Attached files
| file | filename |
|---|---|
| EX-31.2 - GlenRose Instruments Inc. | v184500_ex31-2.htm |
| EX-32.1 - GlenRose Instruments Inc. | v184500_ex32-1.htm |
| EX-31.1 - GlenRose Instruments Inc. | v184500_ex31-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, DC
20549
FORM
10-Q
R QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended March 28, 2010
or
£ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission
file number 000-51645
GLENROSE
INSTRUMENTS INC.
(Exact
name of Registrant as specified in its charter)
|
Delaware
|
20-3521719
|
|
(State
of incorporation or organization)
|
(IRS
Employer Identification No.)
|
|
45
First Avenue
|
|
|
Waltham,
Massachusetts
|
02451
|
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
Registrant’s
Telephone Number, Including Area Code: (781) 622-1120
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 and posted on
its corporate Web site, if any, every
Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).
Yes o No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check One):
|
Large
accelerated filer o
|
Accelerated
filer o
|
|
|
Non
–accelerated filer o
|
Smaller
reporting company x
|
|
|
(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o No
x
|
Title of each class
|
Outstanding at March 28, 2010
|
|
|
Common
Stock, $0.01 par value
|
3,117,647
|
GLENROSE
INSTRUMENTS INC.
QUARTERLY
REPORT ON FORM 10-Q
FOR
THE PERIOD ENDING MARCH 28, 2010
TABLE
OF CONTENTS
|
PART
I – FINANCIAL INFORMATION
|
||
|
Item
1:
|
Financial
Statements (unaudited)
|
3
|
|
Condensed
Consolidated Balance Sheet –
March
28, 2010 and December 27, 2009
|
3
|
|
|
Condensed
Consolidated Statement of Operations –
Three
Months Ended March 28, 2010 and March 29, 2009
|
5
|
|
|
Condensed
Consolidated Statement of Cash Flows –
Three
Months Ended March 28, 2010 and March 29, 2009
|
6
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
|
|
Item
2:
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
15
|
|
Item
3:
|
Quantitative
and Qualitative Disclosures about Market Risk
|
18
|
|
Item
4T:
|
Controls
and Procedures
|
18
|
|
PART
II - OTHER INFORMATION
|
||
|
Item 1A:
|
Risk
Factors
|
19
|
|
Item
6:
|
Exhibits
|
19
|
|
Signatures
|
|
20 |
References
in this Form 10-Q to “we”, “us”, “our”, the “company” “GlenRose Instruments” and
“GlenRose” refers to GlenRose Instruments Inc. and its consolidated
subsidiaries, unless otherwise noted.
2
PART
I – FINANCIAL INFORMATION
Item
1 – Financial Statements
GLENROSE
INSTRUMENTS INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
As of
March 28, 2010 and December 27, 2009
(Unaudited)
|
March 28,
|
December 27,
|
|||||||
|
2010
|
2009
|
|||||||
|
ASSETS
|
||||||||
|
Current
Assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 667,720 | $ | 1,012,250 | ||||
|
Short-term
investments
|
9,865,629 | 10,060,916 | ||||||
|
Accounts
receivable (net of allowances of $18,039 for 2010 and 2009,
respectively)
|
3,986,045 | 3,087,987 | ||||||
|
Unbilled
contract receivables
|
590,562 | 651,337 | ||||||
|
Supply
inventory
|
51,014 | 65,475 | ||||||
|
Prepaid
expenses
|
159,687 | 125,465 | ||||||
|
Other
receivables
|
61,964 | 59,812 | ||||||
|
Income
tax receivable
|
184,971 | 184,971 | ||||||
|
Assets
held for sale
|
907,748 | 911,970 | ||||||
|
Total
current assets
|
16,475,340 | 16,160,183 | ||||||
|
Property,
plant and equipment, net
|
1,538,154 | 1,606,983 | ||||||
|
Other
assets
|
||||||||
|
Restricted
cash
|
415,000 | 415,000 | ||||||
|
Deferred
financing costs
|
400,000 | 430,000 | ||||||
|
Goodwill
|
2,740,913 | 2,740,913 | ||||||
|
Total
other assets
|
3,555,913 | 3,585,913 | ||||||
|
TOTAL
ASSETS
|
$ | 21,569,407 | $ | 21,353,079 | ||||
The
accompanying notes are integral part of these condensed consolidated financial
statements
3
GLENROSE
INSTRUMENTS INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS (CONTINUED)
As of
March 28, 2010 and December 27, 2009
(Unaudited)
|
March 28,
|
December 27,
|
|||||||
|
2010
|
2009
|
|||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
liabilities
|
||||||||
|
Accounts
payable
|
$ | 672,818 | $ | 734,644 | ||||
|
Accrued
expenses
|
215,126 | 203,353 | ||||||
|
Accrued
employee-related costs
|
1,838,234 | 1,726,445 | ||||||
|
Accrued
interest, related party
|
148,751 | 262,722 | ||||||
|
Due
to related party
|
25,967 | 16,545 | ||||||
|
Capital
lease obligations
|
7,150 | 8,906 | ||||||
|
Total
current liabilities
|
2,908,046 | 2,952,615 | ||||||
|
Long-term
liabilities
|
||||||||
|
Convertible
debentures due to related parties
|
14,875,000 | 14,875,000 | ||||||
|
Capital
lease obligations, net of current portion
|
11,863 | 13,611 | ||||||
|
Other
long-term liabilities
|
53,298 | 36,743 | ||||||
|
Total
liabilities
|
17,848,207 | 17,877,969 | ||||||
|
Stockholders'
equity
|
||||||||
|
Common
stock ($0.01 par value; 10,000,000 shares authorized; 3,117,647 shares
issued and outstanding at March 28, 2010 and December 27,
2009)
|
31,176 | 31,176 | ||||||
|
Additional
paid-in-capital
|
7,920,007 | 7,898,613 | ||||||
|
Accumulated
deficit
|
(4,229,983 | ) | (4,454,679 | ) | ||||
|
Total
stockholders' equity
|
3,721,200 | 3,475,110 | ||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 21,569,407 | $ | 21,353,079 | ||||
The
accompanying notes are integral part of these condensed consolidated financial
statements
4
GLENROSE
INSTRUMENTS INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
For the
Three Months Ended March 28, 2010 and March 29, 2009
(Unaudited)
|
Three Months Ended
|
||||||||
|
March
28,
|
March
29,
|
|||||||
|
2010
|
2009
|
|||||||
|
Revenues
|
$ | 9,909,869 | $ | 8,278,384 | ||||
|
Cost
of sales
|
8,983,767 | 7,783,234 | ||||||
|
Gross
profit from operations
|
926,102 | 495,150 | ||||||
|
General
and administrative expenses
|
