UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
x
|
QUARTERLY
REPORT
PURSUANT
TO
SECTION
13
OR
15(d)
OF
THE
SECURITIES
EXCHANGE
ACT
OF
1934
|
For the quarterly period ended
JUNE
30, 2012
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 incorporation
|
|
(I.R.S. Employer
|
or organization)
|
|
Identification Number)
|
|
181 Legrand Avenue, Northvale,
NJ 07647
|
|
|
(Address of principal executive offices)
|
|
|
(Zip Code)
|
|
|
(201) 767-1910
|
|
|
(Registrant’s telephone number, including area code)
|
|
|
|
|
|
(Former name, former address and formal fiscal year, if changed since last report)
|
|
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes
x
No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data file required to be submitted and posted 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 and post such files). Yes
x
No
o
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of
“large accelerated filer, accelerated filer and smaller reporting company” in Rule 12b-2 of the exchange Act. (Check
one):
Large accelerated filer
¨
|
|
Accelerated filer
¨
|
|
Non-accelerated filer
¨
|
|
Smaller reporting company
x
|
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
¨
No
x
The number of shares of the registrant’s
common stock outstanding, $0.01 par value, as of August 14, 2012 was 11,877,124
INRAD OPTICS, INC AND SUBSIDIARIES
INDEX
Part I.
|
CONDENSED FINANCIAL INFORMATION
|
|
|
|
|
Item 1.
|
Condensed Consolidated Financial Statements:
|
2
|
|
|
|
|
Condensed consolidated balance sheets as of June 30, 2012 (unaudited) and December 31, 2011
|
2
|
|
|
|
|
Condensed consolidated statements of operations for the three and six months ended June 30,
2012 and 2011 (unaudited)
|
3
|
|
|
|
|
Condensed consolidated statements of cash flows for the six months ended June 30, 2012 and 2011
(unaudited)
|
4
|
|
|
|
|
Notes to condensed consolidated financial statements (unaudited)
|
5
|
|
|
|
Item 2.
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
9
|
|
|
|
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk
|
14
|
|
|
|
Item 4.
|
Controls and Procedures
|
14
|
|
|
|
Part II.
|
OTHER INFORMATION
|
|
|
|
|
Item 1.
|
Legal Proceedings
|
15
|
|
|
|
Item 1A.
|
Risk Factors
|
15
|
|
|
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
15
|
|
|
|
Item 3.
|
Defaults upon Senior Securities
|
15
|
|
|
|
Item 4.
|
Mine Safety Disclosures
|
15
|
|
|
|
Item 5.
|
Other Information
|
15
|
|
|
|
Item 6.
|
Exhibits
|
15
|
|
|
|
Signatures
|
|
16
|
INRAD OPTICS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,123,599
|
|
|
$
|
3,400,205
|
|
Accounts receivable (net of allowance for doubtful accounts
of $15,000 in 2012 and 2011)
|
|
|
1,819,596
|
|
|
|
2,052,887
|
|
Inventories, net
|
|
|
3,322,809
|
|
|
|
2,909,520
|
|
Other current assets
|
|
|
120,758
|
|
|
|
185,298
|
|
Total current
assets
|
|
|
8,386,762
|
|
|
|
8,547,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant and equipment:
|
|
|
|
|
|
|
|
|
Plant and equipment, at cost
|
|
|
15,353,260
|
|
|
|
15,172,428
|
|
Less: Accumulated depreciation and
amortization
|
|
|
(13,909,605
|
)
|
|
|
(13,629,311
|
)
|
Total plant and equipment
|
|
|
1,443,655
|
|
|
|
1,543,117
|
|
|
|
|
|
|
|
|
|
|
Precious Metals
|
|
|
474,960
|
|
|
|
474,960
|
|
Deferred Income Taxes
|
|
|
408,000
|
|
|
|
408,000
|
|
Goodwill
|
|
|
311,572
|
|
|
|
311,572
|
|
Intangible Assets, net
|
|
|
476,606
|
|
|
|
515,888
|
|
Other Assets
|
|
|
36,556
|
|
|
|
36,556
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
11,538,111
|
|
|
$
|
11,838,003
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Current portion of other long term notes
|
|
$
|
9,800
|
|
|
$
|
9,800
|
|
Accounts payable and accrued liabilities
