UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For the quarterly period ended |
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For the transition period from ___________ to ___________ |
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(Exact Name of Registrant as Specified in its Charter)
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State or Other Jurisdiction of |
| I.R.S. Employer Identification No. |
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Address of Principal Executive Offices |
| Zip Code |
(
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) |
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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.
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).
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 ☐ |
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
The number of shares of the registrant’s common stock outstanding, $0.01 par value, as of November 14, 2023, was
INRAD OPTICS, INC AND SUBSIDIARIES
INDEX
Part I. | CONDENSED FINANCIAL INFORMATION | |
Item 1. | Condensed Consolidated Financial Statements: | |
Condensed consolidated balance sheets as of September 30, 2023 (unaudited) and December 31, 2022 | 1 | |
2 | ||
3 | ||
4 | ||
Notes to condensed consolidated financial statements (unaudited) | 5 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 | |
16 | ||
16 | ||
17 | ||
17 | ||
17 | ||
17 | ||
17 | ||
17 | ||
17 | ||
18 | ||
19 |
INRAD OPTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | |||||
| 2023 |
| 2022 | |||
| (Unaudited) |
| ||||
Assets |
|
|
| |||
Current assets: |
|
|
| |||
Cash and cash equivalents | $ | | $ | |||
Accounts receivable, net of allowance for credit losses of $ |
| |
| | ||
Inventories, net |
| |
| | ||
Other current assets |
| |
| | ||
Total current assets |
| |
| | ||
Plant and equipment: | ||||||
Plant and equipment, at cost |
| |
| | ||
Less: Accumulated depreciation and amortization |
| ( |
| ( | ||
Total plant and equipment |
| |
| | ||
Precious metals |
| |
| | ||
Lease right-of-use, net | | | ||||
Other assets |
| |
| | ||
Total assets | $ | | $ | | ||
Liabilities and Shareholders’ Equity | ||||||
Current liabilities: | ||||||
Current portion of other long term notes | $ | | $ | | ||
Accounts payable and accrued liabilities |
| |
| | ||
Contract liabilities |
| |
| | ||
Current portion of lease obligation | | | ||||
Total current liabilities |
| |
| | ||
| |
| | |||
Other long term notes, net of current portion |
| |
| | ||
Lease obligation, net of current portion | | | ||||
Total liabilities |
| |
| | ||
Shareholders’ equity: | ||||||
Common stock: $ |
| |
| | ||
Capital in excess of par value |
| |
| | ||
Accumulated deficit |
| ( |
| ( | ||
| |
| | |||
Less - Common stock in treasury, at cost ( |
| ( |
| ( | ||
Total shareholders’ equity |
| |
| | ||
Total liabilities and shareholders’ equity | $ | | $ | |
See Notes to Condensed Consolidated Financial Statements (Unaudited)
1
INRAD OPTICS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Total revenue | $ | | $ | | $ | | $ | | ||||
Cost and expenses: | ||||||||||||
Cost of goods sold |
| |
| |
| |
| | ||||
Selling, general and administrative expenses |
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| |
| |
| |
| | |||||
Income from operations |
| |
| |
| |
| | ||||
Other income (expense): |
| |||||||||||
Interest expense-net |
| ( |
| ( |
| ( |
| ( | ||||
| ( |
| ( |
| ( |
| ( | |||||
Income before income taxes | | | | | ||||||||
Income tax (provision) benefit |
| |
| |
| |
| | ||||
Net income | $ | | $ | | $ | | $ | | ||||
Net income per common share - basic | $ | | $ | | $ | | $ | | ||||
Net income per common share - diluted | $ | | $ | | $ | | $ | | ||||
Weighted average shares outstanding - basic |
| |
| |
| |
| | ||||
Weighted average shares outstanding - diluted |
| |
| |
| |
| |
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, 2022 |
| | $ | | $ | | $ | ( | $ | ( | $ | | |||||
401K contribution | | | | | | | |||||||||||
