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Inrad Optics, Inc. - Quarter Report: 2003 June (Form 10-Q)

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

(Mark One)

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended   JUNE 30, 2003

 

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the transition period from                      to

 

Commission file number  0-11668

 

INRAD, Inc.

(Exact name of registrant as specified in its charter)

 

New Jersey

 

22-2003247

(State or other jurisdiction of incorporation
or organization)

 

(I.R.S. Employer
Identification Number)

 

181 Legrand Avenue, Northvale, NJ  07647

(Address of principal executive offices)

(Zip Code)

 

(201) 767-1910

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and formal fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ý     No  o

 

Common shares of stock outstanding as of June 30, 2003:

5,307,353

 

 



 

INRAD, Inc.

 

INDEX

 

Part I.

FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements:

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2003, (unaudited) and December 31, 2002

 

 

 

 

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2003 and 2002 (unaudited)

 

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2003 and 2002 (unaudited)

 

 

 

 

 

Notes to Consolidated Financial Statements

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

 

Liquidity and Capital Resources

 

 

Part II.

OTHER INFORMATION

 

Item 6.

 

Exhibits and Reports on Form 8-K

 

Signatures

 



 

PART I.     FINANCIAL INFORMATION

 

ITEM 1.          FINANCIAL STATEMENTS

 

INRAD, Inc.
Consolidated Balance Sheets

 

 

 

June 30,
2003

 

December 31,
2002*

 

 

 

Unaudited

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

576,725

 

$

1,155,074

 

Accounts receivable, net

 

833,394

 

1,041,262

 

Inventories

 

2,304,510

 

2,082,932

 

Unbilled contract costs

 

266,240

 

341,541

 

Other current assets

 

109,453

 

80,675

 

Total current assets

 

4,090,322

 

4,701,484

 

Plant and equipment,

 

 

 

 

 

Plant and equipment at cost

 

9,359,959

 

9,307,753

 

Less: Accumulated depreciation and amortization

 

(6,292,178

)

(6,008,008

)

Total plant and equipment

 

3,067,781

 

3,299,745

 

Precious metals

 

309,565

 

309,565

 

Other assets

 

200,734

 

198,131

 

Total assets

 

$

7,668,402

 

$

8,508,925

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Notes payable –bank

 

$

0

 

$

751,074

 

Notes payable –other

 

49,967

 

124,917

 

Current portion of long term debt

 

0

 

927,549

 

Accounts payable and accrued liabilities

 

415,281

 

368,337

 

Current obligations under capital leases

 

89,124

 

98,657

 

Total current liabilities

 

554,372

 

2,270,534

 

 

 

 

 

 

 

Secured Promissory Note

 

1,700,000

 

0

 

Subordinated Convertible Debenture

 

1,000,000

 

1,000,000

 

Capital Lease Obligations

 

148,326

 

188,512

 

Total liabilities

 

3,402,698

 

3,459,046

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

10% Convertible preferred stock, Series A, no par value; 500 shares issued and outstanding, respectively

 

500,000

 

500,000

 

10% Convertible preferred stock, Series B, no par value; 2100 shares issued and outstanding, respectively

 

2,100,000

 

2,100,000

 

Common stock: $.01 par value; 15,000,000 shares Authorized; 5,311,953 issued at June 30, 2003 and 5,283,690 issued at December 31, 2002

 

53,119

 

52,836

 

Capital in excess of par value

 

9,482,263

 

9,470,676

 

Common stock dividends due to preferred shareholders

 

53,600

 

0

 

Accumulated deficit

 

(7,908,328

)

(7,058,683

)

 

 

4,280,654

 

5,064,829

 

Less - Common stock in treasury, at cost (4,600 shares at June 30, 2003 and at December 31, 2002)

 

(14,950

)

(14,950

)

Total shareholders’ equity

 

4,265,704

 

5,049,879

 

Total liabilities and shareholders’ equity

 

$

7,668,402

 

$

8,508,925

 

 


* Derived from Audited Financial Statements

 

See Notes to Consolidated Financial Statements.

