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 September 30, 1998March 31, 1999
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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)
--------------------------------------------------------------------------- --------------------------------------------------------------------------------
(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 October 30, 1998:
2,116,971May 1, 1999:
4,100,678 shares
INRAD, Inc.
INDEX
Page Number
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Part I. FINANCIAL INFORMATION..................................................1
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1998,March 31, 1999,
(unaudited) and December 31, 1997.........................11998..........................1
Consolidated Statements of Operations for the
Three and Nine Months Ended September 30,March 31, 1999 and 1998
and 1997 (unaudited)......................................2................................................2
Consolidated Statements of Cash Flows for the
NineThree Months Ended September 30,March 31, 1999 and 1998
and 1997 (unaudited)......................................3................................................3
Notes to Consolidated Financial Statements................4Statements.................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................5Operations........................5
Changes in Securities and Use of Proceeds..................9
Part II. OTHER INFORMATION ...................................................9INFORMATION.....................................................9
Item 6. Exhibits and Reports on Form 8-K..........................98-K...........................9
Signatures ..................................................................10...................................................................10
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INRAD, Inc.
Consolidated Balance Sheets
September 30,March 31, December 31,
1998 1997*1999 1998*
---- -----
Unaudited
Assets
Current assets:
Cash and cash equivalents $ 80,501418,890 $ 209,142
Certificate of Deposit 0 70,000208,028
Accounts receivable, net 732,863 654,827739,384 639,604
Inventories 1,418,600 1,546,5411,294,631 1,433,081
Unbilled contract costs 223,882 102,363185,087 125,096
Other current assets 35,124 64,14572,053 64,626
----------- -----------
Total current assets 2,490,970 2,647,0182,710,045 2,470,435
----------- -----------
Plant and equipment,
Plant and equipment at cost 5,184,591 5,121,3795,309,154 5,216,544
Less: Accumulated depreciation
and amortization (4,476,651) (4,124,715)(4,671,860) (4,585,761)
----------- -----------
Total plant and equipment 707,940 996,664637,294 630,783
Precious metals 283,614 278,693286,156 282,396
Other assets 167,801 171,084154,163 154,543
----------- -----------
Total assets $ 3,650,3253,787,658 $ 4,093,4593,538,157
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Note payable - Bank $ 137,50070,000 $ 120,000107,500
Current obligations under capital leases 6,985 12,2625,936 8,007
Accounts payable and accrued liabilities 942,333 720,214613,502 527,991
Advances from customers 29,952 63,32987,040 30,887
Other current liabilities 12,400 57,92932,400 40,400
----------- -----------
Total current liabilities 1,129,170 973,734
Note payable - Bank 0 107,500
Obligations under capital leases 3,035 8,683808,878 714,785
Secured Convertible Promissory Notes 250,000 250,000
Subordinated Convertible Notes 1,232,548 1,224,921
Unsecured Demand Convertible Note 100,000 100,000
Note payable - Shareowner 566,049 566,049
----------- -----------
Total liabilities 3,280,802 3,230,8871,158,878 1,064,785
----------- -----------
Shareholders' equity:
Preferred Stock: $1,000 par value; 200 shares issued
and outstanding at March 31, 1999 and 0 shares
issued and outstanding at December 31, 1998 200,000 0
Common stock: $.01 par value; 2,121,5714,100,678 shares
issued 21,216 21,216at March 31, 1999 and at December 31, 1998 41,007 41,007
Capital in excess of par value 6,014,941 6,051,7918,237,718 8,237,718
Accumulated deficit (5,651,684) (5,158,635)(5,834,995) (5,790,403)
----------- -----------
384,473 914,3722,643,730 2,488,322
Less - Common stock in treasury,
at cost (4,600 shares at September 30, 1998;12,300March 31, 1999 and
at December 31, 1997)1998) (14,950) (51,800)(14,950)
----------- -----------
Total shareholders' equity 369,523 862,5722,628,780 2,473,372
----------- -----------
Total liabilities and shareholders' equity $ 3,650,3253,787,658 $ 4,093,4593,538,157
=========== ===========
* Derived from Audited Financial Statements
See Notes to Consolidated Financial Statements.
