R
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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£
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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20-3521719
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(State of incorporation or organization)
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(IRS Employer Identification No.)
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45 First Avenue
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Waltham, Massachusetts
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02451
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(Address of Principal Executive Offices)
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(Zip Code)
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Large accelerated filer ¨
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Accelerated filer ¨
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Non –accelerated filer ¨
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Smaller reporting company x
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(Do not check if a smaller reporting company)
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Title of each class
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Outstanding at June 26, 2011
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Common Stock, $0.01 par value
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3,112,647 |
PART I – FINANCIAL INFORMATION
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||||
Item 1:
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Financial Statements
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3
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Condensed Consolidated Balance Sheets – June 26, 2011 (unaudited) and December 26, 2010
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3
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|||
Condensed Consolidated Statement of Operations – Three Months Ended June 26, 2011 and June 27, 2010 (unaudited)
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5
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|||
Condensed Consolidated Statement of Operations – Six Months Ended June 26, 2011 and June 27, 2010 (unaudited)
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6
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|||
Condensed Consolidated Statement of Cash Flows – Six Months Ended June 26, 2011 and June 27, 2010 (unaudited)
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7
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|||
Notes to Condensed Consolidated Financial Statements
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8
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|||
Item 2:
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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15
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Item 3:
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Quantitative and Qualitative Disclosures about Market Risk
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20
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Item 4T:
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Controls and Procedures
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20
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PART II - OTHER INFORMATION
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||||
Item 1A:
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Risk Factors
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21
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Item 6:
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Exhibits
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21
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Signatures
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22 |
June 26,
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December 26,
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|||||||
2011
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2010
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|||||||
(unaudited) | ||||||||
ASSETS
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||||||||
Current Assets
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||||||||
Cash and cash equivalents
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$ | 1,957,005 | $ | 1,669,868 | ||||
Short-term investments
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12,305 | 12,305 | ||||||
Accounts receivable (net of allowances of $25,923and $26,120 for 2011 and 2010, respectively)
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4,290,330 | 4,376,929 | ||||||
Unbilled contract receivables
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249,254 | 370,887 | ||||||
Due from related party
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42,858 | 42,858 | ||||||
Supply inventory
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69,283 | 60,271 | ||||||
Prepaid expenses
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411,645 | 150,515 | ||||||
Other receivables
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87,464 | 58,464 | ||||||
Income tax receivable
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46,450 | 161,356 | ||||||
Deferred tax asset
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477,921 | 474,235 | ||||||
Assets held for sale
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1,045,367 | 1,045,367 | ||||||
Total current assets
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8,689,882 | 8,423,055 | ||||||
Property, plant and equipment, net
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1,547,402 | 1,557,088 | ||||||