526,755 | 660,240 | ||||||
|
Operating
income (loss)
|
399,347 | (165,090 | ) | |||||
|
Other
income (expense)
|
||||||||
|
Interest
and other income
|
4,713 | 77,417 | ||||||
|
Interest
expense
|
(179,364 | ) | (222,991 | ) | ||||
|
Total
other expense
|
(174,651 | ) | (145,574 | ) | ||||
|
Income
(loss) from operations, before income taxes
|
224,696 | (310,664 | ) | |||||
|
Benefit
(provision) for income taxes
|
- | (300,177 | ) | |||||
|
Net
income (loss)
|
$ | 224,696 | $ | (610,841 | ) | |||
|
Net
income (loss) per share - basic and diluted
|
$ | 0.07 | $ | (0.20 | ) | |||
|
Weighted
average shares outstanding - basic and diluted
|
3,102,647 | 3,102,647 | ||||||
The
accompanying notes are integral part of these condensed consolidated financial
statements
5
GLENROSE
INSTRUMENTS INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the
Three Months Ended March 28, 2010 and March 29, 2009
(Unaudited)
|
March
28,
|
March
29,
|
|||||||
|
2010
|
2009
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net
income (loss)
|
$ | 224,696 | $ | (610,841 | ) | |||
|
Adjustments
to reconcile net income (loss) to net cash used in operating
activities:
|
||||||||
|
Depreciation
and amortization
|
100,836 | 180,601 | ||||||
|
Provision
for deferred income taxes
|
- | 300,077 | ||||||
|
Amortization
of deferred financing costs
|
30,000 | 30,000 | ||||||
|
Stock-based
compensation
|
21,394 | 35,300 | ||||||
|
Bad
debt expense
|
- | 27,688 | ||||||
|
Gain
on maturities of short-term investments
|
(3,542 | ) | - | |||||
|
Change
in fair value of certificates of deposit
|
(949 | ) | - | |||||
|
Changes
in operating assets and liabilities
|
||||||||
|
(Increase)
decrease in:
|
||||||||
|
Accounts
receivable
|
(898,058 | ) | (570,034 | ) | ||||
|
Other
receivables
|
(2,152 | ) | 91,866 | |||||
|
Unbilled
contract receivables
|
60,775 | 212,032 | ||||||
|
Prepaid
expenses
|
(34,222 | ) | 66,926 | |||||
|
Inventory
|
14,461 | 10,000 | ||||||
|
Increase
(decrease) in:
|
||||||||
|
Accounts
payable
|
(57,604 | ) | (7,660 | ) | ||||
|
Accrued
interest, related party
|
(113,971 | ) | (335,319 | ) | ||||
|
Due
to related party
|
9,422 | - | ||||||
|
Other
long-term liabilities
|
16,555 | (5,798 | ) | |||||
|
Other
accrued liabilities
|
123,562 | 104,941 | ||||||
|
Net
cash used in operating activities
|
(508,797 | ) | (470,221 | ) | ||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Purchase
of property and equipment
|
(32,007 | ) | (181,974 | ) | ||||
|
Proceeds
from the sale of short-term investments
|
704,142 | 328,668 | ||||||
|
Purchases
of short-term investments
|
(504,364 | ) | - | |||||
|
Net
cash provided by investing activities
|
167,771 | 146,694 | ||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Principal
payments on capital lease obligations
|
(3,504 | ) | (2,939 | ) | ||||
|
Net
cash used in financing activities
|
(3,504 | ) | (2,939 | ) | ||||
|
Net
decrease in cash and cash equivalents
|
(344,530 | ) | (326,466 | ) | ||||
|
Cash
and cash equivalents, beginning of the period
|
1,012,250 | 1,062,581 | ||||||
|
Cash
and cash equivalents, ending of the period
|
$ | 667,720 | $ | 736,115 | ||||
The
accompanying notes are integral part of these condensed consolidated financial
statements
6
GLENROSE
INSTRUMENTS INC.
Note
1 – Organization and Significant Accounting Policies:
Organization
GlenRose
Instruments Inc., a Delaware corporation, or the company, we, our, or us, was
incorporated in September 2005 by the GlenRose Partnership L.P., or the GlenRose
Partnership, a private-equity partnership with its headquarters in Waltham,
Massachusetts. The company was organized to serve as a holding company through
which the GlenRose Partnership’s partners would hold the shares of Eberline
Services, Inc. or Eberline Services or ESI (all of which had previously been
held by the GlenRose Partnership). In order to effect such change in structure,
the GlenRose Partnership entered into a stock exchange agreement with the
company in September 2005 pursuant to which all outstanding shares of Eberline
Services owned by the GlenRose Partnership were exchanged for 3,000,000 shares
of common stock of GlenRose Instruments. As a result of this exchange, the
GlenRose Partnership owned all of the outstanding stock of the company, and the
company owned all of the outstanding stock of its subsidiary, ESI.
On August
30, 2007, the company issued 102,647 shares to a limited number of accredited
investors through a private placement of common stock at a price per share of
$7.00. On December 31, 2007, the limited partners and the general partner of the
GlenRose Partnership dissolved the partnership and distributed the 3,000,000
shares of common stock of GlenRose Instruments to its limited partners in
accordance with the GlenRose Partnership plan of liquidation and
distribution.
On July
25, 2008, the company entered into subscription agreements with four investors
for the sale of convertible debentures in the aggregate principal amount of
$14,875,000. The debentures bear interest at 4%, payable quarterly in cash, and
mature on July 25, 2013. The debentures are convertible at the option of the
holder at any time into shares of common stock at a conversion price equal
to $7.00; see “Note 2 – Debt”.
GlenRose
Instruments, through Eberline Services and its subsidiaries, provides
radiological services and operates a radiochemistry laboratory network, as well
as provides radiological characterization and analysis, hazardous, radioactive
and mixed waste management, and facility, environmental, safety and health
management. The subsidiaries of Eberline Services are Eberline Services Hanford,
Inc. or ESHI, Eberline Analytical Corporation, Benchmark Environmental Corp.,
and Lionville Laboratory Inc., or Lionville.