1
INRAD, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended September 30 Nine Months Ended September 30
------------------------------- ------------------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Product sales $ 1,015,902 $ 1,412,167 $ 3,397,464 $ 3,714,402
Contract R & D 217,513 109,925 583,920 314,971
----------- ----------- ----------- -----------
Total Revenue 1,233,415 1,522,092 3,981,384 4,029,373
----------- ----------- ----------- -----------
Cost and Expenses:
Cost of goods sold 762,057 1,059,631 2,548,098 2,856,184
Contract R & D expenses 226,306 106,632 609,109 310,105
Selling, general & administrative expenses 342,201 323,078 1,011,514 1,024,893
Internal R & D expenses 42,218 25,001 125,116 87,686
----------- ----------- ----------- -----------
Total Cost and Expenses 1,372,782 1,514,342 4,293,837 4,278,868
----------- ----------- ----------- -----------
Operating profit (loss) (139,367) 7,750 (312,453) (249,495)
Other income (expense):
Interest expense (67,486) (63,895) (188,816) (193,719)
Interest & other income, net 2,147 5,098 8,220 8,666
----------- ----------- ----------- -----------
Net income (loss) (204,706) (51,047) (493,049) (434,548)
Accumulated deficit, beginning of period (5,446,978) (4,970,015) (5,158,635) (4,586,514)
----------- ----------- ----------- -----------
Accumulated deficit, end of period $(5,651,684) $(5,021,062) $(5,651,684) $(5,021,062)
=========== =========== =========== ===========
Basic and Diluted Net income (loss) per share (0.09) (0.03) (0.23) (0.21)
=========== =========== =========== ===========
Weighted average shares outstanding 2,116,971 2,109,271 2,113,248Three Months Ended March 31
-----------------------------
1999 1998
---- ----
Revenues:
Product sales $ 1,415,620 $ 1,213,671
Contract R & D 249,857 165,663
----------- -----------
Total Revenue 1,665,477 1,379,334
----------- -----------
Cost and Expenses:
Cost of goods sold 1,047,558 922,592
Contract R & D expenses 262,742 175,136
Selling, general & administrative expenses 356,827 324,034
Internal R & D expenses 33,871 33,299
----------- -----------
Total Cost and Expenses 1,700,998 1,455,061
----------- -----------
Operating profit (loss) (35,521) (75,727)
Other income (expense):
Interest expense (9,736) (61,016)
Interest & other income, net 665 1,424
----------- -----------
Net income (loss) (44,592) (135,319)
Accumulated deficit, beginning of period (5,790,403) (5,158,635)
----------- -----------
Accumulated deficit, end of period $(5,834,995) $(5,293,954)
=========== ===========
Net loss per common share - basic and diluted (0.01) (0.06)
=========== ===========
Weighted average shares outstanding 4,100,678 2,109,271
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements.
2
INRAD, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
NineThree months Ended September 30
------------------------------March 31
---------------------------
1999 1998
1997
---- ------------- ---------
Cash flows from operating activities:
Net income (loss) $(493,049) $(434,548)$ (44,592) $(135,319)
--------- ---------
Adjustments to reconcile net income
(loss) to cash provided by operating activities:
Depreciation and amortization 351,936 398,028
Noncash interest 7,627 --
Gain on sale of equipment (3,500) (3,800)88,350 117,312
Changes in assets and liabilities:
Accounts receivable (78,036) (15,971)(99,780) (96,509)
Inventories 127,941 78,180138,450 79,500
Unbilled contract costs (121,519) (32,645)(59,991) (106,948)
Other current assets 29,021 36,498(7,427) (12,815)
Precious metals (3,760) (4,921) --
Other assets 3,283 (22,818)(1,870) (630)
Accounts payable and accrued liabilities 222,119 207,32185,511 146,205
Advances from customers (33,377) 12,38356,153 11,681
Other current liabilities (45,529) (34,757)(8,000) (27,334)
--------- ---------
Total adjustments 455,045 622,419187,636 105,541
--------- ---------
Net cash provided by (used in) operating activities (38,004) 187,871
---------143,044 (29,778)
---------
Cash flows from investing activities:
Capital expenditures (63,212) (74,239)(92,611) (23,984)
--------- ---------
Net cash used in investing activities (92,611) (23,984)
--------- ---------
Cash flows from financing activities:
Proceeds from salesissuance of equipment 3,500 3,800
Proceeds from redemptionpreferred stock 200,000 0
Principal payments of Certificatenote payable - Bank (37,500) (30,000)
Principal payments of Deposit 70,000 0capital lease obligations (2,071) (7,142)
--------- ---------
Net cash provided by (used in) investingfinancing activities 10,288 (70,439)
--------- ---------
Cash flows from financing activities:
Principal payments of note payable - Bank (90,000) (70,000)
Principal payments of capital lease obligations (10,925) (69,562)160,429 (37,142)
--------- ---------
Net cash used in financing activities (100,925) (139,562)
--------- ---------
Net decreaseincrease (decrease) in cash and cash equivalents (128,641) (22,130)210,862 (90,904)
Cash and cash equivalents at beginning of period 208,028 209,142 194,577
--------- ---------
Cash and cash equivalents at end of period $ 80,501418,890 $ 172,447118,238
========= =========
See Notes to Consolidated Financial Statements.
