Company Quick10K Filing
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Inrad Optics
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-16 Officers, Exhibits
8-K 2019-05-15 Regulation FD, Exhibits
8-K 2018-10-01 Officers
8-K 2018-06-27 Shareholder Vote
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VOYA Voya Financial 7,720
DLX Deluxe 1,840
PBYI Puma Biotechnology 1,160
PBT Permian Basin Royalty Trust 305
INTT inTEST 70
TRMT Tremont Mortgage Trust 25
GZT Gazit-Globe 0
CLE Claires Stores 0
TIK Tel Instrument Electronics 0
INRD 2019-03-31
Note 1 Summary of Significant Accounting Policies
Note 2 - Revenue
Note 3- Equity Compensation Program and Stock Based Compensation
Note 4- Stockholders' Equity
Note 5 - Related Party Transactions
Note 6 - Other Long Term Notes
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
Part II.Other Information
Item 1. Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Under Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
EX-31.1 tv520881_ex31-1.htm
EX-31.2 tv520881_ex31-2.htm
EX-32.1 tv520881_ex32-1.htm
EX-32.2 tv520881_ex32-2.htm

Inrad Optics Earnings 2019-03-31

INRD 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv520881_10q.htm FORM 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2019

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 or Organization

  I.R.S. Employer Identification No.
     
181 Legrand Avenue, Northvale, NJ   07647
Address of Principal Executive Offices   Zip Code

 

(201) 767-1910

Registrant’s Telephone Number, Including Area Code

 

 

 

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

 

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 ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  x    No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer x Smaller reporting company x
  Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ¨    No  x

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   None   None

 

The number of shares of the registrant’s common stock outstanding, $0.01 par value, as of May 6, 2019 was 13,632,388.

 

 

 

 

 

 

INRAD OPTICS, INC AND SUBSIDIARIES

 

INDEX

 

Part I. CONDENSED FINANCIAL INFORMATION  
     
Item 1. Condensed Consolidated Financial Statements:  
     
  Condensed consolidated balance sheets as of March 31, 2019 (unaudited) and December 31, 2018 1
     
  Condensed consolidated shareholders equity for the three months ended March 31, 2019 (unaudited) and March 31, 2018 (unaudited) 2
     
  Condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018 (unaudited) 3
     
  Condensed consolidated statements of cash flows for the three months ended March 31, 2019 and 2018 (unaudited) 4
     
  Notes to condensed consolidated financial statements (unaudited) 5
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
     
Item 4. Controls and Procedures 16
     
Part II. OTHER INFORMATION 17
     
Item 1. Legal Proceedings 17
     
Item 1A. Risk Factors 17
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
     
Item 3. Defaults upon Senior Securities 17
     
Item 4. Mine Safety Disclosures 17
     
Item 5. Other Information 17
     
Item 6. Exhibits 17
     
Signatures   18

 

 

 

 

INRAD OPTICS, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   March 31,   December 31, 
   2019   2018 
   (Unaudited)     
         
Assets          
Current assets:          
Cash and cash equivalents  $1,086,783   $1,185,553 
Accounts receivable (net of allowance for doubtful accounts of $15,000 in 2019 and 2018)   1,320,814    1,296,487 
Inventories, net   2,933,536    3,015,883 
Other current assets   201,661    180,893 
Total current assets   5,542,794    5,678,816 
           
Plant and equipment:          
Plant and equipment,  at cost   14,794,078    14,696,966 
Less: Accumulated depreciation and amortization   (14,127,781)   (14,069,880)
Total plant and equipment   666,297    627,086 
Precious metals   562,347    562,347 
Intangible assets, net   23,697    32,156 
Other assets   32,020    32,020 
           
Total Assets  $6,827,155   $6,932,425 
           
Liabilities and Shareholders’ Equity          
Current liabilities:          
Current portion of other long term notes  $12,960   $12,960 
Accounts payable and accrued liabilities   909,373    835,015 
Contract liabilities   603,292    772,927 
Total current liabilities   1,525,625    1,620,902 
           