 

3



 

INRAD, Inc.

Consolidated Statements of Operations

(Unaudited)

 

 

 

Three Months Ended June 30

 

Six Months Ended June 30

 

 

 

2003

 

2002

 

2003

 

2002

 

Revenues:

 

 

 

 

 

 

 

 

 

Product sales

 

$

1,130,981

 

$

1,657,964

 

$

2,321,834

 

$

2,843,804

 

Contract R & D

 

16,136

 

28,000

 

26,136

 

62,625

 

 

 

 

 

 

 

 

 

 

 

Total Revenue

 

1,147,117

 

1,685,964

 

2,347,970

 

2,906,429

 

 

 

 

 

 

 

 

 

 

 

Cost and Expenses:

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

936,300

 

1,225,727

 

1,847,239

 

2,349,584

 

Contract R & D expenses

 

8,961

 

34,562

 

18,779

 

84,841

 

Selling, general & administrative expenses

 

544,477

 

550,556

 

1,093,744

 

1,044,312

 

Internal R & D expenses

 

25,343

 

28,092

 

80,911

 

48,016

 

Total Cost and Expenses

 

1,515,081

 

1,838,937

 

3,040,673

 

3,526,753

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

(367,964

)

(152,973

)

(692,703

)

(620,324

)

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest expense

 

(71,383

)

(47,355

)

(105,837

)

(63,232

)

Interest & other income, net

 

1,160

 

(1,281

)

2,497

 

5,260

 

 

 

 

 

 

 

 

 

 

 

Net loss
 
(438,187
)
(201,609
)
(796,045
)
(678,296
)
 
 
 
 
 
 
 
 
 
 

Preferred stock dividends

 

(53,600

)

(120,600

)

(53,600

)

(120,600

)

 

 

 

 

 

 

 

 

 

 

Net loss applicable to common shareholders

 

$

(491,787

)

$

(322,209

)

$

(849,645

)

$

(798,896

)

 

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

 

(.09

)

(.06

)

(.16

)

(.15

)

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

5,283,690

 

5,203,290

 

5,283,690

 

5,187,976

 

 

See Notes to Consolidated Financial Statements.

 

4



 

INRAD, INC. AND SUBSIDIARY

 

INRAD, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENT OF SHAREOWNERS’ EQUITY

 

 

 

Common Stock

 

Preferred Stock
(Series A)

 

Preferred Stock
(Series B)

 

Capital in
excess of
par value

 

Deficit

 

Payable/
Receivable

 

Treasury
Stock

 

Total
Shareowners’

Equity

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2000

 

4,957,678

 

49,577

 

500

 

500,000

 

2,100

 

2,100,000

 

9,084,898

 

(5,110,745

)

(220,000

)

(14,950

)

6,388,780

 

Exercise of Options

 

29,250

 

293

 

 

 

 

 

30,833

 

 

 

 

 

31,126

 

Exercise of Warrants

 

51,675

 

516

 

 

 

 

 

56,683

 

 

 

 

 

57,199

 

Dividend on Preferred Stock

 

92,000

 

920

 

 

 

 

 

154,080

 

(155,000

)

 

 

 

 

Subscription received

 

 

 

 

 

 

 

 

 

 

220,000

 

 

220,000

 

Contribution

 

5,000

 

50

 

 

 

 

 

4,700

 

 

 

 

 

4,750

 

Net income for the year

 

 

 

—  .