Other assets
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||||||||
Restricted cash
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451,000 | 450,000 | ||||||
Deferred financing costs
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65,690 | 104,499 | ||||||
Goodwill
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2,740,913 | 2,740,913 | ||||||
Total other assets
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3,257,603 | 3,295,412 | ||||||
TOTAL ASSETS
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$ | 13,494,887 | $ | 13,275,555 |
June 26,
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December 26,
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|||||||
2011
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2010
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|||||||
(unaudited) | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY
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||||||||
Current liabilities
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||||||||
Accounts payable
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$ | 210,639 | $ | 653,130 | ||||
Accrued expenses
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492,270 | 363,327 | ||||||
Accrued employee-related costs
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2,053,633 | 1,972,581 | ||||||
Accrued interest, related party
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38,064 | 48,750 | ||||||
Notes payable, current portion
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40,175 | 13,978 | ||||||
Due to related party
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8,568 | 8,002 | ||||||
Capital lease obligations
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11,318 | 10,752 | ||||||
Income taxes payable
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497,866 | 18,130 | ||||||
Total current liabilities
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3,352,533 | 3,088,650 | ||||||
Long-term liabilities
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||||||||
Convertible debentures due to related parties
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3,800,000 | 4,875,000 | ||||||
Capital lease obligations, net of current portion
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32,723 | 38,527 | ||||||
Notes payable, net of current portion
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33,684 | 13,634 | ||||||
Deferred tax liability
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405,466 | 427,198 | ||||||
Other long-term liabilities
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30,013 | 134,552 | ||||||
Total liabilities
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7,654,419 | 8,577,561 | ||||||
Stockholders' equity
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||||||||
Common stock ($0.01 par value; 10,000,000 shares authorized; 3,117,647 shares issued and outstanding at June 26, 2011 and December 26, 2010)
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31,176 | 31,176 | ||||||
Additional paid-in-capital
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7,990,878 | 7,972,098 | ||||||
Accumulated deficit
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(2,181,586 | ) | (3,305,280 | ) | ||||
Total stockholders' equity
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5,840,468 | 4,697,994 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
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$ | 13,494,887 | $ | 13,275,555 |
Three Months Ended
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||||||||
June 26,
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June 27,
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|||||||
2011
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2010
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|||||||
(unaudited) | (unaudited) | |||||||
Revenues
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$ | 10,977,919 | $ | 10,108,458 | ||||
Cost of sales
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9,485,748 | 9,095,189 | ||||||
Gross profit from operations
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1,492,171 | 1,013,269 | ||||||
General and administrative expenses
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520,885 | 500,915 | ||||||
Operating income
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971,286 | 512,354 | ||||||
Other income (expense)
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||||||||
Interest and other income
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671 | 675 | ||||||
Interest expense
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(56,298 | ) | (179,248 | ) | ||||
Total other expense
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(55,627 | ) | (178,573 | ) | ||||
Income from operations, before income taxes
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915,659 | 333,781 | ||||||
Provision for income taxes
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(198,500 | ) | - | |||||
Net income
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$ | 717,159 | $ | 333,781 | ||||
Net income per share - basic and diluted
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$ | 0.23 | $ | 0.11 | ||||
Weighted average shares outstanding - basic and diluted
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3,102,647 | 3,102,647 |
Six Months Ended
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||||||||
June 26,
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June 27,
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|||||||
2011
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2010
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|||||||
(unaudited) | (unaudited) | |||||||