Related party convertible notes payable   2,500,000    2,500,000 
           
Other long term Notes, net of current portion   241,548    244,781 
Total liabilities   4,267,173    4,365,683 
           
Commitments          
           
Shareholders’ equity:          
Common stock: $.01 par value; 60,000,000 authorized shares; 13,636,988 shares
issued at March 31, 2019 and 13,636,988 shares issued at December 31, 2018
   136,371    136,371 
Capital in excess of par value   19,084,990    19,055,615 
Accumulated deficit   (16,646,429)   (16,610,294)
    2,574,932    2,581,692 
Less - Common stock in treasury, at cost (4,600 shares)   (14,950)   (14,950)
Total shareholders’ equity   2,559,982    2,566,742 
Total Liabilities and shareholders’ equity  $6,827,155   $6,932,425 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited)

 

1

 

 

INRAD OPTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

 

           Capital in           Total 
   Common Stock   excess of   Accumulated   Treasury   Shareholders’ 
   Shares   Amount   par value   Deficit   Stock   Equity 
                         
Balance, January 1, 2018   13,521,200   $135,213   $18,882,086   $(17,316,902)  $(14,950)  $1,685,447 
                               
401K contribution                        
                               
Common stock issued on exercise of options                        
                               
Stock-based compensation expense           13,035            13,035 
                               
Net income March 31, 2018               264,163        264,163 
                               
Balance, March 31, 2018   13,521,200   $135,213   $18,895,121   $(17,052,739)  $(14,950)  $1,962,645 
                         
           Capital in           Total 
   Common Stock   excess of   Accumulated   Treasury   Shareholders’ 
   Shares   Amount   par value   Deficit   Stock   Equity 
Balance, January 1, 2019   13,636,988    136,371    19,055,615    (16,610,294)   (14,950)   2,566,742 
                               
401K contribution                        
                               
Common stock issued on exercise of options                        
                               
Stock-based compensation expense           29,375            29,375 
                               
Net loss March 31, 2019               (36,135)       (36,135)
                               
Balance, March 31, 2019   13,636,988   $136,371   $19,084,990   $(16,646,429)  $(14,950)  $2,559,982 

See notes to consolidated financial statements

 

2

 

 

INRAD OPTICS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 

   Three Months Ended March 31, 
   2019   2018 
         
Total revenue  $2,601,060   $3,302,429 
           
Cost and expenses:          
Cost of goods sold   1,956,280    2,452,205 
Selling, general and administrative expenses   642,254    543,999 
    2,598,534    2,996,204 
           
Income from operations   2,526    306,225 
Other expense:          
Interest expense—net   (38,661)   (39,774)
    Loss on exchange of precious metals       (2,288)
    (38,661)   (42,062)
           
Income (loss) before income taxes   (36,135)   264,163 
           
Income tax (provision) benefit        
           
Net income (loss)  $(36,135)   264,163 
           
Net (loss) income per common share — basic  $(0.00)  $0.02 
           
Net (loss) income per common share — diluted  $(0.00)  $0.02 
           

Weighted average shares outstanding — basic

   13,632,388    13,516,600 
           
Weighted average shares outstanding — diluted   13,632,388    16,533,296 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited)

 

3

 

 

INRAD OPTICS, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

  

Three Months Ended

March 31,

 
   2019   2018 
         
Cash flows from operating activities:          
Net income (loss)  $(36,135)  $264,163 
           
Adjustments to reconcile net income (loss) to net cash provided by operating activities:          
Depreciation and amortization   66,360    73,049 
Loss on exchange of precious metals       2,288 
Stock based compensation   29,375    13,035 
Changes in operating assets and liabilities:          
Accounts receivable   (24,327)   (497,802)
Inventories, net   82,347    367,884 
Other current assets   (20,768)   (29,749)
Accounts payable and accrued liabilities   74,358    (126,474)
Contract Liabilities   (169,635)   (355,777)
Total adjustments and changes   37,710    (553,546)
Net cash provided by (used in) operating activities   1,575    (289,383)
           