Principles
of Consolidation and Basis of Presentation
The
accompanying consolidated financial statements include the company and its
subsidiaries. All significant intercompany transactions have been eliminated. In
the opinion of management, the unaudited financial statements contain all
adjustments (all of which were considered normal and recurring) necessary to
present fairly the company's financial position at March 28, 2010, and the
results of operations and cash flows for the three months ended March 28, 2010
and March 29, 2009. The unaudited financial statements included herein should be
read in conjunction with the audited financial statements and notes thereto
included in the company’s Form 10-K for the year ended December 27,
2009.
Fiscal
Year
The
company’s fiscal year-end is the last Sunday of each calendar year. Each quarter
is comprised of two four-week and one five-week period to ensure consistency in
prior-year comparative analysis. The company changed the fiscal year-end to the
current format in 2006. The previous fiscal year-end was December 27,
2009.
Use
of Estimates in Preparation of Statements
The
preparation of financial statements in conformity with generally accepted
accounting principles, or GAAP, requires management to make estimates and
underlying assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Concentration
of Credit Risk
Financial
instruments, which potentially subject the company to concentrations of credit
risk, consist of highly liquid cash equivalents and trade receivables. The
company’s cash equivalents are placed with certain financial institutions and
issuers. At March 28, 2010, the company had a balance of $10,277,967 in cash and
cash equivalents and short-term investments that exceeded the Federal Deposit
Insurance Corporation limit of $250,000.
7
GLENROSE
INSTRUMENTS INC.
The
company performs periodic credit evaluations of its customers’ financial
condition and generally does not require collateral. The company provides for an
allowance for doubtful accounts on receivable balances based upon the expected
collectability of such receivables. Federal and state governments collectively
account for more than 90% of all revenues for the three month periods ended
March 28, 2010 and March 29, 2009. Two of the company’s customers account for
more than 10% of revenue and trade accounts receivable. One customer represented
approximately 72% and 77% of revenue and 39% and 40% of trade accounts
receivable for the three months ended March 28, 2010 and March 29, 2009,
respectively. The other customer represented approximately 12% and 10% of
revenue and 24% and 20% of trade accounts receivable for the three months ended
March 28, 2010 and March 29, 2009, respectively.
Revenue
Recognition
Revenue
for laboratory services is recognized upon completion of the services and the
shipment of the related data packages to the company’s customers. Revenue for
government service contracts is recognized as the services are performed.
Revenues are recognized based upon actual costs incurred plus specified fees or
actual time and materials as required. The company performs certain contracts
that are audited by either the Defense Contract Audit Agency, or the DCAA, or
Los Alamos National Laboratories Internal Audit. Such contracts may be subject
to adjustment dependent upon such factors as provisional billing rates or other
contract terminology. Calculations of allowable overhead and profit may also
change after audits by the DCAA for cost reimbursable type contracts. Contracts
are normally settled during the audit year the contract terminates performance
and is submitted for closure. The company is currently audited and settled
through December 2005 for all contracts subject to review by DCAA and audited
through December 2002 for contracts subject to review by the Los Alamos Internal
Audit. Contracts performed before either 2005 or 2002 respectively that are
either active or have not been submitted for closure may be subject to
adjustment during subsequent audits during the year they are closed and
audited.
The
company is engaged principally in three types of service contracts with the
federal government and its contractors:
Cost
Reimbursable Contracts. Revenue from “cost-plus-fixed-fee” contracts is
recognized on the basis of reimbursable contract costs incurred during the
period plus an earned fee. Costs incurred for services which have been
authorized and performed, but may not have been billed, are allocated with
operational fringe, overhead, general and administrative expenses and fees, and
are presented as Unbilled Contract Receivables on the accompanying consolidated
balance sheet contained herein.
Time-and-Materials
Contracts. Revenue from “time and material” contracts is recognized on the
basis of man-hours utilized plus other reimbursable contract costs incurred
during the period.
Fixed-Price
Contracts. Revenue from “fixed-price” contracts is recognized on the
percentage-of-completion method. For fixed-price contracts, the amount of
revenues recognized is that portion of the total contract amount that the actual
cost expended bears to the anticipated final total cost based on current
estimates of cost to complete the project (cost-to-cost method). However,
when it becomes known that the anticipated final total cost will exceed the
contract amount, the excess of cost over the contract amount is immediately
recognized as a loss on the contract. Recognition of profit commences on an
individual project only when cost to complete the project can reasonably be
estimated and after there has been some meaningful performance achieved on the
project (greater than 10% complete). Changes in job performance, job
conditions, and estimated profitability, including those arising from contract
penalty provisions (when applicable) and final contract settlements, may result
in revisions to costs and income and are recognized in the period in which the
revisions are determined. Claims and change orders are not recorded and
recognized until such time as they have been accepted.
Direct
costs of contracts include direct labor, subcontractors and consultants,
materials and travel. The balance of costs, including facilities costs,
insurance, administrative costs, overhead labor and fringe costs, are classified
as either indirect costs or general and administrative expense, and are
allocated to jobs as a percentage of each division’s total cost
base.
Goodwill
Goodwill
is the excess of the purchase price over the fair value of identifiable net
assets acquired in business combinations. Goodwill is subject to an impairment
test annually. Goodwill is also reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. The company performs impairment testing at the reporting unit
level. An impairment loss is recognized when the fair value of the discounted
cash flows of the reporting unit including its tangible assets is less than the
carrying value.
8
GLENROSE
INSTRUMENTS INC.
At
December 27, 2009, the company’s goodwill balance was related to the
Environmental Services segment which includes Eberline Services, ESHI and
Benchmark Environmental Corp. The Analytical Laboratories goodwill was written
off in prior years. At December 27, 2009, the Environmental Services segment
reported revenues of $25,469,474 and gross profit of $2,109,355. Those results
were consistent with prior year’s results, and consistent with the contracts in
effect for that segment. In preparing the discounted cash flow analysis, the
company analyzed the prior years' results as well as the contracts in effect for
the next five years. The company estimated future sales volume using a 3%
increase in revenues, which is consistent with the contract type(s) in effect.
As the majority of the contracts in the segment are government cost-reimbursable
contracts, the company escalated the associated costs consistent with the
revenue increase. The segment's largest cost is labor. The company further
estimated capital expenditures consistent with prior years amounts, and included
the effects of depreciation in determining its net free cash flow prior to
discount. The company utilized a weighted average cost of capital discount rate
of 12.7% and 9.7% for terminal value calculations. Total expected free cash flow
from the segment is approximately$7.6 million before adjustments. The company
further discounted the cash flow based on management’s internal assessment of
achieving the forecast results. The company’s internal assessment factor was 95%
for 2011 declining to 30% for the terminal value year. Based on the assumptions
above, the company determined that goodwill for the Environmental Services
segment in the amount of $2,740,913 was not considered to be
impaired.