Revenues
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$ | 21,834,241 | $ | 20,018,327 | ||||
Cost of sales
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19,037,333 | 18,078,956 | ||||||
Gross profit from operations
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2,796,908 | 1,939,371 | ||||||
General and administrative expenses
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1,094,713 | 1,027,670 | ||||||
Operating income
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1,702,195 | 911,701 | ||||||
Other income (expense)
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||||||||
Interest and other income
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1,547 | 5,388 | ||||||
Interest expense
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(125,731 | ) | (358,612 | ) | ||||
Total other expense
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(124,184 | ) | (353,224 | ) | ||||
Income from operations, before income taxes
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1,578,011 | 558,477 | ||||||
Provision for income taxes
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(454,317 | ) | - | |||||
Net income
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$ | 1,123,694 | $ | 558,477 | ||||
Net income per share - basic and diluted
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$ | 0.36 | $ | 0.18 | ||||
Weighted average shares outstanding - basic and diluted
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3,102,647 | 3,102,647 |
June 26,
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June 27,
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|||||||
2011
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2010
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|||||||
(unaudited) | (unaudited) | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
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||||||||
Net income
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$ | 1,123,694 | $ | 558,477 | ||||
Adjustments to reconcile net income to net cash provided by operating activities:
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||||||||
Depreciation and amortization
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245,799 | 203,669 | ||||||
Provision for deferred income taxes
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(25,418 | ) | - | |||||
Amortization of deferred financing costs
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38,809 | 60,000 | ||||||
Stock-based compensation
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18,780 | 42,832 | ||||||
Bad debt expense
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(197 | ) | - | |||||
Gain on maturities of short-term investments
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- | (5,815 | ) | |||||
Change in fair value of certificates of deposit
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- | 1,418 | ||||||
Changes in operating assets and liabilities
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||||||||
(Increase) decrease in:
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||||||||
Accounts receivable
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86,796 | (1,150,264 | ) | |||||
Restricted cash
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(1,000 | ) | (35,000 | ) | ||||
Other receivables
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(29,000 | ) | (44,436 | ) | ||||
Unbilled contract receivables
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121,633 | 253,396 | ||||||
Prepaid expenses
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(261,130 | ) | (85,035 | ) | ||||
Inventory
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(9,012 | ) | 3,524 | |||||
Income tax receivable
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114,906 | - | ||||||
Increase (decrease) in:
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||||||||
Accounts payable
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(442,491 | ) | (174,195 | ) | ||||
Notes payable
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46,247 | - | ||||||
Accrued interest, related party
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(10,686 | ) | (113,971 | ) | ||||
Due to related party
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566 | (31 | ) | |||||
Deferred revenue
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- | 197,962 | ||||||
Other long-term liabilities
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(104,539 | ) | 32,351 | |||||
Other accrued liabilities
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689,731 | 319,830 | ||||||
Net cash provided by operating activities
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1,603,488 | 64,712 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
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||||||||
Purchase of property and equipment
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(236,113 | ) | (103,815 | ) | ||||
Proceeds from the sale of short-term investments
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- | 1,449,384 | ||||||
Purchases of short-term investments
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- | (1,250,259 | ) | |||||
Net cash (used in) provided by investing activities
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(236,113 | ) | 95,310 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES:
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||||||||
Principal payments on capital lease obligations
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(5,238 | ) | (7,139 | ) | ||||
Redemption of convertible debentures
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(1,075,000 | ) | - | |||||
Net cash used in financing activities
