UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| | For the quarterly period ended March 31, 2024 |
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 OPTICS, INC.
(Exact Name of Registrant as Specified in its Charter)
New Jersey |
| 22-2003247 |
State or Other Jurisdiction of |
| I.R.S. Employer Identification No. |
|
|
|
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 Former Fiscal Year, if Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act: None.
| | | | |
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on |
None | | None | | None |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ |
| Accelerated filer ☐ |
Non-accelerated filer ☒ | | Smaller reporting company ☒ |
| | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The number of shares of the registrant’s common stock outstanding, $0.01 par value, as of May 14, 2024, was 16,767,642.
INRAD OPTICS, INC AND SUBSIDIARIES
INDEX
Part I. | CONDENSED FINANCIAL INFORMATION | |
Item 1. | Condensed Consolidated Financial Statements: | |
Condensed consolidated balance sheets as of March 31, 2024 (unaudited) and December 31, 2023 | 1 | |
2 | ||
3 | ||
4 | ||
Notes to condensed consolidated financial statements (unaudited) | 5 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 | |
18 | ||
18 | ||
19 | ||
19 | ||
19 | ||
20 | ||
20 | ||
20 | ||
20 | ||
21 | ||
22 |
INRAD OPTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2024 |
| 2023 | ||
|
| (Unaudited) |
| | | |
Assets |
| |
| |
| |
Current assets: |
| | |
| |
|
Cash and cash equivalents | | $ | 2,496,476 | | $ | 2,973,384 |
Accounts receivable, net of allowance for credit losses of $46,000 at March 31, 2024 and December 31, 2023 | |
| 1,333,777 | |
| 1,591,996 |
Inventories, net | |
| 3,380,662 | |
| 3,148,708 |
Other current assets | |
| 830,669 | |
| 665,262 |
Total current assets | |
| 8,041,584 | |
| 8,379,350 |
| | | | | | |
Plant and equipment: | | | | | | |
Plant and equipment, at cost | |
| 16,699,043 | |
| 16,330,559 |
Less: Accumulated depreciation and amortization | |
| (15,123,302) | |
| (15,034,667) |
Total plant and equipment | |
| 1,575,741 | |
| 1,295,892 |
Precious metals | |
| 561,909 | |
| 561,909 |
Lease right-of-use, net | | | 367,593 | | | 443,532 |
Deferred tax asset | | | 1,970,000 | | | 1,000,000 |
Other assets | |
| 26,993 | |
| 26,993 |
Total Assets | | $ | 12,543,820 | | $ | 11,707,676 |
| | | | | | |
Liabilities and Shareholders’ Equity | | | | | | |
Current liabilities: | | | | | | |
Current portion of other long term notes | | $ | 72,311 | | $ | 71,362 |
Accounts payable and accrued liabilities | |
| 760,028 | |
| 832,149 |
Contract liabilities | |
| 1,057,053 | |
| 1,067,183 |
Current portion of lease obligation | | | 313,567 | | | 309,618 |
Related party convertible notes payable | | | 2,500,000 | | | — |
| |
| 4,702,959 | |
| 2,280,312 |
Total current liabilities | | | | | | |
Related party convertible notes payable | |
| — | |
| 2,500,000 |
| | | | | | |
Other long term notes, net of current portion | |
| 226,955 | |
| 245,379 |
Lease obligation, net of current portion | | | 54,027 | | | 133,915 |
Total liabilities | |
| 4,983,941 | |
| 5,159,606 |
| | | | | | |
Shareholders’ equity: | | | | | | |
Common stock: $.01 par value; 60,000,000 authorized shares; 14,255,575 shares issued at March 31, 2024, and 14,235,575 shares issued at December 31, 2023 | |
| 142,557 | |
| 142,357 |
Capital in excess of par value | |
| 20,169,214 | |
| 20,135,722 |
Accumulated deficit | |
| (12,736,942) | |
| (13,715,059) |
| |
| 7,574,829 | |
| 6,563,020 |
Less - Common stock in treasury, at cost (4,600 shares) | |
| (14,950) | |
| (14,950) |
Total shareholders’ equity | |
| 7,559,879 | |
| 6,548,070 |
Total Liabilities and shareholders’ equity | | $ | 12,543,820 | | $ | 11,707,676 |
See Notes to Condensed Consolidated Financial Statements (Unaudited)
1
INRAD OPTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2024 |
| 2023 | ||
| | | | | | |
Total revenue | | $ | 2,889,799 | | $ | 2,807,161 |
| | | | | | |
Cost and expenses: | | | | | | |
Cost of goods sold | |
| 1,801,539 | | | 1,926,891 |
Selling, general and administrative expenses | |
| 1,046,498 | | | 750,362 |
| |
| 2,848,037 | | | 2,677,253 |
| | | | | | |
Income from operations | |
| 41,762 | |
| 129,908 |
Other income (expense): | | | | | | |
Interest expense-net | |
| (33,645) | | | (38,381) |
| |
| (33,645) | | | (38,381) |
| | | | | | |
Income before income taxes | | | 8,117 | | | 91,528 |
| | | | | | |
Income tax benefit (provision) | |
| 970,000 | |
| — |
| | | | | | |
Net income | | $ | 978,117 | | $ | 91,528 |
| | | | | | |
Net income per common share - basic | | $ | 0.07 | | $ | 0.01 |
| | | | | | |
Net income per common share - diluted | | $ | 0.06 | | $ | 0.01 |
| | | | | | |
Weighted average shares outstanding - basic | |
| 14,250,975 | |
| 14,088,320 |
| | | | | | |
Weighted average shares outstanding - diluted | |
| 17,189,908 | |
| 14,759,188 |
See Notes to Condensed Consolidated Financial Statements (Unaudited)
2
INRAD OPTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | |
| | | | | | | Capital in | | | | | | | | Total | ||
| | Common Stock | | excess of | | Accumulated | | Treasury | | Shareholders’ | |||||||
|
| Shares |
| Amount |
| par value |
| Deficit |
| Stock |
| Equity | |||||
Balance, January 1, 2023 |
| 14,092,920 | | $ | 140,931 | | $ | 19,925,293 | | $ | (16,383,482) | | $ | (14,950) | | $ | 3,667,792 |
401K contribution | | 33,322 | | | 333 | | | 54,388 | | | — | | | — | | | 54,721 |
Stock-based compensation expense | | — | | | — | | | 34,203 | | | — | | | — | | | 34,203 |
Stock options exercised | | 79,333 | | | 793 | | | 30,993 | | | — | | | — | | | 31,786 |
Net income March 31, 2023 | | — | | | — | | | — | | | 91,528 | | | — | | | 91,528 |
Balance, March 31, 2023 |
| 14,205,575 | | $ | 142,057 | | $ | 20,044,877 | | $ | (16,291,954) | | $ | (14,950) | | $ | 3,880,030 |
| | | | | | | | | | | | | | | | | |
| | | | | | | Capital in | | | | | | | | Total | ||
| | Common Stock | | excess of | | Accumulated | | Treasury | | Shareholders’ | |||||||
|
| Shares |
| Amount |
| par value |
| Deficit |
| Stock |
| Equity | |||||
Balance, January 1, 2024 |
| 14,235,575 | | $ | 142,357 | | $ | 20,135,722 | | $ | (13,715,059) | | $ | (14,950) | | $ | 6,548,070 |
401K contribution | | — | | | — | | | — | | | — | | | — | | | — |