No events
occurred or circumstances changed that required the company to further
test goodwill for impairment during the three month period ended March 28,
2010.
Income
Taxes
The
company uses the liability method of accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on the
differences between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
The amount of such provisions is based on various factors, such as the amount of
taxable income in the current and prior periods, and the likelihood of continued
taxable income. Additionally, management is responsible for estimating the
probability that certain tax assets or liabilities can and will be utilized in
future periods. The company believes it records and/or discloses such potential
tax liabilities as appropriate and has reasonably estimated its income tax
liabilities and recoverable tax assets. During the three month period ended
March 29, 2009, the company recorded a tax provision of $300,177 in order to
increase the valuation allowance for certain deferred tax assets due to their
uncertain realization. No income tax provision was recorded on the net income
for the three months ended March 28, 2010, due to the utilization of net
operating loss carryforwards for which a valuation allowance was previously
provided.
Earnings/Loss
per Common Share
The
calculation of earnings/loss per common share is based on the weighted-average
number of common shares outstanding during the applicable period. There are no
dilutive common shares during any periods presented. See “Note 5 – Earnings/Loss
per Share”
Stock
Based Compensation
Stock
based compensation cost is measured at the grant date based on the estimated
fair value of the award and is recognized as an expense in the statement of
operations over the requisite service period. The fair value of stock options
granted is estimated using the Black-Scholes option pricing valuation model. The
company recognizes compensation on a straight-line basis for each separately
vesting portion of the option award. Use of a valuation model requires
management to make certain assumptions with respect to selected model inputs.
Expected volatility is calculated based on the average volatility of 20
companies in the same industry as the company. The average expected life is
estimated using the simplified method for “plain vanilla” options. The expected
life in years is based on the “simplified” method. The simplified method
determines the expected life in years based on the vesting period and
contractual terms as set forth when the award is made. The company uses the
simplified method for awards of stock-based compensation since it does not have
the necessary historical exercise and forfeiture data to determine an expected
life for stock options. The risk-free interest rate is based on U.S. Treasury
zero-coupon issues with a remaining term which approximates the expected life
assumed at the date of grant. When options are exercised the company normally
issues new shares.
See “Note
4 – Stockholders’ Equity” for a summary of the restricted stock and stock option
activity under our stock-based employee compensation plan for the period ended
March 28, 2010.
Fair
Value of Financial Instruments
The
company’s financial instruments are cash and cash equivalents, short-term
investments, accounts receivable, accounts payable, convertible debentures and
capital lease obligations. The recorded values of cash and cash equivalents,
accounts receivable and accounts payable approximate their fair values based on
their short-term nature. Short-term investments are recorded at fair value. The
fair value of capital lease obligations is estimated at its carrying value based
on current rates. The current value of the convertible debentures on the balance
sheet at March 28, 2010, approximates fair value as the terms approximate those
currently available for similar instruments. See “Note 6 – Fair Value
Measurements”.
9
GLENROSE
INSTRUMENTS INC.
Recovery
of Long-Lived Assets
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the remaining estimated useful life of such assets might warrant
revision or that the balances may not be recoverable. If undiscounted cash flows
are insufficient to recover the net book value of long-term assets including
amortizable intangible assets, further analysis is performed in order to
determine the amount of the impairment. In such circumstances an impairment loss
would be recorded equal to the amount by which the net book value of the assets
exceeds fair value. Fair value is usually determined based on the present value
of estimated expected future cash flows using a discount rate commensurate with
the risks involved. No events occurred or circumstances changed at March
28, 2010, that would indicate that the remaining net book value of the company’s
long-lived assets are not recoverable.
Assets
Held for Sale
The
company owns property in Albuquerque, New Mexico. In 2009, the company entered
into an agreement, subject to closing conditions, with a buyer to sell the
property for approximately $1.9 million. As a result the company reclassified
$507,700 in land, $2,265,764 in buildings and improvements, and 1,916,926 in
accumulated depreciation as “Assets held for sale” on the company’s balance
sheet as of December 27, 2009. The assets held for sale balance of $911,970 also
includes selling costs incurred to date of $14,080 and an accrual of $41,352
towards decommissioning of the site. The company expects to complete the sale in
2010.
Reclassifications
Certain prior period amounts have been
reclassified to conform to the current year presentation.
Recent
Accounting Pronouncements
In
September 2009, the Emerging Issues Task Force issued new rules pertaining to
the accounting for revenue arrangements with multiple deliverables. The new
rules provide an alternative method for establishing fair value of a deliverable
when vendor specific objective evidence cannot be determined. The guidance
provides for the determination of the best estimate of selling price to separate
deliverables and allows the allocation of arrangement consideration using this
relative selling price model. The guidance supersedes the prior multiple element
revenue arrangement accounting rules that are currently used by the company.
This guidance is effective for us January 1, 2011 and is not expected to have a
material effect on our consolidated financial position or results of
operations.
In
January 2010, the Financial Accounting Standards Board, or FASB, issued an
amendment to the accounting for fair value measurements and disclosures. This
amendment details additional disclosures on fair value measurements, requires a
gross presentation of activities within a Level 3 rollforward, and adds a new
requirement to the disclosure of transfers in and out of Level 1 and Level 2
measurements. The new disclosures are required of all entities that are required
to provide disclosures about recurring and nonrecurring fair value measurements.
This amendment was effective as of January 1, 2010, with an exception for the
gross presentation of Level 3 rollforward information, which is required for
annual reporting periods beginning after December 15, 2010, and for interim
reporting periods within those years. The adoption of the remaining provisions
of this amendment is not expected to have a material impact on our financial
statement disclosures.
In March
2010, the FASB reached a consensus to issue an amendment to the accounting for
revenue arrangements under which a vendor satisfies its performance obligations
to a customer over a period of time, when the deliverable or unit of accounting
is not within the scope of other authoritative literature, and when the
arrangement consideration is contingent upon the achievement of a milestone. The
amendment defines a milestone and clarifies whether an entity may recognize
consideration earned from the achievement of a milestone in the period in which
the milestone is achieved. This amendment is effective for fiscal years
beginning on or after June 15, 2010, with early adoption permitted. The
amendment may be applied retrospectively to all arrangements or prospectively
for milestones achieved after the effective date. The company has not adopted
this guidance early and adoption of this amendment is not expected to have a
material impact on our results of operation or financial
condition.