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(1,080,238 | ) | (7,139 | ) | ||||
Net increase in cash and cash equivalents
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287,137 | 152,883 | ||||||
Cash and cash equivalents, beginning of the period
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1,669,868 | 1,012,250 | ||||||
Cash and cash equivalents, ending of the period
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$ | 1,957,005 | $ | 1,165,133 |
2012
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2013
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2014
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2015
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Totals
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||||||||||||||||
Facilities
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$ | 224,541 | $ | 139,655 | $ | 49,128 | $ | 12,282 | $ | 425,606 | ||||||||||
Equipment
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10,145 | 10,145 | 10,145 | 4,227 | 34,662 | |||||||||||||||
$ | 234,686 | $ | 149,800 | $ | 59,273 | $ | 16,509 | $ | 460,268 |
Three Months
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Six Months
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|||||||||||||||
June 26,
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June 27,
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June 26,
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June 27,
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|||||||||||||
2011
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2010
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2011
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2010
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|||||||||||||
Earnings per share
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||||||||||||||||
Earnings available to stockholders
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$ | 717,159 | $ | 333,781 | $ | 1,123,694 | $ | 558,477 | ||||||||
Weighted average shares outstanding - basic
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3,102,647 | 3,102,647 | 3,102,647 | 3,102,647 | ||||||||||||
Net earnings per share - basic
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$ | 0.23 | $ | 0.11 | $ | 0.36 | $ | 0.18 | ||||||||
Assumed exercise of dilutive stock options and warrants
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- | - | - | - | ||||||||||||
Weighted average shares outstanding - diluted
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3,102,647 | 3,102,647 | 3,102,647 | 3,102,647 | ||||||||||||
Net earnings per share - diluted
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$ | 0.23 | $ | 0.11 | $ | 0.36 | $ | 0.18 | ||||||||
Anti-dilutive restricted stock outstanding
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10,000 | 15,000 | 10,000 | 15,000 | ||||||||||||
Anti-dilutive shares underlying stock options outstanding
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168,000 | 177,000 | 168,000 | 177,000 | ||||||||||||
Anti-dilutive convertible debentures
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542,857 | 2,125,000 | 542,857 | 2,125,000 |
Three Months Ended
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Six Months Ended
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|||||||||||||||
June 26,
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June 27,
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June 26,
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June 27,
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|||||||||||||
2011
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2010
|
2011
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2010
|
|||||||||||||
Revenues
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||||||||||||||||
Environmental Services
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$ | 8,434,162 | $ | 7,611,359 | $ | 16,392,357 | $ | 14,976,753 | ||||||||
Analytical Laboratories
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2,543,757 | 2,497,099 | 5,441,884 | 5,041,574 | ||||||||||||
Instruments
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- | - | - | - | ||||||||||||
10,977,919 | 10,108,458 | 21,834,241 | 20,018,327 | |||||||||||||
Cost of Sales
|
- | - | ||||||||||||||
Environmental Services
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7,516,550 | 7,068,110 | 14,618,882 | 13,900,501 | ||||||||||||
Analytical Laboratories
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1,969,198 | 2,027,079 | 4,418,451 | 4,178,455 | ||||||||||||
Instruments
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- | - | - | - | ||||||||||||
9,485,748 | 9,095,189 | 19,037,333 | 18,078,956 | |||||||||||||
Gross Profit (Loss)
|
- | - | ||||||||||||||
Environmental Services
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917,612 | 543,249 | 1,773,475 | 1,076,252 | ||||||||||||
Analytical Laboratories
|
574,559 | 470,020 | 1,023,433 | 863,119 | ||||||||||||
Instruments
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- | - | - | - | ||||||||||||
1,492,171 | 1,013,269 | 2,796,908 | 1,939,371 | |||||||||||||
General and administrative expenses
|
- | - | ||||||||||||||
Environmental Services
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357,169 | 315,611 | 739,017 | 655,731 | ||||||||||||
Analytical Laboratories
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85,913 | 83,546 | 206,327 | 184,400 | ||||||||||||
Instruments
|
77,803 | 101,758 | 149,369 | 187,539 | ||||||||||||
520,885 | 500,915 | 1,094,713 | 1,027,670 | |||||||||||||
Operating profit (Loss)
|
- | - | ||||||||||||||
Environmental Services
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560,443 | 227,638 | 1,034,458 | 420,521 | ||||||||||||
