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, 2000
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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)
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 1, 2000:
4,176,078 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, 2000,
(unaudited) and December 31, 1999.......................1
Consolidated Statements of Operations for the Three
Months Ended March 31, 2000 and 1999 (unaudited)........2
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2000 and 1999 (unaudited)........3
Notes to Consolidated Financial Statements..............4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................5
Changes in Securities and Use of Proceeds...............6
Part II. OTHER INFORMATION.................................................7
Item 6. Exhibits and Reports on Form 8-K........................7
Signatures ...............................................................8
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INRAD, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999*
---- ----
Unaudited
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 467,631 $ 377,169
Accounts receivable, net 754,854 741,558
Inventories 1,535,612 1,336,285
Unbilled contract costs 215,529 460,713
Other current assets 96,004 91,970
----------- -----------
Total current assets 3,069,630 3,007,695
----------- -----------
Plant and equipment,
Plant and equipment at cost 5,639,195 5,543,244
Less: Accumulated depreciation
and amortization (4,962,770) (4,898,951)
----------- -----------
Total plant and equipment 676,425 644,293
Precious metals 306,395 306,396
Other assets 157,989 154,803
----------- -----------
Total assets $ 4,210,439 $ 4,113,227
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 814,740 $ 603,458
Advances from customers 11,056 152,608
Other current liabilities 27,927 12,000
----------- -----------
Total current liabilities 853,723 768,066
Secured Convertible Promissory Notes 250,000 250,000
Subordinated Convertible Notes -- 100,000
----------- -----------
Total liabilities 1,103,723 1,118,066
----------- -----------
Shareholders' equity:
Preferred Stock: $1,000 par value; 500 shares issued and outstanding
at March 31, 2000 and at December 31, 1999 500,000 500,000
Common stock: $.01 par value; 4,180,678 shares issued at
March 31, 2000 and 4,100,678 at December 31, 1999 41,807 41,007
Capital in excess of par value 8,336,918 8,237,718
Accumulated deficit (5,757,059) (5,768,614)
----------- -----------
3,121,666 3,010,111
Less - Common stock in treasury,
at cost (4,600 shares at March 31, 2000 and
at December 31, 1999) (14,950) (14,950)
----------- -----------
Total shareholders' equity 3,106,716 2,995,161
----------- -----------
Total liabilities and shareholders' equity $ 4,210,439 $ 4,113,227
=========== ===========
</TABLE>
* 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
---------------------------
2000 1999
---- ----
Revenues:
Product sales $ 1,099,200 $ 1,415,620
Contract R & D 359,497 249,857
----------- -----------
Total Revenue 1,458,697 1,665,477
----------- -----------
Cost and Expenses:
Cost of goods sold 580,266 1,047,558
Contract R & D expenses 242,265 262,742
Selling, general & administrative expenses 452,110 356,827
Internal R & D expenses 169,478 33,871
----------- -----------
Total Cost and Expenses 1,444,119 1,700,998
----------- -----------
Operating profit (loss) 14,578 (35,521)
Other income (expense):
Interest expense (7,049) (9736)
Interest & other income, net 4,026 1,424
----------- -----------
Net income (loss) 11,555 (44,592)
Accumulated deficit, beginning of period (5,768,614) (5,790,403)
----------- -----------
Accumulated deficit, end of period $(5,757,059) $(5,834,995)
=========== ===========
Net income (loss) per common share 0.01 (0.01)
=========== ===========
Weighted average shares outstanding 4,127,345 4,100,678
=========== ===========
See Notes to Consolidated Financial Statements.