10
GLENROSE
INSTRUMENTS INC.
Note
2 – Debt:
Note
3 – Commitments and Contingencies:
The
company and its subsidiaries lease facilities and equipment under various
operating leases. Future minimum rental commitments for long-term,
non-cancelable operating leases at March 28, 2010 are as follows:
Summary
of Lease Obligations:
|
2010
|
2011
|
2012
|
2013
|
2014
|
2015
|
Totals
|
||||||||||||||||||||||
|
Facilities
|
$ | 274,605 | $ | 216,508 | $ | 214,554 | $ | 124,176 | $ | 49,128 | $ | 12,282 | $ | 891,253 | ||||||||||||||
|
Equipment
|
35,490 | - | - | - | - | - | 35,490 | |||||||||||||||||||||
| $ | 310,095 | $ | 216,508 | $ | 214,554 | $ | 124,176 | $ | 49,128 | $ | 12,282 | $ | 926,743 | |||||||||||||||
For the
periods ending March 28, 2010, and March 29, 2009, rent expense was $100,551 and
$81,730, respectively. On June 3, 2008, the company entered into a lease for a
new facility for the Lionville business. From July 2008 to February 2009 the
company paid rent for two facilities in Lionville, while in a transition
period.
As of
December 27, 2009, the company was a party to two lawsuits with former employees
over their terminations. The first lawsuit was dismissed with prejudice on March
17, 2010. The second lawsuit is still in the discovery phase. The company does
not expect either litigation or any other legal activity will have a materially
adverse affect on its business, operating results or financial
condition.
Note
4 – Stockholders’ Equity:
Stock
Based Compensation
In
September 2005, the company adopted a stock option plan under which the board of
directors may grant incentive or non-qualified stock options and stock grants to
key employees, directors, advisors and consultants of the company.
The
maximum number of shares of stock or underlying options allowable for issuance
under the plan is 700,000 shares of common stock, including 15,000 restricted
shares as of March 28, 2010. Stock options vest based upon the terms within the
individual option grants, usually over a five-year period at 20% per year, with
an acceleration of the unvested portion of such options upon a liquidity event,
as defined in the company’s stock option agreement. The options are not
transferable except by will or domestic relations order. The number of
securities remaining available for future issuance under the plan was 503,500 at
March 28, 2010.
The
option price per share under the plan is not less than the fair market value of
the shares on the date of the grant. The determination of the fair value of
share-based payment awards is affected by our stock price. The company
considered the sales price of common stock in private placements to unrelated
third parties during the year as a measure of the fair value of its common
stock. The company’s most recent private placement of common stock was in August
of 2007 at a price of $7.00 per share. There were no stock option awards granted
in 2009 or in the three month period ending in March 28, 2010. Stock option
activity for the period ending March 28, 2010 was as follows:
11
GLENROSE
INSTRUMENTS INC.
|
Exercise
|
Weighted
|
Weighted
|
||||||||||||||||||
|
Price
|
Average
|
Average
|
Aggregate
|
|||||||||||||||||
|
Number of
|
Per
|
Exercise
|
Remaining
|
Intrinsic
|
||||||||||||||||
|
Options
|
Share
|
Price
|
Life
|
Value
|
||||||||||||||||
|
Outstanding,
December 27, 2009
|
186,000 | $ | 7.00 | $ | 7.00 | 4.88 | $ | - | ||||||||||||
|
Granted
|
- | - | - | |||||||||||||||||
|
Exercised
|
- | - | - | |||||||||||||||||
|
Canceled
|
(4,500 | ) | 7.00 | 7.00 | ||||||||||||||||
|
Expired
|
- | - | - | |||||||||||||||||
|
Outstanding
and expected to vest at March 28, 2010
|
181,500 | $ | 7.00 | 7.00 | 4.63 | - | ||||||||||||||
|
Vested
& Exercisable, March 28, 2010
|
72,600 | $ | 7.00 | 4.63 | $ | - | ||||||||||||||
The
aggregate intrinsic value of options outstanding as of March 28, 2010 is
calculated as the difference between the exercise price of the underlying
options and the price of the company’s common stock for options that were
in-the-money as of that date.
In 2007,
the company made restricted stock grants to three of its directors by permitting
them to purchase an aggregate of 15,000 shares of common stock at a price of
$0.01 per share. Those shares begin to vest 90 days after the company’s initial
listing on a securities exchange or an over-the-counter bulletin board at a rate
of 25% per year. All of the shares become vested shares upon a change in control
prior to a termination event. There were no restricted stock awards granted in
2009 or in the three month period ending in March 28, 2010. At March 28, 2010,
there were 15,000 unvested shares of restricted stock outstanding. Restricted
stock activity for the period ending March 28, 2010 was as follows:
|
Number of
|
Grant Date
|
|||||||
|
Restricted Stock
|
Fair Value
|
|||||||
|
Unvested,
December 27, 2009
|
15,000 | $ | 7.00 | |||||
|
Granted
|
- | - | ||||||
|
Vested
|
- | - | ||||||
|
Forfeited
|
- | - | ||||||
|
Unvested,
March 28, 2010
|
15,000 | $ | 7.00 | |||||
The
company recognized employee non-cash stock based compensation expense of $21,394
and $35,300 related to the issuance of restricted stock and stock options during
the periods ending in March 28, 2010, and March 29, 2009, respectively. The
total compensation cost related to unvested restricted stock awards and stock
option awards not yet recognized was $124,886 at March 28, 2010. This amount is
expected to be recognized over a weighted average period of 2.9
years.