3
INRAD, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - SUMMARY-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, 19971998 and 19961997 and for the
years then ended and notes thereto included in the CompanyCompany'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 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, 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 sixthree month period ended September 30 1998,March 31, 1999, the Company used 75%74% as its
estimateestimated cost of goods sold percentage. For the previous year, 1997,1998, the actual
cost of goods sold percentage was 77.6%74.3%. The Company believes 75%74% better
approximates the expected 19981999 annual cost of goods sold percentage based on
estimated profitability of actual sales through September 30, 1998March 31, 1999 and the
anticipated annual level of product shipments and related costs.
4
For the ninethree month period ended September 30, 1997,March 31, 1998, the Company used 76.9%76% as its
estimated cost of goods sold percentage.
4
NOTE 3 - DEBT
Note Payable - Shareowner
By mutual informal agreement, the Company has deferred certain interest payments
to its principal shareowner. During the nine month period ended September 30,
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 Chase 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 October 1, 1999.
Unsecured Demand-DEBT
Secured Convertible Note
Although by its terms the Note is due on demand, it cannot be repaid until the
Chase 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 October 1, 1999.
Secured Promissory Note
Although by its terms the Note was due on July 8, 1997, it cannot be repaid
until the Chase 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 OctoberApril 1, 1999.
Subordinated Convertible Notes
The two semi annual cash interest payments (of $50,000 each) that were due in
1997 and the one that was due in 1998, were not made and the debt holder agreed
not to request payment prior to January 15, 1999. The interest obligation has
been accrued by the Company and is included in Accounts Payable and Accrued
Liabilities.2000.
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 5
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 sixthree 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 thirdfirst quarter of 1998 decreased $396,000,1999 increased $202,000, or 28%17% from
the comparable quarter in 1997 and net sales for the nine months ended September 30,
1998 decreased $ 317,000 or 9% from the comparable 1997 period.1998. International shipments in the first ninethree
months of 19981999 were $613,000 (18%$488,000 (34% of total shipments) compared to $512,000 (14%$262,000 (22%)
for the first ninethree months of 1997.1998. Product
5
sales during the nine months ended September 30, 1998first quarter of 1999 were lessgreater than the prior year because
of increased orders in 1999 that we were able to ship during the bookings were less in 1998 than in 1997. During the thirdfirst quarter,
of 1998 product sales were less than the same period in 1997 dueprimarily to a
lower opening backlog.our international clients.
The backlog of unfilled product orders was $1,760,000$1,733,000 at September 30, 1998,March 31, 1999,
compared with $1,862,000$1,426,000 at December 31, 19971998 and $2,250,000$1,902,000 at September 30,
1997.March 31, 1998.
Cost of Goods Sold
For the nine monththree months period ended September 30, 1998,March 31, 1999, the Company used 75%74% as its
estimated cost of goods sold percentage. For the previous year, 1997,1998, the actual
cost of goods sold percentage was 77.6%74.3%. The Company believes 75%74% better
approximates the expected 19981999 annual cost of goods sold percentage based on
estimated profitability of actual sales through September 30, 1998March 31, 1999 and the
anticipated annual level of product shipments and related costs.