Cash flows from investing activities: 

          
Capital expenditures   (97,112)   (13,790)
Purchase of precious metals       (875)
Net cash (used in) investing activities   (97,112)   (14,665)
           
Cash flows from financing activities:          
Principal payments on notes payable-other   (3,233)   (3,110)
Net cash (used in)  financing activities   (3,233)   (3,110)
           
Net (decrease) in cash and cash equivalents   (98,770)   (307,158)
           
Cash and cash equivalents at beginning of period   1,185,553    799,953 
           
Cash and cash equivalents at end of period  $1,086,783   $492,795 
           
Supplemental Disclosure of Cash Flow Information:        
Interest paid  $40,033   $40,156 
Income taxes paid  $   $ 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited)

 

4

 

 

INRAD OPTICS, INC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of Inrad Optics, Inc. and its subsidiaries (collectively, the “Company”).  All significant intercompany balances and transactions have been eliminated.

 

The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all 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, 2018.

 

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

 

Accounts receivable are carried at net realizable value, net of write-offs and allowances. The Company establishes an allowance for doubtful accounts based on estimates as to the collectability of accounts receivable. Management specifically analyzes past-due accounts receivable balances and, additionally, considers bad debt history, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. Uncollectible accounts receivable are written-off when it is determined that the balance will not be collected. Reserves for uncollectible accounts receivable are recorded as part of selling, general and administrative expenses in the Consolidated Statements of Operations, and were approximately $15,000 at March 31, 2019.

 

Inventories

 

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.

 

5

 

 

Inventories are comprised of the following and are shown net of inventory reserves, in thousands: 

 

  

March 30,

2019

   December 31,
2018
 
   (Unaudited)   
Raw materials  $1,161   $1,143 
Work in process, including manufactured parts and components   1,419    1,389 
Finished goods   354    484 
   $2,934   $3,016 

 

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 period ended December 31, 2018. 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 March 31, 2019, 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 net deferred tax balance of $3,478,000 and therefore the Company continues to maintain a valuation allowance for the full amount of the net deferred tax balance. When sufficient positive evidence exists, the Company’s income tax expense will be charged with the increase or 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.

 

For the three months ended March 31, 2018, 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 federal and state tax purposes.

 

For the three months ended March 31, 2019, the Company did not record a current provision for either state tax or federal tax due to the losses incurred for both income tax and financial reporting purposes.

 

Net Income (Loss) per Common Share

 

Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares and common stock equivalents outstanding, calculated on the treasury stock method for options, stock grants and warrants using the average market prices during the period, including potential common shares issuable upon conversion of outstanding convertible notes, except if the effect on the per share amounts is anti-dilutive.

 

For the three months ended March 31, 2019, all common stock equivalents were excluded from the computation of diluted net loss per share because their effect is anti-dilutive. This included 2,500,000 common shares and 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes, in addition to 1,228,267 common stock options.

 

6

 

 

For the three months ended March 31, 2018, a total of 14,941 stock options, 1,875,000 warrants issuable upon conversion of outstanding convertible notes and 84,375 warrants issuable on conversion of accrued interest on convertible notes were excluded from the computation of diluted net income per common share.

 

A reconciliation of the shares used in the calculation of basic and diluted earnings (loss) per common share is as follows:  

 

   Three Months Ended
March 31, 2019
   Three Months Ended
March 31, 2018
 
   Income (Loss)
(Numerator)
   Shares
(Denominator)
   Per Share
Amount
   Income (Loss)
(Numerator)
   Shares
(Denominator)
   Per Share
Amount
 
Basic Income (Loss) Per Share:                               
Net Income (Loss)   $(36,135)   13,632,388   $0.00   $264,163    13,516,600   $0.02 
Effect of dilutive securities:                               
Convertible Notes                 37,500    2,500,000      
Accrued Interest on Convertible Notes                     112,500      
Warrants                           
Stock Options                     404,196      
Diluted Income (Loss) Per Share:                               
Net Income (Loss)   $(36,135)   13,632,388   $0.00   $301,663    16,533,296   $0.02 

 

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 May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition.” ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue, cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Company adopted the provisions of ASU 2014-09 on January 1, 2018, using the modified retrospective approach. Revenue from the Company’s sales continue to generally be recognized either when products are shipped (i.e. point in time) or under certain long-term government contracts, as the Company transfers control of the product or service to its customers (i.e. over time), which approximates the previously used percentage-of-completion method of accounting. As such, the adoption of ASU 2014-09 had no material impact to the Company’s financial position or results of operations; however, the Company has now presented the disclosures required by this new standard, refer to Note 2.

