<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, 2000
-------------------------------------------------
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.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2003247
------------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation 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 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 June 30, 1999:
4,781,178
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INRAD, INC.
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. FINANCIAL INFORMATION.......................................................1
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 2000, (unaudited)
and December 31, 1999.........................................1
Consolidated Statements of Operations for the three and Six
Months Ended June 30, 2000 and 1999 (unaudited)...............2
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 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.....................7
PART II. OTHER INFORMATION...........................................................7
Item 6. Exhibits and Reports on Form 8-K..............................7
SIGNATURES ...........................................................................8
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INRAD, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999*
---- ----
UNAUDITED
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 319,396 $ 377,169
Accounts receivable, net 826,477 741,558
Inventories 1,655,882 1,336,285
Unbilled contract costs 366,080 440,713
Other current assets 84,535 91,970
----------- -----------
TOTAL CURRENT ASSETS 3,252,370 3,007,695
----------- -----------
PLANT AND EQUIPMENT,
Plant and equipment at cost 5,741,684 5,543,244
Less: Accumulated depreciation
and amortization (5,026,589) (4,898,951)
----------- -----------
Total plant and equipment 715,095 644,293
PRECIOUS METALS 307,265 306,396
OTHER ASSETS 183,829 154,843
----------- -----------
TOTAL ASSETS $ 4,458,559 4,113,227
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities 752,789 603,458
Advances from customers 11,056 152,608
Other current liabilities 15,304 12,000
----------- -----------
TOTAL CURRENT LIABILITIES 779,149 768,066
SECURED CONVERTIBLE PROMISSORY NOTES 0 250,000
SUBORDINATED CONVERTIBLE NOTES 0 100,000
----------- -----------
TOTAL LIABILITIES 779,149 1,118,066
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred Stock: $1,000 par value; 500 shares issued and
outstanding at June 30, 2000 at December 31, 1999 500,000 500,000
Common stock: $.01 par value; 4,785,778 shares issued at
June 30, 2000 and 4,100,678 at December 31, 1999 47,857 41,007
Capital in excess of par value 8,900,743 8,237,718
Accumulated deficit (5,754,240) (5,768,614)
----------- -----------
3,694,360 3,010,110
Less - Common stock in treasury,
at cost (4,600 shares at June 30, 2000 and
at December 31, 1999) (14,950) (14,950)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 3,679,410 2,995,161
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,458,559 $ 4,113,227
=========== ===========
</TABLE>
* Derived from Audited Financial Statements
See Notes to Consolidated Financial Statements.
1
<PAGE>
INRAD, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
-------------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 1,481,960 $ 1,384,416 $ 2,581,160 $ 2,800,036
Contract R & D 255,458 314,346 614,955 564,203
----------- ----------- ----------- -----------
Total Revenue 1,737,418 1,698,762 3,196,115 3,364,239
----------- ----------- ----------- -----------
COST AND EXPENSES:
Cost of goods sold 871,721 1,025,566 1,451,987 2,073,124
Contract R & D expenses 296,655 302,349 538,921 565,091
Selling, general & administrative expenses 452,717 378,415 904,827 735,242
Internal R & D expenses 112,586 64,432 282,064 98,303
----------- ----------- ----------- -----------
Total Cost and Expenses 1,733,279 1,770,762 3,177,799 3,471760
----------- ----------- ----------- -----------
OPERATING PROFIT (LOSS) 3,739 (72,000) 18,317 (107,521)
OTHER INCOME (EXPENSE):
Interest expense (4,374) (8,739) (11,423) (18,475)
Interest & other income, net 3,455 2,173 7,481 2,838
----------- ----------- ----------- -----------
NET INCOME (LOSS) 2,819 (78,566) 14,375 (123,158)
ACCUMULATED DEFICIT, BEGINNING OF PERIOD (5,750,059) (5,834,995) (5,790,403) (5,790,403)
----------- ----------- ----------- -----------
ACCUMULATED DEFICIT, END OF PERIOD $(5,754,240) $(5,913,561) $(5,754,240) $(5,913,561)
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE -
(BASIC AND DILUTED 0.01 (0.02) .01 (0.03)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 4,157,769 4,100,678 4,157,769 4,100,678
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
INRAD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
------------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 14,374 $(123,158)
--------- ---------
ADJUSTMENTS TO RECONCILE NET LOSS TO CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 127,638 176,999
CHANGES IN ASSETS AND LIABILITIES:
Accounts receivable (84,919) (114,720)
Inventories (319,597) 330,441
Unbilled contract costs 94,633 (148,607)
Other current assets 7,435 (26,745)
Precious metals (869) (4,392)
Other assets (28,986) 116
Accounts payable and accrued liabilities 149,331 18,383
Advances from customers (141,552) (13,327)
Other current liabilities 3,304 (8,000)
--------- ---------
Total adjustments (193,583) 210,148
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES (179,209) 86,990
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (198,440) (167,402)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (198,440) (167,402)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock option conversions 319,875 0
Proceeds from issuance of preferred stock 0 500,000
Principal payments of note payable - Bank 0 (75,000)
Principal payments of capital lease obligations 0 (4,235)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 319,875 420,765
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (57,774) 340,353
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 377,169 208,028
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 319,395 $ 548,381
========= =========
</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
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. A
valuation allowance is established when deferred tax assets are not likely to be
realized.