Stock-based compensation expense | | | | | | | |||||||||||
Net income | | | | | | | |||||||||||
Balance, March 31, 2022 | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Common stock options exercised | | | | | | | |||||||||||
Stock-based compensation expense | | | | | | | |||||||||||
Net income | | | | | | | |||||||||||
Balance, June 30, 2022 | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Common stock options exercised | | | | | | | |||||||||||
Stock-based compensation expense | | | | | | | |||||||||||
Net income | | | | | | | |||||||||||
Balance, September 30, 2022 |
| | $ | | $ | | $ | ( | $ | ( | $ | |
Capital in | Total | ||||||||||||||||
Common Stock | Excess of | Accumulated | Treasury | Shareholders’ | |||||||||||||
| Shares |
| Amount |
| Par Value |
| Deficit |
| Stock |
| Equity | ||||||
Balance, January 1, 2023 |
| | $ | | $ | | $ | ( | $ | ( | $ | | |||||
401K contribution | | | | | | | |||||||||||
Common stock options exercised | | | | | | | |||||||||||
Stock-based compensation expense | | | | | | | |||||||||||
Net income | | | | | | | |||||||||||
Balance, March 31, 2023 | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Stock-based compensation expense | | | | | | | |||||||||||
Net income | | | | | | | |||||||||||
Balance, June 30, 2023 | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Stock-based compensation expense | | | | | | | |||||||||||
Net income September 30, 2023 | | | | | | | |||||||||||
Balance, September 30, 2023 |
| | $ | | $ | | $ | ( | $ | ( | $ | |
See Notes to Condensed Consolidated Financial Statements (Unaudited)
3
INRAD OPTICS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended | ||||||
September 30, | ||||||
| 2023 |
| 2022 | |||
Cash flows from operating activities: |
|
| ||||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash (used in) provided by operating activities | ||||||
Depreciation and amortization |
| |
| | ||
401K common stock contribution - non cash item | | | ||||
Stock based compensation |
| | | |||
Change in inventory reserve | ( | ( | ||||
Changes in operating assets and liabilities: | ||||||
Accounts receivable |
| ( |
| | ||
Inventories |
| |
| ( | ||
Other current and noncurrent assets |
| |
| | ||
Accounts payable and accrued liabilities |
| |
| | ||
Contract liabilities |
| ( |
| | ||
Other current and noncurrent liabilities | ( | ( | ||||
Total adjustments and changes | ( | | ||||
Net cash provided by operating activities |
| |
| | ||
Cash flows from investing activities: | ||||||
Capital expenditures |
| ( |
| ( | ||
Net cash (used in) investing activities |
| ( |
| ( | ||
Cash flows from financing activities: | ||||||
Proceeds from issuance of common stock | | | ||||
Principal payments on notes payable-other |
| ( |
| ( | ||
Net cash (used in) financing activities |
| ( |
| ( | ||
Net increase (decrease) in cash and cash equivalents |
| |
| ( | ||
Cash and cash equivalents at beginning of period |
| |
| | ||
Cash and cash equivalents at end of period | $ | | $ | | ||
Supplemental disclosure of cash flow information: |
| |||||
Interest paid | $ | | $ | | ||
Income taxes paid | $ | | $ | | ||
Significant non-cash activities: | ||||||
Lease right-of-use asset | $ | | $ | | ||
Supplemental disclosure of non-cash investing and financing activities: | ||||||
Acquisition of equipment by issuing a note payable | $ | | $ | |
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, 2022.
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 is 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, 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 September 30, 2023, there were
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 $
September 30, | December 31, | |||||
| 2023 |
| 2022 | |||
| (Unaudited) |
| ||||
(in thousands) | ||||||
Raw materials | $ | | $ | | ||
Work in process, including manufactured parts and components |
| |
| | ||
Finished goods |
| |
| | ||
$ | | $ | |
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 year in which the differences are expected to reverse.