 

7

 

 

In February 2016, the FASB created Topic 842 and issued ASU 2016-02, Leases. The guidance in this update supersedes Topic 840, Leases. This ASU requires lessees to recognize a right-of-use assets and a lease liability, initially measured at the present value of the lease payments on the balance sheet. For public companies, the amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted. The Company has adopted ASU 2016-02 on its financial statements and disclosure. The adoption of ASU 2016-02 did not have a material effect on the financial statements.

 

NOTE 2 – 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 Company’s performance obligations under long-term government contracts are generally satisfied over time. Revenue from products or services transferred to customers over time accounted for approximately 3.6% and 3.1% of revenue for the three months ended March 31, 2019 and 2018, respectively. Revenue under these long-term government contracts is generally recognized over time using an input measure based upon the proportion of actual costs incurred to estimated total project costs, which is a method used to best depict the Company’s performance to date under the terms of the contract.

 

Accounting for these long-term government contracts involves the use of various techniques to estimate total revenue and costs. The Company estimates profit on these long-term government contracts as the difference between total estimated revenue and expected costs to complete a contract and recognizes that profit over the life of the contract. Contract estimates are based on various assumptions to project the outcome of future events that may span several years. These assumptions include, among other things, labor productivity, costs and availability of materials, and timing of funding by the U.S. government. The nature of these long-term agreements may give rise to several types of variable consideration, such as claims, awards and incentive fees. Historically, these amounts of variable consideration are not considered significant. Additionally, contract estimates may include additional revenue for submitted contract modifications if there exists an enforceable right to the modification, the amount can be reasonably estimated and its realization is probable. These estimates are based on historical collection experience, anticipated performance, and the Company’s best judgement at the time. These amounts are generally included in the contract’s transaction price and are allocated over the remaining performance obligations. Changes in judgments on these above estimates could impact the timing and amount of revenue recognized with a resulting impact on the timing and amount of associated income. Under these long-term government contracts, the Company may receive payments from customers based upon contractual billing schedules; accounts receivable are recorded when the right to consideration becomes unconditional. In the event a contract loss becomes known, the entire amount of the estimated loss is recognized in the Consolidated Statements of Operations.

 

8

 

 

The majority of the Company’s revenue is from products and services transferred to customers at a point in time and was approximately 96.4% and 96.9% of revenue for the three months ended March 31, 2019 and 2018, respectively. The Company recognizes revenue at the point in time in which the customer obtains control of the product or service, which is generally when product title passes to the customer upon shipment. In limited cases, title does not transfer and revenue is not recognized until the customer has received the products at its physical location.

 

As part of the adoption of Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)”, the Company reviewed its sales by market area and reassigned certain customers within the existing markets.

 

The following table summarizes the Company’s sales by market area:

 

   Three Months Ended 
   March 31, 
   2019   2018 
Aerospace & Defense  $1,040,557   $1,029,007 
Process Control & Metrology   1,120,987    1,557,816 
Laser Systems   284,990    366,230 
Scientific / R&D   154,526    349,376 
Total  $2,601,060   $3,302,429 

 

Net sales by timing to transfers of goods and services is as follows:

 

   Three Months Ended 
   March 31, 
   2019   2018 
Transfer at point in time  $2,507,507   $3,198,780 
Transfer over time   93,553    103,649 
Total net sales  $2,601,060   $3,302,429 

 

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 additionally include customer advances or prepayments. Costs in excess of billings and billings in excess of costs associated with long-term government contracts were not significant at March 31, 2019 or 2018. Revenue recognized during the three months ended March 31, 2019 and 2018, that was included in contract liabilities at the beginning of the period was $218,535 and $551,843, respectively.