NET LOSS PER SHARE
Basic and diluted net 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, warrents, convertible notes and
convertilbe preferred stock, have been excluded from the diluted computation
because their effect is antidilutive.
NOTE 2-INVENTORIES AND COST OF GOODS SOLD
For the six month period ended June 30, 2000, the Company used 56% as its
estimated cost of goods sold percentage. For the previous year, 1999, the actual
cost of goods sold percentage was 68.9%. The Company believes 56% better
approximates the expected 2000 annual cost of goods sold percentage based on
estimated profitability of actual sales through June 30, 2000 and the
anticipated annual level of product shipments and related costs.
For the six month period ended June 30, 1999, the Company used 74% as its
estimated cost of goods sold percentage.
NOTE 3-DEBT CONVERSION
SECURED CONVERTIBLE PROMISSORY NOTE
On June 15, 2000 the secured convertible promissory note was converted into
200,000 shares of INRAD, Inc. common stock.
4
<PAGE>
SUBORDINATED CONVERTIBLE NOTE
On March 15, 2000 the subordinated convertible note was converted into 80,000
shares of INRAD, Inc. common stock.
NOTE 4-EXERCISE OF WARRANTS
On June 15, 2000 345,000 warrants were exercised and 345,000 of shares of
INRAD, Inc. was issued for capital received of $314,375.
NOTE 5-PREFERRED STOCK
The company sold 200 shares of its Series A 10% Convertible Preferred Stock for
$200,000 on March 25, 1999 and 300 shares on June 25, 1999. There was one
purchaser, an institution that was a majority shareholder of the Company prior
to the purchase. The series A Preferred Stock is convertible into Common Stock
of the Company at the rate of $1.00 per share.
NOTE 6-COMMITMENTS
There are in effect employment agreements with two officers of the Company that
call for a base compensation to be mutually agreed upon at renewal. Early
termination of the agreements will result in a severance payment of between six
and nine months of base compensation. The minimum aggregate payouts under such
contracts approximate $139,000.
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 six 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.
5
<PAGE>
NET PRODUCT SALES
Product sales for the second quarter of 2000 were $1,482,000 vs. $1,384,000 for
the second quarter of 1999. Sales for the first half of FY 2000 totaled
$2,581,000 vs. $2,800,000 for the first half of 1999 Product sales were lower in
this year's first half due to continued weakness in orders for the Company's
Systems & Instruments product lines.
Product bookings for the quarter were $1,758,000 vs. $692,000 for the same
period last year. Product bookings for the first half of the year were
$3,367,000 vs. $2,405,000 for the same period in 1999. The book-to-bill ratio
for the first half was 1.30 vs. 0.86 for the first half of 1999. Increased
orders in the Company's Crystals & Components product lines and Custom Optics
business more than offset the decline in orders for the Company's Systems &
Instruments.
Backlog at June 30, 2000 was $2,272,000 compared to $1,438,000 on December 31,
1999 and $1,031,000 on June 30, 1999.
COST OF GOODS SOLD
For the six months period ended June 30, 2000, the Company used 56% as its
estimated cost of goods sold percentage. For the previous year the actual cost
of goods sold percentage was 68.9%. The Company believes 56% better approximates
the expected 2000 annual cost of goods sold percentage based on interim physical
inventories, estimated profitability of actual sales through June 30, 2000, and
the anticipated annual level of product shipments and related costs for the
balance of the year.