Analytical Laboratories
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488,646 | 386,474 | 817,106 | 678,719 | ||||||||||||
Instruments
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(77,803 | ) | (101,758 | ) | (149,369 | ) | (187,539 | ) | ||||||||
971,286 | 512,354 | 1,702,195 | 911,701 | |||||||||||||
Supplemental Disclosure Depreciation Expense
|
- | - | ||||||||||||||
Environmental Services
|
24,725 | 15,147 | 48,230 | 27,787 | ||||||||||||
Analytical Laboratories
|
98,633 | 87,686 | 197,569 | 175,882 | ||||||||||||
Instruments
|
- | - | - | - | ||||||||||||
123,358 | 102,833 | 245,799 | 203,669 | |||||||||||||
Capital Expenditures
|
- | - | ||||||||||||||
Environmental Services
|
67,985 | 60,257 | 120,447 | 60,257 | ||||||||||||
Analytical Laboratories
|
12,381 | 11,551 | 115,666 | 43,558 | ||||||||||||
Instruments
|
- | - | - | - | ||||||||||||
80,366 | 71,808 | 236,113 | 103,815 | |||||||||||||
Total Assets
|
- | - | ||||||||||||||
Environmental Services
|
8,465,444 | 7,681,192 | 16,791,921 | 14,800,378 | ||||||||||||
Analytical Laboratories
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4,810,972 | 4,240,128 | 9,300,571 | 8,318,572 | ||||||||||||
Instruments
|
218,471 | 10,295,256 | 360,314 | 20,667,033 | ||||||||||||
$ | 13,494,887 | $ | 22,216,576 | $ | 26,452,806 | $ | 43,785,983 |
Exhibit
Number
|
Description of Exhibit
|
|
31.1*
|
–
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Rule 13a-14(a) Certification of Chief Executive Officer
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31.2*
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–
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Rule 13a-14(a) Certification of Chief Financial Officer
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32.1*
|
–
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Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer
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GLENROSE INSTRUMENTS INC. | ||
(Registrant) | ||
By:
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/s/ ARVIN H. SMITH
|
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Chief Executive Officer
|
||
(Principal Executive Officer)
|
||
By:
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/s/ ANTHONY S. LOUMIDIS
|
|
Chief Financial Officer
|
||
(Principal Financial Officer)
|
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of GlenRose Instruments Inc.;
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
|
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: August 10, 2011
|
|
/s/ Arvin H. Smith
|
|
Chief Executive Officer
|
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of GlenRose Instruments Inc.;
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
|
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: August 10, 2011
|
|
/s/ Anthony S. Loumidis
|
|
Chief Financial Officer
|
Date: August 10, 2011
|
|
/s/ Arvin H. Smith
|
|
Chief Executive Officer
|
|
/s/ Anthony S. Loumidis
|
|
Chief Financial Officer
|
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
|
Jun. 26, 2011
|
Dec. 26, 2010
|
---|---|---|
Allowances for accounts receivable | $ 25,923 | $ 26,120 |
Common stock par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock shares authorized | 10,000,000 | 10,000,000 |
Common stock shares issued | 3,117,647 | 3,117,647 |
Common stock shares outstanding | 3,117,647 | 3,117,647 |
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 26, 2011
|
Jun. 27, 2010
|
Jun. 26, 2011
|
Jun. 27, 2010
|
|
Revenues | $ 10,977,919 | $ 10,108,458 | $ 21,834,241 | $ 20,018,327 |
Cost of sales | 9,485,748 | 9,095,189 | 19,037,333 | 18,078,956 |
Gross profit from operations | 1,492,171 | 1,013,269 | 2,796,908 | 1,939,371 |
General and administrative expenses | 520,885 | 500,915 | 1,094,713 | 1,027,670 |
Operating income | 971,286 | 512,354 | 1,702,195 | 911,701 |
Other income (expense) | Â | Â | Â | Â |
Interest and other income | 671 | 675 | 1,547 | 5,388 |
Interest expense | (56,298) | (179,248) | (125,731) | (358,612) |
Total other expense | (55,627) | (178,573) | (124,184) | (353,224) |
Income from operations, before income taxes | 915,659 | 333,781 | 1,578,011 | 558,477 |
Benefit (provision) for income taxes | (198,500) | 0 | (454,317) | 0 |
Net income | $ 717,159 | $ 333,781 | $ 1,123,694 | $ 558,477 |
Net income per share - basic and diluted | $ 0.23 | $ 0.11 | $ 0.36 | $ 0.18 |
Weighted average shares outstanding - basic and diluted | 3,102,647 | 3,102,647 | 3,102,647 | 3,102,647 |
DOCUMENT AND ENTITY INFORMATION
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6 Months Ended |
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Jun. 26, 2011
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Entity Registrant Name | GlenRose Instruments Inc. |
Entity Central Index Key | 0001340095 |
Current Fiscal Year End Date | --12-25 |
Entity Filer Category | Smaller Reporting Company |
Trading Symbol | nonr |
Entity Common Stock, Shares Outstanding | 3,112,647 |
Document Type | 10-Q |
Amendment Flag | false |
Document Period End Date | Jun. 26, 2011 |
Document Fiscal Period Focus | Q2 |
Document Fiscal Year Focus | 2011 |
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Segment Data
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Jun. 26, 2011
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Segment Reporting [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting Disclosure [Text Block] | 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, as defined by Disclosures about Segments of an Enterprise and Related Information. The office of the CODM is responsible for assessing the performance of each segment, as well as the allocation of company resources.