 

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On March 31, 2019, the Company has approximately $5,729,561 of remaining performance obligations, which is also referred to as backlog. Approximately 1% of the March 31, 2019 backlog is related to projects that will extend beyond March 31, 2020.

 

NOTE 3- EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION

 

a)Stock Option Expense

 

The Company's results of operations for the three months ended March 31, 2019 and 2018, include stock-based compensation expense for stock option grants totaling $29,375 and $13,035, respectively. Such amounts have been included in the accompanying Condensed Consolidated Statements of Operations within cost of goods sold in the amount of $8,372 ($3,583 for 2018), and selling, general and administrative expenses in the amount of $21,003 ($9,452 for 2018).

 

As of March 31, 2019 and 2018, there were $282,442 and $76,451 of unrecognized compensation cost, net of estimated forfeitures, related to non-vested stock options, which are expected to be recognized over a weighted average period of approximately 1.70 years and 1.25 years, respectively.

 

There were 185,000 stock options granted during the three months ended March 31, 2019, and no stock options granted in the three months ended March 31, 2018. The following range of weighted-average assumptions were used to determine the fair value of stock option grants during the three months ended March 31, 2019, and 2018:

 

   Three Months Ended 
   March 31, 
   2019   2018 
Expected Dividend yield   %   %
Expected Volatility   139%   %
Risk-free interest rate   2.43%   %
Expected term     10 years      

 

b)Stock Option Activity

 

The following table represents stock options granted, exercised and forfeited during the three months ended March 31, 2019:

 

Stock Options  Number of
Options
   Weighted
Average
Exercise
Price per Option
   Weighted
Average
Remaining
Contractual
Term (years)
   Aggregate
Intrinsic Value
 
Outstanding at January 1, 2019   1,058,208   $.64    5.58   $337,997 
Granted   185,000    .71           
Exercised                  
Expired/Forfeited   (14,941)   1.75           
Outstanding at March 31, 2019   1,228,267   $.64    6.53   $1,202,577 
                     
Exercisable at March 31, 2019   866,598   $.58    4.78   $701,342 

 

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The following table represents non-vested stock options granted, vested and forfeited for the three months ended March 31, 2019.

 

   Options   Weighted-Average Grant-Date
Fair Value ($)
 
Non-vested  - January 1, 2019   349,491    .74 
Granted   185,000    .71 
Vested   (172,822)   .63 
Forfeited        
Non-vested – March 31, 2019   361,669    .77 

 

NOTE 4- STOCKHOLDERS’ EQUITY

 

In February 2019, the Company approved a matching contribution to participants in the Inrad Optics 401k Plan (the “Plan”) for the year ended December 31, 2018. In total, cash in the amount of $31,196 and 98,189 common shares of Inrad Optics, Inc will be contributed to the Plan in the second quarter of 2019.

 

NOTE 5 – RELATED PARTY TRANSACTIONS

 

On April 12, 2018, 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, 2021 from April 1, 2019. 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. As part of the agreement, the expiration dates of the warrants were extended from April 1, 2022 to April 1, 2024. As of March 31, 2019, the Company had accrued interest in the amount of $75,000 associated with these notes.

 

NOTE 6 – OTHER LONG TERM NOTES

 

Other Long Term Notes consist of the following:

   March 31,   December 31, 
   2019   2018 
   (in thousands) 
U.S. Small Business Administration term note payable in equal monthly installments of $1,922 and bearing an interest rate of 4.0% and expiring in April 2032.   255    258 
Less current portion   (13)   (13)
Long-term debt, excluding current portion  $242   $245 

 

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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, 2018, as filed with the Securities and Exchange Commission on April 1, 2019. 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, 2018. 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. These include estimates used in evaluating 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.

 

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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, 2018.

 

Results of Operations

 

Inrad Optics, Inc.’s business falls into two main categories: Optical Components and Laser Devices/Instrumentation.