Stock-based compensation expense | | — | | | — | | | 28,292 | | | — | | | — | | | 28,292 |
Stock options exercised | | 20,000 | | | 200 | | | 5,200 | | | — | | | — | | | 5,400 |
Net income March 31, 2024 | | — | | | — | | | — | | | 978,117 | | | — | | | 978,117 |
Balance, March 31, 2024 |
| 14,255,575 | | $ | 142,557 | | $ | 20,169,214 | | $ | (12,736,942) | | $ | (14,950) | | $ | 7,559,879 |
See Notes to Condensed Consolidated Financial Statements (Unaudited)
3
INRAD OPTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Cash flows from operating activities: | | |
| | |
|
Net income | | $ | 978,117 | | $ | 91,528 |
| | | | | | |
Adjustments to reconcile net income to net cash provided (used in) by operating activities | | | | | | |
Depreciation and amortization | |
| 88,635 | |
| 74,353 |
401K common stock contribution - non cash item | | | — | | | 54,721 |
Stock based compensation | |
| 28,292 | | | 34,203 |
Income tax benefit | | | (970,000) | | | — |
Change in inventory reserve | | | 10,666 | | | 149,667 |
Changes in operating assets and liabilities: | | | | | | |
Accounts receivable | |
| 258,219 | | | (78,464) |
Inventories | |
| (242,620) | | | (327,036) |
Other current and non - current assets | |
| (89,468) | | | 222,306 |
Other current and non - current liabilities | | | (75,940) | | | 3,677 |
Accounts payable and accrued liabilities | |
| (72,121) | | | (74,882) |
Contract liabilities | |
| (10,130) | | | 13,983 |
Total adjustments and changes | | | (1,074,467) | | | 72,528 |
Net cash provided by operating activities | |
| (96,350) | | | 164,056 |
| | | | | | |
Cash flows from investing activities: | | | | | | |
Capital expenditures | |
| (368,484) | | | (187,961) |
Net cash (used in) investing activities | |
| (368,484) | | | (187,961) |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Proceeds from issuance of common stock | | | 5,400 | | | 31,786 |
Principal payments on notes payable-other, net | |
| (17,474) | | | (16,533) |
Net cash provided by financing activities | |
| (12,074) | | | 15,253 |
| | | | | | |
Net (decrease) in cash and cash equivalents | |
| (476,908) | | | (8,652) |
| | | | | | |
Cash and cash equivalents at beginning of period | |
| 2,973,384 | | | 2,003,485 |
Cash and cash equivalents at end of period | | $ | 2,496,476 | | $ | 1,994,833 |
| | | | | | |
Supplemental disclosure of cash flow information: | | | | | | |
Interest paid | | $ | 41,500 | | $ | 42,454 |
Income taxes paid | | $ | — | | $ | — |
See Notes to Condensed Consolidated Financial Statements (Unaudited)
4
INRAD OPTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Inrad Optics, Inc., and its subsidiaries (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated.
The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
In preparing these unaudited condensed consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the unaudited condensed consolidated financial statements were issued.
Management Estimates
These unaudited condensed consolidated financial statements and related disclosures have been prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses reported in those financial statements. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.
Accounts Receivable
Beginning in 2023, the Company adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables.
The Company extends credit to its customers that satisfy pre-defined credit criteria. Accounts receivable are recorded net of an allowance for credit losses. The Company estimates the allowance for credit losses based on an analysis of the aging of accounts receivable, an assessment of collectability, including any known or anticipated bankruptcies, customer-specific circumstances, and an evaluation of current economic conditions. Actual write-off of receivables may differ from estimates due to changes in customer and economic circumstances. For the period ended March 31, 2024, there were no changes to the estimate for credit losses.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or net-realizable value. Cost of manufactured goods includes material, labor and overhead. The Company records a reserve for slow moving inventory as a charge against earnings for all products identified as surplus, slow moving, or discontinued. Excess work-in-process costs are charged against earnings whenever estimated costs-of-completion exceed unbilled revenues.
5
Inventories are comprised of the following and are shown net of inventory reserves of $2,144,000 and $2,134,000, at March 31, 2024 and December 31, 2023, respectively:
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2024 |
| 2023 | ||
|
| (Unaudited) |
| | | |
| | (in thousands) | ||||
Raw materials | | $ | 719 | | $ | 718 |
Work in process, including manufactured parts and components | |
| 2,138 | |
| 1,915 |
Finished goods | |
| 524 | |
| 516 |
| | $ | 3,381 | | $ | 3,149 |
Income Taxes
In evaluating the Company’s ability to recover deferred tax assets in future periods, management considers the available positive and negative factors. The Company periodically evaluates the realizability of its net deferred tax assets based on all available evidence, both positive and negative, including the Company’s recent operating results, the existence of cumulative income or losses and near-term forecasts of future taxable income that is consistent with the plans and estimates management is using to manage the underlying business. During 2023, the Company reached a cumulative income position over the previous three years. The cumulative three-year income is considered objective, verifiable, and positive evidence and thus received significant weighting. Additional positive evidence considered by the Company in its assessment included recent utilization of tax attribute carryforwards and future forecasts of continued profitability. The realizability of the Company’s net deferred tax assets is dependent on its ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets. Therefore, during the fourth quarter of 2023, based on all available positive and negative evidence, the Company determined that it was appropriate to release a portion of the valuation allowance on the Company’s U.S. federal and state deferred tax assets. The Company recognized a $1.0 million discrete tax benefit during the year ended December 31, 2023, as a result of the valuation allowance release.