Note
5 – Earnings/Loss per Share:
Basic and
diluted earnings (loss) per share are computed by dividing earnings available to
common stockholders by the weighted average number of common shares outstanding
during the period to common stock. There are no dilutive securities as of March
28, 2010 and March 29, 2009. The following reconciles amounts reported in the
financial statements:
|
March 28,
|
March 29,
|
|||||||
|
2010
|
2009
|
|||||||
|
Earnings
(loss) per share
|
||||||||
|
Earnings
(loss) available to stockholders
|
$ | 224,696 | $ | (610,841 | ) | |||
|
Weighted
average shares outstanding - basic
|
3,102,647 | 3,102,647 | ||||||
|
Net
earnings (loss) per share - basic
|
$ | 0.07 | $ | (0.20 | ) | |||
|
Assumed
exercise of dilutive stock options and warrants
|
- | - | ||||||
|
Weighted
average shares outstanding - diluted
|
3,102,647 | 3,102,647 | ||||||
|
Net
earnings (loss) per share - diluted
|
$ | 0.07 | $ | (0.20 | ) | |||
|
Anti-dilutive
restricted stock outstanding
|
15,000 | 15,000 | ||||||
|
Anti-dilutive
shares underlying stock options outstanding
|
181,500 | 197,000 | ||||||
|
Anti-dilutive
convertible debentures
|
2,125,000 | 2,125,000 | ||||||
12
Note
6 – Fair Value Measurements:
The fair
value topic of the Codification defines fair value as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. The
accounting guidance also establishes a fair value hierarchy which requires an
entity to maximize the use of observable inputs, where available, and minimize
the use of unobservable inputs when measuring fair value. There are three levels
of inputs that may be used to measure fair value:
Level 1 — Unadjusted quoted
prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs
other than quoted prices included in Level 1. Level 2 inputs include quoted
prices for identical assets or liabilities in non-active markets, quoted prices
for similar assets or liabilities in active markets and inputs other than quoted
prices that are observable for substantially the full term of the asset or
liability.
Level 3 — Unobservable inputs
reflecting management’s own assumptions about the input used in pricing the
asset or liability. We currently do not have any Level 3 financial assets or
liabilities.
At March 28, 2010, the company had
short term investments of $9,865,629 that are comprised of money market funds of
$9,130,854 and certificates of deposits of $734,775. Money market funds are
categorized as level 1 and certificates of deposit are categorized as level 2.
The company determines the fair value of certificates of deposits using
information provided by the issuing bank which includes discounted expected cash
flow estimates using current market rates offered for deposits with similar
remaining maturities.
Note
7 - Segment Data:
The
company’s executive officers include Arvin Smith, Dr. Richard Chapman and Dr.
Shelton Clark. Collectively, they are the Chief Operating Decision Maker,
or CODM. The office of the CODM is responsible for assessing the
performance of each segment, as well as the allocation of company resources.
Other than general and administrative services incurred at GlenRose Instruments,
ESI currently constitutes 100% of the activity of the company. Costs incurred by
GlenRose Instruments are aggregated and reported separately from the Eberline
Services activity.
The
company currently operates three business segments: Environmental Services,
Analytical Laboratories and Instruments. ESI maintains separate general and
administrative functions consisting of all executive management, business
development, accounting and finance, and human resource personnel that support
the entire business. The Environmental Services provide engineering and
technical support to the Los Alamos National Laboratory, the Department of
Energy’s Hanford Reservation Site, as well as other government and commercial
agencies. The Analytical Laboratories consist of three separate laboratories
serving a wide variety of federal, state and local governments. The laboratories
are located in Richmond, California, Oak Ridge, Tennessee, and Exton,
Pennsylvania. A dedicated laboratory manager is responsible for the operation of
each laboratory. Management monitors the performance of each laboratory
separately. Intercompany costs and sales are eliminated in the consolidated
financial statements.
The
Instruments segment was formed in 2006 with the intent to include the company’s
future instrument related acquisitions. Analytical instruments use a variety of
highly sophisticated measurement technologies and are used by the scientific
community, the government and industry to perform basic research, applied
research and development, process monitoring and control, and many other
applications. The company’s strategy is to acquire instrument companies, which
have well-established and proven technology and increase their operating margins
and revenues using techniques developed by the company’s management team during
the course of their careers in the analytical instruments industry. As of the
date of this report the company has not made any commitments, nor has it
acquired any instrument businesses. The company’s segment data show all general
and administrative costs related to the instruments segment captured during the
period. That segment allocation may differ from allowable government allocations
per the terms of our contracts.
13
GLENROSE
INSTRUMENTS INC.
Segment
data for the periods ending March 28, 2010 and March 29, 2009 are included
below:
|
Three Months Ended
|
||||||||
|
March
28,
|
March
29,
|
|||||||
|
2010
|
2009
|
|||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||
|
Revenues
|
||||||||
|
Environmental
Services
|
$ | 7,365,394 | $ | 6,244,095 | ||||
|
Analytical
Laboratories
|
2,544,475 | 2,034,289 | ||||||
|
Instruments
|
- | - | ||||||
| 9,909,869 | 8,278,384 | |||||||
|
Cost of Sales
|
||||||||
|
Environmental
Services
|
6,832,391 | 5,707,851 | ||||||
|
Analytical
Laboratories
|
2,151,376 | 2,075,383 | ||||||
|
Instruments
|
- | - | ||||||
| 8,983,767 | 7,783,234 | |||||||
|
Gross Profit (Loss)
|
||||||||
|
Environmental
Services
|
533,003 | 536,244 | ||||||
|
Analytical
Laboratories
|
393,099 | (41,094 | ) | |||||
|
Instruments
|
- | - | ||||||
| 926,102 | 495,150 | |||||||
|
General and administrative
expenses
|
||||||||
|
Environmental
Services
|
340,120 | 415,451 | ||||||
|
Analytical
Laboratories
|
100,854 | 140,815 | ||||||
|
Instruments
|
85,781 | 103,974 | ||||||
| 526,755 | 660,240 | |||||||
|
Operating profit (Loss)
|
||||||||
|
Environmental
Services
|
192,883 | 120,793 | ||||||
|
Analytical
Laboratories
|
292,245 | (181,909 | ) | |||||
|
Corporate
& Instruments
|
(85,781 | ) | (103,974 | ) | ||||
| 399,347 | (165,090 | ) | ||||||
|
Supplemental Disclosure
|
||||||||
|
Depreciation Expense
|
||||||||
|
Environmental
Services
|
12,640 | 62,489 | ||||||
|
Analytical
Laboratories
|
88,196 | 118,112 | ||||||
|
Instruments
|
- | - | ||||||
| 100,836 | 180,601 | |||||||
|
Capital Expenditures
|
||||||||
|
Environmental
Services
|
- | - | ||||||
|
Analytical
Laboratories
|
32,007 | 181,974 | ||||||
|
Instruments
|
- | - | ||||||
| 32,007 | 181,974 | |||||||
|
Total Assets
|
||||||||
|
Environmental
Services
|
7,119,186 | 7,542,251 | ||||||
|
Analytical
Laboratories
|
4,078,444 | 4,195,147 | ||||||
|
Instruments
|
10,371,777 | 10,587,787 | ||||||
| $ | 21,569,407 | $ | 22,325,185 | |||||
Note
8 – Subsequent Events:
In preparing these interim consolidated
financial statements, the company has evaluated, for the potential recognition
or disclosure, events or transactions subsequent to the end of the most recent
quarterly period through the date of issuance of these financial statements. No
material subsequent events were identified that require recognition or
disclosure in these financial statements.