|
|
|
846,784
|
|
|
|
877,757
|
|
Customer advances
|
|
|
221,015
|
|
|
|
266,818
|
|
Total current
liabilities
|
|
|
1,077,599
|
|
|
|
1,154,375
|
|
|
|
|
|
|
|
|
|
|
Related Party Convertible Notes Payable
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
|
|
|
|
|
|
|
|
|
Other Long Term
Notes, net of current portion
|
|
|
320,789
|
|
|
|
325,633
|
|
Total liabilities
|
|
|
3,898,388
|
|
|
|
3,980,008
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity:
|
|
|
|
|
|
|
|
|
Common stock: $.01 par value; 60,000,000 authorized shares; 11,881,724
shares issued at June 30, 2012 and 11,713,564 issued at December 31, 2011
|
|
|
118,819
|
|
|
|
117,137
|
|
Capital in excess of par value
|
|
|
17,982,602
|
|
|
|
17,720,514
|
|
Accumulated deficit
|
|
|
(10,446,748
|
)
|
|
|
(9,964,706
|
)
|
|
|
|
7,654,673
|
|
|
|
7,872,945
|
|
Less - Common stock in treasury,
at cost (4,600 shares)
|
|
|
(14,950
|
)
|
|
|
(14,950
|
)
|
Total shareholders’
equity
|
|
|
7,639,723
|
|
|
|
7,857,995
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders’ Equity
|
|
$
|
11,538,111
|
|
|
$
|
11,838,003
|
|
See Notes to Condensed Consolidated Financial
Statements (Unaudited)
INRAD OPTICS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
2,880,448
|
|
|
$
|
3,221,234
|
|
|
$
|
5,721,129
|
|
|
$
|
6,462,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
2,312,614
|
|
|
|
2,437,174
|
|
|
|
4,413,339
|
|
|
|
4,806,071
|
|
Selling, general and administrative expenses
|
|
|
864,804
|
|
|
|
847,784
|
|
|
|
1,719,093
|
|
|
|
1,657,029
|
|
|
|
|
3,177,418
|
|
|
|
3,284,958
|
|
|
|
6,132,432
|
|
|
|
6,463,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(296,970
|
)
|
|
|
(63,724
|
)
|
|
|
(411,303
|
)
|
|
|
(432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense—net
|
|
|
(36,113
|
)
|
|
|
(32,026
|
)
|
|
|
(70,739
|
)
|
|
|
(64,215
|
)
|
Gain on sale of plant and equipment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,626
|
|
|
|
|
(36,113
|
)
|
|
|
(32,026
|
)
|
|
|
(70,739
|
)
|
|
|
(60,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before income taxes
|
|
|
(333,083
|
)
|
|
|
(95,750
|
)
|
|
|
(482,042
|
)
|
|
|
(61,021
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (provision) benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(333,083
|
)
|
|
$
|
(95,750
|
)
|
|
$
|
(482,042
|
)
|
|
$
|
(61,021
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share—basic and
diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding—basic and diluted
|
|
|
11,875,874
|
|
|
|
11,697,353
|
|
|
|
11,786,207
|
|
|
|
11,622,483
|
|
See Notes to Condensed Consolidated Financial
Statements (Unaudited)
INRAD OPTICS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2012
|
|
|
2011
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(482,042
|
)
|
|
$
|
(61,021
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net (loss) to net cash (used in) provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
319,576
|
|
|
|
435,616
|
|
401K common stock contribution
|
|
|
151,775
|
|
|
|
129,998
|
|
(Gain) on sale of plant and equipment
|
|
|
—
|
|
|
|
(3,626
|
)
|
Stock based compensation
|
|
|
106,646
|
|
|
|
73,498
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
233,291
|
|
|
|
390,314
|
|
Inventories, net
|
|
|
(413,289
|
)
|
|
|
(256,325
|
)
|
Other current assets
|
|
|
64,540
|
|
|
|
(31,499
|
)
|
Other assets
|
|
|
—
|
|
|
|
2,736
|
|
Accounts payable and accrued liabilities
|
|
|
(30,973
|
)
|
|
|
(129,068
|
)
|
Customer advances
|
|
|
(45,803
|
)
|
|
|
102,869
|
|
Accrued Interest on Related Party Convertible Notes
Payable
|
|
|
—
|
|
|
|
(600,000
|
)
|
Total adjustments and changes
|
|
|
385,763
|
|
|
|
114,513
|
|