In the three months ended March 31, 2024, the Company determined that sufficient evidence existed to release the remaining portion of its deferred tax valuation allowance on the Company’s U.S. federal and state deferred tax assets. The Company recognized a $970,000 discrete tax benefit during the three months ended March 31, 2024 as a result of the valuation allowance release.
For the three months ended March 31, 2024, and 2023, the Company did not record a current provision for income taxes due to the availability of net operating loss carryforwards to offset taxable income for both income tax and financial reporting purposes.
Net Income (Loss) per Common Share
Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares and common stock equivalents outstanding, calculated on the treasury stock method for options, stock grants and warrants using the average market prices during the period, including potential common shares issuable upon conversion of outstanding convertible notes, except if the effect on the per share amounts is anti-dilutive.
For the three months ended March 31, 2024, a total of 2,500,000 common shares issuable upon conversion of outstanding convertible notes have been included in the diluted computation of net income per share. 1,875,000 common shares underlying warrants issuable upon conversion of outstanding related party convertible notes have been excluded from the diluted computation of net income per share because their effect is anti-dilutive.A total of 438,933 common stock equivalents related to outstanding options have been included in the computation of diluted earnings per share because their effect is dilutive.
6
For the three months ended March 31, 2023, 2,500,000 common shares and 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive. In addition, 161,000 common stock options were excluded from the computation of basic and diluted net income per common share because their effect is anti – dilutive.
A reconciliation of the shares used in the calculation of basic and diluted earnings (loss) per common share is as follows:
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | ||||||||||||
| | March 31, 2024 | | March 31, 2023 | ||||||||||||
| | Income(Loss) | | Shares | | Per Share | | Income(Loss) | | Shares | | Per Share | ||||
|
| (Numerator) |
| (Denominator) |
| Amount |
| (Numerator) |
| (Denominator) |
| Amount | ||||
Basic Income Per Share: |
| |
|
|
|
| |
|
| |
|
|
|
| |
|
Net Income | | $ | 978,117 |
| 14,250,975 | | $ | 0.07 | | $ | 91,528 |
| 14,088,320 | | $ | 0.01 |
Effect of dilutive securities: | |
|
|
|
| |
|
| |
|
|
|
| |
|
|
Convertible Notes | |
| — |
| 2,500,000 | |
| — | |
| — |
| — | |
| — |
Accrued Interest on Convertible Notes | |
| 37,500 |
| — | |
| — | |
| — |
| — | |
| — |
Warrants | |
| — |
| — | |
| — | |
| — |
| — | |
| — |
Stock Options | |
| — |
| 438,933 | |
| — | |
| — |
| 670,868 | |
| — |
Diluted Income Per Share: | | $ | 1,015,617 |
| 17,189,908 | | $ | 0.06 | | $ | 91,528 |
| 14,759,188 | | $ | 0.01 |
Stock-Based Compensation
Stock-based compensation expense is estimated at the grant date based on the fair value of the award. The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The fair value of restricted stock units granted is based on the closing market price of the Company’s common stock on the date of the grant. The fair value of these awards, adjusted for estimated forfeitures, is amortized over the requisite service period of the award, which is generally the vesting period.
Recent Accounting Standards
In December 2023, the FASB issued new guidance designed to improve corporate income tax disclosure requirements, primarily through increased disaggregation disclosures within the effective tax rate reconciliation as well as enhanced disclosures on corporate income taxes paid. The guidance is effective for all fiscal years beginning after December 15, 2024. The new standard can be adopted on a prospective basis with an option to be adopted retrospectively and early adoption is permitted. The Company is not early adopting the standard. We are currently evaluating this guidance to determine its impact on our condensed consolidated financial statements.
In November, 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023 - 07, “Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures” which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant expenses. The updated standard is effective for annual periods beginning in fiscal 2024 and interim periods beginning in the first quarter of fiscal 2025. Early adoption is permitted. The Company is currently evaluating this guidance to determine to determine its impact on our consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU update is intended to simplify the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. This guidance was effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Accordingly, the Company adopted the provisions of this guidance on January 1, 2024. The adoption did not have a material impact on the Company’s consolidated financial statements.
7
NOTE 2 – CONCENTRATION OF CASH
In May 2023, the Company entered into an Insured Cash Sweep (“ICS”) agreement with Valley National Bank, where funds are placed at destination institutions through the service of the Promontory Interfinancial Network, LLC. Such funds placed into the deposit account will not exceed the Federal Deposit Insurance Corporation (“FDIC”) standard maximum deposit insurance amount, currently $250,000, at any one destination institution thereby eliminating credit risk on cash balances over $250,000. The Company was subject to credit risk due to the concentration of cash balances that exceeded the federally insured limits by approximately $2.25 million at March 31, 2024, and $2.72 million at December 31, 2023, on cash balances of $2.5 million and $3.0 million at March 31,2024, and December 31, 2023, respectively.
NOTE 3 – REVENUE
The Company’s revenues are comprised of product sales as well as products and services provided under long-term government contracts with its customers. All revenue is recognized when the Company satisfies its performance obligation(s) under the contract (either implicit or explicit) by transferring the promised product or service to its customer either when (or as) its customer obtains control of the product or service. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. The majority of the Company’s contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the Company’s best estimate of a standalone selling price for each distinct product or service in the contract, which is generally based on an observable price.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services. As such, revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis. Shipping and handling costs are included in cost of goods sold.
The majority of the Company’s revenue is from products and services transferred to customers at a point in time and was 100% of revenue for each of the three months ended March 31, 2024 and 2023, respectively. The Company recognizes revenue at the point in time at which the customer obtains control of the product or service, which is generally when the product title passes to the customer upon shipment. In limited cases,the title does not transfer, and revenue is not recognized until the customer has received the products at its physical location.