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. A significant piece of objective negative evidence evaluated was the cumulative loss incurred by the Company over the three years ended December 31, 2022. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth.
On the basis of this evaluation as of September 30, 2023, the Company’s management concluded that it is more likely than not that the Company will not be able to realize any portion of the benefit on the deferred tax asset balance of $
For the three and nine months ended September 30, 2023 and 2022, the Company did
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 and nine months ended September 30, 2023,
6
For the three and nine months ended September 30, 2022, a total of
Three Months Ended | Three Months Ended | |||||||||||||||
September 30, 2023 | September 30, 2022 | |||||||||||||||
Income(Loss) | Shares | Per Share | Income(Loss) | Shares | Per Share | |||||||||||
| (Numerator) |
| (Denominator) |
| Amount |
| (Numerator) |
| (Denominator) |
| Amount | |||||
Basic income per share |
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Net income | $ | |
| | $ | | $ | |
| | $ | | ||||
Effect of dilutive securities: |
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Convertible notes |
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Accrued interest on convertible notes |
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Warrants |
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Stock options |
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Diluted income per share | $ | |
| | $ | | $ | |
| | $ | |
Nine Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2023 | September 30, 2022 | |||||||||||||||
Income(Loss) | Shares | Per Share | Income(Loss) | Shares | Per Share | |||||||||||
| (Numerator) |
| (Denominator) |
| Amount |
| (Numerator) |
| (Denominator) |
| Amount | |||||
Basic income per share |
| |||||||||||||||
Net income | $ | | | $ | | $ | | | $ | | ||||||
Effect of dilutive securities: | ||||||||||||||||
Convertible notes | | | | | | | ||||||||||
Accrued interest on convertible notes | | | | | | | ||||||||||
Warrants | | | | | | | ||||||||||
Stock options | | | | | | | ||||||||||
Diluted income per share | $ | | | $ | | $ | | | $ | |
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 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 is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company does not expect the adoption of this guidance will have a material impact on the Company’s consolidated financial statements.
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 $
7
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
The following table summarizes the Company’s sales by market area:
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Aerospace & Defense | $ | | $ | | $ | | $ | | ||||
Process Control & Metrology | | | | | ||||||||
Laser Systems | | | | | ||||||||
Scientific / R&D | | | | | ||||||||
Total | $ | | $ | | $ | | $ | |
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.
For the three months ended September 30, 2023,
The Company’s top five customers represented
On September 30, 2023, the Company had approximately $
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 September 30, 2023 and 2022, include stock-based compensation expense for stock option grants totaling $
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Cost of sales | $ | | $ | | $ | | $ | | ||||
Selling, general and administrative | | | | | ||||||||
Total stock-based compensation expense | $ | | $ | | $ | | $ | |
As of September 30, 2023 and 2022, there were $
There were
| Nine Months Ended |
| |||
September 30, |
| ||||
2023 |
| 2022 |
| ||
Expected Dividend yield |
| | % | | % |
Expected Volatility |
| | % | | % |
Risk-free interest rate |
| | % | | % |
Expected term |
| years | years |
b) Stock Option Activity
The following table represents stock options granted, exercised, and forfeited during the nine months ended September 30, 2023:
|
| Weighted |
| Weighted |
| |||||
Average | Average | |||||||||
Exercise | Remaining | Aggregate | ||||||||
Number of | Price per | Contractual | Intrinsic | |||||||
Stock Options |
| Options |
| Option |
| Term (years) |
| Value | ||
Outstanding January 1, 2023 |
| | $ | |
| $ | | |||
Granted |
| |
| |
|
| ||||
Exercised |
| ( |
| |
|
| ||||
Expired/Forfeited |
| ( |
| |
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| ||||
Outstanding September 30, 2023 |
| | $ | |
| $ | | |||
Exercisable at September 30, 2023 |
| | $ | | $ | |
9