2
<PAGE>
INRAD, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months Ended March 31
---------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 11,555 $ (44,592)
--------- ---------
Adjustments to reconcile net income (loss) to cash provided by operating
activities:
Depreciation and amortization 63,819 88,350
Changes in assets and liabilities:
Accounts receivable (13,296) (99,780)
Inventories (199,327) 138,450
Unbilled contract costs 245,184 (59,991)
Other current assets (4,034) (7,427)
Precious metals 1 (3,760)
Other assets (3,146) (1870)
Accounts payable and accrued liabilities 211,282 85,511
Advances from customers (141,552) 56,153
Other current liabilities 15,927 (8,000)
--------- ---------
Total adjustments 174,858 99,286
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Net cash provided by (used in) operating activities 186,413 143,044
--------- ---------
Cash flows from investing activities:
Capital expenditures (95,951) (92,611)
--------- ---------
Net cash used in investing activities (95,951) (92,611)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of preferred stock 0 200,000
Principal payments of note payable - Bank 0 (37,500)
Principal payments of capital lease obligations 0 (2,071)
--------- ---------
Net cash provided by (used in) financing activities 0 160,429
--------- ---------
Net increase (decrease) in cash and cash equivalents 90,462 210,862
Cash and cash equivalents at beginning of period 377,169 208,028
--------- ---------
Cash and cash equivalents at end of period $ 467,631 $ 418,890
========= =========
</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, 1999 and 1998 and for the
years then ended and notes thereto included in the Company's report on Form
10-K, filed with the Securities and Exchange Commission.
Inventory Valuation
For the period ended March 31, 2000 inventories are valued on a lower of cost
(first-in-first-out basis) or market basis (net realizable value). Work In
Process inventory for the period is stated at actual cost, not in excess of
estimated realizable value. For the period ended March 31, 1999, interim
inventories, as well as cost of goods sold were computed using the gross profit
method of inventory valuation and applying an estimated gross profit percentage
based on the actual values for the preceding fiscal year.
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. A
valuation allowance is established when deferred tax assets are not likely to be
realized.
Net Income (Loss) Per Share
Basic and diluted net income (loss) per share is computed using the weighted
average number of common shares outstanding. The potential dilutive effect of
securities, which are common share equivalents, options, warrants, convertible
notes and convertible preferred stock, have been excluded from the diluted
computation because their effect is antidilutive.
NOTE 2 -DEBT
Secured Convertible Promissory Note
The Promissory note has been classified as non-current in the accompanying
balance sheet because the Note holder has agreed not to demand payment prior to
April 1, 2001.
Subordinated Convertible Notes
During September 1993, the company borrowed $100,000 in the form of a promissory
note from a shareowner of the Company. On December 16, 1993, the promissory note
was extinguished and a $74,621 10% subordinated convertible note and 20,303
shares of the Company's commons stock at $1.25 were issued. The note is
convertible at any time up to the maturity date into shares of the Company's
common stock at $1.25 per share (to be adjusted for dividends, stock splits,
etc.). On March 15, 2000, the note along with its accrued interest through
December 31, 1999 was converted into 80,000 shares of the Company's common
stock.
4
<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 three months 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 product sales for the first quarter of 2000 were $1,099,000 vs. $1,415,000
for the first quarter of 1999. Sales were lower compared to the first quarter of
1999 due to a larger portion of the backlog being scheduled for delivery later
in the current fiscal year when compared to shipment schedules in the first
quarter of 1999. Also, shipments of the Company's Systems and Instruments
product line were well below first quarter 1999 levels.
New Product bookings were at $1,609,000, resulting in a $512,000 (35%) increase
in unfilled product orders for the quarter. Backlog at March 31, 2000 $1,946,000
compared to $1,438,000 on December 31, 1999 and $1,733,000 on March 31, 1999.
Cost of Goods Sold
Cost of goods sold decreased in comparison to the same period in 1999 due to
lower sales volume and increased cost efficiencies. Costs for the quarter, were
determined utilizing perpetual inventory records adjusted to net realizable
value. For the three- month period ended March 31, 1999, the Company used 74% as
its estimated cost of goods sold as a percentage of product revenues. For the
full year 1999, the actual cost of good sold percentage was 68.9%. Cost of goods
sold percentage for the three-month period ended March 31, 2000 improved to 53%.
Contract Research and Development
Contract research and development revenues were $359,000 for the three months
ended March 31, 2000, compared to $250,000 for the three months ended March 31,
1999. Current period revenues included a one-time adjustment for under-absorbed
overhead costs of $130,000. Related contract research and development
expenditures, including allocated indirect costs, for the quarter ended March
31, 2000 were $242,000 compared to $263,000 for the comparable 1999 quarter. The
Company's backlog of contract R&D was $730,000 at March 31, 2000, compared with
$1,089,000 at December 31, 1999 and $1,101,000 at March 31, 1999.