For the ninethree month period ended September 30, 1997,March 31, 1998, the Company used 76.9%76% as its
estimated cost of goods sold percentage.
Contract Research and Development
Contract research and development revenues were $250,000 for the third quarter of 1998
increased $107,000 or 98%, from the comparable quarter in 1997, and revenuesthree months
ended March 31, 1999, compared to $165,000 for the ninethree months ended September 30, 1998 and 1997 were $584,000 and $315,000,
respectively.March 31,
1998. Related contract research and development expenditures, including
allocated indirect costs, for the quarter ended September 30, 1998March 31, 1999 were $226,000$263,000
compared to $107,000$175,000 for the comparable 1997 quarter; expenses for the nine
month period ended September 30, 1998 and 1997 were $609,000 and $310,000,
respectively.quarter. Revenues increased from
19971998 to 19981999 due to a higher opening backlog of
6
contracts. The Company expects
to continue to focus its future efforts on
contract research and development programs closely aligned with its
core business.
The Company's backlog of contract R&D was $1,213,000$1,101,000 at September 30, 1998,March 31, 1999, compared
with $573,000$1,110,000 at December 31, 1997 and $605,000$1,157,000 at September 30, 1997.March 31, 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $13,000 forincreased $33,000 or 10%, in the
fist nine
monthsfirst quarter of 1998. The decrease is1999. General and administrative expenses increased due to the
hiring of a new Chief Executive Officer and President, and selling expenses
increased contract research and
development revenues, which resulted in a greater allocation of General and
Administrative expensesdue to contract research and development expenses. During
the third quarter of 1998, Selling, General and Administrative Expenses
increased $19,000 as compared to 1997additional commissions paid independent sales agents on
international sales.
Internal Research and Development Expenses
Research and development expenses for the quarter ended September 30, 1998March 31, 1999 were
$42,000$34,000 compared to $25,000$33,000 for the quarter ended September 30, 1997. Expenses
for the nine months ended September 30, 1998 were $125,000 compared to $88,000
for the comparable 1997 period.March 31, 1998. The Company is
focusing its internal Research and Development efforts in 19981999 on a few new
products with short development cycles.
Interest Expense
Interest expense was $67,000$10,000 and $61,000 for the quarters ended March 31, 1999
and 1998, respectively. Interest expense is less in 1999 because on December 31,
1998 the Company converted $1,800,799 of notes payable and $441,789 of accrued
interest into 1,979,107 shares of common stock.
6
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 30, 1998 compared1, 1999. All required payments to $64,000Chase
Manhattan Bank have been made on time.
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 will be 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
quarter ended September 30, 1997, and $189,000 and $194,000
for the ninethree months ended September 30,March 31, 1999 and 1998 were $93,000 and 1997,$24,000,
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 three month period ended March 31, 1999 and for each of the three
years in the period ended December 31, 1998, the Company had losses from
operations. Cash outflows during these periods have been funded on the basis of
borrowings from, and issuance of common and preferred 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 upon
its ability to improve operating results and thereby generate adequate cash flow
from operations. It will also depend upon the continued willingness of a
Shareowner note holder to extend the due date of their note. 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.
Year 2000 Issue
The year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. Any computer
programs and hardware as well as software products and certain equipment and
machinery that are date sensitive may recognize a date using "00" as the Year
1900 rather than the Year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in normal
business activities for both the Company and its customers who rely on its
products.
The Company has divided the Year 2000 issue into two main areas: internal
information technology ("IT") and non-IT systems, including embedded technology
such as microprocessors;
7
and external agents including critical suppliers, customers and other third
parties the Company utilizes for various processing functions.
The Company is evaluating new IT software systems to replace its non Y2K
compliant system. In the event we do not find a system that meets our
requirements, an upgrade that is Y2K compliant is available for our current
system. To date, based upon reviewing hardware, it has been determined that a
small amount of older computer equipment must be replaced, but the type and
amount are not significant and will be replaced in the ordinary course as
systems are upgraded. Financing has been arranged with a leasing company for the
Company to lease hardware and software.