The following table summarizes the Company’s sales by market area:
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Aerospace & Defense | | $ | 549,362 | | $ | 444,451 |
Process Control & Metrology | | | 2,070,703 | | | 2,274,396 |
Scientific / R&D | | | 269,734 | | | 88,314 |
Total | | $ | 2,889,799 | | $ | 2,807,161 |
The timing of revenue recognition, billings, and cash collections results in billed receivables, costs in excess of billings (contract assets), and billings in excess of costs (contract liabilities, previously deferred revenue) on the Consolidated Balance Sheet. Contract liabilities also include customer advances or prepayments.
On March 31, 2024, the Company had approximately $14.0 million of performance obligations, which is also referred to as backlog. Approximately 7.5% of the March 31, 2024, backlog is related to projects that will extend beyond March 31, 2025.
8
NOTE 4- EQUITY COMPENSATION PROGRAM AND STOCK-BASED COMPENSATION
a) Stock Option Expense
The Company’s results of operations for the three months ended March 31, 2024 and 2023, include stock-based compensation expense for stock option grants totaling $28,292 and $34,203, respectively. The following table shows the amounts for stock-based compensation included in cost of sales and selling, general and administrative expense for the three months ended March 31, 2024 and 2023:
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Cost of sales | | $ | 3,851 | | $ | 3,243 |
Selling, general and administrative | | | 24,441 | | | 30,960 |
Total stock-based compensation expense | | $ | 28,292 | | $ | 34,203 |
As of March 31, 2024, and 2023, there were $93,000 and $208,000 of unrecognized compensation cost, net of estimated forfeitures, related to non-vested stock options, which are expected to be recognized over a weighted average period of approximately 1.20 years and 1.26 years respectively.
There were no stock options granted during the three months ended March 31, 2024, and 20,000 stock options granted during the three months ended March 31, 2023. The following range of weighted-average assumptions were used to determine the fair value of stock option grants during the three months ended March 31, 2023:
| | | |
|
| Three Months Ended | |
| | March 31, | |
| | 2023 |
|
Expected Dividend yield |
| — | % |
Expected Volatility |
| 92 | % |
Risk-free interest rate |
| 0.86 | % |
Expected term |
| 10 years | |
b) Stock Option Activity
The following table represents stock options granted, exercised, and forfeited during the three months ended March 31, 2024:
| | | | | | | | | | |
|
| |
| Weighted |
| Weighted |
| | | |
| | | | Average | | Average | | | | |
| | | | Exercise | | Remaining | | Aggregate | ||
| | Number of | | Price per | | Contractual | | Intrinsic | ||
Stock Options |
| Options |
| Option |
| Term (years) |
| Value | ||
Outstanding January 1, 2024 |
| 1,112,667 | | $ | 0.75 |
| 6.88 | | $ | 1,214,875 |
Granted |
| — | |
| — |
| | |
| |
Exercised |
| (20,000) | |
| 0.27 |
| | |
| |
Expired/Forfeited |
| — | |
| — |
| | |
| |
Outstanding March 31, 2024 |
| 1,092,667 | | $ | 0.75 |
| 6.91 | | $ | 829,290 |
| | | | | | | | | | |
Exercisable at March 31, 2024 |
| 1,015,991 | | $ | 0.72 | | 6.57 | | $ | 786,748 |
9
The following table represents non-vested stock options granted, vested, and forfeited for the three months ended March 31, 2024:
| | | | |
| | Weighted-average | ||
| | Grant-date Fair Value | ||
|
| Options |
| ($) |
Non-Vested - January 1, 2024 |
| 206,675 | | 0.89 |
Granted |
| — |
| — |
Vested |
| (130,001) |
| 0.87 |
Forfeited |
| — |
| — |
Non-Vested - March 31, 2024 |
| 76,674 |
| 1.16 |
NOTE 5 - STOCKHOLDERS’ EQUITY
The Company approved a matching contribution to participants in the Inrad Optics 401k Plan (the “Plan”) for the year ended December 31, 2023, in February 2024. The Company contributed cash of $141,000 to the Plan in February 2024.
NOTE 6 – RELATED PARTY TRANSACTIONS
On October 12, 2023, the maturity dates of a $1,500,000 Subordinated Convertible Promissory Note to Clarex Limited (“Clarex”) and a $1,000,000 Subordinated Convertible Promissory Note to an affiliate of Clarex were each extended to January 15, 2025, from August 15, 2024. The notes bear interest at 6%. Interest accrues yearly and is payable on maturity. Unpaid interest, along with principal, may be converted into securities of the Company as follows: the notes are convertible in the aggregate into 1,500,000 units and 1,000,000 units, respectively, with each unit consisting of one share of common stock and one warrant. Each warrant allows the holder to acquire 0.75 shares of common stock at a price of $1.35 per share. The warrants expire on August 15, 2027.
The Clarex Notes have been reclassified to current liabilities because the maturity dates are less than one year from March 31, 2024. See also Note 9 - Subsequent Events.
NOTE 7 – OTHER LONG-TERM NOTES
Other Long-Term Notes consist of the following:
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2024 |
| 2023 | ||
| | (Unaudited) | | | | |
| | (in thousands) | ||||
U.S. Small Business Administration term note payable in equal monthly installments of $1,922 and bearing an interest rate of 4.0% and expiring in July 2029 | | $ | 136 | | $ | 140 |
Long-term equipment financing in equal installments of $5,236 and bearing an interest rate of 6.1% and expiring in January 2027 (1) | | | 163 | | | 176 |
Less current portion |
| | (72) |
| | (71) |
Long-term debt, excluding current portion | | $ | 227 | | $ | 245 |
(1) | The Company purchased certain equipment in the three months ended March 31, 2022, financing approximately $270,000 at a fixed annual interest rate of 6.1% for five years payable in equal monthly installments. |
10
NOTE 8 – LEASE AMENDMENT
The Company entered into an amendment and extension of its building lease on July 25, 2022, retroactive to June 1, 2022. Under the guidance of ASU 2016-02, Leases (Topic 842), the Company must determine if such an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease at the inception of the arrangement. The Company determined that this lease is an operating lease and presented as a right-of-use lease asset, short-term lease liability, and long-term lease liability on the consolidated balance sheet. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s incremental borrowing rate.