The following table represents non-vested stock options granted, vested, and forfeited for the nine months ended September 30, 2023:
Weighted-average | ||||
Grant-date Fair Value | ||||
| Options |
| ($) | |
Non-Vested - January 1, 2023 |
| | | |
Granted |
| |
| |
Vested |
| ( |
| |
Forfeited |
| ( |
| |
Non-Vested - September 30, 2023 |
| |
| |
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, 2022, in February 2023. The Company contributed
NOTE 6 – RELATED PARTY TRANSACTIONS
On October 12, 2023, the maturity dates of a $
NOTE 7 – OTHER LONG-TERM NOTES
Other Long-Term Notes consist of the following:
September 30, | December 31, | |||||
| 2023 |
| 2022 | |||
(Unaudited) | ||||||
(in thousands) | ||||||
U.S. Small Business Administration term note payable in equal monthly installments of $ | $ | | $ | | ||
Long-term equipment financing in equal installments of $ | | | ||||
Less current portion |
| ( |
| ( | ||
Long-term debt, excluding current portion | $ | | $ | |
(1) | The Company purchased certain equipment in the nine months ended September 30, 2022, financing approximately $ |
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 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 $
Operating lease costs were $
11
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, 2022, as filed with the Securities and Exchange Commission on March 30, 2023. 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.
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, 2022. 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, 2022.
Results of Operations
The Company is a vertically integrated manufacturer optical components and sub-assemblies from glass, crystal, and metal. 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, 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.
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Revenue
Sales for the three months ended September 30, 2023, were $3.4 million, an increase of $0.8 million, or 29.0% compared to $2.6 million, for the three months ended September 30, 2022. For the nine months ended September 30, 2023, sales were $9.9 million, an increase of $2.1 million or 27.7% compared to sales of $7.8 million, for the nine months ended September 30, 2022.
Sales to the defense/aerospace market were $0.6 million in the three months ended September 30, 2023, compared to $0.6 million for the three months ended September 30, 2022. For the nine months ended September 30, 2023, sales to the defense/aerospace market were $1.7 million, a decrease of $0.6 million, or 23.1%, compared to $2.3 million for the nine months ended September 30, 2022. The decrease in sales in the defense/aerospace market for the nine months ended September 30, 2023, was due to manufacturing capacity constraints and the impact of tight labor markets.
Sales to the process control and metrology (“PC&M”) market were $2.6 million for the three months ended September 30, 2023, an increase of $0.8 million or 40.2% compared to sales of $1.8 million in the three months ended September 30, 2022. For the nine months ended September 30, 2023, sales to the PC&M market were $7.4 million, an increase of $2.4 million, or 48.8%, compared to $4.9 million for the nine months ended September 30, 2022. The increase in sales in the PC&M market for the three and nine months ended September 30, 2023, is due to the increase in demand for products used in PC&M applications, especially the semiconductor equipment market.
Sales to customers in the laser systems market were $10,000 for the three months ended September 30, 2023, compared to $48,000 for the three months ended September 30, 2022. Sales to customers in the laser systems market for the nine months ended September 30, 2023 were $53,000, a decrease of $97,000, compared to $151,000 for the nine months ended September 30, 2022. Products sold into this market segment largely consist of legacy materials for replacement units and small volume last time buys.
Sales to customers in the Scientific/R&D market were $0.2 million for the three months ended September 30, 2023, an increase of $0.1 million, or 112.2%, compared to sales in the Scientific/R&D market of $0.1 million for the three months ended September 30, 2022. Sales in the Scientific/R&D market were $0.8 million for the nine months ended September 30, 2023, an increase of $0.4 million, or 83.8%, compared to $0.4 million in sales for the nine months ended September 30, 2022. The increase in sales in the Scientific/R&D sector is due to increased demand for our products from U.S. national labs for energy research purposes.