Net cash (used in) provided by
operating activities
|
|
|
(96,279
|
)
|
|
|
53,492
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(180,832
|
)
|
|
|
(50,752
|
)
|
Purchase of precious metals
|
|
|
—
|
|
|
|
(105,443
|
)
|
Proceeds from sale of plant and equipment
|
|
|
—
|
|
|
|
6,000
|
|
Net cash (used in) investing activities
|
|
|
(180,832
|
)
|
|
|
(150,195
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Redemption of restricted stock units
|
|
|
—
|
|
|
|
(370
|
)
|
Proceeds from exercise of stock options
|
|
|
5,349
|
|
|
|
19,000
|
|
Principal payments on notes payable-other
|
|
|
(4,844
|
)
|
|
|
(4,692
|
)
|
Net cash provided by financing
activities
|
|
|
505
|
|
|
|
13,938
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) in cash and cash equivalents
|
|
|
(276,606
|
)
|
|
|
(82,765
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning
of period
|
|
|
3,400,205
|
|
|
|
4,365,045
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at end of period
|
|
$
|
3,123,599
|
|
|
$
|
4,282,280
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow
Information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
82,000
|
|
|
$
|
682,000
|
|
Income taxes paid
|
|
$
|
5,000
|
|
|
$
|
—
|
|
See Notes to Condensed Consolidated Financial
Statements (Unaudited)
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 of 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, 2011.
In preparing these consolidated financial
statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the 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.
Inventories
Inventories are stated at the lower of
cost (first-in-first-out basis) or market. 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.
Inventories are comprised of the following
and are shown net of inventory reserves:
|
|
June 30,
2012
|
|
|
December 31,
2011
|
|
|
|
(in thousands)
|
|
Raw materials
|
|
$
|
1,123
|
|
|
$
|
1,072
|
|
Work in process, including manufactured parts and components
|
|
|
1,239
|
|
|
|
984
|
|
Finished goods
|
|
|
961
|
|
|
|
854
|
|
|
|
$
|
3,323
|
|
|
$
|
2,910
|
|
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 statements
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.
For the three and six months ended June
30, 2012 and 2011, the Company did not record a current provision for either state or federal income tax due to the losses incurred
for both income tax and financial reporting purposes or the availability of net operating loss carry-forwards to offset against
federal and state income tax.
As of June 30, 2012, the Company has recognized
a net deferred tax asset balance in the amount of $408,000, which is the portion of the total net deferred tax balance of $2,958,000
offset by a valuation allowance of $2,550,000, that the Company’s management is reasonably assured will be fully utilized
in future periods. In evaluating the Company’s ability to recover deferred tax assets in future periods, management considers
the available positive and negative factors, including the Company’s recent operating results, the existence of cumulative
losses and near term forecasts of future taxable income consistent with the plans and estimates that management uses to manage
the underlying business. The net deferred tax asset as of June 30, 2012 will be maintained until management concludes that it
is more likely than not that the remaining deferred tax assets will, or will not be realized. When sufficient positive evidence
exists, the Company’s income tax expense will be reduced by the decrease in its valuation allowance. An increase or reversal
of the Company’s valuation allowance could have a significant negative or positive impact on the Company’s future
earnings.