7
The Company is in the process of assessing its Year 2000 exposure as it pertains
to non-IT systems, including manufacturing, research and development and key
relationships, such as vendors and customers. This includes the process of
identifying and prioritizing critical suppliers and customers and communicating
with them about their plans and progress in addressing the Year 2000 problem.
The Company also utilizes third-party vendors for processing data and payments,
e.g. payroll services, 401 (k) plan administration, check processing, medical
benefits processing, etc. The Company has initiated communications with these
vendors to determine the status of their systems. Should these vendors not be
compliant in a timely manner, the Company may be required to process
transactions manually or delay processing until such time as the vendors are
Year 2000 compliant. The review of non-IT systems and key third party
relationships is expected to be completed by the end of the second quarter of
1999. At this time the total cost to be Y2K compliant can not be estimated.
The failure to correct a material Year 2000 problem could result in aan
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
the Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition.
The future costs of the Company's Year 2000 efforts are expected to be funded
through future operating cash flows and the financing of hardware and software.
The requirements for the correction of Year 2000 issues and the date on which
the Company believes it will complete the Year 2000 modifications are based on
management's current best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third-party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated. Specific factors that may cause such
material differences include, but are not limited to, the availability of
personnel trained in this area, the ability to locate and collect all relevant
computer data and similar uncertainties.
No contingency plans are developed to date, contingencydate. Contingency plans will be prepared
so that the Company's critical business processes can be expected to continue to
function on January 1,20001, 2000 and beyond. The Company's contingency plans will be
structured to address both remediation of systems and their components and
overall business operating risk. These plans
8
are intended to mitigate both internal risks as will a potential risks in the
supply chain of the Company's suppliers and customers.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter endedChanges in Securities and Use of Proceeds
The Company sold 200 shares of its Series A 10% Convertible Preferred Stock for
$200,000 on March 31, 1997,25, 1999. There was one purchaser, an institution which was a
major shareholder of the Company signed an agreement with
Chase Manhattan Bank (successorprior to Chemical Bank) amending the termspurchase. The Series A Preferred
Stock is convertible into Common Stock 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
8
requirements increased in 1997 because the Company was to begin making cash
interest payments ($110,000 annually) on its Subordinated Convertible Notes
issued in 1993.at a rate of $1.00 per
share. The two payments due in 1997issuance of the Series A Preferred Stock was, and the first payment due in 1998
were not made and the debt holder has agreed not to request payment prior to
January 15, 1999. The interest obligation has been accrued by the Company and is
included in Accounts Payable and Accrued Liabilities. In addition, the debt
holdersissuance of the
Unsecured Demand convertible Note, Secured Promissory Note and
Note Payable - Shareowner have all agreed to extend the due date of their loans
to October 1, 1999.
Capital expenditures, including internal labor and overhead charges, for the
nine months ended September 30, 1998 and 1997 were $63,000 and $74,000,
respectively. Until the Company is generating satisfactory amounts of cash flow
from its operations, it is expected that future capital expendituresunderlying Common Stock, if converted, 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 nine month period ended September 30, 1998 and for eachexempt from registration under
Section 4(2) of the three
years in the period ended December 31, 1997, the Company had losses from
operations. Cash outflows during these periods have been funded on the basisSecurities Act of borrowings from, and issuance of common stock and warrants to, shareowners
including the principal shareowner,1933, as further described in the Company's Annual
Report on Form 10-K. The Company's liquidity is dependent upon its ability to
improve operating results and thereby generate adequate cash flow from
operations. It will also depend upon the continued willingness of Shareowner
creditors to extend the due date of their loans. 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 continueamended, as a going
concern.not involving public
offering.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
10.25 Agreement with Clarex to purchase 500 shares of Preferred Stock.
10.26 Employment contract with Devaunshi Sampat.
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.
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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 RudermanCharles J. Lucy
-------------------------------------
Warren RudermanCharles J. Lucy
President and Chief Executive Officer
By: /s/ James L. Greco
-------------------------------------
James L. Greco
ControllerChief Financial Officer
(Chief Accounting Officer)
Date: November 16, 1998May 12, 1999
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