Lease expense is recognized on a straight-line basis over the lease term and is included in cost of sales and general and administrative expenses on the consolidated statement of operations.
An initial right-of-use asset of approximately $0.9 million was recognized as a non-cash asset addition with the signing of the July 29, 2022, lease amendment. Cash paid for amounts included in the present value of the operating lease liability was $0.2 million for each of the three months ended March 31, 2024 and 2023, and is included in operating cash flows.
Operating lease costs were $0.1 million during each of the three months ended March 31, 2024 and 2023, respectively.
NOTE 9 – SUBSEQUENT EVENTS
Merger Agreement.
On April 8, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Luxium Solutions, LLC, a Delaware limited liability company (“Parent”), and Indigo Merger Sub, Inc., a Delaware corporation and a direct, wholly-owned subsidiary of Parent (“Merger Sub”), providing for the acquisition of the Company by Parent. Pursuant to the terms of the Merger Agreement, Merger Sub will, at the closing of the transactions contemplated by the Merger Agreement, merge with and into the Company, with the Company surviving the merger as a wholly-owned subsidiary of Parent (the “Merger”).
Pursuant to the Merger Agreement, each share of common stock of the Company, par value $0.01 per share (a “Share”), other than Cancelled Sharesas (as defined in the Merger Agreement) issued and outstanding immediately prior to the effective time of the Merger shall be automatically converted into the right to receive $1.10 in cash, without interest, payable to the holder thereof upon surrender of such Shares in the manner provided in the Merger Agreement.
The consummation of the Merger is not subject to any financing condition.
The Merger Agreement contains customary representations and warranties of the Company, Parent and Merger Sub. The Merger Agreement also contains customary covenants and agreements, including with respect to the operation of the business of the Company between signing and closing, public disclosures and other matters.
The consummation of the transactions contemplated by the Merger Agreement is subject to the fulfillment or waiver (if permitted by law) of certain customary closing conditions, including, without limitation, (i) the absence of any law, injunction or order enacted, entered, promulgated, or enforced by any governmental entity which prohibits, enjoins or makes illegal the consummation of the Merger and the transactions contemplated by the Merger Agreement, (ii) obtaining the affirmative vote of a majority of the votes cast by the holders of the outstanding Shares entitled to vote in favor of the approval and adoption of the Merger Agreement, (iii) the conversion of the Convertible Notes (as defined below) and cancellation of all Noteholder Warrants (as defined below), in each case as contemplated by the Conversion Agreement (as defined below), (iv) the customary bring-down of representations, warranties and covenants by the Company and Parent, and (v) the absence of any Material Adverse Effect (as defined in the Merger Agreement) since the signing date.
11
Voting Agreement
In connection with the Company, Parent and Merger Sub entering into the Merger Agreement, each of the current executive officers and directors of the Company (solely in their capacity as stockholders of the Company) and each of the Noteholders (together, the “Supporting Stockholders”) entered into a Voting Agreement with Parent on April 8, 2024 (the “Voting Agreement”). Pursuant to the Voting Agreement, in the absence of an Adverse Company Board Recommendation Change (as defined in the Merger Agreement), each of the Supporting Stockholders agreed to vote his, her or its Shares in favor of the approval and adoption of the Merger Agreement and against any alternative acquisition proposal other than the Merger, and not to transfer the Shares beneficially owned by such Supporting Stockholder during the pendency of the Merger. The Voting Agreement terminates upon, among other things, the termination of the Merger Agreement or the making of an Adverse Company Board Recommendation Change.
Conversion and Cancellation Agreement
In connection with the Merger Agreement, on April 8, 2024, the Company entered into a Conversion and Cancellation Agreement (the “Conversion Agreement”) with Parent, Clarex Limited (“Clarex”) and Welland Limited (“Welland” and together with Clarex, the “Noteholders”). Pursuant to the Conversion Agreement, Clarex agreed to convert the entire principal amount of its $1,500,000 Subordinated Convertible Promissory Note and Welland agreed to convert the entire principal amount of its $1,000,000 Subordinated Convertible Promissory Note at least five business days prior to the record date for the Company stockholder meeting to approve and adopt the Merger Agreement. On May 2, 2024, the Clarex Convertible Note converted pursuant to its terms into 1,500,000 shares of common stock and warrants to purchase 1,125,000 shares (the “Clarex Warrants”) at an exercise price of $1.35 per share, and the Welland Convertible Note converted pursuant to its terms into 1,000,000 shares of common stock and warrants to purchase 750,000 shares (the “Welland Warrants” and together with the Clarex Warrants, the “Noteholder Warrants”) at an exercise price of $1.35 per share. Pursuant to the Conversion Agreement, all interest then outstanding under the Convertible Notes on the date of conversion, or $50,833, was paid to the Noteholders in cash. Pursuant to the Conversion Agreement, the Noteholder Warrants shall be canceled and terminated effective immediately prior to the closing of the Merger; provided however, such cancellation and termination shall not be effective unless the closing of the Merger occurs.
12
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Caution Regarding Forward Looking Statements
This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. The Company wishes to ensure 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 Litigation Reform Act of 1995. The events described in the forward-looking statements contained in this Quarterly Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of the Company’s plans or strategies, projected or anticipated benefits of acquisitions made by the Company, projections involving anticipated revenues, earnings, or other aspects of the Company’s operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions are intended to identify forward-looking statements. The Company cautions you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks, and other influences, many of which are beyond the Company’s control, that may influence the accuracy of the statements and the projections upon which the statements are based. Factors which may affect the Company’s results include, but are not limited to, the risks and uncertainties discussed in Items 1A, 7 and 7A of the Company’s most recent Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission on March 28, 2024 and in the “Risk Factors” section of the Quarterly Report. Any one or more of these uncertainties, risks, and other influences could materially affect the Company’s results of operations and whether forward-looking statements made by the Company ultimately prove to be accurate. Readers are further cautioned that the Company’s financial results can vary from quarter to quarter, and the financial results for any period may not necessarily be indicative of future results. The foregoing is not intended to be an exhaustive list of all factors that could cause actual results to differ materially from those expressed in forward-looking statements made by the Company. The Company’s actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether from the latest information, future events, or otherwise.