The company currently operates three business segments: Environmental Services, Analytical Laboratories and Instruments. The Environmental Services operating segment provides radiological and waste management services primarily to the federal government in connection with the clean-up of the former and present atomic weapons and energy sites operated by the federal government. The Analytical Laboratories operating segment provides analytical radiological services and involves the operation of a radiochemistry laboratory network and a radioactive check source manufacturing facility. The Instruments segment was formed in 2006 with the intent to acquire instrument companies, which have well-established and proven technology. This segment also includes the research and development of a new line of instruments that the company expects to begin marketing efforts in the second half of 2011. As of the date of this report the company has not made any commitments, nor has it acquired any instrument businesses. Acquisition of instrument businesses is no longer a focus in our strategy. Intercompany costs and sales are eliminated in the consolidated financial statements.
In March 2011 the company retained the services of Raymond James & Associates, Inc. to act as its sole, external investment banking advisor in helping the company evaluate strategic alternatives, including the possible sale of all or a material portion of the assets or securities of the company to, or merger of the company with, various third parties.
Segment data for the periods ending June 26, 2011 and June 27, 2010 are included below:
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Commitments and Contingencies
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Jun. 26, 2011
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Commitments and Contingencies Disclosure [Abstract] | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Text Block] | 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 June 26, 2011 are as follows:
Summary of Lease Obligations:
For the three and six month periods ending June 26, 2011, rent expense was $81,919 and $170,074, respectively, and for the three and six month periods ending June 27, 2010, rent expense was $139,017 and $239,546, respectively.
The company performs services under numerous subcontract agreements on cost-reimbursable contracts with the federal government. During the period from 1998 to 2003, the company was party to a subcontract agreement with Johnson Control Northern New Mexico, or JCNNM, to provide services to Los Alamos on a cost-reimbursable basis. On May 14, 2007, the company received notification from IAP-Northern New Mexico, or IAPNNM, the successor corporation to JCNNM, that the results of a Los Alamos audit for the period ending in 2003 determined that certain costs previously claimed and billed by the company were subsequently deemed unallowable or otherwise not reimbursable. IAPNNM requested that the company reimburse the amount of $321,836 that was paid to the company during the subject time period. In January 2009, the company protested the Los Alamos audit results claiming they were inaccurate and requested to resubmit a claim for the subject contract. The Los Alamos audit team agreed to review the audit results and adjust the claim as needed. Management believes that the company will prevail in this decision and has therefore not provided a specific reserve for this claim. In the event it is determined that the company has to reimburse such amount in full, the resultant cost could materially affect its results of operations.
The company is not currently a party to any material litigation and is not aware of any pending or threatened litigation against it that could have a material adverse effect on its business, operating results or financial condition.
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Subsequent Events
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6 Months Ended |
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Jun. 26, 2011
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Subsequent Events [Abstract] | Â |
Subsequent Events [Text Block] | Note 8 – Subsequent Events:
On July 1, 2011, the company redeemed the remaining outstanding amount of the convertible debentures with Blum Strategic Partners IV, L.P., in the principal amount of $3,065,546, plus accrued interest. In connection with that transaction, the company entered into a $500,000 Demand Note Agreement with John N. Hatsopoulos, the company’s Chairman of the Board, and into a $1,500,000 Demand Note Agreement with Arvin H. Smith, the company’s Chief Executive Officer. Both demand note agreements accrue interest at the rate of 4.50% per year.
The company has evaluated subsequent events through the filing date of this Form 10-Q and determined that no additional subsequent events occurred that would require recognition in the consolidated financial statements or disclosure in the notes thereto.
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Organization and Significant Accounting Policies
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6 Months Ended |
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Jun. 26, 2011
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | Â |
Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block] | 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.
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.
In March 2011 the company retained the services of Raymond James & Associates, Inc. to act as its sole, external investment banking advisor in helping the company evaluate strategic alternatives, including the possible sale of all or a material portion of the assets or securities of the company to, or merger of the company with, various third parties.