 

 

 

 

 

43,634

 

 

 

43,634

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2001

 

5,135,603

 

51,356

 

500

 

500,000

 

2,100

 

2,100,000

 

9,331,194

 

(5,222,111

)

 

(14,950

)

6,745,489

 

401K contribution

 

14,087

 

140

 

 

 

 

 

 

 

 

 

20,222

 

 

 

 

 

 

 

20,362

 

Dividend on Preferred Stock

 

134,000

 

1,340

 

 

 

 

 

 

 

 

 

119,260

 

(120,600

)

 

 

 

 

 

 

Net loss for the year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,715,972

)

 

 

 

 

(1,715,972

)

Balance, December 31, 2002

 

5,283,690

 

$

52,836

 

500

 

$

500,000

 

2,100

 

$

2,100,000

 

$

9,470,676

 

$

(7,058,683

)

$

 

$

(14,950

)

$

5,049,879

 

Stock dividend payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

53,600

 

 

 

53,600

 

401K contribution

 

28,263

 

283

 

 

 

 

 

 

 

 

 

11,587

 

 

 

 

 

 

 

11,870

 

Net loss for the year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(849,645

)

 

 

 

 

(849,645

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance,  March 31, 2003

 

5,311,593

 

$

53,119

 

500

 

$

500,000

 

2,100

 

$

2,100,000

 

$

9,482,263

 

$

(7,908,328

)

$

53,600

 

$

(14,950

)

$

4,265,704

 

 

See notes to consolidated financial statements

 

5



 

INRAD, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Six months Ended June 30

 

 

 

2003

 

2002

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

$

(796,045

)

$

(678,296

)

 

 

 

 

 

 

Adjustments to reconcile net income to cash used in operating activities:

 

 

 

 

 

Depreciation and amortization

 

284,170

 

256,177

 

401K common stock contribution

 

11,870

 

20,354

 

 

 

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

207,868

 

55,004

 

Inventories

 

(221,578

)

141,639

 

Unbilled contract costs

 

75,301

 

43,968

 

Other current assets

 

(28,778

)

(38,018

)

Other assets

 

(2,603

)

616

 

Accounts payable and accrued liabilities

 

46,943

 

(392,587

)

 

 

 

 

 

 

Total adjustments

 

373,193

 

87,153

 

Net cash used in operating activities

 

(422,852

)

(591,143

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

(52,205

)

(174,831

)

 

 

 

 

 

 

Net cash used in investing activities

 

(52,205

)

(174,831

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from secured promissory note

 

1,700,000

 

0

 

Proceeds from asset based loan

 

0

 

1,000,000

 

Principal payments of notes

 

(74,950

)

0

 

Principal payments of bank debt

 

(1,678,623

)

 

 

Principal payments of capital lease obligations

 

(48,719

)

(53,202

)

 

 

 

 

 

 

Net cash (used in) provided by financing activities

 

(103,292

)

946,798

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

(578,349

)

180,824

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

1,155,074

 

548,949

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

576,725

 

$

729,773

 

 

See Notes to Consolidated Financial Statements.

 

6



 

INRAD, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

NOTE 1 -SUMMARY OF ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited interim consolidated financial statements of INRAD, Inc. (the “Company”) reflect all adjustments, which are of a normal recurring nature, and disclosures which, in the opinion of management, are necessary for a fair statement of results for the interim periods.  It is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements as of December 31, 2002 and 2001 and for the years then ended and notes thereto included in the Company’s report on Form 10-K, filed with the Securities and Exchange Commission.

 

Inventory Valuation

 

Inventories are valued on a lower of cost (first-in-first-out basis) or market basis (net realizable value).  Work In Process inventory for the period is stated at actual cost, not in excess of estimated realizable value.

 

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 (loss) income per share is computed using the weighted average number of common shares outstanding for the period ended June 30, 2003.  The potential dilutive effect of securities, which are common share equivalents, options, warrants, convertible notes and convertible preferred stock and their associated dividends have been excluded from the diluted computation because their effect is antidilutive.

 

Stock Based Compensation

 

The Company accounts for stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, no compensation costs for options has been recognized in the financial statements.  The chart below set forth the company’s net loss per share for the six months ended June 30, 2003 and 2002, as reported on a pro forma basis as if the compensation cost of stock options had been determined in accordance with SFAS 123.