For the three months ended September 30, 2023, two customers represented 10% or more of sales. For the three months ended September 30, 2022, five customers represented 10% or more of sales. For each of the nine months ended September 30, 2023 and 2022, three customers represented 10% or more of sales.
The Company’s top five customers represented 75.2% and 70.7% of sales in the three month periods ended September 30, 2023 and 2022, respectively. The Company’s top five customers represented 73.8% in the month period ended September 30, 2023, compared to 66.4% in the nine month period ended September 30, 2022.
Orders booked during the nine months ended September 30, 2023 and 2022, totaled $4.0 million and $16.9 million, respectively. The decrease in bookings is due to extraordinary demand from several key customers in the nine month period ended September 30, 2022, seeking to secure multi-year capacity. Order backlog at September 30, 2023 and 2022, was $14.6 million and $21.5 million, respectively. While we anticipate shipping a considerable portion of the present backlog during the remainder of fiscal year 2023 and through September 30, 2024, our current backlog consists of orders with delivery schedules that extend beyond 12 months into the future.
Cost of Goods Sold
For each of the three months ended September 30, 2023 and 2022, cost of goods sold was $1.8 million, or 54.6% and 70.3% of total sales, respectively. Cost of goods sold for the nine months ended September 30, 2023 and 2022, were $6.1 million and $5.4 million, or 61.3% and 69.2% of total sales, respectively. Cost of goods sold during the three months ended September 30, 2023 decreased as a percentage of sales from September 30, 2022, due to a mix in products sold. Cost of goods sold during the nine month period ended September 30, 2023, reflects an increase in materials, direct labor, and overhead as a result of an increase in sales compared to nine month period ended September 30, 2022.
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Gross profit for the three months ended September 30, 2023, was $1.5 million or 45.4% of sales compared to $0.8 million or 29.7% of sales in the same quarter last year. Gross profit for the year-to-date period ending September 30, 2023, was $3.8 million or 38.7% of sales, an increase of $1.4 million, compared to $2.4 million or 30.8% of sales, for the nine-month period ended September 30, 2022. The increase in gross profit for the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, is due to higher sales and efficiency gains from strategic product focus and improvements in production processes.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A” expenses) were $0.8 million in the three months ended September 30, 2023, or 23.1% of sales, and $0.7 million, or 27.7% of sales, in the three months ended September 30, 2022. The increase in SG&A expenses in the three months ended September 30, 2023, reflects an increase in employee related expenses and legal fees in that time period. SG&A expenses in each of the nine-month periods ended September 30, 2023 and 2022, were $2.2 million, or 22.4% and 27.7% of sales, respectively.
Income from Operations
The Company realized income from operations of $0.8 million for the three months ended September 30, 2023, compared with income from operations of $0.1 million in the three months ended September 30, 2022. The increase in income primarily reflects an increase in sales coupled with lower costs of goods sold and SG&A expenses as a percentage of sales. The Company realized income from operations of $1.6 million for the nine months ended September 30, 2023, compared income from operations for the nine months ended September 30, 2022, of $0.2 million. The increase in income from operations is primarily due to higher revenues.
Other Income (Expense)
Other income reflects the interest expense on the Company’s related party convertible notes and the financing of certain equipment purchases.
Income Taxes
For the three and nine months ended September 30, 2023 and September 30, 2022, 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 $0.7 million for the three months ended September 30, 2023, compared to net income of $0.1 million for the three months ended September 30, 2022. The change primarily reflects an increase in sales. For the nine months ended September 30, 2023, the Company recorded net income of $1.5 million compared to net income of $0.1 million for the nine months ended September 30, 2022. The increase in net income reflects higher sales in the nine months ended September 30, 2023.
Liquidity and Capital Resources
The Company’s primary source of liquidity is cash and cash equivalents and on-going collection of accounts receivable. The Company’s major use of cash in recent years has been for financing operations, for payment o