Pending Acquisition of the Company
On April 8, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Luxium Solutions, LLC, a Delaware limited liability company (“Parent”), and Indigo Merger Sub, Inc., a Delaware corporation and a direct, wholly-owned subsidiary of Parent (“Merger Sub”), providing for the acquisition of the Company by Parent. Pursuant to the terms of the Merger Agreement, Merger Sub will, at the closing of the transactions contemplated by the Merger Agreement, merge with and into the Company, with the Company surviving the merger as a wholly-owned subsidiary of Parent (the “Merger”).
Pursuant to the Merger Agreement, each share of common stock of the Company, par value $0.01 per share (a “Share”), other than Cancelled Shares (as defined in the Merger Agreement) issued and outstanding immediately prior to the effective time of the Merger shall be automatically converted into the right to receive $1.10 in cash, without interest, payable to the holder thereof upon surrender of such Shares in the manner provided in the Merger Agreement.
The consummation of the Merger is not subject to any financing condition.
The Merger Agreement contains customary representations and warranties of the Company, Parent and Merger Sub. The Merger Agreement also contains customary covenants and agreements, including with respect to the operation of the business of the Company between signing and closing, public disclosures and other matters.
The consummation of the transactions contemplated by the Merger Agreement is subject to the fulfillment or waiver (if permitted by law) of certain customary closing conditions, including, without limitation, (i) the absence of any law, injunction or order enacted, entered, promulgated, or enforced by any governmental entity which prohibits, enjoins or makes illegal the consummation of the Merger and the transactions contemplated by the Merger Agreement, (ii) obtaining the affirmative vote of a majority of the votes cast by the holders of the outstanding Shares entitled to vote in favor of the approval and adoption of the Merger Agreement, (iii) the conversion of the Convertible Notes (as defined below) and cancellation of all Noteholder Warrants (as defined below), in each case as contemplated by the Conversion Agreement (as defined below), (iv) the customary bring-down of representations, warranties and covenants by the Company and Parent, and (v) the absence of any Material Adverse Effect (as defined in the Merger Agreement) since the signing date.
13
In connection with the Company, Parent and Merger Sub entering into the Merger Agreement, each of the current executive officers and directors of the Company (solely in their capacity as stockholders of the Company) and each of the Noteholders (together, the “Supporting Stockholders”) entered into a Voting Agreement with Parent on April 8, 2024 (the “Voting Agreement”). Pursuant to the Voting Agreement, in the absence of an Adverse Company Board Recommendation Change (as defined in the Merger Agreement), each of the Supporting Stockholders agreed to vote his, her or its Shares in favor of the approval and adoption of the Merger Agreement and against any alternative acquisition proposal other than the Merger, and not to transfer the Shares beneficially owned by such Supporting Stockholder during the pendency of the Merger. The Voting Agreement terminates upon, among other things, the termination of the Merger Agreement or the making of an Adverse Company Board Recommendation Change.
In connection with the Merger Agreement, on April 8, 2024, the Company entered into a Conversion and Cancellation Agreement (the “Conversion Agreement”) with Parent, Clarex Limited (“Clarex”) and Welland Limited (“Welland” and together with Clarex, the “Noteholders”). Pursuant to the Conversion Agreement, Clarex agreed to convert the entire principal amount of its $1,500,000 Subordinated Convertible Promissory Note and Welland agreed to convert the entire principal amount of its $1,000,000 Subordinated Convertible Promissory Note at least five business days prior to the record date for the Company stockholder meeting to approve and adopt the Merger Agreement. On May 2, 2024, the Clarex Convertible Note converted pursuant to its terms into 1,500,000 shares of common stock and warrants to purchase 1,125,000 shares (the “Clarex Warrants”) at an exercise price of $1.35 per share, and the Welland Convertible Note converted pursuant to its terms into 1,000,000 shares of common stock and warrants to purchase 750,000 shares (the “Welland Warrants” and together with the Clarex Warrants, the “Noteholder Warrants”) at an exercise price of $1.35 per share. Pursuant to the Conversion Agreement, all interest then outstanding under the Convertible Notes on the date of conversion, or $50,333, was paid to the Noteholders in cash. Pursuant to the Conversion Agreement, the Noteholder Warrants shall be canceled and terminated effective immediately prior to the closing of the Merger; provided however, such cancellation and termination shall not be effective unless the closing of the Merger occurs.
Additional information about the Merger Agreement is set forth in our Current Report on Form 8-K filed with the SEC on April 9, 2024, and Note 9 - Subsequent Events,” in the accompanying unaudited Consolidated Financial Statements.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 1 of the accompanying condensed consolidated financial statements and further discussed in our annual financial statements included in our annual report on Form 10-K for the year ended December 31, 2023. In preparing our unaudited condensed consolidated financial statements, we made estimates and judgments that affect the results of our operations and the value of assets and liabilities we report. Our inventories are stated at the lower of cost (first-in-first-out basis) and net realizable value. The Company records a reserve for slow - moving inventory as a charge against earnings for all products identified as surplus, slow-moving, or discontinued. Excess work-in-process costs are charged against earnings whenever estimated costs-of-completion exceed unbilled revenues. The Company’s estimates also include the amount and timing of future taxable income in determining the valuation allowance for deferred income tax assets. Our actual results may differ from these estimates under different assumptions or conditions.
For additional information regarding our critical accounting policies and estimates, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report filed with the Securities and Exchange Commission on Form 10-K for the year ended December 31, 2023.
Results of Operations
The Company is a vertically integrated manufacturer specializing in glass, crystal, and metal-based optical components, and sub-assemblies. Manufacturing capabilities include super-precision optical surfacing, precision diamond turning, the ability to manage large substrates, proprietary optical contacting processes, thin film coatings, and high - resolution in - process metrology.
Inrad Optics’ customers include leading corporations in the semiconductor equipment, process control and metrology, defense, aerospace, and laser systems sectors of the broad set of photonics - enabled industries, as well as the U.S. Government, National Laboratories, and universities and institutions worldwide.
All R&D, engineering, manufacturing, and administrative operations are undertaken in our 42,000 – square - foot facility in Northvale, New Jersey.
14
Revenue
Sales for the three months ended March 31, 2024, were $2.9 million, an increase of 0.3%, or $0.1 million, compared to $2.8 million for the three months ended March 31, 2023.