As of June 26, 2011, the company has three segments – the Environmental Services segment, the Analytical Laboratories segment and the Instruments segment. The Environmental Services operating segment provides radiological and waste management services primarily to the federal government in connection with the clean-up of the former and present atomic weapons and energy sites operated by the federal government. The Analytical Laboratories operating segment provides analytical radiological services and involves the operation of a radiochemistry laboratory network and a radioactive check source manufacturing facility. The Instruments segment was formed in 2006 with the intent to acquire instrument companies, which have well-established and proven technology. This segment also includes the research and development of a new line of instruments that the company expects to begin marketing efforts in the second half of 2011. As of the date of this report the company has not made any commitments, nor has it acquired any instrument businesses.
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 June 26, 2011, and the results of operations and cash flows for the three and six months ended June 26, 2011 and June 27, 2010. 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 26, 2010.
Reclassifications
Certain prior period balances have been reclassified to conform with current period presentation.
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 26, 2010.
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 June 26, 2011, the company had a balance of $2,170,310 in cash and cash equivalents, short-term investments and restricted cash that exceeded the Federal Deposit Insurance Corporation limit of $250,000.
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 June 26, 2011 and June 27, 2010. Two of the company’s customers account for more than 10% of revenue and trade accounts receivable. One customer represented approximately 76% and 70% of revenue and 33% and 46% of trade accounts receivable for the three months ended June 26, 2011 and June 27, 2010, respectively and approximately 78% and 71% of revenue and 33% and 46% of trade accounts receivable for the six month periods ended June 26, 2011 and June 27, 2010, respectively. The other customer represented approximately 0% and 15% of revenue and 3% and 22% of trade accounts receivable for the three months ended June 26, 2011 and June 27, 2010, respectively and approximately 0% and 13% of revenue and 3% and 22% of trade accounts receivable for the six month period ended June 26, 2011 and June 27, 2010, 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. The company records as revenue what it considers to be allowable costs under government service contracts. 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 sheets 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 treatment of direct costs is outlined in the Federal Acquisition Regulations. 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 consistent with our approved cost structure. Direct materials, direct travel, other direct costs, and minor subcontract costs are passed through to the customer at cost, with or without fee depending on contract type and/or direct cost element and are burdened with general and administrative expenses. Major subcontracts are passed through at cost, without fee and are burdened with a material handling fee. The company is exempt from federal cost accounting standards coverage based on its size standard, but otherwise complies with applicable regulations.
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. Model assumptions are based on the company’s projections and best estimates using appropriate and customary market participant assumptions. Changes in forecasted cash flows or the discount rate would affect the estimated fair value of the reporting unity and could result in a goodwill impairment charge in a future period.
At June 26, 2011, the company’s entire $2,740,913 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. No goodwill impairment was identified during the years ended December 26, 2010 and December 27, 2009. No events occurred or circumstances changed that required the company to further test goodwill for impairment during the six month period ended June 26, 2011.
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 and six month period ended June 26, 2011, the company recorded a tax provision of $198,500 and $454,317, respectively.
Earnings per Common Share
The company computes basic earnings per share by dividing net income for the period by the weighted average number of shares of common stock outstanding during the period. The company computes its diluted earnings per common share using the treasury stock method. For purposes of calculating diluted earnings per share, the company considers its shares issuable in connection with convertible debentures and stock options to be dilutive common stock equivalents when the exercise price is less than the average market price of the company’s common stock for the period. There are no dilutive common shares during the three month period ended June 26, 2011 and June 27, 2010. See “Note 5 – Earnings 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 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.
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 June 26, 2011, approximates fair value as the terms approximate those currently available for similar instruments. See “Note 6 – Fair Value Measurements.”
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 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 June 26, 2011, 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. At June 26, 2011, $507,700 in land, $2,265,764 in buildings and improvements less $1,916,926 in accumulated depreciation is classified as “Assets held for sale” on the company’s balance sheet. The assets held for sale balance of $1,045,367 also includes selling costs incurred to date of $37,477 and an accrual of $151,352 towards
decommissioning of the site. In 2010, the company submitted a detailed site assessment of the facility to the New Mexico Environmental Department, or NMED, as part of the closure process which was approved in June 2011. The company characterized and classified all radiological waste associated with the facility and all waste was crated and packaged for disposal in 2010. In January 2011, the company applied for a shipment permit to transfer the remaining waste to an appropriate facility, which was shipped during the quarter and is currently communicating with NMED on the report in preparation for the demolition of the building. The company believes that it has adequately accrued for decommissioning of the site; however, it is possible that additional funds up to $100,000 may be needed. The company expects to complete the sale in 2011.