Net (Loss) Income per Common Share
Basic net (loss) income per common share
is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the period. Diluted
net (loss) income per common share is computed by dividing net (loss) income 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 and six months ended June
30, 2012, all common stock equivalents were excluded from the computation of diluted net loss per share because their effect is
anti-dilutive. This included 31,111 and 51,034 common stock equivalents related to outstanding options and grants, in each respective
period. In addition, there were 2,500,000 common shares and 1,875,000 warrants issuable upon conversion of outstanding related
party convertible notes in each period which were anti-dilutive.
For the three and six months ended June
30, 2011, all common stock equivalents were excluded from the computation of diluted net loss per share because their effect is
anti-dilutive. This included 132,205 and 103,864 common stock equivalents related to outstanding options and grants, in each respective
period and 2,500,000 common stock options and 1,875,000 warrants issuable upon conversion of outstanding related party convertible
notes in each period.
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.
Recently Adopted Accounting Standards
In September 2011, the FASB issued Accounting
Standards Update (“ASU”) No. 2011-08, Intangibles-Goodwill and Other – Testing Goodwill for Impairment (“ASU
No. 2011-08”). ASU No. 2011-08 permits an entity to make a qualitative assessment of whether it is more likely than not
that a reporting unit’s fair value is less than its carrying amount before automatically applying the two-step goodwill
impairment test, which has been the required test since 2002. If an entity determines that this is the case, it is necessary to
perform the currently prescribed two-step goodwill impairment test to determine the amount, if any, of impaired goodwill. Otherwise,
the two-step goodwill impairment test is not required. This new guidance is effective for annual and interim goodwill impairment
tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. The adoption of this guidance
did not materially impact our Consolidated Financial Statements.
NOTE 2- EQUITY
COMPENSATION PROGRAM AND STOCK BASED COMPENSATION
The Company's results of operations for
the three months ended June 30, 2012 and 2011 include stock-based compensation expense for stock option grants totaling $45,749
and $41,112, respectively. Such amounts have been included in the accompanying Condensed Consolidated Statements of Operations
within cost of goods sold in the amount of $24,821 ($17,287 for 2011), and selling, general and administrative expenses in the
amount of $20,928 ($23,825 for 2011).
The Company's results of operations for
the six months ended June 30, 2012 and 2011 include stock-based compensation expense for stock option grants totaling $104,222
and $69,735, respectively. Such amounts have been included in the accompanying Condensed Consolidated Statements of Operations
within cost of goods sold in the amount of $50,697 ($27,829 for 2011), and selling, general and administrative expenses in the
amount of $53,525 ($41,906 for 2011).
As of June 30, 2012 and 2011, there were
$278,006 and $308,133 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 2.2 years and 2.5 years, respectively.
There were no stock options granted during
the six months ended June 30, 2012. The following range of weighted-average assumptions were used to determine the fair value
of stock option grants during the six months ended June 30, 2011:
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2012
|
|
|
2011
|
|
Expected Dividend yield
|
|
|
—
|
%
|
|
|
0.00
|
%
|
Expected Volatility
|
|
|
—
|
%
|
|
|
100
|
%
|
Risk-free interest rate
|
|
|
—
|
%
|
|
|
3.4
|
%
|
Expected term
|
|
|
—
|
|
|
|
8 -10 years
|
|
The following table represents stock options
granted, exercised and forfeited during the six month period ended June 30, 2012:
Stock Options
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price per Option
|
|
|
Weighted
Average
Remaining
Contractual
Term (years)
|
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2012
|
|
|
1,079,676
|
|
|
$
|
1.02
|
|
|
|
6.7
|
|
|
$
|
63,105
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(10,700
|
)
|
|
|
0.50
|
|
|
|
|
|
|
|
|
|
Expired/Forfeited
|
|
|
(136,153
|
)
|
|
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2012
|
|
|
932,823
|
|
|
$
|
1.02
|
|
|
|
7.5
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2012
|
|
|
533,423
|
|
|
$
|
1.05
|
|
|
|
6.1
|
|
|
$
|
—
|
|
The following table represents
non-vested stock options granted, vested and forfeited for the six months ended June 30, 2012.
|
|
Options
|
|
|
Weighted-Average Grant-Date
Fair Value
|
|
Non-vested - January 1, 2012
|
|
|
501,590
|
|
|
$
|
0.92
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(101,523
|
)
|
|
$
|
1.10
|
|
Forfeited
|
|
|
(667
|
)
|
|
$
|
0.89
|
|
Non-vested – June 30, 2012
|
|
|
399,400
|
|
|
$
|
0.88
|
|
The total fair value of options vested
during the six months ended June 30, 2012 and 2011 was $111,662 and $110,035, respectively.
|
c)
|
Restricted Stock Unit Awards
|
There were no grants of restricted stock
units granted under the 2010 Equity Compensation Program during the six months ended June 30, 2012.