Sales to the defense/aerospace market increased by $0.1 million or 23.6% to $0.5 million in the three months ended March 31, 2024, compared to $0.4 million for the three months ended March 31, 2023. The increase in sales in the defense/aerospace market was due to the timing of deliveries.
Process control and metrology (“PC&M”) sales were $2.1 million for the three months ended March 31, 2024, a decrease of $0.2 million, or 9.0%, from $2.3 million for the three months ended March 31, 2023. The decrease in sales in the PC&M market was due to the timing of shipments.
Sales to customers in the Scientific/R&D market were $0.3 million for the three months ended March 31, 2024, and $0.1 million for the three months ended March 31, 2023, an increase of $0.2 million or 205.4%. The increase in sales is due to an increase in sales to national laboratories.
For the three months ended March 31, 2024, two customers each represented 10% or more of revenues. For the three months ended March 31, 2023, three customers each represented 10% or more of revenues.
The Company’s top five customers represented 69.5% of sales in the three months ended March 31, 2024, compared to 79.8% of sales in the same period in 2023.
Orders booked during the first three months of 2024, totaled $1.3 million, compared to $1.8 million for the same period last year, a decrease of 27.8%. The decrease in bookings is due to multi-year purchase agreements placed in 2022 and 2023 that extend through 2024 and into 2025. Order backlog on March 31, 2024 and 2023, was $14.0 million and $19.5 million, respectively. We anticipate shipping a significant portion of the present backlog during fiscal year 2024. However, our current backlog consists of orders with delivery schedules that extend beyond 12 months into the future.
Cost of Goods Sold
For the three months ended March 31, 2024 and 2023, cost of goods sold were $1.8 million and $1.9 million, or 62.3% and 68.6% of total revenues, respectively. Cost of goods sold decreased largely due to a decrease in raw materials direct and related inventory adjustments offset by increases in manufacturing depreciation.
Gross profit for each of the three months ended March 31, 2024 and 2023, was $1.1 million and $0.9 million, respectively. Gross profit was 37.7% and 31.4% of sales in the three months ended March 31, 2024 and 2023, respectively.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A” expenses) in the three months ended March 31, 2024, amounted to $1.0 million, or 36.2% of sales compared to $0.8 million, or 26,7% of sales, for the same period a year ago. The increase in SG&A expenses reflects an increase in legal fees and other transaction-related expenses, associated with the pending acquisition of the Company.
Income from Operations
The Company had operating income of $42,000 in the three months ended March 31, 2024, and operating income of $130,000 in the three months ended March 31, 2023. The decrease in operating income reflects an increase in SG&A expenses in the three months ended March 31, 2024, offset by a slight increase in sales and a decrease in cost of goods sold, compared to the same period last year.
Other Income (Expense)
Other income reflects the interest expense on the Company’s related party convertible notes and the financing of certain equipment purchases.
15
Income Taxes
For the three months ended March 31, 2024, the Company recorded a net valuation allowance release of $1.0 million on the basis of management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of March 31, 2024, management determined there is sufficient positive evidence that it is more likely than not that the net deferred tax asset (other than foreign net operation losses) is realizable.
For the three months ended March 31, 2023, the Company did not record a current provision for income taxes due to the availability of net operating loss carryforwards to offset taxable income for both income tax and financial reporting purposes.
Net Income
The Company had net income of $1.0 million for the three months ended March 31, 2024, compared to net income of $92,000 for the three months ended March 31, 2023. The increase in net income is largely a result of the tax benefit recorded in the three months ended March 31, 2024
Liquidity and Capital Resources
The Company’s primary source of liquidity is cash and cash equivalents and ongoing collection of accounts receivable. The Company’s major use of cash in recent years has been for financing operations, payment of accrued and current interest on convertible debt, servicing of long-term debt, and capital expenditures.
As of March 31, 2024 and December 31, 2023, the Company had cash and cash equivalents of $2.5 million and $3.0 million, respectively.
The Company occupies approximately 42,000 square feet of space located at 181 Legrand Avenue, Northvale, New Jersey pursuant to a net lease which was amended on July 29, 2022, retroactive to June 1, 2022, for an additional three-year term. The current lease term expires on May 31, 2025. Under the terms of the lease, the Company is obligated for all real estate taxes, maintenance, and operating costs of the facility.
On October 12, 2023, the maturity dates of a $1,500,000 Subordinated Convertible Promissory Note to Clarex and a $1,000,000 Subordinated Convertible Promissory Note to Welland were each extended to January 15, 2025, from August 15, 2024. The notes bore interest at 6%. Interest accrued yearly and was payable on maturity. In connection with the Merger Agreement, on April 8, 2024, the Company entered into the Conversion Agreement with Parent, Clarex and Welland. Pursuant to the Conversion Agreement, Clarex agreed to convert the entire principal amount of its $1,500,000 Subordinated Convertible Promissory Note and Welland agreed to convert the entire principal amount of its $1,000,000 Subordinated Convertible Promissory Note at least five business days prior to the record date for the Company stockholder meeting to approve and adopt the Merger Agreement. On May 2, 2024, the Clarex Convertible Note converted pursuant to its terms into 1,500,000 shares of common stock and warrants to purchase 1,125,000 shares (the “Clarex Warrants”) at an exercise price of $1.35 per share, and the Welland Convertible Note converted pursuant to its terms into 1,000,000 shares of common stock and warrants to purchase 750,000 shares (the “Welland Warrants” and together with the Clarex Warrants, the “Noteholder Warrants”) at an exercise price of $1.35 per share. Pursuant to the Conversion Agreement, all interest then outstanding under the Convertible Notes on the date of conversion, or $50,333, was paid to the Noteholders in cash. The Noteholder Warrants expire on August 15, 2027. Pursuant to the Conversion Agreement, the Noteholder Warrants shall be canceled and terminated effective immediately prior to the closing of the Merger; provided however, such cancellation and termination shall not be effective unless the closing of the Merger occurs.
Due to the short-term nature of these notes, they have been reclassified to current liabilities on the balance sheet.