 

 

 

For the three months ended

 

For the six months end

 

 

 

June 30,
2003

 

June 30,
2002

 

June 30,
2003

 

June 30,
2002

 

Net Loss, as reported

 

$

(491,787

)

$

(322,209

)

$

(849,645

)

$

(798,896

)

Deduct: Total stock-based employee Compensation expense determined Under fair value based method for all awards, net of related tax effects

 

0

 

0

 

(19,139

)

(72,980

)

 

 

 

 

 

 

 

 

 

 

Pro forma net loss

 

$

(491,787

)

$

(322,209

)

$

(868,784

)

$

(871,876

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted income per share:

 

 

 

 

 

 

 

 

 

As Reported

 

(.09

)

(0.06

)

(.16

)

(.15

)

Pro forma

 

(.09

)

(0.06

)

(.16

)

(.17

)

 

7



 

NOTE 2- CHANGES IN LONG TERM DEBT

 

In January 2003 the Company was in violation of certain financial covenants required under the loan agreements.  As a result Wachovia Bank sold both the asset based loan and working capital revolver to APC Investments.  In June of 2003 the Company paid off the loan held by APC with $1,700,000 in proceeds received from the issuance of a Secured Promissory Note that is held by a major investor in the Company.  The Secured Promissory Note is for a period of  18 months and bears interest at the rate of 6.5% per annum.  The Company currently has a commitment from Valley National Bank for a three-year $1,700,000 Bank Loan payable at the Bank’s Prime Interest Rate, the proceeds of which are intended to repay the Secured Promissory Note. The Bank Loan will be collateralized by a renewable standby letter of credit that will be guaranteed by the Company’s major investor.  The Company’s Board of Directors approved the issuance of 200,000 warrants to the major investor as a fee for the guarantee of the Bank loan. The warrants are exercisable at $0.33 per share, approximately a 20% discount to market, and expire in July 2008. Also, as a result of the loan guarantee, the major investor has a lien on all assets of the Company.

 

Critical Accounting Policies

 

Our significant accounting polices are described in Note 1 of the consolidated financial statements, that were prepared in accordance with accounting principles generally accepted in the United States of America.  In preparing our financial statements we made estimates and judgments that affect the results of our operations and the value of assets and liabilities we report.  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 “Managements Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on form 10-K for the year ended December 31, 2002.

 

ITEM 2.                             MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. 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 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 our plans or strategies, projected or anticipated benefits of acquisitions to be made by us, projections involving anticipated revenues, earnings, or other aspects of our 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. We caution 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 our control, that may influence the accuracy of the statements and the projections upon which the statements are based. Actual results may vary from these forward-looking statements for many reasons, including the following factors: adverse changes in economic or industry conditions in general or in the markets served by the Company and its customers, actions by competitors, and inability to add new customers and/or maintain customer relationships.  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.  Investors are encouraged to review the risk factors set forth in the Company’s most recent Form 10-K as filed with the Securities and Exchange Commission in March 2002. Any one or more of these uncertainties, risks, and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any forward looking statements, whether from new information, future events, or otherwise.

 

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.

 

8



 

The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and the notes thereto presented elsewhere herein.  The discussion of results should not be construed to imply any conclusion that such results will necessarily continue in the future.

 

RESULTS OF OPERATIONS

 

The following discussion and analysis should be read in conjunction with the Company’s un-audited 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.

 

Total Revenues

 

Total sales for the three months ended June 30, 2003 were $1,147,000 as compared with total sales of $1,686,000 for the same three months in 2002; down 32 %. Total sales for the six months ended June 30, 2003 were $2,348,000 as compared with $2,906,000 for the same period last year; down 19%.