During the six months ended June 30, 2011
there were 15,000 restricted stock units granted under the 2010 Equity Compensation Program. These grants vest over a three year
period at the rate of one-third per year, contingent on continued employment or service during the vesting period.
The Company's results of operations for
the three months ended June 30, 2012 and 2011 include stock-based compensation expense for restricted stock unit grants totaling
$1,212 and $2,488, respectively, and such amounts have been included in the accompanying Consolidated Statements of Operations
within selling, general and administrative expenses.
The Company's results of operations for
the six months ended June 30, 2012 and 2011 include stock-based compensation expense for restricted stock unit grants totaling
$2,424 and $3,763, respectively, and such amounts have been included in the accompanying Consolidated Statements of Operations
within selling, general and administrative expenses.
A summary of the Company’s non-vested
restricted stock units at June 30, 2012 is presented below:
|
|
Restricted Stock Units
|
|
|
Weighted-Average Grant-Date
Fair Value
|
|
Non-vested - January 1, 2012
|
|
|
15,000
|
|
|
$
|
0.97
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(5,000
|
)
|
|
$
|
0.97
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Non-vested – June 30, 2012
|
|
|
10,000
|
|
|
$
|
0.97
|
|
NOTE 3- STOCKHOLDERS’
EQUITY
For the six months ended June 30, 2012,
the Company issued 152,460 common shares to the Inrad Optics 401k plan as a match to employee contributions for 2011.
In addition, 10,700 common shares were
issued for proceeds of $5,349 in connection with the exercise of stock options during the six month period and an additional 5,000
common shares were issued on vesting of restricted stock awards.
NOTE 4- SUBSEQUENT
EVENT
On July 27, 2012, the Company entered
into a term loan agreement in the amount of $750,000 with Valley National Bank, Wayne, NJ. The loan is repayable in equal month
installments over 5 years beginning in August 2012 and bears an interest rate of 4.35% annually. The loan is secured with a Note
and a security interest in new equipment to be acquired by the Company.
|
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 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 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, 2011, as filed with the Securities and Exchange Commission on March 30, 2012. 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 new information, future events, or otherwise.
Critical Accounting Policies and
Estimates
Our significant accounting policies are
described in Note 1 of the accompanying 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, 2011. In preparing our 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. These include estimates used in evaluating goodwill and intangibles for impairment such as market multiples used in
determining the fair value of reporting units, discount rates applicable in determining net present values of future cash flows,
projections of future sales, earnings and cash flow and capital expenditures. It also includes estimates about the amount and
timing of future taxable income in determining the Company’s 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, 2011.
Results of Operations
Inrad Optics, Inc.’s business falls
into two main categories: Optical Components and Laser System Devices and Instrumentation.
The Optical Components segment of the
business is focused on custom optics manufacturing. The Company specializes in high-end precision components. It develops, manufactures
and delivers precision custom optics and thin film optical coating services through its Custom Optics and Metal Optics operations.
Glass, metal, and crystal substrates are processed using modern manufacturing equipment, complex processes and techniques to manufacture
components, deposit optical thin films, and assemble sub-components used in advanced photonic systems. The majority of custom
optical components and optical coating services supplied are used in inspection, process control systems, defense and aerospace
electro-optical systems, laser system applications, industrial scanners, and medical system applications.