For the six month period ended June 30, 1999, the Company used 74% as its
estimated cost of goods sold percentage.
CONTRACT RESEARCH AND DEVELOPMENT
Contract research and development revenues were $615,000 for the six months
ended June 30, 2000, compared to $564,000 for the six months ended June 30,
1999. Related contract research and development expenditures, including
allocated indirect costs, for the six months ended June 30, 1999 were $539,000
compared to $565,000 for the comparable 1999 quarter. Revenues for the second
quarter were $255,000 compared to $314,000 in the second quarter of 1999.
Overall revenues increased from 1999 to 2000 due to a one-time adjustment for
under-absorbed overhead costs in the amount of $130,000, taken in the first
quarter.
The Company's backlog of contract R&D was $494,000 at June 30, 2000, compared
with $1,109,000 at December 31, 1999 and $1,096,000 at June 30, 1999. No new
Contract R&D contracts were awarded to the company during the first half of FY
2000 vs. awards of $285,000 during the first half of 1999. The Company expects
to continue to focus its future efforts on technology programs closely aligned
with its core business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $74,000 or 20%, compared
to the second quarter of 1999. Both Selling and G&A expenses increased over the
1999 second quarter due to increases in personnel and related expenses.
INTERNAL RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the quarter ended June 30, 2000 were
$113,000 compared to $64,000 for the quarter ended June 30, 1999. The increase
is primarily due to increased expenditures in the development efforts for
tunable mid-IR laser technology for which paths to market are being explored. In
general, other than tunable mid-IR laser technology the Company is focusing its
internal Research and Development efforts in 1999 on a few new products with
short development cycles.
INTEREST EXPENSE
Interest expense was $4,000 and $9,000 for the quarters ended June 30, 2000 and
1999, respectively. Interest expense is less in 1999 because on March 15, 2000 a
100,000, 10% subordinated convertible note was converted to common stock and a
loan payable to Chase Manhattan Bank was paid in full in September 1999.
6
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the quarter a shareholder exercised 345,000 warrants and received 345,000
shares of INRAD, Inc. common stock. The warrants had exercise prices of $.6875
and $1.25 per warrant that resulted in paid in capital to the Company of
$314,375. Management is actively seeking additional working capital and
anticipates it will be forthcoming. The additional working capital and cash
generated from operations will be utilized to expand and upgrade production
capacity and for working capital required by the increase in production orders.
Capital expenditures, including internal labor and overhead charges, for the six
months ended June 30, 20000 and 1999 were $198,000 and $167,000, respectively.
The Company expects the rate of capital expenditures to increase during the
year. The increases are a direct result of increases in production orders and
are required to increase capacity and to allow for greater product run rates. As
a result, it is anticipated that additional capital infusion or borrowings will
take place throughout the year to fund these capital requirements.
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.
CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company sold 200 shares of its Series A 10% Convertible Preferred Stock for
$200,000 on March 25, 1999 and 300 shares on June 25, 1999. There was one
purchaser, an institution that was a major shareholder of the Company prior to
the purchase. The Series A Preferred Stock is convertible into Common Stock of
the Company at a rate of $1.00 per share. The issuance of the Series A Preferred
Stock was, and the issuance of the underlying Common Stock, if converted, will
be, exempt from registration under Section 4(2) of the Securities Act of 1933,
as amended, as not involving public offering.
During the quarter a shareholder exercised 345,000 warrants and received 345,000
shares of INRAD, Inc. common stock. The warrants had exercise prices of $.6875
and $1.25 per warrant that resulted in a cash infusion to the Company of
$314,375.
During the quarter the same shareholder converted a 10% convertible secured note
and received 200,000 shares of the Company's common stock.
The issuance Common Stock will be exempt from registration under Section 4(2) of
the Securities Act of 1933, as amended, as it is not involving a public
offering.
In addition to the above, 50,000 shares of common stock were issued as a 10%
dividend on the Series A 10% Convertible Preferred Stock
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.
7
<PAGE>
27. Financial Data Schedule.
(B) Reports on Form 8-K:
None.
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: August 1, 2000
8