 

The Optical Components category 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 and Metal Optics operations. Glass, metal, and crystal substrates are processed using 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 Devices/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 a manufacturing facility in Northvale, New Jersey and has its corporate offices in the same location.

 

Revenue

 

Sales for the three months ended March 31, 2019, were $2,601,000, a decrease of 21.2%, compared to $3,302,000 for the three months ended March 31, 2018.

 

Sales to the defense/aerospace market increased by $11,000 or 1.1% to $1,041,000 in the three months ended March 31, 2019, compared to $1,029,000 for the three months ended March 31, 2018. The increase is mainly attributable to a trend in increased demand for our products in the defense/aerospace market offset by the completion of the long term project in 2018.

 

Process control and metrology (“PC&M”) sales were $1,121,000 for the three months ended March 31, 2019, decreased by $437,000, or 28.1%, from $1,558,000 for the three months ended March 31, 2018. Reduced demand and the timing of delivery schedules in the PC&M market resulted in sales decrease to several existing accounts in the three months ended March 31, 2019, compared to the three months ended March 31, 2018.

 

For the three months ended March 31, 2019, sales to customers in the laser systems market were $285,000, decreased by $81,000 or 22.2% from $366,000 for the three months ended March 31, 2018.The decrease in sales is due to the timing of delivery schedules to an international distributor and one large OEM offset by increases in shipments to several newer customers.

 

Sales to customers in the Scientific/R&D market (formerly Universities & National Labs) decreased by $194,000 or 55.6% to $155,000 for the three months ended March 31, 2019, compared to sales of $349,000 for the three months ended March 31, 2018. The decreased is mainly due to order placement timing from one large national lab customer and a slight decrease in billings to one US Government account.

 

For the three months ended March 31, 2019 and 2018, there were two customers that each represented 10% or more of total sales in both periods.

 

The Company’s top five customers represented 51.8% of sales in the three months period ended March 31, 2019, compared to 59.9% in the same period in 2018.

 

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Orders booked during the first three months of 2019 totaled $1,937,000, compared to $3,274,000 in the same period last year.

 

Order backlog at March 31, 2019 and 2018, was $5,730,000 and $6,486,000, respectively.

 

Cost of Goods Sold

 

For the three months ended March 31, 2019 and 2018, cost of goods sold was $1,956,000 and $2,452,000, respectively, a decrease of $496,000 or 20.2 %.

 

The decrease in cost of goods sold in 2019, was attributable to the following: material costs decreased by approximately 30.7%, compared to a sales decrease of 21.2%, lower wage and salary expenses and a reduction in variable overhead costs primarily due to lower sales.

 

Gross profit for the three months ended March 31, 2019, was $645,000 or 24.8% of sales, compared to $850,000 or 25.7% in the same quarter last year.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses (“SG&A” expenses) in the three months ended March 31, 2019, amounted to $642,000 or 24.7% of sales, compared to $544,000 or 16.5% of sales for the three months ended March 31, 2018.

 

SG&A salaries and wages and related fringe benefits increased by 17.8%, compared with the same period in 2018 partially reflecting increases in sales staff, marketing, and health care and other benefit costs during the three months ended March 31, 2019.

 

Income (Loss) from Operations

 

The Company had income from operations of $3,000 for the three months ended March 31, 2019, compared with an operating income of $306,000 in the three months ended March 31, 2018. The decrease in income primarily reflects the impact of the Company’s significantly lower sales in the three months ended March 31, 2019, compared to the same period last year.

 

Other Income and Expense

 

Net interest expense for the three months ended March 31, 2019 was $39,000 compared to $40,000 in the same period in 2018, as there was no significant change in the Company’s borrowing level.

 

Income Taxes

 

For the three months ended March 31, 2019, the Company did not record a current provision for either state tax or federal alternative minimum tax due to the losses incurred for both income tax and financial reporting purposes.

 

For the three months ended March 31, 2018, 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 federal and state tax purposes.