The Laser System Devices and Instrumentation
category includes the growth and fabrication of crystalline materials with electro-optic (EO) and non-linear optical properties
for use in both standard and custom products. This category also includes the manufactured crystal based devices and associated
instrumentation. The majority of crystals, crystal components and laser devices manufactured are used in laser systems, defense
EO systems, medical lasers and R&D applications by engineers within corporations, universities and national laboratories.
The Company operates manufacturing facilities
in New Jersey and Florida.
Revenue
Sales for the three months ended June
30, 2012 were $2,880,000, a decrease of 10.6% compared with $3,221,000 for the three months ended June 30,
2011. Sales for the six months ended June 30, 2012 were $5,721,000, a decrease of 11.5% compared with $6,463,000 for the
six months ended June 30, 2011. This was mainly due to a decrease in shipments to customers in the defense/aerospace market and
process control & metrology markets. This was partially offset by an increase in shipments to customers in the laser systems
market. The decline in sales to the defense market was spread across most of the Company’s existing customers.
Sales in the Optical Components category
decreased 22.3% for the six months ended June 30, 2012 compared with the prior year. This was partially offset by sales of Laser
Systems Devices and Instrumentation which increased 19.5% over the same period.
Sales to major customers, who represent
more than 10% of period sales, were down as a percentage of total sales in the first six months of 2012 compared with the same
period in 2011. This was due to lower sales to two large defense customers and one large commercial process control & metrology
customer compared to the same period in the prior year.
The Company’s top five customers
represented 43.4% of total sales in the six month period ended June 30, 2012, down from 58.8% in the same period in 2011.
Orders during the first six months of
2012 increased slightly to $6.3 million compared to $6.2 million in the first six months of 2011.
Order backlog increased to $5.6 million
at June 30, 2012, up over a backlog of $5.0 million at December 31, 2011 and $5.1 million at June 30, 2011.
Cost of Goods Sold
For the three months ended June 30, 2012,
cost of goods sold increased as a percentage of sales to 80.3% compared to 75.7% in 2011. For the six months ended June 30, 2012,
cost of goods sold increased as a percentage of sales to 77.1% compared to 74.4% in the same period in 2011.
Cost of goods sold was $2,313,000 for
the three months ended June 30, 2012 compared to $2,437,000 in the same quarter in 2011, a decrease of $124,000 or 5.1%. For the
six months ended June 30, 2012, cost of goods sold decreased by $393,000 or 8.2% to $4,413,000 compared to $4,806,000 in the same
period in 2011. The decrease was mainly attributable to the impact of lower sales activity.
Despite the overall decrease in cost of
goods sold, manufacturing wages and salaries including related fringe benefits, increased by 6.4% and 4.1%, respectively, compared
to last year, reflecting strategic additions to head-count this year.
Material costs decreased 6.2% and 11.7%
during the quarter and six months ended June 30, 2012, respectively, compared with the same periods in 2011, mainly due to reduced
sales this year.
Gross margin decreased for the three and
six month period ended June 30, 2012 as a result of the factors discussed above. Gross margin in the second quarter of 2012 was
$568,000 or 19.7% versus $784,000 or 24.3% in the same period in 2011. For the six months ended June 30, 2012, gross margin decreased
to $1,308,000 or 22.9% compared with $1,657,000 or 25.6% in the comparable period in 2011.
Selling, General and Administrative
Expenses
Selling, general and administrative expenses
(“SG&A” expenses) in the three months and six months ended June 30, 2012 were $865,000 or 30.0% of sales and $1,719,000
or 30.0% of sales, respectively, compared to $848,000 or 26.3% of sales and $1,657,000 or 25.6% of sales, respectively, for the
same periods in 2011. The increase is mainly due to an increase in salaries and wages and other personnel related costs compared
to the previous period. The balance of SG&A expenses were relatively unchanged on a period over period basis as the Company
has continued to closely manage discretionary spending while making strategic investments where appropriate.
(Loss) from Operations
The Company had an operating loss of $297,000
in the three months ended June 30, 2012 compared with an operating loss of $64,000 in the three months ended June 30, 2011. For
the six months ended June 30, 2012, the Company had an operating loss of $411,000 compared with an operating loss of $432 in the
same period last year. The operating losses in 2012 primarily reflect the impact of lower sales levels on the Company’s
relatively fixed cost structure.
