of $50,000, that were due in 1997,
were not made and the debt holder has agreed not to request payment prior to
July 15, 1998. The interest obligation has been accrued by the Company and is
included in Accounts Payable and Accrued Liabilities.
5
<PAGE>
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 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 inability 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 first 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 first quarter of 1998 increased $165,000, or 16% from the
comparable quarter in 1997. International shipments in the first three months of
1998 were $262,000 (22% of total shipments) compared to $245,000 (23%) for the
first three months of 1997. Product sales during the first quarter of 1998 were
greater than the prior year because the opening backlog was greater in 1998 then
it was in 1997.
The backlog of unfilled product orders was $1,902,000 at March 31, 1998,
compared with $1,862,000 at December 31, 1997 and $1,943,000 at March 31, 1997.
Cost of Goods Sold
For the three months ended March 31, 1998, the Company used 76% as its estimated
cost of goods sold percentage. For the previous year, 1997, the actual cost of
goods sold percentage was 77.6%. The Company believes 76% better approximates
the expected 1998 annual cost of goods sold percentage based on estimated
profitability of actual sales through March 31, 1998 and the anticipated annual
level of product shipments and related costs.
For the three month period ended March 31, 1997, the Company used 76% as its
estimated cost of goods sold percentage.
6
<PAGE>
Contract Research and Development
Contract research and development revenues were $165,000 for the three months
ended March 31, 1998, compared to $105,000 for the three months ended March 31,
1997. Related contract research and development expenditures, including
allocated indirect costs, for the quarter ended March 31, 1998 were $175,000
compared to $106,000 for the comparable 1997 quarter. Revenues increased from
1997 to 1998 due to a higher opening backlog of contracts. The Company intends
to continue to focus its future funded efforts on programs closely aligned with
its core business.
The Company's backlog of contract R&D was $1,157,000 at March 31, 1998, compared
with $573,000 at December 31, 1997 and $331,000 at March 31, 1997.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $33,000, or 10%, in the
first quarter of 1998. Because of increased contract research and development
revenues, a greater allocation of selling, general and administrative expenses
was made to contract research and development expense.
Internal Research and Development Expenses
Research and development expenses for the quarter ended March 31, 1998 were
$33,000 compared to $28,000 for the quarter ended March 31, 1997. The Company is
focusing its internal Research and Development efforts in 1998 on a few new
products with short development cycles.
Interest Expense
Interest expense was $61,000 and $65,000 for the quarters ended March 31, 1998
and 1997, respectively.
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. Subject to adequate cash flow,
the Company may be able to resume interest payments to its principal shareowner.
During the quarter ended March 31, 1998, 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, 1998 and 1997 were $24,000 and $34,000,
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.
7
<PAGE>
During the first quarter ended March 31, 1998 and for each of the three years in
the period ended December 31, 1997, 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 1998.
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.
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.
8
<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, 1998
9
<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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 118,238
<SECURITIES> 0
<RECEIVABLES> 758,336
<ALLOWANCES> 7,000
<INVENTORY> 1,467,041
<CURRENT-ASSETS> 2,692,886
<PP&E> 5,145,363
<DEPRECIATION> 4,242,627
<TOTAL-ASSETS> 4,051,550
<CURRENT-LIABILITIES> 1,106,327
<BONDS> 2,217,970
0
0
<COMMON> 21,216
<OTHER-SE> 706,037
<TOTAL-LIABILITY-AND-EQUITY> 4,051,550
<SALES> 1,379,334
<TOTAL-REVENUES> 1,379,334
<CGS> 1,097,728
<TOTAL-COSTS> 1,097,728
<OTHER-EXPENSES> 33,299
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,016
<INCOME-PRETAX> (135,319)
<INCOME-TAX> 0
<INCOME-CONTINUING> (135,319)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (135,319)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> 0
</TABLE>