14
GLENROSE
INSTRUMENTS INC.
Item
2: Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Forward-looking
statements are made throughout this Management's Discussion and Analysis of
Financial Condition and Results of Operations. Any statements contained herein
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words “believes,” “anticipates,”
“plans,” “expects,” “seeks,” “estimates” and similar expressions are intended to
identify forward-looking statements. While the company may elect to update
forward-looking statements in the future, it specifically disclaims any
obligation to do so, even if the company's estimates change and readers should
not rely on those forward-looking statements as representing the company's views
as of any date subsequent to the date of the filing of this Quarterly Report on
Form 10-Q. There are a number of important factors that could cause the actual
results of the company to differ materially from those indicated by such
forward-looking statements, including those detailed under the heading “Risk
Factors” in this Quarterly Report on Form 10-Q.
First Quarter 2010 Compared
to First Quarter 2009
Revenues
Revenues in the first quarter of 2010
were $9,909,869 compared to $8,278,384 for the same period in 2009, an increase
of $1,631,485 or 19.7%. The increase in revenues was primarily due to an
increase in both our Environmental Services revenues, and Analytical Laboratory
revenues. The increase in our Environmental Services revenues was primarily due
to increased work at Los Alamos and Hanford. The number of direct employees
increased at both locations in the first quarter. The increase in our Analytical
Laboratory revenues was primarily due to increased sample volume in the first
quarter. The primary driver was stimulus funding at the Hanford and Oak Ridge
sites.
Revenues from our Environmental
Services in the first quarter of 2010 were $7,365,394 compared to $6,244,095 for
the same period in 2009, an increase of $1,121,299 or 18.0%. Our Environmental
Services contributed 74.3% to total revenues in the first quarter of 2010 versus
75.4% in the first quarter of 2009. The increase in our Environmental Services
revenues was due to increased work at both Los Alamos and Hanford, whereby
existing contracts were increased and new contracts were added.
Revenues from our Analytical
Laboratories in the first quarter of 2010 were $2,544,475 compared to $2,034,289
for the same period in 2009, an increase of $510,186 or 25.1%. Our Analytical
Labs contributed 25.7% to total revenues in the first quarter of 2010 versus
24.6% for the same period in 2009. The increase in revenues was primarily due
to increased
funding of existing contracts due to stimulus funding. Work at our Analytical
Laboratories increased in the first quarter.
Cost
of Sales
The cost of sales in the first quarter
of 2010 was $8,983,767 compared to $7,783,234 for the same period in 2009, an
increase of $1,200,533 or 15.4%. The increase in cost of sales was primarily due
to the increased costs associated with sales increases as we increased the
number of employees, subcontracts and materials.
The cost of sales from our
Environmental Services in the first quarter of 2010 was $6,832,391 compared to
$5,707,851 for the same period in 2009, an increase of $1,124,540 or 19.7%
primarily due to increased salaries of new employees and due to increased
subcontracting. We increased our overall employees by approximately 30 people at
both Los Alamos and Hanford.
The cost of sales from our Analytical
Laboratories in the first quarter of 2010 was $2,151,376 compared to $2,075,383
for the same period in 2009, an increase of $75,993 or 3.7%, primarily due to
increased direct labor and direct materials associated with the sales increase
during the period.
Gross
Profit
Gross profit in the first quarter of
2010 was $926,102 compared to $495,150 for the same period in 2009, an increase
of $430,952 or 87.0%. The gross profit margin increased to 9.3% in the first
quarter of 2010 from 6.0% for the same period in 2009. The increase in the
quarterly gross profit was primarily due to increased revenue at our Analytical
Laboratories, offset by a small decrease in gross profit at our Environmental
Services.
The gross profit from our Environmental
Services in the first quarter of 2010 was $533,003 compared to $536,244 for the
same period in 2009, a decrease of $3,241 or 0.6%. The gross profit from our
Analytical Laboratories in the first quarter of 2010 was $393,099 compared to a
loss of $41,094 for the same period in 2009, an increase of
$434,193.
15
GLENROSE
INSTRUMENTS INC.
Operating
Expenses
General
and administrative expenses in the first quarter of 2010 were $526,755 compared
to $660,240 for the same period in 2009, a decrease of $133,485 or 20.2%. Our
general and administrative costs decreased due to continued cost control
measures. During the quarter we reduced some of our external professional
services and various business development services and have better utilized
existing personnel in more direct roles on large contracts.
Operating
Income (Loss)
The
operating income in the first quarter of 2010 was $399,347 compared to an
operating loss of $165,090 for the same period in 2009. The operating income was
primarily due to the Environmental Services operating income of $192,883 and the
Analytical Laboratories operating income of $292,245, offset by corporate
general and administrative expenses of $85,781. The increase in operating income
was due to the increased revenue in both operating segments. During the
quarter we added personnel and were able to better utilize existing personnel in
more direct roles on large contracts. Our overhead was also reduced by
substantial decreases in other indirect costs such as depreciation. The increase
in our Analytical Laboratory revenues allowed more efficient and better
utilization of existing infrastructure. Shifting of personnel costs to direct
work and cost reduction in general and administrative expenses also contributed
to the operating income increase.
Other
Income (Expense)
Other
expenses in the first quarter of 2010 were $174,651 compared to $145,574 for the
same period in 2009, an increase of $29,077. Interest and other miscellaneous
income in the first quarter of 2010 was $4,713 compared to $77,417 for the same
period in 2009. The decrease was primarily due to a lower cash balance of funds
invested. Interest expense in the first quarter of 2010 was $179,364 compared to
$222,991 for the same period in 2009, due to interest expense on our related
party convertible debentures and the associated underwriting expenses associated
with the debentures that originated in July 2008.
Provision
for Income Taxes
We
recorded no tax provision or benefit in the first quarter of 2010 compared to a
tax provision of $300,177 for the same period in 2009. The tax provision
recorded at March 29, 2009, was a non-cash expense associated with a valuation
allowance provided against certain deferred tax assets due to their uncertain
realization.
Net
Income/Loss
Net
income in the first quarter of 2010 was $224,696 compared to a net loss of
$610,841 for the same period in 2009.
Liquidity
and Capital Resources
Consolidated
working capital at March 28, 2010 was $13,567,294, compared to $13,207,568 at
December 27, 2009. Included in working capital were cash, cash equivalents and
short-term investments of $10,533,349 as of March 28, 2010, compared to
$11,073,166 at December 27, 2009. The increase in working capital was a result
of increased accounts receivable offset by lower cash balances.