 

Product Sales

 

Product sales for the second quarter of 2003 were $1,131,000 vs. $1,658,000 for the second quarter of 2002, a decrease of 32%.  Sales for the first half of FY 2003 totaled $2,322,000 vs. $2,844,000 for the first half of 2002, down 18%.

 

Product sales were 99% of total revenues for both the second quarter and the first half of 2002, reflecting the Company’s strategic refocusing of its resources on product sales vs. R&D services.

 

Product bookings for the second quarter were $1.798,000 vs. $1,330,000 for the same period last year, up 35%. Product bookings for the first half of the year were $2,912,000 vs. $3,280,000 for the same period in 2002, down 11%.

 

The book-to-bill ratio for the second quarter of 2003 was 1.59 compared with 0.80 for the same quarter of 2002. The book-to-bill ratio for the first half of 2003 was 1.25 vs. 1.15 for the first half of 2002.

 

The backlog at June 30, 2003 was down 4% to $1,890,000 as compared to $1,970,000 on June 30, 2002.  The Backlog increased from $1,300,000 on December 31, 2002 primarily due to increased bookings from the laser and research sectors.

 

Cost of Goods Sold

 

For the six-month period ended June 30, 2003, the cost of goods sold as a percentage of product revenues was 79.5% vs. 82.6% for the same period last year. For the full year 2002, the actual cost of good sold percentage was 83.9%. Gross profit margin for the first six months was 20.5%, compared with 17.4% for the first half of 2002.

 

In dollar terms, the cost of goods sold was $1,847,000 for the first half of 2003 compared with $2,349,000 for first half of 2002, down 21%. Product revenues were down 18% year to year for the same period.

 

The decrease in the cost of goods sold percentage in comparison to 2002 was the result of personnel reductions, salary reductions and other cost cutting measures implemented by management.

 

Inventory costs for the year were determined from perpetual inventory records, adjusted to net realizable value.

 

Contract Research and Development

 

Contract research and development revenues were $26,000 for the six months ended June 30, 2003, compared to $63,000 for the six months ended June 30, 2002. Related contract research and development expenditures, including allocated indirect costs, for the six months ended June 30, 2003 were $19,000 compared to $85,000 for the comparable period in 2002. Revenues for the second quarter were $16,000 compared to $28,000 in the second quarter of 2002.    The Company’s backlog of contract R&D was $0 at June 30, 2003, compared with $26,000 at December 31, 2002 and $28,000 at June 30, 2002.

 

The Company expects to continue to selectively seek new government-sponsored programs from time to time, as well as joint programs with certain of its customers, in technical areas related to its core businesses.

 

9



 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses for the current six-month period were $1,094,000 vs. $1,044,000 for the same period in the prior year, up 4.7%.  Second quarter expenses were $554,000 for the current year vs. $551,000 for the second quarter of FY 2002.  The expenses increased due to increases in sales personnel, implemented to expand our customer base, and to advisory services in connection with the company’s acquisition program.

 

Internal Research and Development Expenses

 

Research and development expenses for the quarter ended June 30, 2003 were $25,000 compared to $28,000 for the quarter ended June 30, 2002.  IR&D expenditures for the first half of 2003 were $81,000 compared with $48,000 in the first half of 2002. The increase was the result of efforts made in the development of miniaturized Pockels cells and process improvements in growth of key synthetic crystals.

 

Federal Deferred Tax Benefit

 

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.  Deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.  At December 31, 2002, the Company had a net deferred tax asset of approximately $2,700,000, the primary component of which was its significant net operating loss carry forward.  The Company has established a 100% valuation allowance for the  $2,700,000 in the event that the tax asset will not be realized in the future.

 

Interest expense

 

Interest expense for the first half of the year was $106,000 compared to $63,000 incurred in the first half of 2002.  The increase resulted from greater utilization of the Company’s credit lines for working capital purposes.