Other Income and Expense
For the three months ended June 30, 2012,
net interest expense was $36,000, up slightly from $32,000 in the same period in 2011. For the six months ended June 30, 2012,
net interest expense was $71,000, up slightly from $61,000 in the same period in 2011.
Interest expense for the three and six
months ended June 30, 2012 was $41,000 and $82,000, respectively, which was unchanged from the comparable periods in 2011. Interest
income during the three months ended June 30, 2012 was $5,000 and $10,000, respectively, compared with $9,000 and $18,000, respectively,
in the comparable periods in 2011, and results from lower average cash balances in interest bearing accounts over the comparable
periods.
In the first quarter of 2011, the Company
sold surplus equipment and recorded a gain of $4,000 on the sale.
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 statements
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.
For the three and six months ended June
30, 2012 and 2011, the Company did not record a current provision for either state or federal income tax due to the losses incurred
for both income tax and financial reporting purposes or the availability of net operating loss carry-forwards to offset against
federal and state income tax.
As of June 30, 2012, the Company has recognized
a net deferred tax asset balance in the amount of $408,000, which is the portion of the total net deferred tax balance of $2,958,000
offset by a valuation allowance of $2,550,000, that the Company’s management is reasonably assured will be fully utilized
in future periods. In evaluating the Company’s ability to recover deferred tax assets in future periods, management considers
the available positive and negative factors, including the Company’s recent operating results, the existence of cumulative
losses and near term forecasts of future taxable income consistent with the plans and estimates that management uses to manage
the underlying business. The net deferred tax asset, as of June 30, 2012 will be maintained until management concludes that it
is more likely than not that the remaining deferred tax assets will or will not be realized. When sufficient positive evidence
exists, the Company’s income tax expense will be reduced by the decrease in its valuation allowance. An increase or reversal
of the Company’s valuation allowance could have a significant negative or positive impact on the Company’s future
earnings.
Net (Loss)
For the three and six months ended June
30, 2012, the Company had a net loss of $333,000 and $482,000, respectively, compared to a net loss of $96,000 and $61,000, respectively,
for the same periods in 2011.
Liquidity and Capital Resources
The Company’s primary source of
liquidity is cash and cash equivalents and on-going collection of our accounts receivable. Other sources of liquidity include
the proceeds received from the exercise of stock options. The Company’s major use of cash in the past two years has been
for the payment of accrued and current interest on convertible debt, the servicing of long term debt and for capital expenditures.
As of June 30, 2012 and December 31, 2011,
we had cash and cash equivalents of $3,124,000 and $3,400,000, respectively.
On July 27, 2012, the Company entered
into a term loan agreement with Valley National Bank, Wayne, NJ, in the amount of $750,000. The loan is repayable in equal monthly
installments over 5 years beginning in August 2012 and bears an interest rate of 4.35% annually. The loan is secured with a Note
and a security interest in new equipment to be acquired by the Company. The proceeds are targeted for the acquisition of equipment
which will enhance the Company’s thin film coating capabilities.
We believe that existing cash resources
held by the Company and anticipated to be generated from future operating activities are sufficient to meet working capital requirements,
anticipated capital expenditures, debt servicing payments and other contractual obligations over next twelve months.
On July 31, 2012, 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 April 1, 2015 from April 1, 2013. 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 and expire on April 1, 2018.
The accrued interest balance was paid
in full as of December 31, 2011 and the Company paid current interest of $75,000 in the six months ended June 30, 2012. At a minimum,
the Company expects to make interest payments in each remaining quarter of 2012 and in each quarter through the maturity date
of the notes to satisfy the amounts of interest accruing in each quarter.