Cash used
by operating activities was $508,797 in the first quarter of 2010, compared to
cash used by operating activities of $470,221 for the same period in 2009. Our
net receivables balance increased to $3,986,045 in the first quarter of 2010,
compared to $3,087,987 at December 27, 2009, resulting in a decrease in cash of
$898,058 primarily due to increased revenue and timing of invoicing related to
our Los Alamos contract and our Hanford contract and due to increased revenues
at our Analytical Laboratories. Our unbilled contract receivables decreased to
$590,562 in the first quarter of 2010, compared to $651,337 at December 27,
2009, resulting in an increase in cash of $60,775 due to billing of certain
unbilled costs at Los Alamos. Our prepaid expenses increased to $159,687 in the
first quarter of 2010, compared to $125,465 at December 27, 2009, resulting in a
decrease in cash of $34,222, due to the timing of annual insurance premiums
renewed in January and February of 2010. Other receivables increased to $61,964
in the first quarter of 2010, compared to $59,812 at December 27, 2009,
resulting in a decrease in cash of $2,152.
Accounts
payable decreased to $672,818 in the first quarter of 2010, compared to $734,644
at December 27, 2009. The decrease in cash related to the change in accounts
payable balance was $61,826. Other accrued liabilities, including accrued
expenses, accrued employee-related costs and other long-term liabilities,
increased to $2,106,658 in the first quarter of 2010, compared to $1,966,541 at
December 27, 2009, resulting in an increase in cash of $140,117, primarily due
to accrued employee-related costs. Our accrued interest balance associated with
the previously issued subordinated notes decreased to $148,751 in the first
quarter of 2010, compared to $262,722 at December 27, 2009, resulting in a
decrease in cash of $113,971, due to final interest payments on the previously
issued subordinated notes.
16
GLENROSE
INSTRUMENTS INC.
The
primary investing activities of the company’s operations included the purchase
of equipment. The company continues to manage its capital expenditures very
selectively and in the first quarter of 2010 used $32,007 for purchases of
equipment. The company’s short-term investments provided $199,778 of cash as
funds invested in certificates of deposits matured and converted into cash. The
company’s financing activities used $3,504 of cash in the first quarter of 2010,
due to payments on capital lease obligations.
The
company owns property in Albuquerque, New Mexico. In 2009, the company
entered into an agreement, subject to closing conditions, with a buyer to sell
the property in Albuquerque, New Mexico for approximately $2.0 million. The
property is classified as “Assets held for sale” on the company’s balance sheet
as of March 28, 2010. The assets held for sale of $907,748 include land of
$507,700 and buildings and improvements with a net book value of $344,615. The
assets held for sale of $907,748 also include selling costs incurred to date of
$14,079 and an accrual of $41,354 towards decommissioning of the site. The
company expects to complete the sale in 2010.
The
company believes that its existing resources, including cash and cash
equivalents and future cash flow from operations, are sufficient to meet the
working capital requirements of its existing business for the foreseeable
future, including the next 12 months. We believe that our cash and cash
equivalents and our ability to control certain costs, including those related to
general and administrative expenses will enable us to meet our anticipated cash
expenditures through the end of 2010. The company’s long-term liabilities
primarily include convertible debentures that bear interest at 4%, payable
quarterly in cash and mature on July 25, 2013. The company believes that its
existing resources, including cash and cash equivalents, future cash flow from
operations, and potential future property sales in Albuquerque, New Mexico and
Richmond California will be sufficient to meet those obligations. Our ability to
continue to access capital, however, could be impacted by various factors
including general market conditions and the continuing slowdown in the economy,
interest rates, the perception of our potential future earnings and cash
distributions, any unwillingness on the part of lenders to make loans to us and
any deterioration in the financial position of lenders that might make them
unable to meet their obligations to us.
17
GLENROSE
INSTRUMENTS INC.
Item
3: Quantitative and Qualitative Disclosures about Market Risk
Not
applicable.
Item
4T: Controls and Procedures
Management’s
evaluation of disclosure controls and procedures:
Our chief
executive officer and our chief financial officer, after evaluating the
effectiveness of our “disclosure controls and procedures” (as defined in the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) Rules 13a−15(e)
and 15d−15(e); collectively, “Disclosure Controls”) as of the end of the period
covered by this report (the “Evaluation Date”) has concluded that as of the
Evaluation Date, our Disclosure Controls were effective to provide reasonable
assurance that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified by the Securities and Exchange Commission, and
that material information relating to our company and any consolidated
subsidiaries is made known to management, including the chief executive officer
and chief financial officer, particularly during the period when our periodic
reports are being prepared to allow timely decisions regarding required
disclosure.
Changes
in Internal Controls over Financial Reporting:
In connection with the evaluation
referred to in the foregoing paragraph, we have identified no change in our
internal control over financial reporting that occurred during the period ending
March 28, 2010 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.
18
GLENROSE
INSTRUMENTS INC.
PART
II – OTHER INFORMATION
Item
1A: Risk Factors
In
addition to the other information set forth in this report, you should carefully
consider the factors discussed under “Risk Factors” in our Annual Report on Form
10-K for our fiscal year ended December 27, 2009. The risks discussed in our
Annual Report on Form 10-K could materially affect our business, financial
condition and future results. The risks described in our Annual Report on Form
10-K are not the only risks facing us. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial also may
materially and adversely affect our business, financial condition or operating
results.
Item
6: Exhibits
|
Exhibit
Number
|
Description of Exhibit
|
|||
|
31.1*
|
–
|
Rule
13a-14(a) Certification of Chief Executive Officer
|
||
|
31.2*
|
–
|
Rule
13a-14(a) Certification of Chief Financial Officer
|
||
|
32.1*
|
–
|
Section
1350 Certifications of Chief Executive Officer and Chief Financial
Officer
|
* Filed
herewith.
19
GLENROSE
INSTRUMENTS INC.
SIGNATURES
Pursuant
to the requirements of Section 12 of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on May 12,
2010.
|
GLENROSE
INSTRUMENTS INC.
|
|||
|
(Registrant)
|
|||
|
By:
|
/s/ ARVIN H. SMITH
|
||
|
Chief
Executive Officer
|
|||
|
(Principal
Executive Officer)
|
|||
|
By:
|
/s/ ANTHONY S. LOUMIDIS
|
||
|
Chief
Financial Officer
|
|||
|
(Principal
Financial Officer)
|
|||
20