 

Net Income (Loss)

 

The Company had a net loss of $36,000 for the three months ended March 31, 2019, compared to a net income of $264,000 for the three months ended March 31, 2018. The net loss primarily reflects the decrease in sales for the three months ended March 31, 2019, compared to the last period.

 

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 of accrued and current interest on convertible debt, for servicing of long term debt and for capital expenditures.

 

14

 

 

As of March 31, 2019, and December 31, 2018, the Company had cash and cash equivalents of $1,087,000 and $1,186,000, respectively.

 

The Company occupies approximately 42,000 square feet of space located at 181 Legrand Avenue, Northvale, New Jersey pursuant to a net lease. Under the terms of the lease, the Company is obligated for all real estate taxes, maintenance and operating costs of the facility, the current lease will expire on May 31, 2019. The company intends to have sing a new lease agreement prior to May, 31, 2019.

 

On April 12, 2018, 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, 2021 from April 1, 2019. 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. As part of the agreement, the expiration dates of the warrants were extended from April 1, 2022 to April 1, 2024. As of March 31, 2019, the Company had accrued interest in the amount of $75,000 associated with these notes.

 

The following table summarizes net cash (used in) operating, investing and financing activities for the three months ended March 31, 2019 and 2018:

 

   Three Months Ended 
   March 31, 
   2019   2018 
   (In thousands) 
Net cash provided by (used in) operating activities  $2   $(289)
Net cash used in investing activities   (97)   (15)
Net cash used in financing activities   (4)   (3)
Net (decrease) in cash and cash equivalents  $(99)  $(307)

 

Net cash provided by operating activities was $2,000 for the three months ended March 31, 2019, compared to net cash used in operations of $289,000 in the same period last year.

 

Net cash provided by operating activities in the three months ended March 31, 2019, resulted primarily from decrease in accounts receivable, reduction in inventory, higher accounts payables and accrued liabilities, this compared to net cash used in operating activities of $289,000 in the three months ended March 31, 2018, which was primarily due to increases in accounts receivable, reductions in accounts payable and accrued liabilities, and lower contract liabilities which were offset by reduced inventory levels during the period.

 

Net cash used in investing activities was $97,000 during the three months ended March 31, 2019 compared to $15,000 in the same period last year reflecting capital expenditures in both periods. Net cash used in financing activities during the three months ended March 31, 2019, was $4,000 compared to $3,000 during the three months ended March 31, 2018 respectively, related to required principal payments.

 

Overall, cash and cash equivalents decreased by $99,000 and $307,000 for the three months ended March 31, 2019 and 2018, respectively.

 

Management believes based on the Company’s operations and its existing working capital resources together with existing cash flows, that the Company has sufficient cash flows to fund operations through at least June 30, 2020.

 

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.

 

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ITEM 4.CONTROLS AND PROCEDURES

 

a.Disclosure Controls and Procedures

 

Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of March 31, 2019 (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.

 

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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

 

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.

 

31.1Certificate of the Registrant’s Chief Executive Officer, Amy Eskilson, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

 

31.2Certificate of the Registrant’s Chief Financial Officer, Elias T. Kabous, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

 

32.1Certificate of the Registrant’s Chief Executive Officer, Amy Eskilson, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

 

32.2Certificate of the Registrant’s Chief Financial Officer, Elias T. Kabous, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

 

101.INSXBRL Instance Document*

 

101.SCHXBRL Taxonomy Extension Schema*

 

101.CALXBRL Taxonomy Extension Calculation Linkbase*

 

101.DEFXBRL Taxonomy Extension Definition Linkbase*

 

101.LABXBRL Taxonomy Extension Label Linkbase*

 

101.PREXBRL Taxonomy Extension Presentation Linkbase*

 

*Filed herewith

 

**Furnished herewith

 

17

 

 

 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/ Amy Eskilson
    Amy Eskilson
    President and Chief Executive Officer
     
  By: /s/ Elias T. Kabous
    Elias T. Kabous
    Chief Financial Officer,
    Secretary and Treasurer
Date: May 15, 2019    

 

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