16
The following table summarizes net cash (used in) operating, investing, and financing activities for the three months ended March 31, 2024 and 2023:
| | | | | | |
|
| Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
|
| (in thousands) | ||||
Net cash (used in) provided by operating activities | | $ | (96) | | $ | 164 |
Net cash (used in) investing activities | | | (369) | | | (188) |
Net cash (used in) provided by financing activities | | | (12) | | | 15 |
Net (decrease) in cash and cash equivalents | | $ | (477) | | $ | (9) |
Net used in operating activities was $96,000 for the three months ended March 31, 2024, compared to net cash provided by operating activities of $164,000 in the same period last year. The increase in cash used in operating activities in the three months ended March 31, 2024, resulted primarily from a decrease in accounts receivable, and an increase in inventories and other current assets, coupled with a decrease in accounts payable and contract liabilities.
Net cash used in investing activities was $369,000 during the three months ended March 31, 2024, compared to $188,000 in the same period last year reflecting capital expenditures in both periods.
In the three months ended March 31, 2024 and 2023, proceeds from financing activities included cash received for the issuance of common stock pursuant to the exercised stock options.
Overall, cash and cash equivalents decreased by $477,000 and $9,000 for the three months ended March 31, 2024 and 2023, respectively.
17
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Company is a smaller reporting company and is not required to provide the information required under this item.
ITEM 4. | CONTROLS AND PROCEDURES |
a. Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of March 31, 2024 (the “Evaluation Date”), have concluded that as of the Evaluation Date, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports we file or submit under the Exchange Act (1) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and (2) is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.
b. Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
18
PART II. | OTHER INFORMATION |
ITEM 1. | LEGAL PROCEEDINGS |
None.
ITEM 1A. | RISK FACTORS |
Our business is subject to a number of risks, some of which are beyond our control. In addition to the other information set forth in this report, you should carefully consider the factors discussed in Item 1A. - “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, that could have a material adverse effect on our business, results of operations, financial condition and/or liquidity and that could cause our operating results to vary significantly from period to period. As of March 31, 2024, there have been no material changes to the risk factors disclosed in our most recent Annual Report on Form 10-K, with the exception of the following:
The announcement and pendency of the proposed Merger may adversely affect our business, financial condition and results of operations.
On April 8, 2024, we entered into the Merger Agreement to be acquired by Parent. Completion of the proposed Merger is subject to the satisfaction of various conditions, including the receipt of approvals from our stockholders. There is no assurance that all of the various conditions will be satisfied, or that the Merger will be completed on the proposed terms, within the expected timeframe, or at all. Our entry into the Merger Agreement, its obligations thereunder, and the conditions to completion of the acquisition give rise to inherit risks and uncertainties, including:
•the fact that despite management’s and the board’s efforts, we have not succeeded in significantly growing our business through internal growth and/or acquisition, and continue to see operating performance often below the targets that our management team and board have set for us;
•the fact that if the Merger is not consummated, the securities issued to the Noteholders upon conversion of the Convertible Notes can be returned to the Company in exchange for a new Convertible Note, and payment of such re-issued Convertible Notes could be demanded upon maturity;
•the risks and costs to us if the merger does not close, including costs incurred related to the negotiation of the merger and seeking shareholder approval, the diversion of management and employee attention, potential employee attrition, and the potential effect on customer and vendor relationships;
•the restrictions on the conduct of our business prior to the completion of the merger, requiring us to conduct our business only in the ordinary course, subject to specific limitations and exceptions, which may delay or prevent us from undertaking business opportunities that may arise pending completion of the merger; and
•the risk that the Merger Agreement may be terminated in circumstances that require us to pay a termination fee of $1,173,544.
Failure to consummate the proposed Merger within the expected timeframe or at all could have a material adverse impact on our business, financial condition and results of operations.
There can be no assurance that the proposed Merger will be consummated. The consummation of the transactions contemplated by the Merger Agreement is subject to the fulfillment or waiver (if permitted by law) of certain customary closing conditions, including, without limitation, (i) the absence of any law, injunction or order enacted, entered, promulgated, or enforced by any governmental entity which prohibits, enjoins or makes illegal the consummation of the Merger and the transactions contemplated by the Merger Agreement, (ii) obtaining the affirmative vote of a majority of the votes cast by the holders of the outstanding Shares entitled to vote in favor of the approval and adoption of the Merger Agreement, (iii) the conversion of the Convertible Notes and cancellation of all Noteholder Warrants, in each case as contemplated by the Conversion Agreement, (iv) the customary bring-down of representations, warranties and covenants by the Company and Parent, and (v) the absence of any Material Adverse Effect since the signing date.
There can be no assurance that these and other conditions to closing will be satisfied in a timely manner or at all.
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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
ITEM 3. | DEFAULTS UNDER SENIOR SECURITIES |
None.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable
ITEM 5. | OTHER INFORMATION |
Inrad Optics, Inc. deeply regrets to announce that Mr. Luke LaValle, an honored and long-standing member of the Inrad Optics, Inc. Board of Directors, died unexpectedly on April 30, 2024. Mr. LaValle had been a director since 2005.
On May 8, 2024, the Company’s independent directors unanimously appointed Mr. William Foote to succeed Mr. Luke LaValle as Chair of the Company’s audit committee. Mr. Foote is an “independent director” under the rules and regulations of the Securities and Exchange Commission and meets the criteria of an audit committee financial expert.
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ITEM 6. | EXHIBITS |
2.1 | ||
| | |
| 10.1 | |
| | |
| 10.2 | |
| | |
31.1 | ||
| | |
31.2 | ||
| | |
32.1 | ||
| | |
32.2 | ||
| | |
| 101.INS | Inline XBRL Instance Document* |
| | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema* |
| | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase* |
| | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase* |
| | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase* |
| | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase* |
| | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL and Contained in Exhibit 101) |
* | Filed herewith |
** | Furnished herewith |
*** Certain schedules and exhibits have been omitted pursuant to Item 601 (a) (5) of Regulation S - K. The registrant agrees to furnish supplementally a copy of any omitted attachment to the SEC upon request.
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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.
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| Inrad Optics, Inc. |
|
|
|
| By: | /s/ Amy Eskilson |
|
| Amy Eskilson |
|
| President and Chief Executive Officer |
|
|
|
| By: | /s/ Theresa A. Balog |
|
| Theresa A. Balog |
|
| Chief Financial Officer, |
|
| Secretary and Treasurer |
Date: May 14, 2024 |
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|
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