 

Net Loss

 

Net loss for the six months ended June 30, 2003 was $(796,000) compared to a net loss of $(678,000) vs. the same period in FY 2002. Net loss for the quarters ending June 30 was $(438,000) for FY 2003 and $(202,000) for FY 2002.

 

Loss from operations for the first six months was $(693,000) in 2003 as compared with $(620,000) in 2002.  Second quarter operating loss was $(368,000) in 2002 and $(153,000)  in 2002.

 

Earnings Per Share

 

Basic earnings per share available to common shareholders was calculated by adjusting the net loss by $54,000 in 2003 and by $121,000 in 2002 for the common stock dividend paid on Company preferred stock, divided by the weighted shares outstanding.  Diluted earnings per share for the six months ended June 30, 2003 and June 30, 2002 were not calculated because their effect was anti-dilutive.

 

Liquidity and capital resources

 

Capital expenditures, including purchases and a portion of applicable internal labor and overhead charges, for the six months ended June, 2003 and 2002 were $52,000 and $175,000, respectively.  Capital expenditures for all of 2002 were $554,000.  The amounts represent minimal expenditures for capital equipment, necessitated by the need to conserve cash during the current economic downturn.

 

Management will continue to make investments in capital acquisitions from time to time, both in equipment and acquisition of complementary businesses, to pursue its objective of growth in shareholder value and to maintain a competitive edge in the markets that it serves. The Company believes that it has the financial resources necessary to implement its capital expenditure needs in 2003.

 

During the six month period ended June 30, 2003, cash outflows were funded from cash proceeds from a subordinated convertible promissory note received in 2002.  Where possible, the Company will seek to increase sales, and reduce expenses and cash requirements to improve future operating results and cash flows.  Management expects that cash flow from operations and use of its existing cash reserves, will provide adequate liquidity for the Company’s operations in 2003.  The current six- month period yielded negative cash flow from operations in the amount of $(423,000).  This resulted primarily from losses generated during the period that were offset, to an extent, by reduced working capital requirements.

 

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In January 2003 the Company was in violation of certain financial covenants required under the loan agreements.  As a result Wachovia Bank sold both the asset based loan and working capital revolver to APC Investments.  In June of 2003 the Company paid off the loan held by APC with $1,700,000 in proceeds received from the issuance of a Secured Promissory Note that is held by a major investor in the Company.  The Secured Promissory Note is for a period of  18 months and bears interest at the rate of 6.5% per annum.  The Company currently has a commitment from Valley National Bank for a three-year $1,700,000 Bank Loan payable at the Bank’s Prime Interest Rate, the proceeds of which are intended to repay the Secured Promissory Note. The Bank Loan will be collateralized by a renewable standby letter of credit that will be guaranteed by the Company’s major investor.  The Company’s Board of Directors approved the issuance of 200,000 warrants to the major investor as a fee for the guarantee of the Bank loan. The warrants are exercisable at $0.33 per share, approximately a 20% discount to market, and expire in July 2008. Also, as a result of the loan guarantee, the major investor has a lien on all assets of the Company.

 

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PART II.    OTHER INFORMATION

 

ITEM 4.          CONTROLS AND PROCEDURES

 

Within the 90 days prior to the date of this report, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-14. Based upon that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Corporation (including its consolidated subsidiaries) required to be included in the Corporation’s periodic SEC filings. There have been no significant changes in the Corporation’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

ITEM 6.                             EXHIBITS AND REPORTS ON FORM 8-K

 

(A)                              Exhibits:

 

11.                                 An exhibit showing the computation of per-share earnings is omitted because the computation can be clearly determined from the material contained in this Quarterly Report on Form 10-Q.

 

(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/  Daniel Lehrfeld

 

 

 

Daniel Lehrfeld

 

 

President and Chief Executive Officer

 

 

 

 

 

 

 

By:

/s/  William S. Miraglia

 

 

 

William S. Miraglia

 

 

Chief Financial Officer

 

 

Date:    August 4, 2003

 

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