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Stockholders' Equity
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6 Months Ended |
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Jun. 26, 2011
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Stockholders' Equity Note [Abstract] | Â |
Stockholders' Equity Note Disclosure [Text Block] | Note 4 – Stockholders’ Equity:
Stock-based compensation expense was $18,780 and $42,832 as of June 26, 2011 and June 27, 2010, respectively. At June 26, 2011, there were 10,000 shares of unvested restricted stock outstanding and 67,200 of unvested stock options outstanding.
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Earnings per Share
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Jun. 26, 2011
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Earnings Per Share [Text Block] | Note 5 – Earnings per Share:
Basic and diluted earnings 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 June 26, 2011 and June 27, 2010. The following reconciles amounts reported in the financial statements:
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Fair Value Measurements
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6 Months Ended |
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Jun. 26, 2011
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Fair Value Disclosures [Abstract] | Â |
Fair Value Disclosures [Text Block] | Note 6 – Fair Value Measurements:
The fair value topic of FASB’s Accounting Standards 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. The company currently does not have any Level 1 financial 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. The company currently does not have any Level 3 financial assets or liabilities.
At June 26, 2011, the company had $12,305 in short-term investments that are comprised of certificates of deposits which 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.
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Debt
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6 Months Ended |
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Jun. 26, 2011
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Debt Disclosure [Abstract] | Â |
Debt Disclosure [Text Block] | Note 2 – Debt:
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 primary investor was Blum Strategic Partners IV, L.P., who subscribed for $12,000,000 of the debentures. Additional investors included John N. Hatsopoulos, the company’s Chairman of the board, Arvin H. Smith, the company’s President and Chief Executive Officer, and Philip Frost M.D., a holder of more than 10% of the outstanding equity securities of the company immediately prior to the sale of the debentures, who subscribed for $2,875,000 of debentures by exchanging existing promissory notes of the company for the debentures. The debentures bear interest at 4%, payable quarterly in cash, and mature on July 25, 2013. The debentures will be convertible at the option of the holder at any time into shares of common stock at a conversion price equal to $7.00 per share. In connection with the transaction, the company appointed John H. Park to the company’s board of directors. Ladenburg Thalman & Co., Inc., a registered broker-dealer, acted as placement agent on a best efforts basis for the sale of the company’s debentures. In connection with the transaction, the company paid the placement agent a cash fee of $600,000.
On July 23, 2010, the holders of the outstanding principal amount of the company’s convertible debentures, agreed to amend the debenture agreements to eliminate subsections (i) and (ii) of Section 6(a) of the debentures. With this amendment the holders gave the company the option to redeem any portion of the debentures by written notice to the holders; provided that a redemption notice is delivered by the company and be received by the holder of the debentures at least ten (10) trading days but not more than thirty (30) trading days prior to the date of the redemption. In connection with the amendment described above, the company redeemed $10,000,000 on August 9, 2010, $575,000 on January 13, 2011, and $500,000 on March 31, 2011. At June 26, 2011, the company had $3,800,000 principal amount of convertible debentures outstanding.
On July 1, 2011, the company redeemed the remaining outstanding amount of the convertible debentures with Blum Strategic Partners IV, L.P., in the principal amount of $3,065,546, plus accrued interest. In connection with that transaction, the company entered into a $500,000 Demand Note Agreement with John N. Hatsopoulos, the company’s Chairman of the Board, and into a $1,500,000 Demand Note Agreement with Arvin H. Smith, the company’s Chief Executive Officer. Both demand note agreements accrue interest at the rate of 4.50% per year.
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