5
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $451,000 in the first
quarter of 2000 compared to $357,000 in the same period in the prior year.
Selling, general and administrative expenses increased due to the hiring of a
new president, new sales personnel, and other increased selling and personnel
costs.
Internal Research and Development Expenses
Research and development expenses for the quarter ended March 31, 2000 were
$169,000 compared to $34,000 for the quarter ended March 31, 1999. The increase
reflects a major effort to develop and demonstrate a Optical Parametric
Oscillator prototype operating in the infrared wave band for application to a
new class of scientific instruments.
Interest Expense
Interest expense was $7,000 and $10,000 for the quarters ended March 31, 2000
and 1999, respectively. Interest expense is less in 2000 because on September
30, 1999 the Company completed payment of the bank note payable to Chase
Manhattan Bank.
LIQUIDITY AND CAPITAL RESOURCES
In March 1999, a shareowner and debtholder of the Company agreed to purchase 500
shares of 10% convertible preferred stock at the price of $1,000 per share. Two
hundred shares were purchased for $200,000 in March 1999 and the remaining three
hundred shares were purchased in June 1999 for $300,000. Dividends are payable
in common stock at the rate of $1.00 per share.
Capital expenditures, including internal labor and overhead charges, for the
three months ended March 31, 2000 and 1999 were $96,000 and $93,000,
respectively. As long as cash flows from operations are adequate and/or other
financing terms can be arranged, management will continue to make investments in
capital acquisitions to insure that the Company maintains a competitive edge in
the market place.
During the three month period ended March 31, 2000 and for the prior fiscal year
the Company generated a profit. Cash outflows during these periods have been
funded on the basis of issuance of preferred stock to, shareowners, as further
described in the Company's Annual Report on Form 10-K. The Company's liquidity
is dependent upon its ability to continue to improve operating results and
thereby generate adequate cash flow from operations. Through the current quarter
and for the three years in the period ended December 31, 1999 the company has
generated positive cash flow from operations. Management anticipates that cash
flow from operations will continue to remain positive
Year 2000 Issue
The Company has satisfactorily implemented a plan to ensure that its systems are
compliant with the requirements to process transactions in the year 2000. To
date, the Company has not experienced any adverse affects related to the year
2000.
6
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. APPOINTMENT OF CHIEF EXECUTIVE OFFICER
On May 5, 2000 Dr. Warren Ruderman retired as Chief Executive Officer after
twenty seven years as founder and leader of the Company. Mr. Daniel Lehrfeld,
the Company president, was appointed to the position. Tom Lenagh was elected
Chairman of the Board, a position also formerly held by Dr. Ruderman. Dr.
Ruderman will remain as a Director of the Company.
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.
7
<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/ Daniel Lehrfeld
-----------------------------------------------
Daniel Lehrfeld
President and Chief Executive Officer
By: /s/ William S. Miraglia
-----------------------------------------------
William S. Miraglia
Chief Financial Officer
(Chief Accounting Officer)
Date: May 10, 2000
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
statements and is qualified in its entirety be reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 467,631
<SECURITIES> 0
<RECEIVABLES> 798,554
<ALLOWANCES> 44,000
<INVENTORY> 1,535,612
<CURRENT-ASSETS> 3,069,630
<PP&E> 5,639,195
<DEPRECIATION> 4,962,770
<TOTAL-ASSETS> 4,210,439
<CURRENT-LIABILITIES> 853,723
<BONDS> 250,000
0
500,000
<COMMON> 41,807
<OTHER-SE> 2,564,909
<TOTAL-LIABILITY-AND-EQUITY> 4,210,439
<SALES> 1,099,200
<TOTAL-REVENUES> 1,458,697
<CGS> 580,266
<TOTAL-COSTS> 822,531
<OTHER-EXPENSES> 621,588
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,049
<INCOME-PRETAX> 11,555
<INCOME-TAX> 0
<INCOME-CONTINUING> 11,555
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,555
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