The following table summarizes net cash
provided by (used in) operating, investing and financing activities for the six months ended June 30, 2012 and 2011:
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(96
|
)
|
|
$
|
53
|
|
Net cash (used in) investing activities
|
|
|
(181
|
)
|
|
|
(150
|
)
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
14
|
|
Net (decrease) in cash and cash equivalents
|
|
$
|
(277
|
)
|
|
$
|
(83
|
)
|
Net cash used in operating activities
was $96,000 for the six months ended June 30, 2012 compared to net cash provided by operating activities of $53,000 in the same
period last year. The decrease in net cash from operating activities in the first six months of 2012 compared to 2011 resulted
primarily from the higher net loss generated in the current period
In addition, working capital requirements
in first six months of 2012 increased by approximately $216,000 compared with the same period in 2011. In particular, inventory
levels increased by $413,000 at June 30, 2012 compared to an increase of $256,000 in the same period in 2011.
The increase in inventory levels is primarily
attributable to the demand and timing of deliveries for orders placed in the current period. In addition, accounts receivable
decreased by $233,000 at June 30, 2012 compared to a decrease of $390,000 in the same period in 2011 principally due to lower
levels of accounts receivable during the six months ended June 30, 2012 as a result of lower sales levels during the period.
In the six months ended June 30, 2011,
the Company paid $600,000 of accrued interest on convertible notes.
Non-cash items consist of depreciation
and amortization, stock based compensation expense and the Company’s annual 401K matching stock contribution for the six
months ended June 30, 2012 and 2011.
Net cash used in investing activities
was $181,000 during the six months ended June 30, 2012 versus $150,000 last year. Capital expenditures for the six months ended
June 30, 2012 and 2011 were $181,000 and $156,000, respectively. The expenditures in 2012 were primarily incurred to refurbish
operating facilities in New Jersey and Florida and to purchase manufacturing equipment. In 2011, expenditures included $105,000
of custom specialized tools fabricated from precious metals to provide additional capacity for crystal growth.
Net cash provided by financing activities
during the six months ended June 30, 2012 totaled $500 compared to $14,000 in the comparable period in 2011. This consisted primarily
of proceeds from the
exercise of stock options for $5,500 in 2012 and $19,000 in 2011, offset
by principal payments on long term notes of $5,000 in each period, respectively.
Overall, the Company had a net decrease
in cash and cash equivalents of $277,000 in the six months ended June 30, 2012 compared with a decrease of $83,000 in the corresponding
period last year.
ITEM 3.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The Company is a smaller reporting company
and 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 June 30, 2012 (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.
PART II.
OTHER
INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
None.
ITEM 1A.
RISK FACTORS
Not applicable
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
None
ITEM 6.
EXHIBITS
4.1
|
Subordinated Convertible Promissory Note dated April 1, 2011
held by Clarex, Ltd.
|
|
|
4.2
|
Subordinated Convertible Promissory Note dated April 1, 2011 held by Welland,
Ltd.
|
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.
|
|
|
31.1
|
Certificate of the Registrant’s Chief Executive Officer, Joseph J. Rutherford, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
31.2
|
Certificate of the Registrant’s Chief Financial Officer, William J. Foote, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
32.1
|
Certificate of the Registrant’s Chief Executive Officer, Joseph J. Rutherford, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
32.2
|
Certificate of the Registrant’s Chief Financial Officer, William J. Foote, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
101
|
The following financial information from Inrad Optics, Inc.’s Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2012 formatted in Extensible Business Reporting Language (XBRL): (i) Condensed
Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements
of Cash Flows, and (iv) the Notes to the Condensed Consolidated Financial Statements.*
|
|
*
|
Users of this interactive data file
are advised pursuant to Rule 406T of Regulations S-T that this interactive
data file is deemed not filed or part of a registration statement or
prospectus for purposes of sections 11 or 12 of the Securities Act of
1933, is deemed not filed for purposes of Section 18 of the Securities
Exchange Act of 1934, and otherwise is not subject to liability under
these Sections.
|
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 Optics, Inc.
|
|
|
|
|
By:
|
/s/Joseph J. Rutherford
|
|
|
Joseph J. Rutherford
|
|
|
President and Chief Executive Officer
|
|
By:
|
/s/ William J. Foote
|
|
|
William J. Foote
|
|
|
Chief Financial Officer,
|
|
|
Secretary and Treasurer
|
Date: August 14, 2012
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